I don’t have much time now, but a quick reply to Kevin Drum:

The thing is, it’s not clear to me how much real difference there is between targeting NGDP, targeting inflation, targeting real interest rates, dropping money from helicopters, or engaging in quantitative easing. This is what I’d like NGDP advocates to make clear. Instead of telling us what they’re targeting, or what their preferred policy is called, tell me three things:

â– What do you want the Fed to say publicly?
â– What open market operations do you want the Fed to engage in?
â– Beyond that, is there anything else the Fed should be doing?

To see the advantages of NGDP targeting over inflation targeting, just look at the UK, where CPI inflation is running about 4.5% and NGDP growth is somewhat lower.  Under inflation targeting the BOE would have to tighten right now; with NGDP targeting they should ease. I’m pretty sure Kevin Drum would agree that at least in that case, NGDP targeting gives the “right” answer.

As far as the question of what should the Fed actually say; I’ll give two answers. In general, the Fed should promise to maintain NGDP growth along a 5% growth trajectory, and commit to make up for any near term overshoots or shortfalls. That’s called level targeting.

The tougher question is what to do right now, when they’ve clearly undershoot the implicit Fed target for demand growth. At first I wanted them to return to the pre-2008 trend line, but I think that’s now clearly (politically) impossible, and perhaps unwise.  Recently I’ve been throwing out numbers like 6% or 7% NGDP growth for 2 years, and 5% thereafter.

But what matters isn’t what I think, but what the Fed thinks. They need to decide on a NGDP target that they are willing to commit to, and make a very public commitment based on a majority vote. It must be public, to make them very reluctant to renege on their promise. Fortunately, the Fed doesn’t currently have strict inflation target, they have a dual mandate, so my proposal would not require them to abandon a previous target.

It’s clear that the Fed would like at least somewhat faster NGDP growth, as the newspapers are full of stories that they are strongly considering another initiative, and they’ve recently done two experiments (Operation Twist and the 2 year promise of low rates.) The Fed needs to decide how much NGDP growth they’d like to see over a period of several years, and promise to keep buying (or selling) assets until they expect to hit that target.

As to the question of how do they “actually” implement the policy, the promise does most of the heavy lifting (see this Nick Rowe post for an explanation.) I’ve often argued that with a robust NGDP growth target (say 7% for 2 years) the Fed might well have to reduce the monetary base, not increase it. The base is already almost three times its normal level. There are two explanations for that unusually high base demand; interest on reserves and very low expected NGDP growth. If you eliminate IOR, and dramatically raise expected NGDP growth, I don’t see where people and banks would want to hold all that much base money. But of course it’s a free country, and if idiots want to lend $10 trillion to the Federal Government at an interest rate of 0%, I see no reason not to accommodate their demand. I don’t know the precise laws governing Fed purchases, but given all the wild and crazy things the Fed has done since 2008, I doubt there would be any law preventing them from buying up close to $15 trillion in US, Japanese, Canadian, and German government debt.  Of course this is reductio ad absurdum, in practice NGDP growth expectations would quickly soar much higher if they actually started down this road, and I’d guess that before long the monetary base would drop from its current bloated level back to about $1 trillion, its normal level.

BTW, I don’t even think the elimination of IOR is at all essential; if they are worried about the MMMF industry then a level targeting commitment plus a vow to buy trillions if necessary would be enough.  It would cause such an upward explosion in asset prices that no purchases would be necessary.

However if the Fed actually does NGDP targeting, they are more likely to let-bygones-be-bygones, and go for 5% NGDP growth. In that case OMPs might be necessary. The less they aim for, the more heavy lifting with market distorting OMPs will be required.  And that policy might well result in 4% NGDP growth over the next 12 months, and be perceived as a failure.

PS.  All this talk of “helicopter drops” is a waste of time.  A central bank radical enough to contemplate such a policy would never be at the zero bound in the first place.  There are far less costly and radical ways to reflate.

