More immigration please (Making America Great Again)

This post is not about open borders; it’s about the need for dramatically higher rates of immigration.  Let’s consider three objections:

1.  The impact on US workers.

What impact?  Why should more immigration cost jobs?  The unemployment rate Canada is 7.1% and Australia’s unemployment is 5.7%.  The US has 9 times as many people as Canada, and 14 times as many as Australia.  That’s a huge difference in the number of immigrants we’ve let in, and yet our unemployment rate is only 5.0%.  If we went to having 10 or 11 times as many people as Canada, would we suddenly have lots more unemployment?  I don’t see why.

Another argument is that immigration has disproportionately hurt the wages of low skilled workers.  Hmmm, that must be why so many conservatives object—a sudden concern with the welfare of the poor.  In fairness, this argument may have a bit of merit, which is why we might want to consider adjusting the mix of immigrants so that the average skill level of immigrants is comparable to the current US population.

2.  The groups we are letting in are inferior to the native population.

The largest group of immigrants now come from Asia.  In America, average household income is $49,800.  For Asian Americans it’s $66,000.  Some argue that this is misleading, as only certain Asian groups do well, like Japanese and Chinese Americans.  Actually, both those groups have median family incomes of below $66,000.  Filipinos (the Hispanics of East Asia) and Indians do far better.

Much faster population growth would lead to much more housing construction, as well as infrastructure construction.  More need for Trump Towers, for rich Asians (are you listening Donald?)  More jobs for blue collar workers.  The zero bound on interest rates would probably go away, making recessions less likely.

3.  The groups we are letting in support big government.

How do we know this?  Again, Asians are now the biggest immigrant group (in flow terms, not stock), and in almost all Asian countries the government’s share of GDP is smaller than in the US, often far smaller.  In fairness, that’s partly because developing countries normally have low G/GDP ratios.  But what makes Asia unique is that even the wealthy East Asian countries have low G/GDP ratios.  In most US states, the top income tax rate is higher than in Communist China.

And why do we assume their views are carved in stone?  Didn’t lots of the white immigrant groups switch from Democrat to Republican during the 1970s and 1980s?  Things change.  I know “red Chinese” who have become “red-voting Americans.”

I’m not saying that our current system is perfect, far from it.  I’d like much higher rates of immigration (3 million a year is a good start) and a better balance of skilled and unskilled, so that the people at the bottom in America are not bearing the brunt of the competition for jobs.  As a practical matter, my proposal would skew the immigrant mix even more towards Asia.  However, I’m perfectly happy with immigrants from other areas as well; ethnicity should not be the criterion we use to decide who gets in.  And certainly not religion.

PS.  Here’s the IMF data on government spending as a share of GDP, for 2014 (we don’t get many immigrants from Japan):

Japan  39.8%

USA  35.6%

China  29.3%

Malaysia  26.5%

S. Korea  20.7%

Taiwan 18.3%

Singapore 18.1%

Hong Kong  17.3%

PPS.  If we allowed immigration at levels equal to 1% of the US population, it would allow the US to surpass China in total popuation in about 100 years, when their population is expected to have fallen back to 750 million.  We would again become the world’s largest economy.  Let’s make America’s economy a great big one again.

India?  No chance of passing them; in 2116 India will have vastly more people than either the US or China.  And a bigger GDP.

 

 

The believers

In the 2001 film “The Believer“, a character named Daniel Balint joins a neo-Nazi group.  The other members of the group are pretty dumb, as you’d expect.  But Daniel (played by Ryan Gosling) is brilliant, and also Jewish.  At one point in the film, the other neo-Nazi’s are denying the truth of the Holocaust, and Daniel fires back at them:

If Hitler didn’t kill six million Jews, why in the hell is he a hero?

That’s the irony at the center of the film; the only true neo-Nazi turns out to be a Jew.  I’m often reminded of that scene when I read the comment section.  Lots of Trump people (in my comment section) seem to believe that whites are a superior race.  They constantly tell me how awful other groups are.  And yet when I point to all the racist dog whistles put out by Trump, they use arguments that are too clever by half to insist that I’m delusional.  I almost want to grab them by the shoulders and scream, “If you don’t think Trump’s a racist, why in the hell do you like him so much?”

