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For Europe’s Youth, Minimum Wages Mean Minimal Employment

Thu, 01/30/2014 - 15:56

Steve H. Hanke

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 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.”

Categories: Policy Institutes

We Need a Debate about the Size of Government, but It Helps to Understand Basic Fiscal Facts

Thu, 01/30/2014 - 15:35

Daniel J. Mitchell

Self awareness is supposed to be a good thing, so I’m going to openly acknowledge that I have an unusual fixation on the size of government.

I don’t lose a wink of sleep thinking about deficits, but I toss and turn all night fretting about the overall burden of government spending.

My peculiar focus on the size and scope of government can be seen in this video, which explains that spending is the disease and deficits are just a symptom.

Moreover, my Golden Rule explicitly targets the spending side of the budget. And I also came up with a “Bob Dole Award” to mock those who mistakenly dwell on deficits.

With all this as background, you’ll understand why I got excited when I started reading Robert Samuelson’s column in today’s Washington Post.

Well, there’s a presidential whopper. Obama is right that the role of the federal government deserves an important debate, but he is wrong when he says that we’ve had that debate. Just the opposite: The White House and Congress have spent the past five years evading the debate. They’ve argued over federal budget deficits without addressing the underlying issues of what the government should do, what programs are unneeded, whether some beneficiaries are undeserving… The avoidance is entirely bipartisan. Congressional Republicans have been just as allergic to genuine debate as the White House and its Democratic congressional allies.

By the way, I have mixed feelings about the final sentence in that excerpt. Yes, Republicans oftentimes have displayed grotesque levels of fiscal irresponsibility. Heck, just look at the new farm bill. Or the vote on the Export-Import Bank. Or the vote on housing subsidies. Or…well, you get the point.

On the other hand, GOPers have voted for three consecutive years in favor of a budget that restrains the growth of federal spending, in large part because it includes much-needed reforms to major entitlement programs such as Medicare and Medicaid.

But Republican inconsistency isn’t my focus today.

I want to address other parts of Samuelson’s column that left a bad taste in my mouth.

He argues that you can’t balance the budget merely by cutting discretionary programs. That’s technically untrue, but it’s an accurate assessment of political reality.

I’m much more worried about his assertion that you can’t balance the budget even if entitlement spending also is being addressed.

Let’s look at what he wrote and then I’ll explain why he’s wrong.

Eliminating many programs that are arguably marginal — Amtrak, subsidies for public broadcasting and the like — would not produce enough savings to balance the budget. The reason: Spending on Social Security, Medicare and other health programs… But even plausible benefit trims for affluent retirees would still leave deficits. There would still be a need for tax increases.

This is wrong. Not just wrong, but demonstrably inaccurate.

The Ryan budget, for instance, balanced the budget in 2023. Without a single penny of tax hikes.

Senator Rand Paul and the Republican Study Committee also have produced balanced budget plans. Even as scored by the statists at the Congressional Budget Office.

By the way, you don’t even need to cut spending to balance the budget. Spending cuts would be very desirable, of course, but the key to eliminating red ink is simply making sure that government spending climbs at a slower rate than revenues.

And since revenues are expected to grow by about 6 percent per year, it shouldn’t take advanced knowledge of mathematics to realize that the deficit will fall if spending grows by less than 6 percent annually.

Indeed, we could balance the budget as early as 2018 if spending merely was restrained so that the budget grew at the rate of inflation.

But never forget that the goal of fiscal policy should be shrinking the size and scope of the federal government, not fiscal balance.

Ask yourself the following questions.

  1. If $1 trillion floated down from Heaven and into the hands of the IRS, would that alter in any way the argument for getting rid of wasteful and corrupt parts of the federal leviathan, such as the Department of Housing and Urban Development?
  2. If the politicians had all that extra money and the budget was balanced, would that mean we could - or should - forget about entitlement reform?
  3. If there was no red ink, would that negate the moral and economic imperative of ending the welfare state?

In other words, the first part of Samuelson’s column is right. We need a debate about “the underlying issues of what the government should do, what programs are unneeded, whether some beneficiaries are undeserving.”

But we’re not going to come up with a good answer if we don’t understand basic fiscal facts.

Categories: Policy Institutes

Rebuttal of Senator Sessions’ Anti-Immigration Talking Points

Thu, 01/30/2014 - 15:31

Alex Nowrasteh

On Tuesday, Senator Jeff Sessions (R-AL) sent out an email memo with talking points for opponents of immigration reform.  Most of the points are based on misinterpretations of government reports, cherry-picked findings by organizations that engage in statistical chicanery, or just flat-out incorrect.  These anti-immigration arguments do not advance a logical argument against immigration.  Here is a point by point rebuttal of the major claims of this memo:

Claim:  No immigration reform proposals will halt unauthorized immigration.

Fact:  Guest worker visas are the most effective way of halting unauthorized immigration because it provides a lawful pathway for low-skilled immigrants to enter instead of overstaying a visa, running across a desert, or being smuggled in.  Providing a lawful immigration pathway will funnel peaceful migrant workers into the legal system leaving immigration enforcement to deal with a much smaller pool of unlawful immigrants.  Italian immigrants in 1910 did not crash boats in to the Jersey Shore to avoid Border Patrol.  They entered legally through Ellis Island because there was a legal way to enter.  Let’s reopen that pathway – at least partly.      

Congress did open it a little bit in the 1950s which ended up cutting unauthorized immigration by over 90 percent by creating a low-skilled guest worker visa called the Bracero Program.  That program later ended due to union pressure, causing unauthorized immigration to immediately skyrocket. The program was shut down after domestic unions, especially Cesar Chavez’s United Farm Workers, mounted a national campaign against it.

According to Stuart Anderson of the National Foundation for American Policy, a February 1958 Border Patrol document from the El Centro, California district states, “Should Public Law 78 [Bracero Program) be repealed or a restriction placed on the number of braceros allowed to enter the United States, we can look forward to a large increase in the number of illegal alien entrants into the United States.”  That is exactly what happened.

The government cannot regulate immigration if much of it is illegal.  Legalizing the flow of workers into the United States is a simple and cost-effective way to control the border.

  

Sources: United States Citizenship and Immigration Services

Further reading:

How to Make a Guest Worker Visa Work

Immigration Reform Should Boost All Skill Levels

Claim:  Immigration reform will increase the budget deficit.

Fact:  Immigration has a very small impact on the size of budget deficits. For what it’s worth, a Congressional Budget Office’s dynamic score of the Senate immigration reform plan found that it would reduce federal government budget deficits by about $1.2 trillion over the next 20 years. Extra growth to the economy and tax revenue from more legal immigrants more than offsets the additional cost of government benefits.  Poor immigrants consume government benefits at a lower rate than poor natives and they also pay taxes.  Highly skilled immigrants make a more positive contribution to government budgets.  According to a survey of countries, the impact is rarely more than plus or minus 1 percent of GDP.  In the U.S. case it is generally positive over the long run but the numbers are very small.  In short, according to economist Robert Rowthorn, “[t]he desirability of large-scale immigration should be decided on other grounds.”

Further readings:

Poor Immigrants Use Public Benefits at a Lower Rate than Poor Native-Born Citizens

CBO Dynamically Scores Immigration Bill

The Fiscal Impact of Immigration on the Advanced Economies 

Claim: New immigrant workers are mostly lesser-skilled and will compete in every sector, industry, and occupation in the U.S. economy.

Fact:  Few immigrants compete with U.S.-born workers. To compete, immigrant workers need to have similar characteristics to U.S.-born workers. But as the anti-immigration talking points admit, immigrants are more likely to be lesser-skilled than Americans. Immigrants with lesser-skills do not compete against Americans with higher skills. For instance, an immigrant worker in a meat-packing plant does not compete with an American accountant anymore than Senator Sessions does. 

Immigrants are much more likely to be lower skilled and higher skilled than Americans so there isn’t much competition. Because immigrants and the U.S.-born mostly have different skills, they are more likely to be complementary – meaning that they work with Americans rather than compete against Americans. 

