Archives: 04/2017

Trump, Hillbillies, and Geographic Mobility

Following Trump’s electoral success in rustbelt states, the spotlight has been on white, rural, post-industrial poverty. J.D. Vance, author of the now-famous memoir Hillbilly Elegy, discussed some possible explanations for rural poverty yesterday in a podcast. In the interview, he suggests that geographic (im)mobility is partly to blame for the erosion of areas like Appalachia: the poor simply aren’t migrating to jobs. 

Vance is right that Americans have limited interest in relocating, and are relocating less than before. According to calculations[1] using University of Chicago data, the proportion of individuals unwilling to relocate for work is high: 42% of Americans say they will not move within the United States for work, and 68% of Americans will not move outside the country for work. A full quarter (25%) of Americans would not consider traveling further for a job, even if the decision resulted in unemployment. Meanwhile, Census data suggests that relocation—whether inter-state, inter-county, or intra-county—is down (Figure 1). 2016 had the lowest relocation rate in seventy years (Figure 2).

Trump’s First 100 Days and the Deepening Militarization of U.S. Foreign Policy

Donald Trump’s first 100 days in office have set U.S. foreign policy on a dangerous course. Trump’s actions and rhetoric have raised the profile of America’s military power while weakening other sources of U.S. influence. Such an approach is in line with the “peace through strength” formula Trump espouses. However, the deepening militarization of U.S. foreign policy carries a host of risks and costs that may cause more headaches than victories.

The growing role of the military in U.S. foreign policy is not a new phenomenon. Barack Obama’s presidency was hardly peaceful. This was especially true in the Middle East, where the “light footprint” approach reduced the on-the-ground U.S. military presence but made extensive use of air power to conduct foreign policy by precision strike. However, Obama also spearheaded multilateral initiatives that relied on other sources of American power and influence, such as the Iran nuclear deal and the Trans Pacific Partnership (TPP). Not all of these initiatives were successful, but they demonstrate a foreign policy approach that places value on non-military tools.

Kate Steinle and San Francisco’s “Sanctuary City” Policy

The White House denounced a federal judge this week that enjoined the president’s executive order denying certain federal grants to sanctuary cities, and it raised the case of Kate Steinle to illustrate why sanctuary cities are such a problem. Almost two years ago, Steinle, a 32-year-old medical device sales rep from California, was shot and killed on a San Francisco pier. City police have charged an unauthorized immigrant named Juan Francisco Lopez-Sanchez who has confessed to killing her. Her death led Donald Trump to denounce sanctuary cities such as San Francisco and call for tougher border security and deportations. But in reality, the facts of this tragedy do not support these policies:

  • Lopez-Sanchez did not end up in San Francisco due to lax border security, and the case actually shows the opposite. In recent years, Border Patrol caught him each time he attempted to cross.
  • Lopez-Sanchez only ended up in the city because the Justice Department ignored an Immigration and Customs Enforcement (ICE) request to take custody. The department has since changed its policies.
  • ICE sent a request to the city to detain Lopez-Sanchez knowing that the city would only hold a person subject to a federal warrant. Yet ICE chose not to seek a warrant. Yet it has refused to change its policies.
  • San Francisco’s Sheriff’s Department could not legally hold Lopez-Sanchez who had no history of violence. Investigators have since shown that he was not trying to kill Steinle.
  • Lopez-Sanchez’s mental illness is the relevant cause of the tragedy, not his immigration status. Yet even after a federal judge instructed that he receive care, none was apparently provided.
  • This case is a tragic anomaly. Undocumented immigrants generally are half as likely as other people in the United States to commit these types of serious crimes.

Case highlights improving border security

Lopez-Sanchez is a Mexican national who had resided illegally in the United States on and off since at least 1991. In the early 1990s, he compiled various drug convictions in Arizona, Washington, and Oregon. Immediately following his conviction for imitation drugs in Oregon in June 1994, the federal government took custody and deported him to Mexico. A month later, he returned to Arizona and was arrested for violating his probation there. After the state released him, San Francisco arrested him for a $20 marijuana purchase charge, but he failed to appear in court, and seven months later, Washington convicted him of another felony drug charge. In April 1997, the federal government took custody and deported him again.