PPS.  I just returned from 4 days in Washington.  My visit to the Senate fell through, but I did have a presentation at the Treasury that seemed to go well.  I was brought back to Earth by my presentation at the Atlantic Economic Society meetings this morning.  No one showed up, even 3 of the 5 presenters failed to appear.  I guess I’m not as popular as I was beginning to assume.

I’d love to post more on NGDP targeting but won’t have time for a while, as I’m far behind in my school work.  Ditto for answering comments.  It’s frustrating, as I’d like to “strike while the iron is hot,” but numerous factors beyond my control will prevent that from happening.  If you send me emails, don’t expect a quick response.

I’m a bit frustrated because I probably won’t be able to do much blogging for the next few weeks, and yet I have a large backlog of issues I’d like to address.  I guess the big news today is Paul Krugman’s very generous comments on David Beckworth and I (and by implication the others who have also been pushing the nominal GDP target):

“Market monetarists” like Scott Sumner and David Beckworth are crowing about the new respectability of nominal GDP targeting. And they have a right to be happy.

.   .   .

At this point, however, we seem to have a broad convergence. As I read them, the market monetarists have largely moved to an expectations view. And now that we’re almost four years into the Lesser Depression, I’m willing, out of a combination of a sense that support is building for a Fed regime shift and sheer desperation, to support the use of expectations-based monetary policy as our best hope.

And one thing the market monetarists may have been right about is the usefulness of focusing on nominal GDP. As far as I can see,the underlying economics is about expected inflation; but stating the goal in terms of nominal GDP may nonetheless be a good idea, largely as a selling point, since it (a) is easier to make the case that we’ve fallen far below where we should be and (b) doesn’t sound so scary and anti-social.

I still believe that the chances of success will be a lot larger if we have expansionary fiscal policy too; but by all means let’s try whatever we can.

That makes me want to take back all the negative Krugman posts I wrote.  (Although in fairness, I often called him “brilliant,” and on one occasion argued we’d be much better off if the FOMC had 12 Paul Krugman clones.  But I suppose his supporters have noticed the negatives more than the positives.)

I still don’t think I ever denied that the expectations channel was crucial, although I don’t doubt I wrote a couple posts that may have created that impression.  But I would like to briefly address his comment about inflation being the theoretically appropriate variable.  He may well be right, as I don’t have a magic bullet argument against the mainstream view, but I’ll list a few of my pragmatic arguments:

The mainstream view is that P and Y (prices and output) are the “things” in and of themselves, and P*Y is an ungainly mixture, like a centaur.  It treats P and Y equally, even though macro models provide no reason for doing so.  So what are my pragmatic arguments?

1.  I’ll start with a point I’ve often made, and others like Greg Mankiw have also made.  The price index that should be stabilized in the one with sticky prices.  To me that means a wage index.  Earl Thompson argued for the optimality of wage targeting back in the 1970s, and I continue to see average nominal wages fall when NGDP growth falls sharply.  In contrast, the CPI is not a very reliable indicator of excessive monetary tightness, as it’s full of all sorts of flaws.  Core CPI does better, but only because it’s much closer to wages.  I see NGDP as a sort of proxy for nominal wages.

2.  It’s widely thought that low inflation leads to liquidity traps, but the evidence from Japan, China, etc, suggests it’s actually low NGDP growth that leads to liquidity traps.  Both had deflation in the late 1990s, but only Japan had low NGDP growth.

