Tag: EU

The 95 Percent Rule, Bulgaria, and the New York Times

Recent reportage in the New York Times reminded me of my 95 Percent Rule: “95 percent of what you read about economics and finance is either wrong or irrelevant.” In her piece on the Bulgarian elections, Mariana Ionova wrote:

“[Bulgaria’s] economy is growing at an annual rate of about 1.6 percent, but that is the slowest pace in the union, and about half the European average.”

These alleged facts aren’t even in the ballpark (see the accompanying chart). Bulgaria is neither the slowest growing economy in the European Union, nor is it growing at half the European average. In fact, Bulgaria is growing slightly faster than the European average.

Once again, the 95 Percent Rule rules.

E.U. Austerity, You Must Be Kidding

The leading political lights in Europe – Messrs. Hollande, Valls and Macron in France and Mr. Renzi in Italy – are raising a big stink about fiscal austerity. They don’t like it. And now Greece has jumped on the anti-austerity bandwagon. The pols have plenty of company, too. Yes, they can trot out a host of economists – from Nobelist Krugman on down – to carry their water.

But, with Greece’s public expenditures at 58.5% of GDP, and Italy’s and France’s at 50.6% and 57.1% of GDP, respectively – one can only wonder where all the austerity is (see the accompanying table). Government expenditures cut to the bone? You must be kidding. Even in the Unites States, where most agree that there is plenty of government largess, the government (federal, plus state and local) only accounts for a whopping 38.1% of GDP.

As Europe sinks under the weight of the State, it’s austerity, not anti-austerity, that should be on the menu.

Not Just Another Friday in Brussels

While a typical summer Friday in the capital of the European Union might sound like a rather dull affair, today brought two significant events–one of them good, the other one less so.

First, the good news. Today, Ukraine, Moldova, and Georgia signed their association agreements with the European Union (EU). The treaties consist of, in part, free trade agreements between the EU and the three countries, and also a roadmap toward a prospective EU membership. Given the economic and political shape these countries find themselves in, the latter will likely take a long time and will not be without hurdles. After all, Turkey signed its association agreement back in 1963 and the country is still not a member.

There can be little doubt that free trade agreements with the EU will do good to these impoverished economies (GDP per capita in Moldova is just a little over $2,000) as well as to the EU. Furthermore, the prospect of a timely EU membership will hopefully serve as an impetus for economic and institutional reforms–just as was the case in the countries of Central and Eastern Europe that joined the EU in the past decade.

Of course, the EU is far from perfect and it is quite possible that these countries will soon grapple with the same problems as Slovakia, Czech Republic, or Bulgaria–namely how to manage the inflow of “structural funds” into their economies without encouraging corruption and entrenchment of venal elites. But arguably, that will not be the worst problem to have, considering that the alternative is the continuation of the status quo, muddling along from one crisis to another and being part of Russia’s zone of influence. Further enlargement, extending the common market and free movement of people further east, will likely prove to be beneficial to the EU as well.

Second, the bad news. The EU leaders have appointed Jean-Claude Juncker as the new head of the European Commission. Although initially the governments of Sweden and Netherlands had misgivings about his presidency, in the end it was only the UK’s prime minister, David Cameron, who decided to openly oppose the nomination.

The issue is not just with the personality of the candidate, but also with the process through which Juncker was selected. For the first time, the European Parliament took the lead in picking the head of the Commission, while no treaty empowers it to do so. While the appointment needs to rely on a parliamentary majority, the choice has always been made by the political leaders of EU member states, not by the Parliament. For those who do not wish to see the accountability of the Commission to national politicians wane completely, the Juncker appointment should be a cause for concern.

Let us hope that these two events are not completely unrelated. Hopefully, the prospect of another eastward enlargement will serve as an impetus for European policymakers to look for a model of European governance that provides the benefits of the common market and effective action on issues of mutual interest, without entrenching an obscure and unaccountable center of power in Brussels. 

Immigration Restriction on a Kuznets Curve: Switzerland and Arizona

Bryan Caplan has an interesting post on the recent Swiss referendum to restrict immigration from the European Union.  Tyler Cowen also blogged on the same issue twice.  Caplan’s point is that the Swiss imposed restrictions because there was insufficient immigration rather than too much.  Areas of Switzerland that had fewer immigrants voted to restrict immigration while areas with many immigrants voted to keep the doors open.

A similar theory could explain why immigration quotas were first imposed in the United States after World War I.  That war substantially reduced immigration from Europe.  From 1904 through 1914, almost 1 million immigrants arrived annually in the United States – a total of 10.9 million.  This large population, combined with their children, opposed numerous legislative efforts to restrict immigration from Europe.