This period reflects the relative lack of border security in the 1990s. But after his first two deportations, he appears never again to have successfully snuck into the United States. After his deportation in 1997, Border Patrol agents apprehended and deported him in January 1998. They caught him again in February 1998 at which point he was imprisoned for felony illegal reentry until his fourth deportation in March 2003. In July 2003, Border Patrol apprehended him again, and he was imprisoned for felony reentry a second time until his fifth deportation in June 2009. Less than three months later, Border Patrol caught him a fourth time, and he was imprisoned until March 2015.

Thus, from 1997 to 2015, Lopez-Sanchez probably never crossed the U.S.-Mexico border without being caught. The case is hardly an example of the lack of border security. Indeed, he highlights the myth of border insecurity.

Why ‘Net Neutrality’ Is a Problem

Yesterday, Federal Communications Commission Chairman Ajit Pai announced his intention to reverse Obama administration “net neutrality” rules governing the internet that were put in place in 2015. Some commentators are criticizing the announcement as a give-away to large telecom companies and an attack on consumers. But the Obama rules create some serious problems for consumers—problems that Pai says he wants to correct.

Under the Obama rules, internet service providers (ISPs) were subject to “rate-of-return” regulations, which the federal government previously applied to AT&T’s long-distance telephone service back when it was a monopoly more than 50 years ago. Ostensibly, rate-of-return regulation gives government officials the power to review and approve or reject ISP rates. In reality it basically guaranteed ISPs government-enforced market protection and profitability, in exchange for regulators ensuring that ISPs won’t be too profitable.

As I explained in a 2014 post, rate-of-return regulation involves more than just telecom. It basically is an attempt to settle fights between “producers” and “shippers”—whether those are farms, mines, and factories on one side and railroads and shipping lines on the other, or Netflix and Hulu on one side and ISPs on the other. In all those cases, the producers and shippers need each other to satisfy consumers, but they fight each other to capture the larger share of consumers’ payments. If shippers charge more, then farmers, factories, and Netflix must charge less in order to maintain the same level of sales.

The political resolution of these issues was the Interstate Commerce Act of 1887 and its ensuing rate-of-return regulations, which were initially written with railroads in mind. Similar efforts were later extended to trucking, air transportation, energy, and telecom. It took about 100 years for policymakers to accept that those efforts hurt consumers much more than it helped them, forcing on consumers too many bad providers with high prices and poor quality.

New Paper Shows Workers Commute Away From Minimum Wage Rises

The beauty of the United States where policy is concerned is that state variations allow for lots of decent analysis. Nowhere is this more clear than on the minimum wage, where a fascinating new empirical paper by Terra McKinnish from the University of Colorado Boulder adds further light as to whether Econ 101 holds in regards to raising statutory pay rates.

Remember, there are (to simplify) two main theoretical stories of the labor market. In an ordinary competitive model, imposing a minimum wage above the equilibrium wage rate leads to an increase in the quantity of labor supplied (more people want to work at the higher wage) and a reduction in the quantity demanded (employers want fewer worker hours at the higher price). The difference between the two is the increase in “unemployment” – i.e. the difference between the worker hours people are willing to work and the demand for worker hours at that wage rate. Raising the minimum wage in a competitive labor market is said to have “disemployment effects.”

In the past decade though, some academics have posited a different theory of the labor market, implying that all or many employers have “monopsony power” - monopoly power but in the purchase of labor. Profit maximization would lead firms to pay less than the value of the marginal product of labor and employ less labor-hours than would be the case in a competitive market. The implication is that when there is a strong element of monopsony in the labor market, the imposition of a higher minimum wage can lead to both an increase in pay per hour and an increase in hours of employment. Workers would gain unequivocally from the minimum wage, while previously exploitative employers would lose.

Let’s put aside for a second that in reality the labor market is complex, dynamic, and there could be elements of both. Empirically, the question is which provides a better explanation of the real labor market we see.

Here’s where McKinnish’s new study comes in. She seeks to exploit the variation in minimum wage rates between states and the compressing effect of the 2009 federal minimum wage increase to analyze whether a relative increase in a minimum wage within a state led to more commuting into that state to work for under 30s or more commuting out of the state to work.

No, Higher Deficits Don’t Raise Long-Term Interest Rates

According to former Reagan adviser Martin Feldstein, “Higher projected budget deficits could raise long-term interest rates, potentially triggering… a serious economic downturn.”

Has that ever happened?