3.  Inflation appears in many new Keynesian models as a variable used to calculate real interest rates, which then impact AD.  But arguably it is the difference between nominal interest rates and nominal GDP growth that is more important.  Suppose the SRAS is really flat, so inflation doesn’t rise much with rapid NGDP growth.  I believe that if the Fed is able to engineer rapid expected NGDP growth, and nominal rates stay low, that will lead to more investment, even if the real rate doesn’t drop much (because of the flat SRAS.)  I think some Keynesians would counter that since you can’t raise inflation substantially without enormous increases in NGDP growth increases (when SRAS is fairly flat), a modest boost in expected NGDP growth is virtually impossible.  There’s a sort of “gap” where it’s 1.5% core inflation or 4%, but nothing in between.  I think that ignores the fact that monetary policy doesn’t just affect bond yields; it affects the prices of all sorts of assets such as stocks, commodities, commercial real estate, etc, relative to sticky nominal wages.  (That’s where my monetarism comes in.)  Maybe that’s saying that the “right” price index would include assets.  But stock bubbles (i.e. 1987) can give off false signals–so I still prefer NGDP.  So replace P and Y with NGDP and hours worked.

4.  I also don’t like inflation because I don’t believe the inflation numbers we use correspond to the theoretical concept in NK models.  The government says housing costs are up 7.7% in 5 years, Case-Shiller says they are down 32%.   Which number best expresses the incentives facing home builders to construct new homes?   The Case-Shiller number is actual transaction prices; the BLS number is rental equivalent.  Older rental contracts aren’t really prices at all; they are a sort of nominal debt.

5.  When using inflation in your model you need to add supply shocks, as higher inflation is only expansionary if it comes from the demand-side.  NGDP takes care of that problem—it’s unambiguously demand.

6.  There are no solid theoretical foundations for price level theory in a modern economy where hedonics is very important.  It’s not just that we’re not good at measuring price changes for computers and consulting services; it’s not even clear what we are trying to measure in theory.  Is “a computer” something that yields constant utility?  If so, then we need to figure out what utility is.  If it’s happiness, and if that’s the theoretical foundation for price level theory, then it means the inflation rate measures the wage increase required to preserve the current level of happiness.  In that case, if surveys show people aren’t getting any happier over the decades, then that means RGDP/person is constant.  But that’s nonsense.  How can inflation be the “theoretically” appropriate variable for these models, if there’s no obvious way to partition computers into prices and output?  The only objective fact is the revenue Dell earns from selling computers; the “quantity” is purely arbitrary.

7.   Because of point 6, I’m inclined to argue that average hourly wages are the only reasonably objective nominal aggregate that measures a sort of “inflation” (albeit input price inflation.)   Yes, total aggregate hours is a bit fuzzy, due to the non-market economy.  But the market sector is reasonably well-defined, and gives us something tangible to work with.   Set monetary policy to keep average hourly wages growing at a steady rate of 4%, and we’ll be OK.  So why don’t I favor a wage target?  I’m not sure how comprehensive the wage data actually is, and I also don’t think it’s politically feasible to target wages.  It would seem too much like the Fed is trying to hold down wages, which seems unfair.  (Even though in theory CEO incomes are also “wages.”)

These arguments are pragmatic, and I could add the one that Krugman alludes to; it’s easier for the Fed to sell a policy that raises the incomes of Americans than one that raises their cost of living.  It’s also more honest, as the Fed really is trying to raise NGDP, not pure inflation.  That’s been the argument I’ve used more and more often, and indeed I think right now it’s the most powerful argument.

These arguments are all pragmatic, and a few are probably wrong.  I doubt that any would cause Krugman to abandon his theoretical framework with its Ps and Ys.  But I’m now pretty much a total pragmatist; I no longer believe “inflation” is an actual thing out there in the world, waiting for us to measure it more or less accurately.  A famous philosophical pragmatist named Richard Rorty supposed said “truth is what my peers let me get away with saying.”  I’d say that right now more and more of my peers are seeing the practical virtues of NGDP targeting.   (BTW, almost everyone misunderstood Rorty’s comment.)

PS.  Let’s also recall the long and distinguished intellectual tradition of NGDP targeting proposals:  Hawtrey, Hayek, McCallum, Taylor, Mankiw, Selgin, and many others.

PPS.  Unfortunately, my responses to comments will fall way behind, as I’ll be travelling, then grading.

