Deficit Not Debt

Coyote Blog today rationally explains why the trade deficit is not a debt and should not be a cause for concern. I hope it's not too condescending for those non-economists who constantly call the trade deficit a debt.

Pension Bailout

The WaPo has an interesting article today about the future insolvency of the Pension Benefit Guaranty Corporation. Many pie in the sky liberals decry the coming extinction of defined benefit pension plans as putting all of the risk of retirement on the individual. When in reality there is reduced market risk but increased political risk.

In the dynamic creative destruction of a market economy, companies which seem unassailable may in time fail, and credits which seem impeccable may in time turn out to default.

The biggest potential additional loss to the PBGC today is the threat that it would be forced to assume the liabilities of the General Motors pension fund, with constant media speculation that GM may in the end declare bankruptcy. But as the idea which became the PBGC was developed in the 1960s, it was reasonable to view GM as presenting virtually no risk.

Capitalism's creative destruction makes virtually every company's future a crapshoot. The largest of the companies with thousands of retired people receiving what was promised them (and, I would argue, the retirees have every right in the world to collect on those promises) start to sink under their own weight. When that happens the PBGC rescues the company's pension and pays out the benefits to the retirees. Of course, there's the gigantic moral hazard involved in this. If I'm a struggling company, why would I fund my pension scheme when I need to invest in R&D, a new distribution center or new technology? I won't, I'll try to save my business and let the PBGC bail me out.

Unfortunately for taxpayers the PBGC is not fully funded either. With Social Security and Medicare in fiscal trouble several years down the road, the PBGC failing will have severe implications on the American taxpayer. The only way to plan for your own retirement is to have the risk fall on your shoulders in the form of market risk. You can diversify away market risk but not political risk.

Greg Mankiw discusses this issue more on his excellent blog.

Please Tell Me What to Do

William Saletan writes in today's WaPo about the war on obesity.

So we've found a new enemy: obesity. Two years ago, the U.S. government discovered that the targets of previous crusades--booze, sex, guns and cigarettes--were killing a smaller percentage of Americans than they used to. The one thing you're not allowed to do in a culture war is win it, so we searched the mortality data for the next big menace. The answer was as plain as the other chin on your face. Obesity, federal officials told us, would soon surpass tobacco as the chief cause of preventable death. They compared it to the Black Death and the Asian tsunami. They sent a team of "disease detectives" to West Virginia to investigate an obesity outbreak. Last month, Surgeon General Richard H. Carmona called obesity "the terror within" and said it would "dwarf 9/11."
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Targeting kids is a familiar way to impose morals without threatening liberties. You can have a beer or an abortion, but your daughter can't. The conservative aspect of this argument is that you're entitled, as a parent, to decide what your kids can do or buy. That's the pitch Sen. Tom Harkin (D-Iowa) made last week in a bill to crack down on junk food in schools. The liberal half of the argument is that kids are too young to make informed choices. In this case, it's true. Studies show that little kids ask for products they see on television, fail to distinguish ads from programs, and are heavily targeted by companies peddling candy, fast food and sugared cereal.

This stage of the fat war will be a rout. In schools, the audience is young and captive, and the facts are appalling. According to a government report, 75 percent of high schools, 65 percent of middle schools and 30 percent of elementary schools have contracts with "beverage"--i.e., soda--companies. The sodas are commonly sold through vending machines. The contracts stipulate how many thousands of cases each district has to buy, and they offer schools a bigger cut of the profits from soda than from juice or water. Soda companies, realizing they're going to lose this fight, are fleeing elementary schools and arguing that high-schoolers are old enough to choose. But health advocates refuse to draw such a line. They're not going to stop at kids.

To keep junk food away from adults, fat fighters will have to explain why obesity is the government's business. Some say the government created the problem by subsidizing pork, sugar, cream, high-fructose corn syrup and other crud. Harkin reasons that the government pays for school lunches and must protect this "investment." But the main argument is that obesity inflates health care costs and hurts the economy through disability and lost productivity. A few weeks ago, former president Bill Clinton, a confessed overeater, told the nation's governors that obesity has caused more than a quarter of the rise in health care costs since 1987 and threatens our economic competitiveness. It's not our dependence on foreign oil that's killing us. It's our dependence on vegetable oil.

Sometimes this crap gets depressing. I started out my morning by reading some moron claiming that because smoking bans aren't really bad for business they're a good thing and then I subject myself to reading about people limiting my food options. This health stuff really sucks because once these jerks get socialized medicine they can really claim that my love of Oreos and fried chicken should be outlawed in the interests of reducing health care expenditures.

