Illegal Immigrants Come Back!

Illegal Immigrants Come Back!: "Unqualified Offerings sends us to the story of Juan Galt:

Towns Rethink Laws Against Illegal Immigrantss: RIVERSIDE, N.J., Sept. 25 — A little more than a year ago, the Township Committee in this faded factory town became the first municipality in New Jersey to enact legislation penalizing anyone who employed or rented to an illegal immigrant. Within months, hundreds, if not thousands, of recent immigrants from Brazil and other Latin American countries had fled. The noise, crowding and traffic that had accompanied their arrival over the past decade abated. The law had worked. Perhaps, some said, too well.

With the departure of so many people, the local economy suffered. Hair salons, restaurants and corner shops that catered to the immigrants saw business plummet; several closed. Once-boarded-up storefronts downtown were boarded up again. Meanwhile, the town was hit with two lawsuits challenging the law. Legal bills began to pile up, straining the town’s already tight budget. Suddenly, many people — including some who originally favored the law — started having second thoughts. So last week, the town rescinded the ordinance, joining a small but growing list of municipalities nationwide that have begun rethinking such laws as their legal and economic consequences have become clearer..."

(Via Brad DeLong's Blog.)

Econbrowser: Money creation and the Federal Reserve

A good description from Econbrowser about the recent Federal Reserve activities.

Econbrowser: Money creation and the Federal Reserve: "Money creation and the Federal Reserve

There seem to be some misconceptions about the monetary consequences of actions that the Federal Reserve has taken to address liquidity needs.

One hears a fair bit of chatter these days along the lines of

The Federal Reserve (and other banking institutions around the world) have poured a couple hundred billion dollars into the system in an attempt to ensure that there is enough 'liquidity' for banks to make loans

and references to

the Fed printing money and increasing the money supply on a high scale as if it was dropping money from an helicopter, thus the nickname of Fed Chairman Ben 'Helicopter' Bernanke.

I hope in this post to get beyond these sound bites, beginning if I may with some details of the process whereby money is created in the United States. Where did the cash in your wallet come from? Presumably you got it from your bank or ATM. And the reason that the bank was willing to give you that cash was that you already had deposits in an account with the bank, which were in effect credits to obtain cash when you wanted it.

And where did your bank get that cash? If it is a member of the Federal Reserve, your bank got it from a Federal Reserve Bank. And the reason that the Federal Reserve was willing to give your bank the cash was that your bank had deposits in an account with the Fed, that give it credits to obtain cash when it wants it. These credits are known as Federal Reserve deposits, which I'll simply refer to here as 'reserves' for short.

And where did those reserves come from? The standard mechanism is that the Fed purchased Treasury bills from independent securities dealers, paying for them by creating new reserves in the dealers' banks. The Fed now is the owner of the Treasury bills, and those banks now have new reserves, which they could use to obtain new dollar bills, if they desired.

To follow what's happened over the last 6 weeks, it's necessary to add a few details to this basic story. For day-to-day fine-tuning of interest rates and the money supply, the Fed usually does not use outright purchases of Treasury securities, but is more likely instead to rely on repurchase agreements, or repos. A repo is a short-term loan, often overnight or for just a few days, made by the Fed through a private securities dealer, which the Fed again provides by creating new reserves at the dealer's bank. As collateral for the loan, the Fed temporarily takes possession of high-quality securities. A few days later, the securities are returned to the original owner and the reserves come back to the Fed. Although its effects are strictly temporary, on any given day the Fed's outstanding repos have created reserves and thus potential dollars in circulation."

Continue reading the article here

A Reality Check for Home Sellers - New York Times

A Reality Check for Home Sellers - New York Times: "ECONOMISTS and other humans don’t always see eye to eye. ‘Economists tend to think people are crazy because they won’t sell their houses for less than they paid for them — and people think economists are crazy for thinking things exactly like that,’ said Professor Christopher Mayer, director of the Paul Milstein Center for Real Estate at Columbia Business School and an authority on real estate economics.

Classical economics can’t explain this behavior. That’s because people who refuse to sell their houses for less than they paid for them are violating a cardinal rule of the market: stuff is worth what it’s worth. It doesn’t matter what you paid for it. But when Professor Mayer and his co-author, David Genesove, a professor of economics at the Hebrew University in Jerusalem, studied the Boston condominium market in the 1990s — scene of one of the biggest real estate busts in recent American memory — the actual patterns of human behavior did not seem to follow the standard rules at all."

(Via Mankiw.)

The three way pistol duel puzzle

This is one of the puzzles I like to use in Game Theory applying backwards induction. The answer is not at all obvious at first.