PPPS.  Message to any smart grad students reading this blog:  I’m providing the intuition—I’m counting on you to turn it into a rigorous mathematical model that my peers will take seriously.

.  .  . an idea whose time has come.  Or so they say.

Here’s what the Goldman Sachs endorsement triggered (from Business Insider):

Over the weekend, Goldman came out with a report calling on the Fed to embrace Nominal GDP targeting: In other words, set as a goal for the economy that nominal GDP that we saw back in 2007, and then produce enough inflation so that we got there.

Now Bernanke is out with a new speech about monetary policy in the post-Great Recession era, and though he doesn’t say that much substantive, he does talk more about trying to more clearly express monetary policy goals.

According to PIMCO’s Bill Gross, that’s code for… targeting Nominal GDP.

Meanwhile, Chicago Fed President Charles Evans has been making similar comments, about weighting the Fed’s mandate much more towards the full employment/growth end of the spectrum, even if it means high inflation.

All of which means you should really be reading the work of Bentley Economist Scott Sumner, who has been writing forever about the benefits of Nominal GDP targeting, and who is sure to be the hottest economist in the world, as this takes off.

You can start by watching his lecture below.

Here’s The Daily Bell:

The latest sub-dominant social theme seems to have to do with NGDP targeting. What this means is that central banks (specifically the Fed) ought to target “Nominal Gross Domestic Products.” This is being suggested for both the Bank of England and the Fed 154127845 The Economist is the latest to jump aboard this particular train.

ANTHONY J. EVANS

IT SEEMS like Mervyn King has abandoned the Bank of England’s (BoE) inflation target, with the consumer price index (CPI) apparently stuck well above 2 per cent. But has King privately taken up a different sort of target altogether? A more credible alternative that continues to gain momentum is to set a nominal GDP (NGDP) target instead. Setting a target for the nation’s gross domestic product unadjusted for inflation (what F.A. Hayek referred to as the “total income stream”) has several arguments in its favour. Such a target allows gains in productivity to reveal themselves in price deflation over the long-term, and it turns the attention of policymakers towards market expectations rather than the previous month’s inflation figures. Scott Sumner’s proposal for the Adam Smith Institute is an interesting investigation of the topic and suggests such a target may well be an improvement, and is worth giving serious attention.

And how come nobody invited me to this talk?

BOSTON —

Federal Reserve Chairman Ben Bernanke suggested the central bank is considering steps to better signal how it is likely to act.

The Fed has been considering whether to provide more explicit guidance on its plans for interest rates. One idea would be to more explicitly tie changes in its interest-rate policy to forecasts for employment and inflation measures.

Mr. Bernanke said “forward guidance and other forms of communication about policy can be valuable” and added he expected “to see increasing use of such tools in the future.” He made his remarks Tuesday at a Federal Reserve Bank of …

Let’s make that QE instead of interest rates.  And keep doing it until FORECASTS of inflation and employment are on target.  And then let’s replace employment and inflation with NGDP.  A long way to go, but even the longest journey begins with a single hint from Mr. Bernanke.

I will be in DC this weekend.  I hope I am able to report something interesting next week, but I can’t be sure.  The way things are going I may have to buy a cell phone and “get a life” as Morgan would say.  And I’m having more and more problems with my $287 Acer computer (powered by 2 gerbils in a spinning wheel), where Internet Explorer is now almost useless and Firefox is getting worse every day.  I’m thinking of one of those big Apple computers with a 27 inch screen and the computer built into the screen.  But I hate change.

It’s nice to be called “hot.”  I doubt any of my students ever used that term in faculty evaluations.  Which reminds me of this song by the immortal Buster Poindexter:

HT:  Andrew, Gabe, dwb, James of London.

***Bruce Bartlett sent me a link to the now famous Goldman Sachs endorsement of NGDP targeting.***

And now back to my regular post  . . .