Child Porn

The Numbers Guy from the WSJ seeks out an answer for a question I often have.

Yet in a press release ahead of a recent House of Representatives hearing aimed at curbing the industry, Texas Republican Joe Barton said, "Child pornography is apparently a multibillion … my staff analysis says $20 billion-a-year business. Twenty billion dollars." Some press reports said the figure applied only to the industry's online segment. The New York Times reported, "the sexual exploitation of children on the Internet is a $20 billion industry that continues to expand in the United States and abroad," citing witnesses at the hearing.

$20 billion sure sounds like a scary number. Unfortunately, that number seems to come from the ether because no one takes responsibility for it. Then the numbers guy comes upon the stat I tried to investigate here.

This isn't the first number from the NCMEC that struck me as questionable. The group provided the estimate that one in five children is sexually solicited online, which appeared in public-service ads distributed by the Ad Council. The stat has received a fresh round of publicity thanks to donated air time from MySpace, a site popular with teens. As I wrote last year, the "one in five" estimate was based on research that was five years old which only covered children who spent time online. The survey also used a broad definition of sexual solicitation. Yet the stat persists. The NCMEC told me last July it hoped to have new research by the end of last year. Now, spokeswoman Tina Schwartz says the group expects new research to be released in the next couple of months.

These things infuriate me. They cause people to place a greater significance on online stalkers than they need to and cause people to worry about child porn a lot more than they need to. But it sure sounds scary to say a MySpace page will lead to your child being sexually assaulted.

Protectionist Fervor

Sebastian Mallaby challenges conventional wisdom of a fear of China in today's WaPo.

This week's visit from Chinese President Hu Jintao will inflame two kinds of economic pessimism. The first holds that China is forcing a race to the bottom: Its legions of poor workers are driving down U.S. wages. The second claims that China is racing to the top: It's spending ever more on science and engineering. Both sorts of pessimism are only half right. Both miss the real source of U.S. economic dynamism.
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Likewise, it's true that China is striving to catch up in science, hiring Western professors and pressing its researchers to publish in international journals. But there is no straight-line connection between scientific progress and economic advance. What matters is how companies deploy technology. Americans are good at that.
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For one reason or another, American business excels at this. Our much-maligned education system seems to encourage people to think across categories and take risks. Our freewheeling and undeferential culture is good for interdisciplinary cooperation. And then there is the role played by U.S. business schools, which increasingly focus on the skills that make this teamwork possible.

I agree with Mallaby that China's ability to have scientific breakthroughs is not only a good thing for China, but a good thing for the US. Our comparative advantage lies in being able to implement systems to benefit from scientific advancement. Part of that knowledge comes from the free market and part comes from our entrepreneurial spirit, which in large part comes from immigrants.

Unfortunately, not everyone feels that immigrants are good for our economy, especially "illegal" immigrants. But, the illegal part is the problem. If we just made it easy and imposed no restrictions on immigration, many of the underlying social issues (health care for illegals, underground economy, no labor protections for illegals) would go away. This is an issue that cuts support for both parties, some liberals are against immigration because it allegedly lowers wages (read the commenters) for unskilled American workers and some conservatives have a problem with the illegality of illegal immigration as well as some racist tendencies. I agree with Drum's assertion and most economists that immigration benefits our economy, but not by much. The real gains are seen in future generations. In the early 1900's, the incoming Irish were seen as bad for America, but now the Irish have assimilated and greatly benefitted this country (see Ronald Reagan or if you like, the Kennedy clan). The same will be true of the Mexicans and Africans that are coming in this wave of immigration.

When we hear this continuous drumbeat of trade with China doesn't benefit us and we must stop immigrants from entering this country, it's just the natural tendency of people to be protecionist. Let's keep it straight, mercantilism is a disaster for the countries that practice it, tariffs (such as the old Hawley-Smoot tariff) drive economies into depression (as we would know if we watched Ferris Bueller). Restricting immigration is nothing different from a tariff and paying a higher price for "buying American" is nothing but a subsidy for American workers and only hurts our economy in the long run.

Let's not just take my word for it that protectionism is bad, take Jim Owens, CEO of Caterpillar, writing in today's WSJ;

Caterpillar is one of America's major manufacturers; last year alone we exported more than $9 billion in products. But we've also become a major British manufacturer, a major Brazilian manufacturer and a major Chinese manufacturer -- just to name three of the 40 countries where we have a presence. By expanding globally, we have maintained our ability to grow. We refused to concede markets to competitors and thus kept them from gaining undue strength to block our entry. When it made sense to invest for local access, we did so.

