Archives: 06/2013

CBO Dynamically Scores Immigration Bill

The Congressional Budget Office has fiscally scored the Senate’s immigration bill, S. 744, and found that it will decrease fiscal deficits over the next 20 years—giving a huge boost to reform proponents.  In line with criticisms made by me and others, the CBO departed from orthodoxy and assumed that S. 744 would affect economic growth (i.e., they dynamically scored the bill)—arguing that the economic and fiscal gains from immigration reform are clear.  These findings are broadly consistent with Cato’s findings here.  

The CBO produced two scores of S. 744.  The first was less dynamic, assuming that GDP and the workforce would grow as a result of immigration. Increased numbers of workers will add to GDP, producing growth by definition, and not displacing many other workers.  The second score is more dynamic, taking into account many of the economic effects of immigration reform using an enhanced Solow model.

The less-dynamic CBO score found that immigration reform will reduce the federal deficit by about $197 billion by increased GDP and tax revenues through adding six million people to the workforce by 2023.  Over a period of 20 years, the CBO estimated that this legislation would reduce deficits by about $700 billion—a sizeable decrease.  In what seems to be a specific dig at the 50-year span of the recent Heritage study, the CBO wrote that, “we cannot determine whether enactment of S. 744 would lead to an increase in on-budget deficits … in any of the three 10-year periods starting in 2033.” 

The more dynamic CBO score found that S. 744 would not affect the budget by 2023.  However, because the dynamic economic effects of S. 744 would affect the economy slowly, the CBO predicts a $300 billion decrease in deficits from 2023-2033 greater that the $700 billion reported in the less-dynamic score.

The more-dynamic CBO model predicts $1.197 trillion in reduced deficits over the next 20 years if immigration reform is passed. 

Delving into the details of the CBO’s more-dynamic score, they estimated that S. 744 would increase GDP by 3.3 percent in 2023 and 5.4 percent in 2033, relative to the baseline.  Per capita GNP would lower by .7 percent by 2023 but be higher by .2 percent in 2033.  Wages would be .5 percent higher in 2033 under S. 744. 

The more-dynamic score takes into account these effects from S. 744: 

  1. Increased size and employment in the economy.
  2. Increased average wages after 2025.
  3. Slightly increased unemployment rate through 2020.
  4. Increased quantity of capital investment.
  5. Increased productivity of labor (due to complementary task specialization).
  6. Increased productivity of capital (due to increase in supply of labor and TFP).
  7. Higher interest rates.

The CBO took account of some of the main findings in the economic literature about the economic effects of immigration.  For example, the CBO predicts there will be a 12 percent increase in the wages of legalized immigrants.

Conceptually, dynamically scoring legislation is a big step toward rationally judging the costs and benefits of policy changes.  Legislation that changes the size of the economy or the pace of economic growth will affect future tax revenues that will, in turn, affect the fiscal state of the federal government.  CBO scores have been inaccurate over time—many wildly so.  They should never be the final word on the estimated net fiscal costs of immigration reform, but this is the most thorough examination to date. The CBO’s findings broadly confirm Cato’s research that immigration reform will be economically beneficial to immigrants and the country as a whole. 

Partisanship Plays a Larger Role in Support for “ObamaCare” than Opposition to It

The latest Kaiser Family Foundation tracking poll provides a fascinating look into how factors other than the content of the Patient Protection and Affordable Care Act affect people’s views of that law.

Kaiser asked respondents their views of the PPACA, alternately describing it as “ObamaCare” and “the health reform law.” Here’s what happened:

  • Among Republicans, calling it “ObamaCare” caused the share reporting an unfavorable view to rise from 76 percent to 86 percent (+10 percentage points), with no discernible change in the share reporting a favorable view.
  • Among independents, calling it “ObamaCare” caused the share reporting an unfavorable view to rise from 43 percent to 52 percent (+9 percentage points), with no discernible change in the share reporting a favorable view.
  • Among Democrats, calling it “ObamaCare” produced no discernible change in the share reporting an unfavorable view, but caused the share reporting a favorable view to rise from 58 percent to 73 percent (+15 percentage points).

A few conclusions can be drawn. 