It takes years for many immigrants to learn English to the point where they could potentially compete with English speaking U.S.-born workers. As a result, the labor market splits in two: One where English is spoken and the second where other languages are spoken. Jobs where English is required are higher paid professions while jobs that don’t require English language skills are typically lower paid. A restaurant offers a perfect example. Low-skilled immigrant workers are primarily the dishwashers, busboys, and cooks – jobs that don’t require much English language ability and are lower paid. The low-skilled Americans who used to do those jobs instead specialized in restaurant jobs that require English. Lower-skilled Americans became the waiters, hosts, and managers – all jobs that require English and are higher paying. Lower-skilled immigrants helps push up those lower-skilled Americans through the economic process described above, also known as complementary task specialization. 

Immigrants are not just workers though, they are also consumers and entrepreneurs. Hispanic and Asian Americans, the two most recent ethnic and racial immigrant groups, spend about $2 trillion dollars a year. That spending, made possible by immigrant work and entrepreneurship, creates job opportunities for Americans elsewhere in the economy. Immigrants are also about twice as likely as their U.S.-born counterparts to start a business – a remarkable achievement in a country as entrepreneurial as the United States.     

Further readings:

How Does Immigration Impact Wages?

Kauffman Index of Entrepreneurial Activity

Claim:  Immigrants take American jobs.

Fact:  Immigrants come when there are jobs available and leave when there aren’t many. There has been a slow-down in unauthorized immigration since the beginning of the Great Recession because many of the jobs immigrants used to work evaporated during the housing collapse. The collapse in new housing construction tracks very closely with the decrease in unauthorized immigrant crossings. Throughout American history, immigration increases during times of economic prosperity or decreases and sometimes reverses during bad times. More guest workers and lawful immigrants will ensure that when the economy recovers, Americans will be able to find enough workers to fill positions and enough customers for new goods and services.  But due to the economics of immigration, we will not be overwhelmed by immigrants when there are no jobs for them.   

Further readings:

Immigrants Are Attracted to Jobs, Not Welfare    

Immigrants Did Not Take Your Job

Invisible Hands: Immigration and American Economic Growth

Claim:  The last 40 years has been a period of record immigration to the United States.

Fact:  About 13 percent of America’s population is foreign born, below the all time peak of 14.7 percent in 1910. The average percent of the population that was foreign born between 1860 and 1920 was about 14 percent – higher than it is today. As a percentage of the U.S.-born population, yearly immigrant flows to the U.S. are half of what they were during the 19th century and early 20th centuries.  Rich countries like Canada, Australia, and Switzerland all let in far more immigrants as a percentage of their population every year and have far larger immigrant populations. Switzerland, for instance, lets in about five times as many immigrants as the U.S. does every year as a percentage of their population. The percent of the U.S. population that is foreign born is also below the OECD average. In and of itself, that is not an argument for opening lawful immigration but it should damper the notion that the U.S. has the most immigrant friendly policies in the world. The numerical numbers of immigrants who come here yearly is large, about the same annual number as a hundred years ago, the U.S. has the third largest population in the world to absorb them.     

Further readings:

Frequently Requested Statistics on Immigrants and Immigration in the United States

Where Does the U.S. Rank in Welcoming Immigrants?

Immigrant Inflows Among OECD Nations

Claim:  A sensible immigration policy would also listen to the opinions of the American people and not paid lobbyists.

Fact:  A sensible immigration policy should absolutely be based on the opinions of the American people. Every day tens of millions of Americans willingly live near immigrants, employ them, sell them goods and services, and deal with them peacefully and voluntarily. The daily actions of the U.S.-born show how comfortable they are living with New Americans, in direct contrast to the few very loud opponents of immigration. Let the economic demands of Americans set immigration policy, not bureaucrats in Washington.

Claim:  We must enforce every immigration law before reforming them, otherwise we destroy the rule of law. 

Fact:  Bad laws should be reformed, not enforced at all costs. Congress didn’t wait until it caught every bootlegger before ending Prohibition or prosecuted every tax cheat before it instituted the Reagan tax cuts. Congress doesn’t have to keep trying to enforce immigration laws that are fundamentally at odds with our pro-immigration traditions, counter economic growth, and increase unauthorized immigration. 

Immigration laws themselves undermine the rule of law. The rule of law means that lawmakers, judges, and individuals are all subject to the same laws and that the laws must be nonarbitrary, consistent with our traditions as a free society, and as free as possible from government ad hoc actions.

Current immigration laws abjectly fall far short of these standards. Our immigration laws are complex and give the government bureaucrats administering them arbitrary power. Most businesses applying for a worker visa have to deal with arbitrary and changing application standards. For instance, government regulatory changes to streamline work visas were adopted in the closing days of the Bush administration. The Obama administration, after taking office, changed portions of those regulations to satisfy union demands. Who knows what regulations will change next year or the year after? Current immigration laws are much more restrictive than the open immigration system our country had from the founding until the early 20th century (with some exceptions), so they aren’t consistent with our traditions.  If the rule of law requires predictability as well as respect for America’s traditions, the immigration system fails. 

U.S. states are finally relenting, slightly, in the War on Drugs. Let’s not start a new War on Immigrants just as the previous fiasco is starting to wind down. 

Further reading:

Saying the Law is the Law Isn’t Enough

Claim:  The House plan provides legal status and work authorization first – the fundamental grant of amnesty.

Fact:  The legal definition of amnesty is an act of forgiveness for past offenses, especially to a class of persons as a whole. The 1986 Reagan amnesty can be accurately described as an amnesty but no proposal in 2013 is because the regulatory hoops, fees, and fines serve as a punishment and not a forgiveness for past offenses.  As Mark Krikorian, head of the anti-immigration Center for Immigration Studies, wrote in 2001 in National Review, “Both the retrospective and prospective approaches [of amnesty] grant legal residence, and eventually citizenship, to illegal aliens — the defining characteristics [emphasis added] of an amnesty.”  A House version of legalization would likely not include a path to citizenship for most legalized unauthorized immigrants meaning that for them, according to Mark Krikorian’s definition, they would not be amnestied

Further reading:

Immigration Reform is Not Amnesty    

Claim:  Most immigrants who are legalized will get access to welfare immediately.

Fact:  Under the proposed Senate version of reform, the legalized immigrants wouldn’t have access to means-tested welfare for 13 years – at a minimum. But if welfare is a genuine concern, it is far easier to deny non-citizens access to welfare than it is to stop all immigration.  I co-authored a Cato policy analysis on this very topic that is simple to implement and Constitutional. 

Furthermore, there is no evidence that immigrants and their descendants drive increases in the benefit levels and total size of welfare programs regulated on the state level.  For every state like California and New York that has many immigrants and a large welfare state, there is a state like Texas or Florida with many immigrants and a shrinking (individual benefit levels in real terms) or smaller welfare state.  There is no relationship between immigration and growth of welfare spending in the U.S. over time.

Further reading:

Building a Wall around the Welfare State, Instead of around the Country

The Political Externalities of Immigration: Evidence from the United States

Claim:  President Obama has been openly and aggressively defying immigration law.

Fact:  President Obama has presided over a large immigration enforcement apparatus that is on track to deport its 2 millionth person in the next few months – something that took President George W. Bush a full 8 years to accomplish.  With the notable exception of deferring deportation for some childhood arrivals and some recent reorganization of enforcement priorities, President Obama has been a noted enforcer of immigration laws.

Further readings:

President Obama: Deporter-In-Chief

President Obama Is Still the Deporter-In-Chief

In conclusion, the memo that Senator Sessions’ staff emailed around had many charts showing how the Great Recession affected Americans.  Those charts are as accurate as they are scary but there is no connection between them and immigration, nor is there any indication that immigrants are the cause of our economic problems. 