In fact, wherever Caterpillar invests, we find that our U.S. exports to these countries increase as well. Take China. Over the last few years, we have more than doubled our Chinese workforce and significantly expanded our sales there. At the same time, we have increased our U.S. exports to China by 40% -- helping to create some 5,000 new production jobs here in the U.S.

Our global footprint also gives us a natural hedge position. History shows that the world's major currencies -- dollar, euro, yen -- can move anywhere from 15% to 40% against one another in a two-year period. In our business, a good margin is five to 10 cents on the dollar. Having a fully integrated manufacturing presence in each currency zone helps protect us from these movements.

None of this is to say that operating a global business -- particularly with a U.S. manufacturing base -- is easy. There are, however, four important strategies that American manufacturers must take to compete with the world's best.

First, manufacturers must focus on designing and producing the highest-quality products incorporating the most up-to-date technology. We have to stay aggressive with our product development programs -- and ensure the goods we manufacture are desired the world over.

Second, we must continue to embrace lean manufacturing principles, increase the use of robotics and automation, and focus on just-in-time delivery. These tools will enable us to keep costs low and productivity high.

Third, manufacturers must invest in people -- providing the education and workforce training they need to help us succeed. Our international competitors will work to produce better products and adopt world-class processes -- but they cannot replicate our market size and proximity. The ideas and competitive spirit that our people bring to the workplace must be nurtured.

Fourth, manufacturing companies must believe they can compete on the world stage. We must look at globalization and international competition as an opportunity to make ourselves stronger and more efficient -- and not, as some are proposing, as a reason to turn inward.

Personally, I can think of no faster path to a worldwide recession than for the multiple engines of the global economy to turn against one another. In recent years, commodity prices have risen, and over the last two years global economic growth is as strong as most people can ever remember. Millions have been lifted out of poverty. These gains have come with the rapid rise of China and India and the recovery in Southeast Asia.

But the gains of the Asian economy have not prevented the rapid economic growth and job creation in the U.S. Inflation and interest rates are low -- business confidence is high -- and unemployment is very low. Put another way, our economy is hitting on all cylinders. And all this could easily be endangered if our policymakers implement wrongheaded protectionism -- or if American companies refuse to engage constructively with the world. The stakes have never been higher -- and the benefits of globalization have never been clearer. Trade liberalization, in the end, is a "win-win-win" proposition. It's good for U.S. manufacturers, it's good for the U.S., and it's good for the world.

The equation, needless to say, also runs in reverse. What's good for the world is good for the U.S. and for U.S. manufacturers. Look at it this way: The U.S. has only 5% of the world's population. That means 95% of potential customers are located abroad. Trade liberalization brings more and more of these people into the global economy. As their quality of life improves, they become potential consumers of the products we provide.

American manufacturing can win on the world stage. If we embrace globalization with the spirit of optimism and fierce competitiveness that has made American manufacturing great, we will ensure we stay on top of the world economy for years to come.

Caterpillar is, of course, a model of how to survive in a global world. A lesson can be learned from their innovations and from the failure of Detroit's automakers to adapt to the global market.

More Climate Change

The Devil's Kitchen has more on climate change, specifically the Euston Manifesto. Clearly the Devil is fooling us so the overworld is as hot as hell. Capitalism is too successful, the left has to come up with hysteria so their beloved governments can take control of the world again instead of the market. I've said too much read the Devil.

Undercover Economist

I'll let Tim Worstall provide an introduction to my review of "The Undercover Economist" by Tim Harford.

Julie Bindel in The Guardian.

My local supermarket, in a posh area of London, inadvertently offers shopping based on a sort of class apartheid. The shelves containing organic vegetables draw shoppers' attention to the free-range eggs, which in turn point to the small freezers selling a range of expensive organic ice creams placed near the array of dried fruits promising "no fat or sugar". People with children called Oscar and Chloe shop in those sections, leaving others to the shelves groaning with brightly coloured pop, sweets and own-brand tins of spaghetti hoops, where you can almost hear the mental calculations of hard-up mums worried about overspending.

"Inadvertently"? ItÂ’s deliberate you uneducated fool. Supermarkets will never put the organic vegetables next to the conventional ones, organic ice cream next to regular. ItÂ’s called price discrimination...to put it another way they donÂ’t actually want you, the organic shopper, to see quite how much theyÂ’re ripping you off for your middle-class guilt trip. That brightly coloured pop is that luminescent orange precisely so that you wonÂ’t buy it in preference to the vastly more expensive pastel hued one that wonÂ’t clash with your curtains.