  1. The PPACA remains unpopular among Republicans, independents, and the public overall (see below).
  2. Republicans dislike the law more than Democrats like it.
  3. A substantial share of both the opposition to and support for “ObamaCare” is driven by partisanship or opinions about President Obama (which are pretty close to the same thing), rather than the content of the law.
  4. Partisanship is a larger factor in Democrats’ support for “ObamaCare” (15 percentage points) than in Republicans’ or independents’ opposition to it (10 and 9 percentage points, respectively).
  5. Dropping the term “ObamaCare” causes Democratic support for the law to fall by 15 percentage points.

 

Only Wusses Go to War Without Cause

President Barack Obama has been evidently reluctant to go to war in Syria, but has started down the long and winding road by deciding to provide weapons to the insurgents. Why he is risking involvement in another conflict in another Muslim nation is hard to fathom.

However, the president did act only after former president Bill Clinton warned that Obama could end up looking like a “total wuss” and “a total fool” if the latter did not drag America into war. If there is anyone who should not be giving war-related advice, it is Bill Clinton.

His “splendid little war” in Kosovo left a mess in its wake, including ethnic cleansing by America’s putative allies. Indeed, he always had a curious view of the purpose of war. He once expressed his frustration that he likely would not be considered a great president without prosecuting a major conflict. 

Moreover, why is Clinton of all people accusing another president of looking like a “total wuss” and “a total fool” for hesitating to go to war? After all, as I relate in the American Spectator, he engaged in all manner of personal maneuvering to avoid being drafted to fight in Vietnam. 

That’s fine by me. It was a stupid war in which tens of thousands of fine Americans died as a result of dumb decisions by foolish Washington policymakers. But it is striking how reluctant he was personally to go to war.  Why, some people might consider him to have been a “wuss.”

As I pointed out:

Intervening in Syria is a serious mistake.  The U.S. has no interest at stake that warrants entanglement in another Middle Eastern civil war.  President Ronald Reagan learned that lesson three decades ago and responded appropriately, by getting out fast.

It’s bad enough if President Obama made his decision because he genuinely believes that the U.S. needs to fight another war in another Muslim nation.  It’s far worse if the president acted to ensure that he doesn’t look like a wuss and a fool.  For there’s no bigger wuss and fool than someone who allows Bill Clinton to manipulate him into going to war.

Read the rest here.

 

Instead of Free Trade, Have the Transatlantic Trade Talks

Has the intellectual debate about free trade been won? The close-to-consensus answer among several scholars discussing that question at Cato last week is “yes.” The better answer is “wrong question.” After all, how much does it really matter that free traders have won the intellectual debate when, in practice, trade policy is distinctly anti-intellectual and free trade is the rare exception, not the rule, around the world?

Consider the just-launched Transatlantic Trade and Investment Partnership negotiations. If the free trade consensus were meaningful outside the ivory tower, these negotiations would not take place. At the heart of the talks rests the fallacy that protectionism is an asset to be dispensed with only if reciprocated, in roughly equal measure, by “negotiators” on the other side of the table. But if free trade were the rule, trade policy would have a purely domestic orientation and U.S. barriers would be removed without any need for negotiation because they would be recognized for what they are: taxes on consumers and businesses. It really is that simple.

But the TTIP is shaping up to be the mother of all negotiations: an interminable feast of mercantilist horse-trading, self-serving press conferences, and ever-premature, congratulatory pronouncements all intended to aggrandize negotiators and politicians who thirst to be seen doing something to restore economic hope without having to shake their respective vested interests from their protected perches. It’s all quite nauseating, really, but at least it serves to remind us that free trade is the rare exception, and when all else fails…

Granted, U.S. tariffs are relatively low on average, most quotas have gone away, and most other countries have reduced barriers to trade over the past half century, which has contributed in no small part to improvements in per capita income and quality of life around the world. Why that cause and effect hasn’t reinforced the theory enough to drive a stake through the heart of protectionism is the better question.

In the United States, instead of free trade, we have protectionism in its many guises, including: “Buy American” rules for government procurement; heavily protected services industries; apparently inextinguishable farm subsidies; sugar quotas; green-energy subsidies; industrial policy; the Export-Import bank; antidumping duties; regulatory protectionism masquerading as public health and safety regulations, and; the protectionism euphemistically embedded in so-called free trade agreements in the forms of rules of origin, local content requirements, intellectual property and investment protections, enforceable labor and environmental standards, and special carve-outs that immunize products—even industries—from international competition. In fact, the entire enterprise of trade negotiations is a paean to protectionism, conducted with the utmost care to avoid unsettling, without recompense, the special privileges of the status quo.