It’s amusing to analyze all this from a market monetarist perspective:

LONDON””The Bank of England’s decision to restart its bond-buying program will give the U.K. government breathing room to continue its austerity drive, which has come under increasing fire amid sluggish growth.

But the legacy of this round of so-called quantitative easing will depend on a number of factors. Neither the government nor the central bank has much control over many of them””including inflation and the euro-zone crisis.

. . .

Treasury chief George Osborne welcomed the decision, calling it a “positive move” for the British economy. The bank’s own research suggests that when it spent £200 billion in 2009 and 2010, that helped to lift GDP by 1.5% to 2%.

Mr. Osborne’s austerity measures have achieved much of what they aimed at””in particular, calming market fears about Britain’s ability to pay its debts. That has reduced government interest rates to record lows even as other European nations have watched their cost of capital balloon.

But that has come at a cost, with billions of pounds of spending cuts and tax increases taking demand out of the economy and raising unemployment. The central bank’s latest move gives the economy a boost the government won’t provide at present, though it also provides fodder for critics to say the bank is bailing out the government because the economy hasn’t rebounded.

“The Bank of England has been left with no choice but to step in and try to offset the contractionary effects of George Osborne’s budget plans,” said Ed Balls, the opposition Labour Party’s finance spokesman.

Most economists still back the government’s austerity moves, and so do the ratings companies. But as economic data have worsened, critics outside opposition politics have stepped forward as well.

The biggest danger to Britain may be the debt crisis in the euro zone, which the U.K. isn’t a member of. Another danger often driven from abroad is inflation, which typically increases with quantitative-easing programs. The bank’s announcement is a bet that the major threat to the U.K. is renewed recession, not rising prices. The bank has forecast that inflation will peak at 5% next month before falling rapidly.

Others aren’t so sure. U.K. factory-gate prices rose in September at the strongest annual rate in almost three years, data released Friday showed, while the average monthly increase in consumer prices in Britain is 0.23%””an annualized rate of nearly 3%””according to AXA IM.

I was particularly amused by the Ed Balls quotation. Balls seems to think it’s the fiscal authority’s job to control NGDP growth, and the BOE is having to step in because the Conservatives aren’t doing their job. Of course it’s the fiscal authority’s duty to focus on the optimal levels of spending and taxes, and the monetary authority’s job to make sure they can do in in an environment of stable NGDP growth. Since when is the term “bailing out” applied to a central bank trying hard to do its job?

The BOE hasn’t been doing a great job of maintaining NGDP growth, although they are not doing as poorly as some other central banks. But Britain also has structural problems, which show up in a rather unpleasant RGDP/price level split. Meanwhile roughly 100% of Keynesians point to low British RGDP growth as evidence that monetary policy can’t offset fiscal austerity, even though the relevant variable is NGDP, not RGDP. The low RGDP growth actually supports the structural problem hypothesis. If I was as sarcastic as Paul Krugman, I might say:

The fact that these guys don’t even get the implications of their own models right tells us that the problem runs deeper than believing too much in abstract math.

But I’m not that sarcastic.

[I wrote this months ago, was dissatisfied, and decided not to post it.  But now with all the reports about America’s poor, poor, pitiful 99%, it’d didn’t seem quite as silly.]

I’d like to make some observations about inequality.  First as a person, then as an economist.  These are based on 56 years of observing all kinds of people, in all sorts of different situations.  The various inequalities are not meant to be equally important; indeed I’ve purposely added a few trivial ones for perspective.  But they are all assumed to affect utility (although I don’t know that they all do.)  Then I’ll return to this issue as an economist, and draw some conclusions.

1.  Inequality of disability.  Some people are blind, paralyzed, etc.

2.  Inequality of talent.  Some people are blessed with the ability of a Michael Jordon, or a Brad Pitt.

3.  Inequality if liberty.  I know one Chinese person who used to listen to Russian classical music very quietly, least the neighbors overheard.  It was viewed as counter-revolutionary, and she could have gotten in a lot of trouble.  Least we think America doesn’t have these problems, think of the many 100,000s of people in prison for using drugs.