In his book, Harford explores topics such as how supermarkets stack organic foods together with other higher priced items because organic items are signaling mechanism that the consumer is willing to spend more money. He also has a bit of an unhealthy interest in coffee, and pointing out my favorite point about Fair Trade coffee; if you pay producers of coffee more, more coffee producers will enter the market.

Another interesting discussion in the book is about health care. While he doesn't spell it out, Harford basically endorses HSA's. Health care consumers now have no incentive to price shop or question treatments because insurance companies will be paying for it. When given the motivation to question treatment or put a dollar value on a treatment, overall health care prices will go down. And for serious healthmaladiesladies catastrophic insurance would be necessary.

Another great aspect of the book deals with market failures called externalities. Externalities are the biggest problem people have with Capitalism and free markets. But, coupled with the discussion of externalities is discussion of government failures stemming from externalities. For instance, because I wrote about it yesterday, the minimum wage, the government is basically setting a wage floor with the minimum wage. Raising the minimum wage in the name of helping the poor, is a rather poor way of doing it because not everyone earning a minimum wage is poor and trying to support a family. In fact, raising the minimum wage would increase the household income of quite a few middle class families with teenagers working and moms and dads with a part-time job to get out of the house or to pay for painting for example. Instead, maybe focusing on increasing the payout of the Earned Income Tax Credit would be a better policy decision because only the poor receive the EITC. Raising the minimum wage has an externality of raising prices for many goods and since many union wages are tied to the minimum wage it would benefit many middle class homes and in effect hurting poor households. Harford discusses how best to work a tax to prevent congestion on roads. His idea would be to have a tracking device in your car that would charge you more for driving during rush hour and in congested areas. This in turn would reduce the externality of crowded roads. As well for polluting industries, the carbon trading system is a great success because it puts a price tag on those industries for installing carbon reducing systems.

Later in the book, after Harford has done a fine job of teaching basic economic principles, he takes on some tricky economic subjects such as why some countries are poor, globalization and why China has been a success. The answer is, of course, the government getting out of the way. In poor countries, officials are corrupt, won't enforce contracts and don't invest in infrastructure. Globalization benefits countries because of competitive advantage. China is a success story because they switched to market mechanisms away from central planning.

Read the whole book, it's very interesting and informative.

Climate of Fear

Richard Lindzen writing in today's WSJ claims that the feeding frenzy over global warming is basically scientist clamoring for more Federal money. Any dissenters in the scientific community must be shouted down.

Alarm rather than genuine scientific curiosity, it appears, is essential to maintaining funding. And only the most senior scientists today can stand up against this alarmist gale, and defy the iron triangle of climate scientists, advocates and policymakers.

Read the whole thing, I'm sure there will be some blogosphere discussion of this editorial today. Always beware of scientist when they won't even allow debate, as global warming advocates do.

Minimum Wage Follies

Kevin Drum read two editorials today in the LA Times about the minimum wage. Unfortunately he concludes the arguments used are the only arguments against a minimum wage and concludes:

How tired and threadbare. If this kind of juvenile flailing is the best that opponents can come up with, there truly must not be any arguments left against raising the minimum wage. So how about if we stop listening to fatuous stuff like this and just give the working poor a helping hand instead? Raising the minimum wage a buck or two is the least we can do for them.

Raising the minimum wage is the least you can do for the working poor. As in, it would do the working poor no good whatsoever as I explained here and here.

Immigrants and Entrepreneurship

John Gartner, writing in today's WaPo, brings up an interesting point about immigration:

America is an amazing natural experiment -- a continent populated largely by self-selected immigrants. All these people had the get-up-and-go to pull up stakes and come here, a temperament that made them different from their friends and relatives who stayed home. Immigrants are the original venture capitalists, risking their human capital -- their lives -- on a dangerous and arduous voyage into the unknown.

Not surprisingly, given this entrepreneurial spirit, immigrants are self-employed at much higher rates than native-born people, regardless of what nation they emigrate to or from. And the rate of entrepreneurial activity in a nation is correlated with the number of immigrants it absorbs. According to a cross-national study, "The Global Entrepreneurship Monitor," conducted jointly by Babson College and the London School of Economics, the four nations with the highest per capita creation of new companies are the United States, Canada, Israel and Australia -- all nations of immigrants. New company creation per capita is a strong predictor of gross domestic product, and so the conclusion is simple: Immigrants equal national wealth.