The three way pistol duel puzzle :

You're a cowboy, and get involved in a three way pistol duel with two other cowboys. You are a poor shot, with an accuracy of only 33%. The other two cowboys shoot with accuracies of 50% and 100%, respectively. The rules of the duel are one shot per cowboy per round. The shooting order is from worst shooter to best shooter, so you get to shoot first, the 50% guy goes second, and the 100% guy goes third, then repeat. If a cowboy is shot he's out for good, and his turn is skipped. Where or who should you shoot first?"

(Via .)

Krugman Now Has a Blog

Paul Krugman - Op-Ed Columnist - New York Times Blog: "[L]et me start this blog off with a chart that’s central to how I think about the big picture, the underlying story of what’s really going on in this country. The chart shows the share of the richest 10 percent of the American population in total income – an indicator that closely tracks many other measures of economic inequality – over the past 90 years, as estimated by the economists Thomas Piketty and Emmanuel Saez. I’ve added labels indicating four key periods. These are:



The Long Gilded Age: Historians generally say that the Gilded Age gave way to the Progressive Era around 1900. In many important ways, though, the Gilded Age continued right through to the New Deal. As far as we can tell, income remained about as unequally distributed as it had been the late 19th century – or as it is today. Public policy did little to limit extremes of wealth and poverty, mainly because the political dominance of the elite remained intact; the politics of the era, in which working Americans were divided by racial, religious, and cultural issues, have recognizable parallels with modern politics.

The Great Compression: The middle-class society I grew up in didn’t evolve gradually or automatically. It was created, in a remarkably short period of time, by FDR and the New Deal. As the chart shows, income inequality declined drastically from the late 1930s to the mid 1940s, with the rich losing ground while working Americans saw unprecedented gains. Economic historians call what happened the Great Compression, and it’s a seminal episode in American history.

Middle class America: That’s the country I grew up in. It was a society without extremes of wealth or poverty, a society of broadly shared prosperity, partly because strong unions, a high minimum wage, and a progressive tax system helped limit inequality. It was also a society in which political bipartisanship meant something: in spite of all the turmoil of Vietnam and the civil rights movement, in spite of the sinister machinations of Nixon and his henchmen, it was an era in which Democrats and Republicans agreed on basic values and could cooperate across party lines.

The great divergence: Since the late 1970s the America I knew has unraveled. We’re no longer a middle-class society, in which the benefits of economic growth are widely shared: between 1979 and 2005 the real income of the median household rose only 13 percent, but the income of the richest 0.1% of Americans rose 296 percent.

Most people assume that this rise in inequality was the result of impersonal forces, like technological change and globalization. But the great reduction of inequality that created middle-class America between 1935 and 1945 was driven by political change; I believe that politics has also played an important role in rising inequality since the 1970s. It’s important to know that no other advanced economy has seen a comparable surge in inequality – even the rising inequality of Thatcherite Britain was a faint echo of trends here.

On the political side, you might have expected rising inequality to produce a populist backlash. Instead, however, the era of rising inequality has also been the era of ‘movement conservatism,’ the term both supporters and opponents use for the highly cohesive set of interlocking institutions that brought Ronald Reagan and Newt Gingrich to power, and reached its culmination, taking control of all three branches of the federal government, under George W. Bush. (Yes, Virginia, there is a vast right-wing conspiracy.)

Because of movement conservative political dominance, taxes on the rich have fallen, and the holes in the safety net have gotten bigger, even as inequality has soared. And the rise of movement conservatism is also at the heart of the bitter partisanship that characterizes politics today."

(Via .)

'The Age of Turbulence' by Alan Greenspan - Los Angeles Times

'The Age of Turbulence' by Alan Greenspan - Los Angeles Times: "For nearly 20 years Alan Greenspan, as head of America's central bank, was the most powerful economic central planner the world has ever seen. What did he do? Roughly twice a year, the Federal Reserve chairman had to make a substantive decision about whether to raise, lower or keep the level of U.S. interest rates the same.
 
Why is that important? To lower interest rates is to make the future more valuable relative to the present; to raise interest rates is to make the future less valuable. When the future is more valuable, more people in the economy focus their eyes on it and more actions are taken that will have an effect in the future: the building of factories, investment in research, construction of houses and apartments. To lower interest rates is to shift economic attention and focus from the present to the future. To raise them is to shift that balance back again.