4.  Inequality of money (i.e. income/wealth/consumption.)

5.  Inequality of personality.  I know one part time instructor who always looks happy.  He always whistles while he walks, and greets people with enthusiasm.  He’s about 85.  And I know lots of grouchy professors making 5 times more money.

6.  Inequality of mental health–actually just a more extreme version of point 5–but a big driver of utility.

7.  Inequality of access to health care.  Often assumed to overlap with money inequality, but the Medicaid program suggests it’s more complex.

8.  Inequality of power.  My Marxist friends would say I have a blind spot for this one.  I think I do.

9.  Inequality of location.  Were you born in sad Moldova, or happy Denmark?

10.  Inequality of luck.  Of course if there’s no free will, then it’s all luck.

11.  Inequality of family situation.  Are you living with an extremely difficult family member (an abusive spouse, an elderly person with Alzheimer’s, or a troubled teen.)  This has a big effect on utility.

12.  Inequality of disease.  Do you have AIDS, or cancer?

13.  Inequality of preferences.  I am cursed with expensive taste.  If I walk into a rug store, my eyes are immediately attracted to the most expensive oriental carpet.  My daughter just bought a teal shag carpet from Target that she likes.  Lucky her.

14.  Inequality of pain.  A hugely underrated factor in utility.  And let’s not forget the poor hypochondriacs.  There is no statement more stupid in the entire English language than “it’s all in your head.”  Everything is all in your head, including pain.  See the studies of phantom limbs.  Pain is pain.

15.  Inequality in social setting.  Do you live in a neighborhood terrorized by crime.  Again, only partially correlated with income.

16.  Racial/ethnic/gender/sexual preference inequality

17. Inequality of nerdiness/awkwardness.  A huge driver of utility for teenagers.  (Would a poor but “cool” and popular teen trade places with a middle class nerdy teen?)

18.  Inequality of job desirability

19. Inequality of appearance (beauty, obesity, etc.)  Michel Houellebecq says this is the greatest source of inequality in rich countries

And I’m sure there are many more that I overlooked.

Now let’s look at the same list as drawn up by economists (including me, with my economist hat on.)

1.  Inequality of money.

2. Inequality of access to health care

You might have noticed that the second list was a bit shorter.  Some non-economists suggest that economists care too much about maximizing utility, and don’t care enough about income inequality.  Of course exactly the opposite is true.  We pay little attention to utility, and focus way too much on income inequality.  BTW, this criticism could also apply to me, as I have done posts discussing ways of reducing consumption inequality.

I probably care less about income inequality than the average progressive.  I think that’s partly because I’ve known lots of lower income people, and I’ve almost never found it to be the case that their income was the central problem in their lives.  (Although it certainly is a problem–which is why I favor some income redistribution.)  On the other hand, the sample I’ve known is very biased, and unrepresentative of all poor people.  I’ve never known a migrant farm worker.  Another reason I put less weight on income inequality is that money has always mattered less to me than to the average person, even when I had very little (age 18-26).  Again, my view is slightly biased, as being poor and young is quite different from being poor and middle-aged.

But I do think I care as much about human suffering as the average progressive.  Almost every day I wonder where the outrage is over 400,000 drug users in jail.  By comparison, over the past 5 years I’ve read dozens of stories about the 400 terror suspects at Guantanamo.  Yes, the issues are different in many respects, but I still see a lack of proportion.  The drug war may be our greatest unnecessary loss of utility, showing up big not just in lost liberty, but also unnecessary pain from diseases, and more crime and violence.