The difference between the United States and most other countries is our entrepreneurial spirit. That spirit comes from the immigrant nature of our country, as we get further from being an immigrant, get comfortable, that spirit will subside. I would like to see a study that presents correlation between entrepreneurship and which generation of American it is. My guess is the correlation would be negative, meaning as the generation grows (2nd, 3rd, 4th) the less likely they are likely to be entrepreneurs. We need to keep bringing immigrants to this country.

Let's get the lesson of Sept. 11 right. We need to screen who gets into the United States, to keep out the suicide bombers. But if they're not here to kill us, chances are they will inject new life into our economy. In my book, I predicted that future historians will be able to date the beginning of the decline of the American empire to the day we stop being the destination of choice for immigrants. Ominously, U.S. immigration peaked in 2000. Is this the beginning of the end? I hope Osama bin Laden will not end the great American experiment.

Another aspect of 9/11 is foreign students not being granted student visas, which encourage the world's youth to come to the United States to study. Universities are having a tough time filling up slots for these science and math students because American public schools are not producing math and science candidates.

Mickelson

Congratulations to Phil Mickelson for winning the Masters. Although, I think the New York Times may have gone overboard on Mickelson hatred.

De Villepin Blinks

Chirac and de Villepin are withdrawing the CPE, backing down from the students and unions. This, of course, is bad news for the future of France. True, the CPE wasn't going to transform France into a bastion of capitalism, but, it was a step in the right direction. Now the French government can't even take a step in the right direction because of this "victory" by the left. Viva la France!

Kegerator Blues

I love beer. I like to sit down and watch a baseball game or other shows on TV and enjoy a nice cold beer. But, I didn't like going to the liquor store all the time and having empty bottles cluttering up the place so I did what any good beer lover would do, I bought a refrigerator and converted it into a kegerator. Now, I have cold beer on tap at all times.

Unfortunately, for me, there seems to be a market failure in that liquor store's keg service is completely inadequate. Most keg buyers are one time buyers, they're buying for a party and they want Bud Light or Miller Lite or some other mass market beer. A big liquor store typically has these on hand at all times and most liquor stores will get you one in a couple of days. But, for the discerning beer drinker, such as myself who may want to buy a keg of Goose Island Hex Nut Brown Ale, keg buying is a whole world of pain in the ass.

I had an experience last fall where I called my regular keg supplier (Lukas Liquor, if you're in the KC area and care) and ordered a keg of Boulevard Nutcracker Ale (Boulevard's winter seasonal beer and a wonderful concoction at that). Lukas told me they could have it in a couple of days. I call back, after not hearing from them, a couple of days later and they tell me that they can't get that particular keg. It would have been nice if they would have called when they found this out instead of waiting for me to call, but they offered up an excuse so I ordered the aforementioned Goose Island Hex Nut Brown Ale. Same story, after several days I called and they said they couldn't get the keg. I gave them one more shot with another slightly harder to find beer and had the exact same result. I decided to go to another store, closer to my house.

Mind you, Lukas was the second liquor store I purchased from. The first, Royal Liquor, where I got my first couple of kegs, was really rude and didn't seem to care about me being a customer and they wouldn't give me my deposit back on a keg. So I went to Lukas and then to Gomer's which is somewhat closer to my house. The problem with Gomer's is they didn't really seem to care about my business either and they didn't carry too many kegs without having to order, so it was a bit of a crapshoot what kind of beer I would get from them. Plus, they were a little more expensive than Lukas.

A couple of months ago, when I went to a local brewpub, I noticed on the menu that they sold kegs of their beer. I inquired about what I needed to do and how much it would cost. It seemed reasonable so last week I called them and placed an order for one of my wife's favorite brews, 75th Street Raspberry Wheat. It took them 5 days to call me back and say it was ready, really pretty good service. So I went in last night to pick it up, but, it turns out they use a different type of tap than I have. The brewer was very kind and called a local tap distributor to see if they could sell me one and he even offered to let me borrow one of theirs. However, I didn't want to go through the trouble of dissembling my current assembly so I asked for my money back and left kegless with no real prospects except to tuck my tail between my legs and go back to Lukas.

My point is this; more people need kegerators so liquor stores can make money by providing good keg service to individuals.

Immigration Bill Stalls in Senate

I'm not sure if this is a good thing or a bad thing. I'm leaning towards bad because it would have started approximately 5 million "illegals" on the road to citizenship. But, the Senate bill would have had to go to committee with the horrible House bill and certainly been made worse, so this development may make the House bill wither on the vine which is good for everyone. As I've written before, it's probably best if they do nothing at all.