Isn't this odd? Don't we have a market economy? Why should a central planner be setting interest rates? The only reason is that this system appears to work less badly than the alternatives we have tried. Institutions and human psychology lead financial markets to bounce back and forth between exuberant greed and catatonic fear. Times of fear generate high unemployment. Times of greed are likely to be times of destabilizing inflation. Whether the justification is in the terms of Milton Friedman, John Maynard Keynes or -- as Greenspan put it early in the Clinton administration, confusing everybody -- the pre-Keynesian Swedish school, economies seem to function better when intelligent, skilled and public-spirited technocrats perform the calming, coordinating and leaning-against-the-wind role of managing interest rates to curb greed and fortify fear with some low-interest-rate courage."

...

(Via .)

Robert Greenstein - Misreading the Poverty Data - washingtonpost.com

Robert Greenstein - Misreading the Poverty Data - washingtonpost.com: "Misreading the Poverty Data
By Robert Greenstein
Tuesday, September 18, 2007; Page A19


In his Sept. 5 op-ed, ' Importing Poverty,' Robert J. Samuelson assailed the Census Bureau, the American Enterprise Institute, the Center on Budget and Policy Priorities, and the media for missing what he views as the core of the poverty story. When discussing the figures that the Census Bureau released Aug. 28, we all failed, he said, to explain that poverty 'is increasingly a problem associated with immigration,' driven by the large numbers of poor Hispanics entering the country.

But a careful look at the data does not support Samuelson's narrow view of how immigrants in general, and Hispanic immigrants in particular, affect poverty trends.

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The poverty rate in 2006 was 12.3 percent. If immigration had not increased, and immigrants and their family members comprised the same share of the population in 2006 as in 1993 (the first year for which these Census Bureau data are available), the poverty rate would be nearly the same, about 12 percent.

There is debate on whether immigration lowers the wages of natives -- and the research on that subject is mixed -- but even if it does, the added effect on the poverty rate would be small. Immigrants do experience more poverty than native-born citizens, but they are not driving the nation's poverty rate.

In addition, the overall drop in the poverty rate and the rise in national median income in 2006, compared with 2005, were driven by improvement among Hispanics. Hispanic poverty fell, and the median income of Hispanic households rose. Non-Hispanic whites and African Americans, by contrast, experienced no such improvement.

Indeed, since 2001, Hispanics have made considerably more progress against poverty than the other groups. Their poverty rate is lower than it was in 2000, before the last recession -- it stands at its lowest level on record -- while poverty rates for non-Hispanic whites and blacks remain well above their pre-recession levels.

Samuelson focused on longer-term trends and, in particular, on changes in the number of poor Hispanics since 1990, using Hispanics as a proxy for immigrants. But in doing so, he told only one side of the story.

In the 1990s, the number of poor Hispanics did increase substantially even as the number of non-Hispanic poor declined. So Hispanics accounted for the entire increase in the poverty population in that decade. But that's not true since 2000. The Pew Hispanic Center has found that newly arrived Hispanic immigrant workers were better educated and much less likely to be low-wage earners in 2005 than in 1995.

Moreover, even while the number of poor Hispanics rose markedly in the 1990s, the Hispanic poverty rate -- that is, the percentage of Hispanics in poverty -- fell, and it fell more than the poverty rate for the rest of the country. Since then, the Hispanic poverty rate has continued falling (except for temporary increases related to recessions), even as large numbers of new immigrants continue to enter the United States.

How could this be? How could the number of poor Hispanics rise but the percentage of Hispanics who are poor fall sharply? Because the Hispanic population is growing so quickly. Samuelson complained that there were 3.2 million more poor Hispanics in 2006 than in 1990. He did not mention that the number of non-poor Hispanics -- including doctors, teachers, small-business owners, waiters and members of the armed forces -- grew by 20 million over the same period. (And contrary to Samuelson's implication that the Center on Budget and Policy Priorities ignores poverty increases among Hispanics to avoid upsetting its supporters, we reported frequently in the 1990s on the rising numbers of poor Hispanics and the role of immigration in contributing to that increase.)

Nor was poverty the only issue on which Samuelson's focus was too narrow. He noted, correctly, that Hispanics accounted for 41 percent of the increase, since 2000, in the number of Americans who lack health insurance. That sounds alarming, until you realize that Hispanic population growth accounted for 51 percent of total U.S. population growth over this period.

In fact, Hispanics also accounted for 60 percent of the increase in the number of people with insurance. And the percentage of Hispanics who are uninsured grew more slowly than the percentage of non-Hispanics who lack insurance.

Poverty, race, ethnicity and immigration are complicated and controversial issues, and they arouse strong passions. That's all the more reason that we should be careful how we use data to tell a story. We should not oversimplify a complicated story, as the normally careful Samuelson has done here."

(Via .)