Categories: Policy Institutes

George F. Will Weighs in on the Halbig Cases

Thu, 01/30/2014 - 14:34

Michael F. Cannon

Last year, along with Jonathan Adler, I published this law-review article that explains how the IRS has now begun to tax, borrow, and spend hundreds of billions of dollars ultra vires – that is, without any statutory authorization from Congress. Today, George F. Will writes about our research, and the lawsuits that have sprang from it, in his syndicated column: 

Someone you probably are not familiar with has filed a suit you probably have not heard about concerning a four-word phrase you should know about. The suit could blow to smithereens something everyone has heard altogether too much about, the Patient Protection and Affordable Care Act (hereafter, ACA).

Scott Pruitt and some kindred spirits might accelerate the ACA’s collapse by blocking another of the Obama administration’s lawless uses of the Internal Revenue Service. Pruitt was elected Oklahoma’s attorney general by promising to defend states’ prerogatives against federal encroachment, and today he and some properly litigious people elsewhere are defending a state prerogative that the ACA explicitly created. If they succeed, the ACA’s disintegration will accelerate.

Pruitt is the plaintiff in, well, Pruitt v. Sebelius. I call these “the Halbig cases,” because even though Pruitt was first out of the gate, Halbig v. Sebelius is the farthest along of the four lawsuits that have been filed so far. 

Over at DarwinsFool.com, I tweak a couple of things Will writes about these cases, and give a little more context. For example, it’s not just four little words that prevent the IRS from taxing, borrowing, and spending those billions of dollars. It is a tightly worded set of eligibility rules that unequivocally precludes what the IRS is trying to do. Also, it is not accurate to say that these lawsuits would blow ObamaCare to smithereens. For more, including a classic Ferris Bueller clip, see here.

And click here for a comprehensive list of reference materials and commentary about the Halbig cases. 

Categories: Policy Institutes

The More We Learn about ObamaCare, the Less the President Wants to Discuss It

Thu, 01/30/2014 - 13:52

Michael F. Cannon

Remember how the more we learned about ObamaCare, the more we would like it? Well, it seems the more we learn about this law, the less President Obama wants to talk about it. He relegated it to just a few paragraphs, tucked away near the end of his latest State of the Union political rally speech. And while he defended the law, he closed his health care remarks by begging Congress not to repeal it, and asking the American people to nag each other into buying his health plans.

My full response to the president’s health care remarks are over at my Forbes blog, Darwin’s Fool. Here’s an excerpt:

Note what the president did not say: he did not say that [Amanda] Shelley would not have gotten the care she needed. That was already guaranteed pre-ObamaCare. If ObamaCare saved Shelley from something, it was health care bills that she couldn’t pay. It’s impossible to know from this brief account just how much that might have been. But we can say this: making health care more affordable for Shelley should not have cost anyone else their job. It may be that ObamaCare doesn’t reduce bankruptcies at all, but merely shifts them from medical bankruptcies to other types of bankruptcies because more people cannot find work.

Read the whole thing.

Actually, I should amend that. Making health care more affordable will cost some people their jobs, and that’s okay. Progress on affordability comes when less-trained people (e.g., nurse practitioners) can provide services that could previously be provided only by highly trained people (e.g., doctors). When that happens, whether enabled by technology or removing regulatory barriers, prices fall – and high-cost providers could lose their jobs. The same thing has happened in agriculture, allowing food prices to drop and making it easier to reduce hunger. My point was that we should not be making health care more affordable for Ms. Shelley by taxing her neighbor out of a job.

Categories: Policy Institutes

Gender Pay Gap: When You've Lost Slate...

Thu, 01/30/2014 - 13:49

Walter Olson

White House speechwriters couldn’t resist sticking an applause line into President Obama’s State of the Union speech about how women supposedly earn only 77 cents to every dollar a man earns in America. Even more depressing, it drew some of the night’s biggest applause. But as almost everyone familiar with the numbers has had reason to know for years and years, it simply isn’t true. Most, if not all, of the gap melts away once you factor in variables such as hours worked, choice of occupation, and midcareer family interruption, among others. Hanna Rosin at Slate is the latest to set the record straight:

…The point here is not that there is no wage inequality. But by focusing our outrage into a tidy, misleading statistic we’ve missed the actual challenges. It would in fact be much simpler if the problem were rank sexism and all you had to do was enlighten the nation’s bosses or throw the Equal Pay Act at them. But the [more-accurate] 91 percent statistic suggests a much more complicated set of problems. Is it that women are choosing lower-paying professions or that our country values women’s professions less? And why do women work fewer hours? Is this all discrimination or, as economist Claudia Goldin likes to say, also a result of “rational choices” women make about how they want to conduct their lives.

All credit to well-known Washington journalist Hanna Rosin, a co-founder of Slate’s Double X, for writing a piece bound to displease some of her colleagues in the liberal commentariat. 

Categories: Policy Institutes

So Long And Thanks For All The Nannying

Thu, 01/30/2014 - 11:57

Walter Olson

Rep. Henry Waxman (D-Calif.) has announced his retirement from the House of Representatives. Here’s an excerpt from my non-fan-letter from 2011, when he lost his longtime chairmanship of the Energy and Commerce Committee:

Some lawmakers can talk a decent game about lean ‘n’ smart regulation, but no one ever accused Waxman of having a light touch. (The 900-page Waxman-Markey environmental bill, mercifully killed by the Senate, included provisions letting Washington rewrite local building codes.) He’s known for aggressive micromanagement even of agencies run by putative allies: his staff has repeatedly twisted the ears of Obamanaut appointees to complain that their approach to regulation is too moderate and gradual. More than any other lawmaker on the Hill, he’s stood in the way of any meaningful reform of the 2008 CPSIA law, which piles impractical burdens on small makers of children’s products, thrift stores, bicycles and others.

Like his predecessor, Rep. John Dingell (D-Mich.), Waxman and his subcommittee chairs have famously used hearings as a club to discipline interest groups that don’t cooperate. Last spring he menaced large employers with hearings after several of them announced (contrary to some predictions) that ObamaCare was going to hurt their bottom lines. …

The committee was an unending source of ghastly new legislative proposals for regulatory manacles to be fastened on one or another sector of the economy, ideas that with any luck we may now be spared …. Thus it appears unlikely that the Republican-led committee will give its blessing to something called the Safe Cosmetics Act of 2010 (H.R. 5786), introduced by Reps. Ed Markey (D-Mass.), Jan Schakowsky (D-Ill.), and Tammy Baldwin (D-Wisc.), which – by mandating that all compounds found in personal-care items at any detectable level be expensively tested for and disclosed on labels – could have added tens of thousands of dollars of cost overhead to that little herbal-soap business your sister is trying to start in her garage. (Fragrance expert Robert Tisserand explains why most small personal-care product makers would not survive if the bill passed). Nor is it likely that the new leadership of chairman Fred Upton (R-Mich.) will be in a hurry to adopt Rep. Schakowsky’s H.R. 1408, the Inclusive Home Design Act, which would mandate handicap accessibility features in most new private homes.

(hat tip for title: Jonathan Blanks)

Categories: Policy Institutes

Minimum Wage Laws Kill Jobs

Wed, 01/29/2014 - 17:11

Steve H. Hanke

President Obama set the chattering classes abuzz after his unilateral announcement to raise the minimum wage. 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.

Categories: Policy Institutes

School Choice Week Grinches in Colorado

Wed, 01/29/2014 - 16:43

Jason Bedrick

Just before National School Choice Week, Democratic state legislators in Colorado killed a school choice tax credit bill. The legislation would have granted tax credits to families with children in private schools worth up to half of the average per pupil spending at government schools or up to $1,000 for homeschoolers.

Democratic Senate President Morgan Carroll did not even give the legislation a fair hearing in the committee that normally takes up education or tax related bills. Instead he assigned it to the State, Veterans, and Military Affairs Committee, locally known as the “kill committee,” where it faced certain doom from legislators apparently impervious to the evidence:

Under SB 33, a family’s tax credit for full-time private tuition costs could not be more than half the state’s average per-pupil amount. While revenues to the treasury would decline,the official fiscal note showed that over time the limited credit amount would reduce state spending even more for each student who exercised an educational option outside the public system.