Jobs Americans Won't Do

The WSJ has a good editorial today making the economic case for keeping the borders as open as possible.

Our answer is that a closed economy ultimately would make America a less competitive and hence poorer country--because we'd have less human capital, and because we'd be using the human resources we did have less efficiently. Among higher-skilled and -educated workers, pulling away the U.S. welcome mat means all of that talent would go to work creating wealth and jobs in other countries.

But keeping out foreign laborers for the alleged benefit of low-skilled U.S. workers is equally short-sighted. Yes, immigrants compete for these entry-level jobs most directly with Americans who lack a high-school diploma. But the percentage of Americans between 18 and 64 without a high-school degree has been dropping relentlessly for decades, which is a good thing. Even without immigration, poorly educated Americans would still have to compete in a global economy that increasingly places a premium on skills.

In any case, most economic studies have found only a very small negative immigration impact on the wages of even the lowest-skilled American workers. Restrictionists advertise the study by Harvard's George Borjas, who found the widest impact across all income levels. But Diana Furchtgott-Roth of the Hudson Institute points out that his study assumes that immigrants and native-born workers are perfect substitutes. In the real labor world, immigrants often fill niche markets and bring varied skills.

Immigrants also increase the demand for labor, not just the supply. That is, they are also consumers who create jobs by buying goods and housing here. Former Federal Reserve Chairman Alan Greenspan often pointed out how immigration has been driving housing demand. And if immigrants really were "stealing" American jobs, we wouldn't have had the remarkable job growth of recent years.

Perhaps the biggest fallacy is that the same jobs that foreign workers now fill would exist in their absence. That's not likely to be the case. Seal the border, and what you'd see is not the same number of jobs at higher wages but, rather, fewer of these types of jobs overall in the U.S. This is certainly the case in parts of Europe, where some services (such as dry cleaning) are rare and cost a fortune.

"The biggest disruption probably would come in light manufacturing," says Dan Griswold, who follows immigration at the Cato Institute. "Our textile industry has managed to hang on to the extent that it has because North Carolina textile mills have be able to hire immigrants. The domestic carpet industry based in Georgia has managed to survive and thrive due to immigrant labor. The same holds true for meat-packing plants in the Midwest."

Eliminate the immigrant labor force and these jobs don't--presto!--start paying more to attract Americans. In a global economy, they're much more likely to disappear or move overseas as domestic employers find themselves less able to compete with foreign producers. And many of the same politicians who complained about "cheap" immigrant labor would then want to block the import of products that were once made here.

Businesses can't raise wages or prices willy-nilly without respect to the ability and willingness of consumers to pay for a good or service. The agriculture industry certainly would attract more Americans if it paid $50,000 a year to pick lettuce in the noonday sun, but not without raising the cost of food and other things. It would be more expensive to eat out, for example, and fewer people would do so as a result, affecting the restaurant industry, among others.

Unlike some of his critics, Mr. Bush appreciates the absurdity of closing off our markets to foreign labor but not to, say, foreign capital and foreign technology and foreign goods. If a company needs financing for a second plant, we don't limit its options to American sources of capital.

Immigration, legal or otherwise (I agree with Coyote Blog, that so-called illegal immigration is not illegal), is a net positive for the United States. Not only that, but I don't think, with very few exceptions, anyone is harmed by immigration. As Cafe Hayek puts it:

Would Native Americans (not native-born Americans, but American Indians) be wealthier if they had the American continent to themselves?

Would New York City (or any other city) be richer today if it had held its population to what it was in 1850? 1900? 1950? 1980? Does the inflow of people into New York lower the wages of the people already there? Does it make them poorer? Does it matter whether rich or poor people, high-skilled or low-skilled people are the ones moving into New York?

Has rural America gotten richer as fewer people have chosen to live there? Does the smaller supply of workers increase the wages and standard of living of those people still living there?

Do population increases lower America's standard of living? Would our wages be higher if we had had zero population growth over the last century? Has the population growth of the last century reduced wages or the standard of living in America? Does population growth lower our standard of living if poor people have a disproportionate share of the new births?

Has the tripling of women in the workforce over the last 50 years reduced wages or the standard of living in the United States? Would our wages or standard of living be even higher if women weren't crowding into the work force and allegedly lowering wages?

If there were a plague that killed half of the American people, would those who were left find their standard of living rise or fall? Would it depend on whether the people who lived or died were rich or poor or high-skilled or low-skilled?