Road to Serfdom in Comic Form

From Boing Boing


Here's a comic book pamphlet adaptation of Nobel prize winning economist Friedrich A. Hayek's 1947 anti-collectivism book The Road to Serfdom. It was originally published in Look magazine in the early 1950s. Link

Water Taste Test

An example of a Veblen good:

Water Taste Test: "Water Taste Test
The folks at NPR wondered if $55 Bling H2O really tasted better than other bottled waters. They conducted a taste test featuring Bling H2O, normally-priced bottled water, and Manhattan tap water, and posted a video report. I don’t think the results will really surprise you. Link -via Metafilter"

(Via Neatorama.)

World’s Worst Credit Card

A terrible credit card offer

World’s Worst Credit Card: "
The Consumerist reports on the Continental Finance MasterCard. The fees include:

Account setup fee: $99
Program participation fee: $89
Annual fee: $49
Account maintenance fee: $120 (charged @ $10/month)
Purchase APR: 19.92%
Authorized user fee: $30 (great! seems like $53 credit is a bit too much for a single person to handle)
Credit limit increase fee: $25 (and you don’t even have to ask for it!)
Internet payment fee: $4 for each authorized internet payment.

After all that, your credit limit is $53. Link"

(Via Neatorama.)

Matthew Yglesias Summarizes Jason Furman

Matthew Yglesias Summarizes Jason Furman: "What we're seeing here are dynamic analyses of the effect of tax cuts on the income of people at different income levels, under different scenarios. The top selection shows what happens if you pay for tax cuts via decreases in spending -- i.e., what conservatives typically say should be done. Most households -- 74 percent of them, in fact -- wind up worse under this scenario than they would have been without the tax cuts. But 57 percent of families in the top twenty percent benefit. And 99 percent of families in the top one percent benefit. If, by contrast, the tax cuts are paid for simply by a future re-raising of taxes, then 76 percent of households wind up worse off, but 43 percent of households in the top one percent benefit."

(Via Brad DeLong's Blog.)

Computer crime is slicker than you think - Security - CRN Australia

An interesting read on the economics of malware and cyber crime

link.

The Demand Side Politics of Supply-Side Economics

The Demand Side Politics of Supply-Side Economics: "Following Jon Chait, Matt Yglesias writes:

...the central element of the Republican Party's tax policy -- lower taxes rates will lead to higher tax revenues -- is a discredited crackpot notion.

Fine, but a more fruitful question which I'd like to see Yglesias, Chait and others grapple with is why discredited, crackpot ideas can become central elements of a winning political party in the world's most important democracy.   Explain the demand side and give us your policy prescriptions."

(Via Marginal Revolution.)

How Bad Is The Wall Street Journal?

How Bad Is The Wall Street Journal?: "On August 24th, [the WSJ] published an editorial entitled 'How To Raise Revenue.' In it, they promised to defend further tax cuts on grounds of equity. They did so by arguing that 'The supply-side revenue effects on the rich are remarkable: Tax rates on higher incomes have been halved, but the federal tax share of the top 1% has nearly doubled.' They even produced a helpful graphic:

Can't argue with a graphic. But you can mention what it leaves out. According to the Pikkety and Saez data, in 1980, the income share of the Top 1% was 8.18% of the national total. In 2004, it was 16.08%. For those playing along at home, that's a 96% increase.

During the same period, their share of federal income taxes went from 19% to 36% -- a 89% increase. So controlling for the increase in income, the tax burden on the rich fell. That's some remarkable supply side effect: As the incomes of the rich go up, their tax liability goes down. And it didn't just drop a few percentile points: Because we have progressive tax rates, as more income pooled at the top, their tax liability should have increased substantially, as they'd pay more on that income than less wealthy families would.

The Wall Street Journal editorial page either couldn't figure this out -- in which case they're innumerate -- or they didn't want to tell their readers, in which case they're mendacious. Either way, why does Will believe this is an institution worth supporting?"

(Via Ezra Klein.)

More on the supply side claims made by Republican candidates here and here

Number Crunching

Number Crunching: "Yale's Ian Ayres has assembled links to a variety of fun prediction tools. For example:
Predict How Long You'll Live
Predict Your Child's Due Date
Predict the Market Value of Your Home
Predict Your Child's Adult Height
Predict Justice Kennedy's Vote
Ian emails me to ask for more suggestions. If you know of any similar prediction tools, post them in the comments section.

You can also read the first chapter of Ian's new book Supercrunchers."

(Via Greg Mankiw's Blog.)

The economy of airports

The economy of airports: "Tyler says:

Think of airports as temporary prisons for the wealthy, and the luxury good offerings as reflecting the extreme value of their attention.  Airports will sell goods which are complements to that attention, which is otherwise so hard to get. "

(Via Marginal Revolution.)