As far as money problems, there is also a huge gap between America and the rest of the world.  I recently heard a progressive criticize Obama.  He started his comments by saying something like “If progressivism stands for anything, it stands for helping the middle class.”  What?!?!  Those sentiments are truly disgusting, repulsive.  The focus should be on hunger in America.  I hate to sound like an aging baby boomer, but at least in the 1960s the middle class was perceived by progressives as the enemy, unwilling to share their money and perks with poor black people.  That’s not entirely accurate either, but at least it’s not morally repulsive.

Here’s a quotation from one of Peter Hessler’s excellent books on China.  He’s conversing with a 33 year old professor in a God-forsaken college in western China during the year 1997:

But even amid these [traumatic modernizing] changes, Teacher Kong is not particularly worried . . . he is calm for the same reason that so many other Chinese are strangely placid in the midst of changes that seem overwhelming to outsider.  Quite simply, he has seen far worse.

“When I was a boy we didn’t have enough to eat,” say Teacher Kong.  “Especially in 1972 and 1973–those were very bad years.  Part of it was that we lived in a remote place where the land wasn’t very good, but also there were some problems associated with the Cultural Revolution–problems with production and agricultural methods.   It was a little better later in the 1970s, but still it wasn’t too good.  We never ate meat; I was always hungry.  Every day we ate rice gruel, and we only had a little bit of that.   Rarely did we have salt.  We ate weeds, wildflowers, pine needles–I’ve eaten all those things.

“My mother died when I was five, after she gave birth to my sister.  Of course, we didn’t have milk or anything like that to help the baby, who died as well.  I don’t remember that.  But at the age of ten my father died, which I do remember.  He got sick suddenly, a very bad cold, and in three days he was dead.

“After that things were even worse.  My grandfather wasn’t strong enough to work, and I was too young to do much, so my uncle had to support all of us.  At that time the Production Team in that village was very bad, and they weren’t of any help.  Later, things improved and they were able to assist us, but for many years it was terrible.”

All of Kong Ming’s early life took place in the mountains outside Fengdu [Sichuan], a town that nowadays has about 30,000 residents.  From his childhood home it took an hour by foot to reach the nearest road, which was three hours by rough bus ride from Fengdu, and as a result Kong Ming never saw the town until he was fourteen years old.

[As an aside, I won’t defend the Chinese view of Tibet, which is that they are bringing modernization to a backward people.  But does the previous quotation help you understand why the Han people  might have a slightly different perspective on the relative merits of modernization and traditional culture, as compared to the average American or European?]

Now let’s start down through Dante’s seven circles of Hell:

1.  The US is much richer than Mexico.  So much so that millions of Mexicans will risk the horrors of human trafficking into the US to get crummy jobs picking tomatoes all day in the hot sun.

2.  China in 2011 is still considerably poorer than Mexico.  The Chinese take much greater risks to get here.

3.  China today is so much richer than China in 1997 that it’s like a different planet.  The changes (even in rural areas) are massive.

4.  The China of 1997 seemed like paradise compared to the China of the 1970s.  Throughout Hessler’s book, people keep talking about how horrible things were during that decade and how prosperous they are now (1997 in Sichuan!)

5.  The China of the 1970s was nowhere near as bad as during 1959-61, when 30 million starved to death.

It’s fine to worry about income inequality in the US.  I also worry about this issue.  But it’s important to keep in mind that there is much more to life than income inequality, and much more to the world than the US.  In the grand scheme of things, tinkering with government programs to help the poor, pitiful, beleaguered American middle class isn’t likely to make much difference, at least from a utilitarian perspective.  We need to broaden our outlook.

Unfortunately, Bryan Caplan’s open door policy is politically infeasible, but doing even 1/10th of what he asks for would be a huge boom to human welfare.  Where is the conservative belief in “liberty?”  (Insert Samuel Johnson quotation.)

And let’s not hear any more talk from progressives like Paul Krugman about trade barriers against Chinese workers.

PS.  I just noticed this interesting data on how our poor compare to the world’s poor.

PPS.  Peter Hessler’s MacArthur Award was very well-deserved.