My answer to all of these questions is "no." More people means more resources for the people already here. It means more trade. More specialization. More economies of scale. It doesn't matter whether they are native born or imported. (I also recognize it means potentially more congestion and more pollution depending on our public policy choices. But those aren't necessary consequences of the increase in population. The direct impact on our wages and productivity and standard of living is positive.)

Free Speech - Not Allowed

The Washington Post has decided that free speech isn't really all that important, at least when that speech is used to influence elections.

These committees [527], named after the section of the tax code under which they're established, are by definition "organized and operated primarily" to influence elections. When those elections are for federal office, it makes no sense to let such groups collect six-, seven- and even eight-figure checks to elect or defeat candidates, while candidates, political parties and political action committees are limited to receiving contributions a small fraction of that size. Similarly, corporations and labor unions -- barred by law from contributing directly to federal candidates or parties -- shouldn't be allowed to write checks to 527s, which exist for the same purpose.

Unfortunately, I believe that speech meant to be political was the precise reason for this sentence:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press.

But that sentence is only from the Bill of Rights, better to disregard.

Labor Shortages in China

Matt Yglesias links to a NY Times story documenting labor shortages in China, driving Chinese wages up.

Nevertheless, just as China turns out not to have an endless supply of manufacturing workers and India turns out not to have an endless supply of routine service workers, the world as a whole is not, in fact, a bottomless pit of potential low wage labor (indeed, rapidly growing China and India plus the rich countries contain most of the world's population). Plus as Chinese incomes grow, increasing numbers of people around the world will be able to make a living selling stuff to Chinese people.

Of course Yglesias' commenters knee-jerk reaction to this is "free trade bad". But, how can it be bad to raise the standard of living for millions of people while causing very little to no harm for very few? Free trade, contrary to popular belief, actually creates American jobs by, in this case, increasing the market for American goods. I wish more people understood this and became unapologetic defenders of free trade. From the NYT:

Persistent labor shortages at hundreds of Chinese factories have led experts to conclude that the economy is undergoing a profound change that will ripple through the global market for manufactured goods.

The shortage of workers is pushing up wages and swelling the ranks of the country's middle class, and it could make Chinese-made products less of a bargain worldwide. International manufacturers are already talking about moving factories to lower-cost countries like Vietnam.
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A few years ago, "people would just show up at the door," said Liang Jian, the human resources manager at Well Brain. "Now we put up an ad looking for five people, and maybe one person shows up."

For all the complaints of factory owners, though, the situation has a silver lining for the members of the world's largest labor force. Economists say the shortages are spurring companies to improve labor conditions and to more aggressively recruit workers with incentives and benefits.

The changes also suggest that China may already be moving up the economic ladder, as workers see opportunities beyond simply being unskilled assemblers of the world's goods. Rising wages may also prompt Chinese consumers to start buying more products from other countries, helping to balance the nation's huge trade surpluses.

"The next great story in China is how they are going to move out of the lower-end stuff: the toys, textiles and sporting goods equipment," said Jonathan Anderson, an economist at UBS in Hong Kong. "They're going to do different things."

When sporadic labor shortages first appeared in late 2004, government leaders dismissed them as short-lived anomalies. But they now say the problem is likely to be a more persistent one. Experts say the shortages are arising primarily because China's economy is sizzling hot, tax cuts have helped keep people working on farms, and factories are continuing to expand even as the number of young Chinese starts to level off.

Prosperity is also moving inland, and workers who might earlier have migrated elsewhere are staying closer to home.

Keep in mind this was the free market at work, multinational companies are not exploiting workers, workers are selling their skills for an agreed upon wage. As scarcity of these workers increases, the wages go up. Also, as the workers are employed their skills increase also forcing their wages up. The free exchange of labor and capital works better than government regulation and aid ever will. When in doubt, trust capitalism!

French Economy

I sure hope Kevin Drum was joking when he wrote:

Labor laws probably don't have much impact on unemployment to begin with, and France's overall economy is in pretty good shape anyway.

If there were a sarcasm font, I don't think I would be confused, but, I think Drum really believes that the French economy is in good shape. What economic evaluation is he using?

Alienated Immigrants

Immigrant Fareed Zakaria who also has a very good PBS show (with the worst theme music in history) takes up the reason American immigration (legal) works and European immigration doesn't.

Many Americans have become enamored of the European approach to immigration -- perhaps without realizing it. Guest workers, penalties, sanctions and deportation are all a part of Europe's mode of dealing with immigrants. The results of this approach have been on display recently in France, where rioting migrant youths again burned cars last week. Across Europe one sees disaffected, alienated immigrants, ripe for radicalism. The immigrant communities deserve their fair share of blame for this, but there's a cycle at work. European societies exclude the immigrants, who become alienated and reject their societies.