Still, Democrats on the committee were unconvinced. “I think it will actually detract from the funding of our public schools,” said Sen. Matt Jones (D-Louisville).

Colorado currently has a school voucher program operating in Douglas County.

Categories: Policy Institutes

Obama Administration Seeks to Head Off Spending Transparency

Wed, 01/29/2014 - 09:34

Jim Harper

Congratulations to Cato’s media staff who worked though the night last night to produce an excellent Cato response to the State of the Union speech. It’s a lot of work, and they make it look easy.

State of the Union 2014

At minute 10:00, my appearance in the video pivots from NSA spying and secrecy to a transparency issue that is just as important to the long-term maintenance of freedom in our country. It’s an issue you might not have heard about.

Leaked documents revealed this week that President Obama’s Office of Management and Budget is seeking to gut spending transparency legislation that is making its way through Congress. The DATA Act is intended to transform the U.S. government’s spending information from inaccessible documents buried in the executive branch into open data, available for the public to use. The House has passed one version. A Senate committee has forwarded another version of the bill to the floor.

Open spending data has potential to improve public oversight of the government massively. You can see a hint of that potential at the Washington Examiner’s “Appropriate Appropriations?” web page. There, for the first time ever, you can easily find what bills in Congress would spend taxpayers dollars. You can look up who from your state has introduced bills that plan to spend your money. The page is powered by Cato data.

While bipartisan support for spending transparency has built up over years in the House and Senate, the Obama Administration has never taken an official position on the DATA Act. Now we’ve learned that the Obama OMB is working to undercut this transparency legislation. The chief Senate sponsor of the DATA Act, Senator Mark Warner (D-VA), has rejected the administration’s moves in no uncertain terms.

President Obama didn’t talk about transparency in the State of the Union, but it’s a 2008 campaign promise he could still deliver on. His OMB is working behind the scenes to prevent that.

Categories: Policy Institutes

The Freedom’s the Thing

Wed, 01/29/2014 - 08:52

Neal McCluskey

We are in the midst of National School Choice Week, and much of the talk is about test scores, helping poor children access better schools, getting more bang for our bucks, and lots of other, very worthy, important things. But something often seems to get lost in the shuffle not just of School Choice Week, but the overall choice and education debate: freedom. The most fundamental American value is liberty – individual freedom – and not only is an education system rooted in free choice the only system consistent with a free society, it is key to peaceful coexistence among the nations’ hugely diverse people.

That only an education system rooted in free choice is consistent with a free society should be self-evident. Should be, but isn’t, with “social reproduction” – shaping the young to conform with and perpetuate present society – thought by many to be a primary purpose of education, and one which must be controlled by government. As long as a “democratic” process is employed – often poorly defined as some sort of vague, deliberative/majoritarian system – then all is well.

But all is not well. While in the abstract it might be easy to say “this is the society we want to reproduce,” the reality is that Americans simply do not agree on what norms, values, and facts they want their children to have and know.

The irony of this is that far from uniting people – a major desired outcome of instilling one set of norms and knowledge – our public schools force us into constant, divisive conflict. As Cato’s Public Schooling Battle Map makes painfully clear, Americans are forced to fight over myriad disputed values, creating seemingly incessant conflagrations over sex education, student prayer, evolution, history curricula, student speech rights, summer reading lists…even student hairstyles. (Don’t believe the last one? Check out incidents in Washington County, UT; Lake County, FL; Alachua, FL; Farmington, NM; Mesquite, TX; Rockton, IL; and Clark-Shawnee, OH.)

Perhaps worse than the fighting, though, is the means to achieve peace. If we want to avoid conflicts, it often requires, as Stephen Arons pointed out almost two decades ago, that people violate their consciences, an outcome that should be avoided at all costs in a free society. Should we make a religious person fund condom-distribution programs they find immoral? Or require someone to subsidize history curricula they feel disparages their ethnic group? Or make a Muslim family pay for schools that take off Christmas, but are in session on Islamic holidays? The answer to these and many other such questions is an emphatic “no.” We should – we must – let people freely choose educational options that comply with their values as long as they can get others to voluntarily provide them.

Interestingly, while choice supporters should first and foremost want to defend and perpetuate individual liberty because it is the right and just thing to, they should also emphasize freedom because it seems to be what resonates most with the public. As Dick Carpenter recently found, the greatest support for choice in surveys comes when choice is presented as expanding freedom, as opposed to creating equality or fostering competition. Which is, frankly, as it should be: While lots of positive outcomes of choice are important, freedom is absolutely essential.

Categories: Policy Institutes

New SOTU Education Promises Just Like the Old SOTU Education Promises

Wed, 01/29/2014 - 08:36

Jason Bedrick

What should President Obama have said about education policy in this year’s State of the Union address? In a more perfect world, he would have announced his plan to eliminate the U.S. Department of Education in order to restore control of education policy to the state and local governments where it constitutionally belongs.

Downsize the Department of Education

In that imaginary world, the President also would have called for an expansion of the Washington D.C. school choice program, where the federal government actually has legitimate constitutional authority, and used his bully pulpit to promote state-level educational choice programs across the country as a means of reducing inequality and expanding opportunity. And he would have announced that his administration would no longer seek to keep low-income black kids in failing government schools in Louisiana.

Alas, what President Obama proposed instead were mostly the same tired themes we’ve already heard in previous SOTU addresses. 

Once again, the president called for Congress to enact universal preschool (and threatened to go around them if they did not), claiming that “research shows that one of the best investments we can make in a child’s life is high-quality early education.” The research to which he alludes concerned a very small and high-quality program for disadvantaged children. (It’s notable that the president dramatically scaled down the audacity of his claims since last year’s SOTU.) There’s absolutely no evidence that the government could scale up the program for all children nationwide with the same level of quality.

Indeed, when the federal government has tried to do so, it has failed. The federal government’s own study of Head Start was so negative that the Obama administration released it on the Friday before Christmas, practically guaranteeing that almost no one would ever hear about it. Nearly fifty years and $200 billion later, Head Start produces no measurable, lasting benefits. To argue that “this time will be different” is magical thinking.

And once again, the president claimed that he “[wants] to work with Congress to see how we can help even more Americans who feel trapped by student loan debt.” If so, he should propose phasing out federal student loans and Pell Grants, which are spurring the rapid increases in tuition.

Fortunately, outside the administration’s push for Common Core, few of the administration’s SOTU-promoted education initiatives ever get off the ground.

Categories: Policy Institutes

Farm Bill Spending Up 49 Percent

Wed, 01/29/2014 - 08:33

Chris Edwards

Under cover of SOTU media coverage, Congress is set to sneak through the first big farm bill since 2008. The Congressional Budget Office released its estimate of the bill’s cost: $956 billion over 2014-2023. It would thus mean almost $1 trillion more borrowed from U.S. and foreign creditors, adding more weight to the anchor pulling down the living standards of our children and grandchildren.

If you are a reporter, please don’t write that the farm bill “slashes” anything. Even according to the official score, it just trims $16.5 billion from expected spending of $956 billion over the decade, which is just 1.7 percent. The food stamp (“nutrition”) portion of the bill trims just $8 billion from expected spending of $756 billion, which is just 1.1 percent.

However, the 2014 farm bill is not a cut at all when compared to the 2008 farm bill, which was projected to cost $640 billion over 10 years. That is a 49 percent spending increase.  

Sure, the new bill shuffles the farm subsidy deck chairs, but the bill’s main budget attribute is that it ratifies the huge recent increase in food stamp spending. The House bill had proposed trimming a modest $39 billion (5 percent) from food stamps, but Republican leaders caved in and agreed to just a token 1 percent trim in the final bill.

 

Here are 10 reasons why the farm bill makes no sense.