How has an intellectual consensus for free trade coexisted with these numerous and metastasizing affronts to it? Protectionism slipped the noose, that’s how.

Paying to Learn Nothing = Legal
Paying Nothing to Learn = Illegal

Last week, a NY district court ruled unpaid internships illegal. Note that if you voluntarily choose to take such an internship, it’s because you think you’ll acquire job skills that will advance your career—and if you decide you aren’t learning such skills you can leave any time.

Contrast this with college. Researchers Richard Arum and Josipa Roksa find that almost half of all college students made no significant gains in critical thinking, complex reasoning, or written communication after two full years of study. Even after four full years of college “education” a third of students made no significant gains in these areas—areas long thought to be core skills imparted by higher education. Despite college’s dubious educational value, social convention and a desire to signal employability pressure young people into pursuing a four year degree. Many emerge with little to show for the ordeal beyond a pile of debt (pushing $1 trillion nationally).

So the NY district court is saying that it’s perfectly legal to go into serious debt though you may well learn nothing of value, but it is illegal to learn practical job skills at no cost except your time. 

And for that reason, I’m with Mr. Bumble.

Scratching the Surface Until We Bleed

Yesterday, the Washington Post published a poignant, ably-written piece on the plight of DC’s high school graduates. Even the city’s top students struggle with college-level work because they’re so ill prepared. The story is heavy on “heart interest” but bereft of “head interest.” It will sadden or even anger most readers, but won’t enlighten them as to potential solutions.

If the writer had dug deep into this story, instead of just scratching at its emotional surface, she would have discovered a wealth of relevant research. Private schools, it turns out, not only have higher graduation rates than public schools (controlling for student and family characteristics), but also higher college acceptance rates and much higher college completion rates. In other words, there is a proven solution to the outrageously poor education children are offered in DC and elsewhere. Derek Neal, Jay Greene (2004), and J.R. Warren (2011) all find that private schools significantly increase the graduation rates of urban (especially minority) children over the rates of similar students attending public schools. Those studies that looked at college completion rates find very strong effects there as well. A very recent journal paper on the subject confirms the earlier findings. And DC’s own private school choice program has a beneficial effect on educational attainment according to federal government research.

But instead of offering solutions, the story merely tugs at our heart strings. Journalism could be—should be—so much more than this.

What’s the Better Role Model, France or Switzerland?

At the European Resource Bank conference earlier this month, Pierre Bessard from Switzerland’s Institut Liberal spoke on a panel investigating “The Link between the Weight of the State and Economic prosperity.”

His presentation included two slides that definitely are worth sharing.

The first slide, which is based on research from the Boston Consulting Group, looks at which jurisdictions have the most households with more than $1 million of wealth.

Switzerland is the easy winner, and you probably won’t be surprised to see Hong Kong and Singapore also do very well.

Switzerland Liberal Institute 2

Gee, I wonder if the fact that Switzerland (#4), Hong Kong (#1), and Singapore (#2) score highly on the Economic Freedom of the World index has any connection with their comparative prosperity?

That’s a rhetorical question, of course.

Most sensible people already understand that countries with free markets and small government out-perform nations with big welfare states and lots of intervention.

Speaking of which, let’s look at Pierre’s slide that compares Swiss public finances with the dismal numbers from Eurozone nations.

Switzerland Liberal Institute 1

The most impressive part of this data is the way Switzerland has maintained a much smaller burden of government spending.

One reason for this superior outcome is the Swiss “Debt Brake,” a voter-imposed spending cap that basically prevents politicians from increasing spending faster than inflation plus population.

Now let’s compare Switzerland and France, which is what I did last Saturday at the Free Market Road Show conference in Paris.

As part of my remarks, I asked the audience whether they thought that their government, which consumes 57 percent of GDP, gives them better services than Germany’s government, which consumes 45 percent of GDP.

They said no.

I then asked if they got better government than citizens of Canada, where government consumes 41 percent of GDP.

They said no.

And I concluded by asking them whether they got better government than the people of Switzerland, where government is only 34 percent of economic output (I used OECD data for my comparisons, which is why my numbers are not identical to Pierre’s numbers).

Once again, they said no.

The fundamental question, then, is why French politicians impose such a heavy burden of government spending - with a very high cost to the economy - when citizens don’t get better services?

Or maybe the real question is why French voters elect politicians that pursue such senseless policies?

But to be fair, we should ask why American voters elected Bush and Obama, both of whom have made America more like France?