Mike Sax directed me to the following, from Business Insider:

According to a 1990 Vanity Fair interview, Ivana Trump once told her lawyer Michael Kennedy that her husband, real-estate mogul Donald Trump, now a leading Republican presidential candidate, kept a book of Hitler’s speeches near his bed.

“Last April, perhaps in a surge of Czech nationalism, Ivana Trump told her lawyer Michael Kennedy that from time to time her husband reads a book of Hitler’s collected speeches, My New Order, which he keeps in a cabinet by his bed …

When Brenner asked Trump about how he came to possess Hitler’s speeches, “Trump hesitated” and then said, “Who told you that?”

“I don’t remember,” Brenner reportedly replied.

Trump then recalled, “Actually, it was my friend Marty Davis from Paramount who gave me a copy of ‘Mein Kampf,’ and he’s a Jew.”

Brenner added that Davis did acknowledge that he gave Trump a book about Hitler.

“But it was ‘My New Order,’ Hitler’s speeches, not ‘Mein Kampf,'” Davis reportedly said. “I thought he would find it interesting. I am his friend, but I’m not Jewish.”

After Trump and Brenner changed topics, Trump returned to the subject and reportedly said, “If, I had these speeches, and I am not saying that I do, I would never read them.”

In the Vanity Fair article, Ivana Trump told a friend that her husband’s cousin, John Walter “clicks his heels and says, ‘Heil Hitler,” when visiting Trump’s office.

The Weekly Standard comments:

Now lots of ordinary people read Hitler for valid reasons, such as innocent historical fascination. But it seems particularly strange in light of Trump’s bizarre refusal to denounce David Duke, even as he apparently lies about knowing about the former KKK grand wizard.

And if you’re inclined to cruise down parts of the information superhighway where it’s a good idea not to roll down the window, you’ll see that Stormfront and lots of other racists think this detail is pretty significant.

I think it’s fair to say Trump’s got the the neo-Nazi and KKK vote locked up, time to go after the much bigger anti-Muslim vote.  Then the anti-Mexican vote.  There are so many people in the world that are not like us.  So many people to hate.

I’ve been pretty critical of Trump—even called him a moron.  But I do need to give him credit on this.  When he decides to learn something—like how to be a demagogue—he knows who the world class experts are.  And he’s a quick learner.

Back to the 1960s

It’s been obvious for several years that the field of economics has entered a new Dark Ages.  Here’s another example, from a couple articles discussing Australian monetary policy.  First, James Alexander sent me this gem, discussing the views of RBA board member John Edwards:

“It has never been the view that the target had to be achieved each and every quarter, or for that matter each and every couple of quarters, or year for that matter,” Edwards was cited as saying. Australia’s annual inflation rate has been below 2 percent since the third quarter of 2014.

The RBA’s first rate cut in a year on May 3 came after data showed that some of the disinflationary pressures weighing upon economies from Japan to Europe are also being seen in Australia. The consumer price index dropped for the first time since 2008 in the first quarter, while annual core inflation growth slowed to the weakest on record, prompting the central bank to cut its inflation forecasts.

Some economists have argued that the inflation target should be lowered to reflect global and domestic forces that could keep downward pressure on prices for some time, the WSJ reported. The central bank will be forced to cut interest rates to 1.5 percent by August, according to most economists surveyed by Bloomberg.

This was a widespread view in the 1960s and 1970s.  Inflation was not caused by monetary policy; it reflected other forces. By the 1990s were we out of those Dark Ages, and that view was thoroughly discredited.  Actually, it was more than just discredited, it was widely mocked.  And now it’s back.

Stephen Kirchner sent me another piece on the RBA:

Former Reserve Bank of Australia governor Ian Macfarlane has lashed out at financial markets – particularly those offshore – for effectively forcing the central bank into a wasteful knee-jerk official interest rate cut this month to avoid falling victim to an increasingly erratic global currency war.

In his first public comments about Reserve Bank rates policy since handing over the governorship to Glenn Stevens a decade ago, Mr Macfarlane lambasted currency traders and analysts for assuming the central bank should always adopt a slavish adherence to its 2-3 per cent inflation target.