Categories: Policy Institutes

Cato Scholars Respond to the 2014 State of the Union

Wed, 01/29/2014 - 07:12

Caleb O. Brown

State of the Union 2014

Cato Institute scholars Alex Nowrasteh, Aaron Ross Powell, Trevor Burrus, Benjamin H. Friedman, Simon Lester, Neal McCluskey, Mark Calabria, Dan Mitchell, Justin Logan, Patrick J. Michaels, Walter Olson and Jim Harper respond to President Obama’s 2014 State of the Union Address.

Video produced by Caleb O. Brown, Austin Bragg and Lester Romero.

Categories: Policy Institutes

The State of the Union Is...Irrelevant

Tue, 01/28/2014 - 15:51

Gene Healy

Kevin Williamson has your red-meat, small-r republican rant on the State of the Union over at NR. He’s right that the once-modest Annual Message has become as bloated and ridiculous as the presidency itself.   

Like Williamson, I used to fume and fume about our latter-day Speech from the Throne, but lately I’m no longer sure it’s worth the bother. For the speech to be worth getting worked up about, somebody would have to be listening. But as I point out in the Washington Examiner today, the polling and poli sci evidence suggest that POTUS is basically howling into the void: 

“There is overwhelming evidence that presidents, even ‘great communicators,’ rarely move the public in their direction,” writes George C. Edwards III, a presidential scholar at Texas A&M University. “Going public does not work.” In a 2013 analysis of SOTU polling, Gallup found that “most presidents have shown an average decrease in approval of one or more points between the last poll conducted before the State of the Union and the first one conducted afterward.”

(For more on that point, see Table 2.2 from Edwards’s book On Deaf Ears: The Limits of the Bully Pulpit or this review of the evidence by Ezra Klein) 

Nor does the president usually fare any better trying to use the SOTU to bend Congress to his will. As this Associated Press analysis puts it, the speech is “high volume, low yield” in terms of generating legislative action.  Contra TR, the bully pulpit isn’t so “bully.” 

None of that is to deny that the modern president has powers vastly greater than he was ever intended to have—or than one man should ever have. The danger isn’t his “power to persuade”: it’s what he can get away with under the “living Constitution” version of Article II: waging war worldwide, reshaping the law through “royal dispensations,”  taking care that his secret laws are faithfully executed. What he does matters; what he says in this stage-managed spectacle is the least of our worries. 

Many of us at Cato will watch and read the speech tonight because it’s sort of our job. If the spirit moves you, follow along on Twitter, hashtag #CatoSOTU. Otherwise, it seems to me that the late Justice Rehnquist had the right attitude

When asked why [he planned to skip the SOTU], he explained that it conflicted with a watercolor class at the YMCA. An incredulous law clerk said, “You can’t miss the State of Union Address for a watercolor class.” Rehnquist responded that he had spent $25 to enroll in the class, and he was going to get every benefit out of it.

 

Categories: Policy Institutes

Are Federal School Vouchers a Good Idea?

Tue, 01/28/2014 - 13:10

Andrew J. Coulson

Today, Senators Lamar Alexander and Tim Scott have proposed taking federal education funding and voucherizing it, allowing it to follow students to the schools of their choice, public or private. The goal of these plans is to expand families’ educational options and raise quality through competition and choice. Surely a worthy goal. But equally surely, federal education programs generally fail to achieve their goals. So it is essential to evaluate every proposal on its merits, using the best evidence available.

Senator Alexander’s plan is by far the larger of the two federal voucher proposals. It would serve up to 11 million low-income students—one out of every 5 public school students in the country. Do we have any examples of what happens when national governments start paying for private schooling? Indeed we do. There are numerous such cases in the 2,500 year history of formal schooling, and there are several programs around the world currently operating in this way. The lesson of those programs is very clear: government funding brings government control and cartellization, undermining the very independence and competition that gives private sector education its advantage.

What is especially pernicious about this effect at the national level is that every regulation affects every school in the country—there is nowhere for families to turn to escape an encroaching regulatory tide.

I wrote about the Dutch experience eight years ago, when then-President G.W. Bush proposed a similar voucherization of federal education spending. Nothing much has changed since. No experienced federal politician or observer of federal politics can doubt that, in the U.S. as in the Netherlands and elsewhere, federal funding would ultimately bring with it stifling regulation of private education.

Perhaps if there were no viable alternative policy, some would consider that an acceptable degree of collateral damage. But there are alternatives. Already, eleven states have education tax credit programs that improve achievement for both private and public school students, lower the net tax burden, avoid excessive regulation, and compel no one to support types of education they find objectionable.

Not only is this alternative policy superior on the merits, it also has the pleasant, if not entirely fashionable, advantage of comporting with the U.S. Constitution, which delegates to Congress no national powers in the area of education.

That is not to say that there is nothing federal lawmakers can do to improve education. The Constitution carves out certain special cases (e.g., the District of Columbia, the military) over which Congress can arguably make law relating to education. And by virtue of their limited scope, any regulations attached to such federal programs cannot suffocate the freedom of the entire education sector. Sen. Scott’s proposal does in fact single out military families, and to that extent is worthy of serious consideration.

Another federal initiative that deserves serious consideration is the LEARN act proposed by Rep. Garrett (NJ). This bill would simply cut taxes on the citizens of any state that decides to opt-out of federal education programs. And since existing federal programs haven’t been achieving their goals, opting out of them seems a wise course of action.

So, yes, let’s all celebrate school choice this week and every other week. But let’s be very, very leery about getting behind measues with as dangerous a set of precedents as national school vouchers.

Categories: Policy Institutes

Environmental Governance in Trade Agreements

Tue, 01/28/2014 - 12:52

Simon Lester

Before I came to Cato, I wrote a law journal article expressing concern about how trade agreements had expanded to become global governance agreements, addressing lots of issues that don’t have much to do with trade.  One of the issues in this regard is environmental protection.

The issue of environmental rules in trade agreements has now come up in the context of the Trans Pacific Partnership (TPP), as WikiLeaks leaked the latest draft of the environmental chapter in the TPP talks.  From the left, the response has been: The environmental rules are not strong enough. The key issue here is whether trade sanctions will be available as a way to enforce the environment provisions.

As it turns out, this isn’t so much a business versus NGO issue, as environment issues often are.  It’s a U.S. vs. the rest of the world issue.  The NY Times puts it this way:

American negotiators have sought to make the environmental provisions in the agreement enforceable through a dispute settlement process, an idea that most of the other countries appear to oppose.

And the Times makes clear which side it is on:

That list includes countries like Canada, Australia and New Zealand that might have been expected to play a more constructive role.

Now, I’m no expert on the environment, but it seems to me the Times is too focused on international law, and perhaps not focused enough on the actual environment.  I thought it was worth asking in this regard, how do the various TPP countries fare on the environment, according to those who support strong environmental protections?  I’m not sure the best place to look for this, but one seemingly credible ranking I found was the following from a group affiliated with Yale and Columbia, called the Environmental Performance Index (EPI).  Here’s how the TPP countries did:

Country EPI Ranking Australia 3 Singapore 4 New Zealand 16 Canada 24 Japan 26 Chile 29 United States 33 Brunei 37 Malaysia 51 Mexico 65 Peru 110 Viet Nam 136

So as I read all this, the U.S. is solidly middle of the pack here.  And if that’s the case, maybe we should look skeptically at the U.S. view of the issues.  Resistance to the U.S. proposals is coming from countries who, according to at least some environmentalists, do better than the U.S. on environmental protection.  Perhaps that suggests we should take our trading partners’ views seriously.  Maybe they just think binding international law on environmental matters through trade agreements is not the right approach to the issue.  And maybe they are right.

Categories: Policy Institutes

Post-World War II Migration and Lessons for Studying Liberalized Immigration

Tue, 01/28/2014 - 11:44

Alex Nowrasteh

Introduction 

This post is about two issues that are closely related.  The first are some facts and history that help explain why internal migration in post-World War II America was an important component of that economic expansion and likely to be as important in future growth.  Some of this data has applications for future research into the role migration plays as a stimulus to and reaction of economic growth.  The second is how studying this period of American migration could inform the academic literature on the probable effects of removing all or most of America’s immigration restrictions – an admittedly radical policy but one that should be understood.