From 1977 to 1981 10-year bond yields nearly doubled, rising from about 7.4% to 13.9%, but budget deficits were relatively small, around 2.5% of GDP.  Budget deficits were doubled from 1984 to 1993 (about 5% of GDP), yet bond yields were nearly cut in half, falling from 12.4% to 5.9%. Bond yields were no lower from 1997 to 2000 when the budget moved into surplus. But yields fell dramatically in 2008-2012, a period of record budget deficits.

One possible objection is that larger budget deficits were caused by recessions, which is why bond yields did not rise with larger deficits or fall with surpluses.  The graph addresses this concern by using CBO estimates [.xls] of cyclically-adjusted budgets (“with automatic stabilizers,” in CBO vocabulary). Deficits and Bond Yields

Still, there is clearly no correlation between bond yields and any measure of yearly budget deficits and surpluses. And that is also true in other times and places – Japan’s chronic large deficits and debt being an obvious example.

Another possible objection centers on Feldstein’s use of the phrase “projected budget deficits,” as though the CBO’s notoriously inaccurate long-run projections could somehow have an entirely different effect from actual deficits. I criticized the analysis and evidence behind that conjecture in a Treasury Department presentation which was condensed and simplified in a Cato Institute paper. I found the underlying analysis illogical and contradictory and the evidence worthless.

There is no need to make up stories about alleged effects of deficits on bond yields in order to make a strong case for minimizing frivolous government borrowing (e.g., to pay for transfer payments or government employee compensation).

Chronic deficits add to accumulated debt, and that debt will have to be serviced with future taxes even if it is rolled-over indefinitely. That is reason enough for Congress to keep growth of federal spending below the growth of the private economy – a task which requires frugality in spending but also a tax and regulatory climate which minimizes impediments to investment, entrepreneurship, education and work.

The Napoleon Complex and Trump’s First 100 Days

The “first 100 days” was a dictatorial metaphor from the start. It entered the presidential lexicon in 1933, when journalists likened FDR’s legislative onslaught to Napoleon Bonaparte’s 1815 breakout from Elba and subsequent three-month rampage, ending at Waterloo.  

Thankfully, President Trump’s first 100 days haven’t been nearly so dramatic. It’s as if Napoleon, instead of marching to Paris and then to war, just sat around his Tuscan villa, hand in his waistcoat, ranting about his enemies.

Of the umpteen items in Trump’s “100-day action plan,” unveiled last fall in Gettysburg, Pennsylvania, he’s barely moved on most, reversed himself on others, and been stymied by Congress and the courts on the few where he’s made a serious push. The candidate who proclaimed “I alone can fix it” is learning that, on the home front at least, our political system remains resistant to one-man rule. 

It’s reassuring to learn that our system of separated powers still has some life left in it, at least when it comes to domestic affairs. The danger is that, with his agenda stalled on the home front, Trump may overcompensate abroad. Perversely, it’s in the exercise of military force—the area where presidents can do the most damage—that checks and balances are weakest.

No administration has accomplished more in the first 90 days” the president insisted recently—a claim that ranks with prior Trumpian whoppers like “largest audience ever to witness an inauguration” and “biggest electoral college win since Ronald Reagan.” Trump was closer to the mark a few days later, when he called the 100-Days metric a “ridiculous standard.”

However, the blustery press release the White House put out Tuesday, “100 Days of Historic Accomplishments,” embraces the skewed premise that presidential success should be measured by sheer volume. “President Trump has accomplished more in his first 100 days than any other president since Franklin Roosevelt,” it blares, because he’s “signed 30 executive orders” and “A SLEW OF LEGISLATION”! 

But of course Trump’s 100-day record can’t measure up to FDR’s 15 major bills passed in the panicked atmosphere of the Great Depression. Nor has he pulled off anything as mammoth as Obama’s $787 billion stimulus package, signed less than a month after his inauguration, during the worst financial crisis since the Depression. But so what? In the modern era, most presidents can’t manage a legislative blitzkrieg absent a national emergency. As political scientist David R. Jones notes, 

President George W. Bush’s first term produced an impressive six landmark acts, but four were prompted largely by a single dramatic event, the terrorist attacks of 9/11: the Authorization for Use of Military Force against the terrorists, the USA Patriot Act, the Authorization for Use of Military Force Against Iraq Resolution of 2002 and the Homeland Security Act of 2002, which established the federal department.

Are we supposed to be disappointed that Trump hasn’t (yet) enjoyed the proverbial “good crisis” you never want to waste? 

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