Describing current monetary policy as “easy” – or stimulatory – he said there was nothing in the central bank’s approach that locks it into making a cut every time a statistical report shows inflation is below the goal.

Here’s the problem.  Financial markets never have Dark Ages—they always understand what’s going on.  So when economics enters a new Dark Ages, the views of economists will be rejected by the financial markets.  Economists will then lash out at the irrationality of markets, when it’s actually the economics profession that has lost touch with reality.  (And yes, I’m also talking about the Fed.) Australia’s economic policy is clearly too tight to hit their targets, and yet they continue to insist that policy is expansionary.

Mr Macfarlane’s intervention – just as Macquarie Bank predicted on Thursday that the lack of fiscal stimulus and need for a weaker currency would see the official cash rate slashed to 1 per cent – indicates a growing desire to re-educate analysts and markets about both the limits of monetary policy and the need for greater flexibility around how the target is used.

“When countries introduced inflation targeting 20 or 25 years ago, they never envisaged a world where inflation was so low that it was below all major countries’ targets,” Mr Macfarlane, who was the first to formally announce the target when it was adopted, said.

That’s right, markets that foolishly believed that the RBA would adhere to its inflation targets need to be “re-educated”.  In fact, it’s Mr. Macfarlane who doesn’t understand what’s going on.  The markets are well aware of the fact that the RBA is willing to let inflation stay below 2%, and that’s precisely why they are putting pressure on the RBA to drive interest rates ever lower.  If markets expected 2.5% inflation going forward (the RBA target), then interest rates would probably be higher than 1.5%.

More confusion:

However, Mr Macfarlane, who is now an ANZ Bank director, suggested that one of the triggers for the surprise May cut was a fear within the central bank that markets would have reacted violently had the board left the cash rate unmoved two weeks ago because the weak inflation figures implied a cut was urgently needed to meet the 2-3 per cent target.

In the lead-up to the May rate meeting – which the Reserve Bank this week indicated was a close call – the Australian dollar traded above US78¢, an uncomfortably high level given the bank’s goal of driving down the currency to help the post-resources adjustment.

Within the board, there would have been a genuine fear that a decision not to cut could have sent the currency shooting dangerously above US80¢.

“Their problem [at the Reserve Bank] is that financial markets, particularly offshore, assume a mechanical application of what they regard as the standard model,” Mr Macfarlane said.

“The inflation targeting approach says that if inflation forecasts are below target, we should run an easy monetary policy – we already have that,” Mr Macfarlane said.

Here’s what’s actually happening:

1.   Australia doesn’t already have easy money; they have tight money.

2.  Global Wicksellian equilibrium interest rates have fallen sharply, and central banks have been slow to accept that fact.  Just as many of my commenters are slow to accept the fact that global productivity growth has slowed to a crawl. Reality’s a bitch.

3.  When the RBA (unexpectedly) holds its policy rate above the equilibrium rate, money is tight and the Aussie dollar appreciates sharply in the forex markets, which drives inflation even further below the RBA target.  The lower inflation then leads to calls for even further rate cuts.

The bond market sees what’s going on:

The benchmark 10-year government bond yield crashed this week to its lowest level in 141 years on financial market predictions that more official interest rate cuts are likely in coming months.

Over at Econlog, I have a post on the new Dark Ages in international trade.

The prophetic Onion

Economists cannot predict the future, but The Onion sure can.  In their report on Bush’s inauguration in January 2001, The Onion had Bush reassuring the public that “our long national nightmare of peace and prosperity is finally over”.

Now Peter sent me to an Onion video from right after the 2012 election that is eerily prescient:

Let’s see how they do on their VP prediction.

Off topic.  Dylan Matthews has a wonderful post skewering the eternal cluelessness of the left.  (In the case Google.)  He’s actually far to polite.

Because I’ve been doing a lot of Trump bashing, I’d like to give some air time to the other side.  Here Dylan Matthews defends Trump against the charge that he is a fascist:

Again, fascism requires stepping outside the system and attacking the democratic structure. As long as that structure itself is handling illiberal attitudes on race, those attitudes don’t themselves constitute a fascist trend.