The facts and history surrounding the post-World War II boom are somewhat controversial.  Some critics of immigration argue that post World War II economic growth occurred with relatively little immigration so therefore immigration is unnecessary for economic growth today.  Those critics are mistaken for many reasons, but fundamentally they misunderstand the role that national migration played in feeding economic growth during the 1950s and 1960s.  Ironically, economic growth at the 1950s and 1960s rate would be exceedingly difficult or impossible to achieve without immigration.    

The economic growth of the 1950s and 1960s with relatively closed borders can likely not be repeated today because there are fewer underutilized Southerners, Puerto Ricans, and women who could enter the workforce as substitutes for immigrants.  Growth during that time was partly fueled by the great migrations (migration is internal movement, immigration is international movement) of Americans from much poorer parts of the country, namely the South and Puerto Rico, to wealthier locations.  After the government began to severely restrict low-skilled immigration in 1921, migrants from the South and Puerto Rico moved in larger numbers to fill the economic gap left by the curtailment of low-skilled immigration, some migrants moved from rural areas to urban ones, and women began to enter the workforce in greater numbers.  Without the great migrations that brought tens of millions of black southerners, white southerners, and smaller numbers of Puerto Ricans to Northern and Western cities, American economic growth during those boom years would probably have been much smaller. 

Furthermore, American internal migration during the 1950s and 1960s was a one-time event due to unique historical, demographic, and economic circumstances that would not repeat today if immigration were similarly restricted.  Migrants and immigrants together as a percentage of the U.S. population move similarly with the average annual hours worked per worker and, thus, the labor component of production.  Lawful immigration is essential to recapturing the labor force growth necessary for approaching the economic growth rates of the 1950s and 1960s.         

The Great Migration

The growth of the post-war American labor force was dramatic.  From 1948 to 1982, the size of the U.S. labor force grew from 60 million to 111 million.  Over the same time, the number of people employed in the U.S. labor market increased from 58 million to 99 million.  The Labor Force Participation Rate (LFPR) increased from 58.6 percent to 64.1 percent and the total number of hours worked per worker decreased by 9.3 percent from 898 hours a year to 814 hours a year – likely because wealthier American workers opted to “purchase” more leisure time – meaning that they can afford not to work so many hours.  Here are the history and economics behind the post-World War II great migrations organized by group.

     

Southerners 

There were three large movements that helped to increase the size of the American workforce after the end of international immigration.  The first was the large scale outmigration from the South.  28.6 million southerners migrated to the North during the twentieth century, 8 million blacks and about 20 million whites. 

Black migration transformed a mostly rural racial group into a largely urban one within a generation.  By 1980, black Americans were a majority in several cities and over 40 percent of the population in numerous others.  That is an especially remarkable development because in 1940 they were no more than 13 percent of any non-southern city’s population.  In 1940, 45 percent of black Southerners lived on farms while only 1 percent did so in 1980.  Many blacks left the South to avoid state enforced racial segregation under brutal Jim Crow laws but higher wages elsewhere also attracted workers.  The immigration restrictions of the 1920s are probably partly responsible for some of the rapid 20th century increase in the black population of Northern and Western cities.  Black migration began to take off in the first two decades of the century when the U.S. had open borders with Europe and fell off during the Great Depression to be revived again by the war-time employment boom.  Arguably, some of the black workers who came after the border with Europe was closed came because there was less competition in Northern and Western cities due to immigration.  White migration was an even larger phenomenon – 20 million during the twentieth century – but the migration of both groups had a profound impact on American culture, politics, and economic growth.  Everything from music to regional cuisines to the spread of racial politics across the country can be partly explained by the great migration of blacks and whites from the South.

 

Source: The Southern Diaspora by James N. Gregory.     

Of the 28.6 million who migrated, 26.4 million or 92 percent did so after the government ended free-immigration from Europe in 1921.  Southern blacks as a percentage were more likely to migrate after 1921 but the percentage of white migrants was also high.  At the peak of 1980, when the greatest percentage of southern born adults were living outside of the South, 34 percent of black southerners and 20 percent of white southerners were migrants.  After 1980, the percentage of southern blacks and whites living outside of the south fell for four reasons.

 

Source: The Southern Diaspora by James N. Gregory.     

First, the population began to age and an aging population does not send many migrants.  Between 1955 and 1970, only about 15 percent of all new migrants were over 40 years old.  The most common age range for new migrants during those years was between 20 and 24.  Younger people are more likely to migrate and the South was younger than the rest of the country until 1970, the year that migration as a percent of the U.S. population was at its trough and was the last time southern migrants outnumbered those earning their green cards.  By 2000 the median age in the South was 35 and is surely even higher today so the quantity of people who are most likely to migrate is shrinking as a percent of the population.            

Median Ages

Years

Southern Men

Southern Women

South

United States

1900

19

19

19

22

1910

20

20

20

24

1920

21

21

21

25

1930

22

22

22

26

1940

25

25

25

28

1950

26

27

27

30

1960

25

28

27

29

1970

25

28

27

27

1980

28

30

29

29

1990

31

34

32

32

2000

34

36

35

35

Source: iPUMS. 

Second, immigration of substitute workers from other countries increased.  Lawful and unlawful immigration increased beginning with the economic recovery of the early 1980s and following reform of American immigration laws.  The decline of Southern migrants began before the 1980s but increased immigration could be one reason why it continued to drop so much after 1980.    

 

 

Source: U.S. Department of Homeland Security and The Southern Diaspora by James N. Gregory.     

 

 

Source: U.S. Department of Homeland Security and The Southern Diaspora by James N. Gregory

Third, many of the original migrants had started to die of old age.  By 1980, age cohorts from the earlier half of the twentieth century were reaching ages where they had a higher probability of dying.  A 25 year old migrant who emigrated from the South in 1940 was 65 years old in 1980, for instance.  This thinned the ranks of migrants.  

Fourth, return migration increased sharply as a percentage of all migrants beginning in the late 1960s. The rate of economic and real wage growth increased in the South, providing a big economic incentive to return or not migrate in the first place.  Interestingly, the number of blacks who returned to the South during the late 1990s was almost a third greater than those who left.  The success of the civil rights movement and destruction of the Jim Crow laws also made the South more welcoming for blacks.  Whites had a higher rate of return than blacks did in every time period reported except for the last two – but even their rate picked up quite after the civil rights movement succeeded.     

Southern Return Migration

   

Returnees

5 Year

Return

Rate

New Migrants from South

Ratio: Returnees/ Migrants

1935-40 Blacks

25,673

1.8

127,015

0.20

  Whites

176,682

6.4

595,981

0.30

1955-60 Blacks

78,010

2.7

361,168

0.22

  Whites

647,786

10.6

1,194,039

0.54

1965-70 Blacks

114,296

3.7

336,578

0.34

  Whites

781,687

11.6

999,363

0.78

1975-80 Blacks

210,800

5.2

278,600

0.76

  Whites

897,400

12.2

915,600

0.98

1985-90 Blacks

229,113

6.3

241,892

0.95

  Whites

733,902

10.4

984,267

0.75

1995-2000 Blacks

232,985

7.7

176,642

1.32

  Whites

772,076

10.8

907,550

0.85

Source: The Southern Diaspora by James N. Gregory.     

None of this migration can be understood without studying regional wage differences.  Wages are the prices that incentivize migration and immigration.  Wage gains from migration for the lower-skilled workers were almost always higher as a percentage compared to wage gains for higher skilled workers in 1949 and 1969.  While wages are vitally important to understanding the great migration, uncovering much of the wage data is a research project itself.  I will just post this table to indicate how large the wages gap was. 