One puzzle about post-Sept. 11 America is that it has not had a subsequent terror attack -- not even a small backpack bomb in a movie theater -- while there have been dozens in Europe. My own explanation is that American immigrant communities, even Arab and Muslim ones, are not very radicalized. (Even if such an attack does take place, the fact that 4 1/2 years have gone by without one provides some proof of this contention.) Compared with every other country in the world, America does immigration superbly. Do we really want to junk that for the French approach?

Then his take on illegal immigration:

The United States has a real problem with flows of illegal immigrants, largely from Mexico (70 percent of illegal immigrants are from that one country). But let us understand the forces at work here. "The income gap between the United States and Mexico is the largest between any two contiguous countries in the world," writes Stanford historian David Kennedy. That huge disparity is producing massive demand in the United States and massive supply from Mexico and Central America. Whenever governments try to come between these two forces -- think of drugs -- simply increasing enforcement does not work. Tighter border control is an excellent idea, but to work, it will have to be coupled with some recognition of the laws of supply and demand -- that is, it will have to include expansion of the legal immigrant pool.

And then the question of who do we want to be, a melting pot or a tossed salad.

Beyond the purely economic issue, however, there is the much deeper one that defines America -- to itself, to its immigrants and to the world. How do we want to treat those who are already in this country, working and living with us? How do we want to treat those who come in on visas or guest permits? These people must have some hope, some reasonable path to becoming Americans. Otherwise we are sending a signal that there are groups of people who are somehow unfit to be Americans, that these newcomers are not really welcome and that what we want are workers, not potential citizens. And we will end up with immigrants who have similarly cold feelings about America.

I don't typically cut and paste more than one or two paragraphs from columns I link to, but Zakaria is an excellent writer and treats issues fairly rather than try to demagogue one side or the other. It doesn't hurt that I completely agree with him on this issue. A guest worker program without a path to citizenship is like renting your house to someone. The occupant (guest worker) is going to do things by the letter of the law, but he's not going to take care of things. The guest worker is going to feel and act (rightfully) like a 3rd class citizen, which will only fuel resentment and radicalization.

It's Baseball Day

Today is the best day of every year, major league baseball's opening day. Hopefully, for me, this will be the year the Indians and Cubs (without Dusty Baker) meet in the World Series. I love baseball and follow the Phillies, Brewers, Marlins, Rangers, Indians and Cubs pretty closely, but am an Indians and Cubs fan. The Royals are dead to me, but I still know quite a bit about their organization. I wrote about my defection here and here. The winners of my loyalty were the Indians, not because they gave me anything, but because they had a couple of Shockers on the team and were generally a WSU friendly team.

My predictions for the year are:
AL East: Yankees (how can you pick against Jeter)
AL Central: White Sox (they are a complete team)
AL West: A's (great rotation)
AL Wild Card: Indians

NL East: Braves (pick them until they lose)
NL Central: Astros (pretty weak all around division, Brewers will surprise)
NL West: Padres (horrible division)
NL Wild Card: Brewers

World Series:Indians vs. Brewers

Several interesting stories to watch for the year. Will Jimmy Rollins continue his hitting streak? How good is Prince Fielder? How good is Jhonny Peralta? Will the Indians put it all together this year? Will Grady Sizemore sleep with every woman in Cleveland? Will Jeter beat the hell out of A-Rod? Will Jeter continue to be the greatest player in the game or will Ortiz overtake the crown? Will the Royals lose 110? Will the White Sox win 110? Will Thome be the comeback player of the year? Will the Stank Johnsons (my fantasy team) have enough power? Will Rob Neyer disown the Royals? Will Red Sox nation be able to cope with 3rd place in the East? Will I get fired for listening to too many baseball games on the internet (14.95 for all games this season, hard deal to beat). Will Greinke get his head together this year? Will Dusty Baker ruin Zambrano's arm before he's fired? Will the Devil Rays climb out of the AL East cellar (they'll definitely be more fun to watch)? How many guys will get the dreaded 50 game suspension? Will amphetamine use be the cause of most of those 50 game suspensions (YES!)?

Baseball is, obviously, my favorite sport. Baseball provides so many stories over the course of 6 months, that it is almost impossible to be bored by a season. Even 100 loss teams can watch young players (future of the franchise) play in September. Anything is possible as of right now and I hope it does.