But the views are still illiberal. To be very, very clear: Donald Trump is a bigot. He is a racist. He is an Islamophobe and a xenophobe. He profits off the hatred and stigmatization of traditionally oppressed groups in American society. That makes him, and his European peers, and racists in other eras in American history, a threat to crucial values of equality and fair treatment, and a threat to the actual human beings he’s targeting and demonizing. And he’s in particular mainstreaming Islamophobia, which is on the rise in recent months, as seen in a recent incident in which a Muslim engineer was harassed at a Fredericksburg, Virginia, civic meeting. “I’m really not sure those views in Fredricksburg would be aired were it not for Trump’s ‘mainstreaming’ of these prejudices,” Feldman says.

Yes, there are lots of differences from the 1930s.  It’s a completely different world today, and Trump obviously won’t invade Poland.  But Trump does have many fascist tendencies.  Perhaps the term ‘demagogue’ is more appropriate.

Each week I’ll try to provide at least one defense of Trump, similar to the one above.

 

David Beckworth on EconTalk

David Beckworth was interviewed by Russ Roberts this morning in a special video version of EconTalk, which was held at the Cato Institute and hosted by George Selgin. Unfortunately I am not able to find a link for the talk, but I’ll put one up if someone else can direct me to it.

Update:  Here’s the link:

http://www.cato.org/events/econtalk-live-david-beckworth-monetary-policy-great-recession

Update#2:  I’m told the link no longer works, but a new link should be up in about 10 days.

There was some discussion of whether the market monetarist critique of Fed policy in 2008 is just Monday morning quarterbacking.  David seemed to concede that this complaint had some merit, and perhaps to some extent it does.  But I also think David is being too modest.  Here’s David criticizing interest on reserves, way back in October 2008, right after it was first adopted:

Is the Federal Reserve (Fed) making a similar mistake to the one it made in 1936-1937? If you recall, the Fed during this time doubled the required reserve ratio under the mistaken belief that it would reign in what appeared to be an inordinate buildup of excess reserves. The Fed was concerned these funds could lead to excessive credit growth in the future and decided to act preemptively. What the Fed failed to consider was that the unusually large buildup of excess reserves was the result of banks insuring themselves against a replay of the 1930-1933 banking panics. So when the Fed increased the reserve requirements, the banks responded by cutting down on loans to maintain their precautionary level of excess reserves. As a result, the money multiplier dropped and the money supply growth stalled as seen in the figure below.

.  .  .

Now in 2008 the Fed did not suddenly increased reserve requirements, but it did just start paying interest on excess reserves. The Fed, then, just as it did in 1936-1937 has increased the incentive for banks to hold more excess reserves. As a result, there has been a similar decline in the money multiplier and the broader money supply (as measured by MZM) which I documented yesterday. If the Fed’s goal is to stabilize the economy, then this policy move appears as counterproductive as was the reserve requirement increase in 1936-1937.

David says that in retrospect he thinks that Fed policy went off course even earlier, in the middle of 2008. Speaking for myself, I didn’t really become aware of the problems with monetary policy until September 2008, after the Fed refused to cut rates despite plunging TIPS spreads.  In retrospect, money became much too tight a couple of months earlier.

Because of data lags, it’s not always possible to predict a recession until the recession is already well underway.  During the past three recessions, a consensus of economists didn’t predict a recession until about 6 months in.  That’s right, not only are macroeconomists unable to forecast, we are also unable to nowcast.

This is why NGDPLT is so important. Under a level targeting regime, the market tends to prevent sharp drops in NGDP from occurring in the first place.  Under NGDPLT, the economy would not have fallen as sharply in late 2008, partly because level targeting would have prevented a steep plunge in asset prices, and partly because current AD is heavily dependent on future expected AD.  If you keep future expected AD rising along a 5% growth path, current AD will not fall very far during a banking crisis.

There was also some discussion of the shortage of safe assets.  Two questions came to mind:

1.  Does this theory imply that risk spreads should have widened in recent years, as the demand for T-bonds has increased faster than the demand for riskier bonds?

2.  Has this in fact occurred, and if so to what extent?