Mean Income for Southern-Born Black Males by Location Schooling in 1949 (Age 35-49)

 

 Migrants 

 In South

 % Gain Outside South

 Migrants in Non-Southern Cities

 Living in Southern Cities

 % Gain Outside South

All

$2,375

$1,415

67.8%

$2,409

$1,776

35.6%

0-8 grade

$2,253

$1,318

70.9%

$2,288

$1,699

34.7%

9-12 grade

$2,604

$1,858

40.2%

$2,623

$1,913

37.1%

Some College

$2,940

$2,351

25.1%

$2,957

$2,505

18.0%

             

Mean Income for Southern-Born White Males by Location Schooling in 1949 (Age 35-49)

 

 Migrants 

 In South

 % Gain Outside South

 Migrants in Non-Southern Cities

 Living in Southern Cities

 % Gain Outside South

All

$3,449

$2,850

21.0%

$3,629

$3,495

3.8%

0-8 grade

$2,825

$2,156

31.0%

$2,950

$2,716

8.6%

9-12 grade

$3,597

$3,248

10.7%

$3,702

$3,632

1.9%

Some College

$5,026

$4,705

6.8%

$5,214

$5,077

2.7%

             

Mean Income for Southern-Born Black Males by Location Schooling in 1969 (Age 35-49)

 

 Migrants 

 In South

 % Gain Outside South

 Migrants in Non-Southern Cities

 Living in Southern Cities

 % Gain Outside South

All

$7,548

$5,036

49.9%

$7,618

$5,590

36.3%

0-8 grade

$6,681

$4,111

62.5%

$6,765

$4,698

44.0%

9-12 grade

$7,376

$5,389

36.9%

$7,423

$5,634

31.8%

Some College

$10,206

$8,238

23.9%

$10,290

$8,306

23.9%

             

Mean Income for Southern-Born White Males by Location Schooling in 1969 (Age 35-49)

 

 Migrants 

 In South

 % Gain Outside South

 Migrants in Non-Southern Cities

 Living in Southern Cities

 % Gain Outside South

All

$10,950

$9,575

14.4%

$11,427

$10,989

4.0%

0-8 grade

$8,370

$6,446

29.8%

$8,863

$7,396

19.8%

9-12 grade

$9,926

$8,860

12.0%

$10,196

$9,618

6.0%

Some College

$15,127

$14,154

6.9%

$15,714

$15,186

3.5%

Source: The Southern Diaspora by James N. Gregory.     

The South wasn’t the only source of migrants during this period.  Millions of rural Americans moved to cities but data on this is far from reliable or complete.  Education, skills, and incomes were generally lower in the South than in the rest of the United States, the South was as poor as many foreign countries that previously sent large numbers of low-skilled immigrants, and migrants from the South earned lower incomes, on average, than other Americans.  Those similar characteristics make southern migrants partly substitutable for lower-skilled immigrants from abroad. 

Puerto Ricans

The second phase was the movement of Puerto Ricans to the American mainland.  Puerto Rico was conquered by the United States in 1898 during the Spanish American War.  In 1917, all Puerto Ricans were granted American citizenship and were allowed to travel to the mainland without legal barriers.  Puerto Ricans were far less skilled, educated, and were usually not proficient in English compared to southerners and other Americans.  This group is the most substitutable for low-skilled immigrants from abroad and they moved to New York and other East Coast destinations in large numbers after European immigration was ended. 

Prior to the Census of 1960, Puerto Ricans were defined as those who were born on the island and lived in the United States while after 1960 that category included those of Puerto Rican parentage, so I had to estimate the numbers.  Since they are so small in comparison to the size of the workforce and population, my estimates could be wildly off and it won’t change my outcomes.

Women

The third movement was the large-scale entry of women into the American workforce.  After World War II the number of working women rose from 16.3 million in 1948 to 43.3 in 1982 – a 165 percent increase.  Female LFPR increased from 33 percent to 53 percent.  During the same time, male workers went from 42 million to 56 million workers, increasing by a modest 34 percent.  The male labor-force participation rate, however, declined from 87 percent to 77 percent.    

Importantly, women were complements for men in the workforce because they tended to work in different professions until later in the twentieth century.  Women entering the workforce could have been responsible for some of the lowering male labor force participation rates but, if men and women are complements in the labor market, their entry could have created employment opportunities for men so many of them decided to leave the workforce for other reasons.     

 

 

Source: Historical Statistics of the United States, 2013 Economic Report of the President, Valerie Ramey, and Brink Lindsey.

Increasing female LFPRs added to an population-wide increase in that metric.  However, total LFPR often goes in the opposite direction as the average number of hours worked.  That is because labor supply curves are backward bending at a point, thus workers with higher incomes chose to “purchase” more leisure time at the expense of foregone income.  It’s possible that female LFPRs could increase and push total LFPR up.  However, looking back at the twentieth century, it is unclear whether that would increase the total number of hours worked.  Migrants and immigrants look to be more closely associated with increases in the total number of hours worked.

Importance of Labor Force Growth

Economic growth comes from a function of two sources.  The first is an increase in the quantity of the factors of production like the number of laborers and capital.  The second is an increase in the productivity of those factors.  If the quantity of factors decreases or remains steady then their productivity has to increase to hold growth steady.  If productivity decreases, then an increase in the quantity of factors can make up for it.  Measuring the quantity of labor and capital is relatively straightforward but numerous methodological problems emerge when measuring productivity.

Economists try to solve those problems through a measure known as total factor productivity (TFP) or multi-factor productivity.  The most famous equation that represents that is the Cobb-Douglas Production Function:

 

Y=Total Production.

L=Labor input, the total number of human-hours worked.

K=Capital input, the real value of all equipment, machinery, and buildings.

A=Total factor productivity, productivity that cannot be explained by changed to L and K.  

α and β are the output elasticities of capital and labor, respectively. These values are constants determined by available technology.

A is the measure of productivity not caused by an increase in K or L.  If K or L decreases then A must increase to make up for it or else Y will shrink.  Growth of all of these factors has either slowed or actually reversed in the first decade of the twenty-first century, an unprecedented event.  As my colleague Brink Lindsey pointed out, when growth in one or two factors slowed or reversed in America’s past, growth in the others increased.  That offsetting increase in growth of factors or productivity has not occurred in recent years.  An increasing quantity of L can make up for a decreasing A or K, thus guaranteeing an increase in Y. 

Migrants and Immigrants Increase Per Capita Work Hours 

Migrants likely have a higher LFPR and work more hours because of their relatively elastic labor supply curves, thus migrant share of the population could explain the change in average work hours over the course of the 20th century.  As the percentage of migrants shifts as a percentage of the total population, the number of average hours worked per capita shifts in the same direction – increasing L in the equation above.

 

 

Source: Valerie Ramey, Current Population Survey, The Southern Diaspora by James N. Gregory, and U.S. Census   

From 1964 to 2000 the number of hours worked per worker has increased, making up for declining TFP and capital growth during that time – meaning that economic growth was maintained in part through growth in the quantity of hours worked.  Migrants and immigrants have more elastic labor supply curves as they respond to the income effect, meaning that they increased the quantity of their work hours supplied more than other Americans in response to similar wage increases.  Migrants and immigrants move toward those higher wages, guaranteeing an increase in the per capita quantity of hours – making up for declining total factor productivity and capital accumulation.         

 

Source: Valerie Ramey, Current Population Survey, The Southern Diaspora by James N. Gregory, and U.S. Census.   

Post-War America was the Exception

The mass movement of southern Americans, women, and Puerto Ricans into the workforce was a one-time boon that cannot be repeated.  The potential to expand America’s workforce to fuel future economic growth is extremely limited because so many are already working and Americans are aging.  The U.S. workforce was able to adapt to the end of immigration after 1921 because vast numbers of Americans were underutilized in the South, Puerto Rico, out of the labor force entirely, and young – a reserve army of labor.  If such a policy were adopted today the U.S. labor force would not be able to adapt similarly. Immigrant labor is the most effective, cheapest, and possibly only realistic way to guarantee long-term increases in the size of the labor force, grow L, and increase economic growth.   

Current unemployment, relatively low Labor Force Participation Rates (LFPR), and large numbers of able elderly workers will provide some labor force growth when the economy picks up but not enough to replicate or expand upon the labor force growth that occurred in the mid-twentieth century.  Teenage LFPR could also increase but that would require lowering minimum wages and lowering the opportunity cost of education.  It’s unlikely that teenage employment growth will somehow increase enough to make up for that shortfall.         