  1st Gen % 2nd Gen % 1st+2nd Gen %
1870 14.4 14.0 28.4
1880 13.3 18.3 31.6
1890* 14.8 ? ?
1900 13.7 20.9 34.6
1910 14.8 21.0 35.8
1920 13.4 21.9 35.3
1930 11.8 21.4 33.2
1940 11.8 18.2 30.0
1950 9.6 16.6 26.2
1960 6.0 13.7 19.7
1970 5.9 11.8 17.7
1980* 6.2 ? ?
1990^ 8.7 8.8 17.5
2000 12.2 10.3 22.5
2010 13.7 11.3 25.0
*Data unavailable
^1990 = 1993
 
Source: iPums

World War I erupted in August 1914, slowing immigration and causing the percentage of immigrants to decline more than the increase in the second generation.  During the four years of the war, slightly more than one million immigrants arrived.  That minor decline, especially in the 1st generation, might be part of the reason why anti-immigration politicians succeeded in passing the first immigration quotas in 1921.  During that time many non-citizens could vote and it was much easier to naturalize than it is today. 

The post-war U.S. recession, the continuing blockade of Germany, and chaos in Europe prevented immigration from rebounding until 1921 when 805,228 people immigrated – the same year that numerical quotas restricted immigration for the first time.  If the pre-war pace of immigration was uninterrupted by World War I, 4.6 million additional immigrants would have landed in America by that time – boosting the immigrant share of the population to somewhat less than 17.7 percent of the total population and the second generation by a smaller amount too.  Combined, the first and second generations would have been equal to around 40 percent of the American population.  Supporters of immigration restrictions might have understood this and known that immigration from Europe was about to rapidly accelerate, meaning that they only had a narrow window to approve restrictions before the changing nativity of the population made that more politically difficult.

Several reasons would have made it more difficult to achieve the 1921 vote to restrict immigration if there were that many more immigrants.

For Europe’s Youth, Minimum Wages Mean Minimal Employment

Yesterday, in the wake of Tuesday’s State of the Union address, I poured cold water on President Obama’s claim that a hike in the minimum wage for federal contract workers would benefit the United States’ economy, pointing specifically to unemployment rates in the European Union. The data never lie: EU countries with minimum wage laws suffer higher rates of unemployment than those that do not mandate minimum wages. This point is even more pronounced when we look at rates of unemployment among the EU’s youth – defined as those younger than 25 years of age.

In the twenty-one EU countries where there are minimum wage laws, 27.7% of the youth demographic – more than one in four young adults – was unemployed in 2012. This is considerably higher than the youth unemployment rate in the seven EU countries without minimum wage laws – 19.5% in 2012 – a gap that has only widened since the Lehman Brothers collapse in 2008.

I will conclude yet again with a piece of wisdom from Nobelist Milton Friedman, who correctly noted that “the minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills. That’s what the law says.

Minimum Wage Laws Kill Jobs

President Obama set the chattering classes abuzz after his unilateral announcement to raise the minimum wage for newly hired Federal contract workers. During his State of the Union address, he sang the praises for his action, saying that “It’s good for the economy; it’s good for America.[1] Yet this conclusion doesn’t pass the economic smell test; just look at the data from Europe.

There are seven European Union (EU) countries with no minimum wage (Austria, Cyprus, Denmark, Finland, Germany, Italy, and Sweden). If we compare the levels of unemployment in these countries with EU countries that impose a minimum wage, the results are clear – a minimum wage leads to higher levels of unemployment. In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%; whereas, the average unemployment rate in the seven nations without a minimum wage is about one third lower – at 7.9%.

Nobelist Milton Friedman said it best when he concluded that “The real tragedy of minimum wage laws is that they are supported by well-meaning groups who want to reduce poverty. But the people who are hurt most by high minimums are the most poverty stricken.”[2]


[1] Barack Obama, State of the Union Address, New York Times, January 28, 2014.

[2] Milton Friedman, The Minimum Wage Rate, Who Really Pays? An Interview With Milton Friedman and Yale Brozen, 26-27 (Free Society Association ed. 1966), quoted in Keith B. Leffler, “Minimum Wages, Welfare, and Wealth Transfers to the Poor,”Journal of Law and Economics 21, no. 2 (October 1978): 345–58.

Bali’s Lessons for Trade Negotiators

The future of multilateral trade has presented some vexing questions for policy watchers over the past few years. With the Doha Round of multilateral trade negotiations hopelessly stalled and the proliferation of regional and bilateral agreements in its stead, contemplation and debate about the fate of the World Trade Organization, its successful adjudicatory body, international trade governance, and globalization have been all the rage.

December continues to shine a particularly bright light on these issues, as U.S. and EU negotiators are in Washington this week discussing the proposed bilateral Transatlantic Trade and Investment Partnership. Last week, negotiators from the United States and 11 other nations met in Singapore in an effort to advance the regional Trans-Pacific Partnership deal. The week prior, representatives of 159 WTO members were in Bali, Indonesia for the Ninth Ministerial Conference (MC-9), where a multilateral agreement was reached on a set of issues for the first time in the WTO’s 19-year history.

The significance of the Bali deal depends on whom you ask. Those heavily vested in the current architecture of the multilateral system tend to hail Bali as proof that multilateral negotiations are back in business and that there is renewed promise for completing the long-stalled Doha Round. Frankly, taking 12 years to forge an agreement on trade facilitation (basically, reform of customs procedures, which constitutes a tiny fraction of the Doha Round’s objectives) plus some concessions to permit more subsidization of agriculture in the name of food security is not exactly convincing evidence that Doha Round negotiators have demonstrated their cost effectiveness or the utility of this approach.

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