 

Source:  Historical Statistics of the United States, 2013 Economic Report of the President

Between 1900 and 2000, the percentage of Americans not working fell from 49.8 percent to 32.9 percent – decreasing by a third the relative quantity of non-workers.  84 percent of that total increase occurred after 1950 when the great migration of southerners, women, and Puerto Ricans was in full swing.

Increasing wages due to increased labor scarcity would draw more workers out of retirement, teenagers, other Americans, and unauthorized immigrants to work in sectors of the economy.  During the 1950s and 1960s the Bracero Program supplied Mexican farm workers to rural areas which made unauthorized immigration largely unnecessary.  Since Bracero was cancelled in 1964, other guest worker visas for lower-skilled immigrants have not been able to meet demand, creating a black market of unauthorized immigrant workers.  The percentage of Americans who could be drawn from outside of the labor force into it will likely shrink without large increases in immigration. 

Whatever happens on the margin, large increases in the size of the labor force similar to that which occurred in the 1950s and 1960s will not occur again without immigration.  the pool of the presently unemployed could shrink substantially, it is unlikely to fill a potential gap left by the end of immigration.  In examining policy proposals to increase economic growth, policymakers should be keenly aware that migration played a critical role in the economic expansion of the 1950s and 1960s.     

Applications for Academic Research

Many people cite Michael Clemens’ 2011 paper in the Journal of Economic Perspectives as evidence of the vast economic gains that would occur if there were global open borders.  Clemens took a look at the leading papers that estimated the economic gains from open borders and interpreted the estimates – ranging from about a 50 percent increase in global GDP to a 150 percent increase.  Big numbers.

But those big numbers depend upon many people moving from the developing world to the developed world where their wages, because of their increased productivity, are higher.  The numbers of people who would have to move to boost GDP by such large amounts are so large that they are unrealistic, a point articulately made in this blog post

Studying the quantity of migrants who moved from the South to the rest of the United States during the great migrations of the 20th century and the wage factors that incentivized their migration could help set a baseline to investigate potential immigration if the U.S. ever adopts an open-borders policy.  This will require more research into regional wage variations during the great migrations but it could be a very fruitful project in trying to accurately predict the numbers of people who would immigrate if the U.S. adopted an open immigration policy.         

Conclusion

The economic experience of the 1950s and 1960s – rapid economic growth with relatively closed borders – cannot be repeated today because there are fewer underutilized Southerners, Puerto Ricans, and women who could enter the workforce as substitutes for immigrants.  Teenagers, some of the unemployed, and others who have dropped out of the labor force could provide some growth in the quantity of workers but nowhere near enough to substantially increase the number of hours worked and make up for relatively low growth in the other factors of production.  Immigrants did not crowd out many American migrants.  The substitution of southern and Puerto Rican migrants petered out sometime between 1960 and 1970, before international immigration could substitute and at a time when the percentage of immigrants was the lowest ever recorded in American history.  Immigration restrictions face a trade-off between more restrictive immigration and economic growth that they should be weighing more carefully than they currently do.

Studying the great migrations can also help illuminate how many immigrants would come if radical policy alternatives like open border are ever adopted in the developed world – but more research needs to be done on historical regional wage variations.  

Categories: Policy Institutes

Defending Religious Liberty Against Obamacare

Tue, 01/28/2014 - 11:34

Ilya Shapiro

Obamacare violates civil rights in so many ways. The latest example has arrived at the Supreme Court by way of the “contraceptives-mandate” cases, which will be argued March 25. Cato is proud to have filed a brief in Sebelius v. Hobby Lobby arguing that the government can’t force people to pick and choose among their constitutionally protected individual liberties.    In 1970, David Green founded a picture-frame company in his Oklahoma City garage. Since then, Hobby Lobby has grown into a leader in the arts-and-crafts retail industry, with 588 stores and around 13,000 employees across the United States.    Ever since the company’s founding, the Green family—David, his wife Barbara, and their three children—has managed the company in accordance with their Christian principles. For example, Hobby Lobby is closed on Sunday and often purchases newspaper advertisements suggesting that readers seek Jesus.    Following in his father’s footsteps, Mart Green also founded a business, a chain of Christian bookstores called Mardel, of which he remains CEO. In the Green family tradition, Mardel is also managed in accordance with religious principles.    Thanks to the Affordable Care Act, however, the Greens are being forced to choose between operating their businesses in direct contravention of their deeply held religious principles or running them into the ground. Among Obamacare’s thousands of pages is a requirement that corporations with more than 50 employees provide coverage in their group health plans for certain medical services or else face severe additional “taxes.” 

  These mandated services include certain methods of contraception, some of which function by preventing the implantation of a fertilized egg. Among the religious tenets that have guided the Green family’s spiritual lives and business decisions, however, is the belief that life begins when sperm fertilizes an egg. They are morally opposed to contraceptives that prevent implantation and thus destroy life. The Greens believe that being forced to provide health insurance that facilitates the use of such contraceptives is a substantial burden on their right to exercise their religion under the federal Religious Freedom Restoration Act, as well as under the First Amendment’s Free Exercise Clause.    The Greens sued to protect that right and last year won in the U.S. Court of Appeals for the Tenth Circuit. Now the case is pending in the Supreme Court, along with a similar case out of the Third Circuit, Conestoga Wood Specialties Corp. v. Sebelius, that involves a woodworking company run by a Mennonite family. These cases will determine whether individuals who wish to conduct their lives in accordance with their religious beliefs forfeit the right to do so when they engage in business activities, particularly through the corporate form.    Cato has submitted an amicus brief supporting Hobby Lobby and Conestoga. We argue that individuals should be able to order their professional lives according to their religious beliefs, that engaging in business doesn’t demand the surrender of religious freedom, and that there’s nothing inherent in the corporate form that requires denying the owners of a corporation the right to direct their business in a manner that comports with their religion. This is an important case because the corporate form is an essential tool for operating successfully in the complex modern economy and the right to exercise one’s religion—even through one’s business—is an essential right in a free nation.   

Nobody should have to choose between the two.

Categories: Policy Institutes

Senate Prepares to Roll Back Flood Insurance Reforms

Mon, 01/27/2014 - 17:47

Mark A. Calabria

A funny thing happened in 2012, Congress actually passed a bill that intentionally cut subsidies.  In this case subsidies given to homeowners under the National Flood Insurance Program (NFIP).  The Biggert-Waters Act of 2012, if fully implemented, would eliminate almost half of the annual billion in estimated subsidies under the NFIP.  Now before your opinion of Congress suddenly improves, its important to remember that subsidies reductions were done only because the NFIP had expired and some responsible members objected to extending the program without reform.  Now that the program is up and running again, beach front homeowners and their friends in the real estate industry want their subsidies back.

The Senate is currently moving towards that goal.  Not even wanting to bother with the normal process of hearings and a Committee vote, Senate Majority Leader Harry Reid has brought S.1926 directly to the floor for a vote, likely to occur this week.  S.1926 would indefinitely delay the premium increases passed in Waters-Biggert, effectively hitting the taxpayer for $100s of millions annually.  But hey there’s a close Senate race going on it Louisiana, so regular order can wait.

Now I have every sympathy for households facing rate increases under NFIP.  They’ve been getting a subsidy for years and have grown used to it.  Given the sometimes high cost of NFIP, it might not even feel like a subsidy.  But then part of that is because almost a third of the premium income is pocketed by the insurance companies (at no risk to them I might add).  The solution is to let those households either get out of NFIP altogether or to purchase private insurance, that would likely be cheaper given the inefficiencies of the NFIP.  If one feels that maintaining flood coverage is vital for these households, yet they cannot bear the higher raters, another option would be a significantly higher deductible.  Rolling back the premium reforms in Biggert-Waters is simply short-sighted and irresponsible, but then that’s nothing new for Washington.

Categories: Policy Institutes

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