PSA

The World Bank's Annual Conference on Development Economics is going on right now, and the proceedings can be watched live (and perhaps later, not sure about that) here. Speakers include Elinor Ostrom, Joseph Stiglitz, and Robert Solow.

The Economics of Immigration

Robert Shapiro surveys the literature:

The New Policy Institute (NPI) asked me to review all of the available data and economic studies of recent U.S. immigration. With my colleague Jiwon Vellucci, we found, to start, that more than one-third of recent immigrants come from Europe and Asia, while less than 57 percent have come from Mexico and other Latin American nations. The popular portrait of recent immigrants is off-point in other respects as well. While more immigrants than native-born Americans lack high school diplomas, equivalent shares of both groups have college or post-college degrees. That finding should make it unsurprising that 28 percent of U.S. immigrants work as managers or professionals, including 38 percent of those who have become naturalized citizens or the same share as native-born Americans.

Many Americans would probably acknowledge that their concerns about immigration lie principally with those who are undocumented. No one likes being reminded that the world’s most powerful nation hasn’t figured out how to effectively police its own borders. But the data also show that these undocumented people, who account for 30 percent of all recent immigrants, embody some traditional values much more than native-born Americans. For example, while undocumented male immigrants are generally low-skilled, they also have the country’s highest labor participation rate: Among working-age men, 94 percent of undocumented immigrants work or actively are seeking work, compared to 83 percent of the native born. One critical reason is that undocumented immigrants are more likely to support traditional families with children: 47 percent of undocumented immigrants today are part of couples with children, compared to just 21 percent of native-born Americans.

The evidence regarding the impact of immigration on wages also turns up some surprising results. First, there’s simply no evidence that the recent waves of immigration have slowed the wage progress of average, native-born American workers. Overall, in fact, the studies show that immigration has increased the average wage of Americans modestly in the short-run, and by more over the long-term as capital investment rises to take account of the larger number of workers. Behind those results, however, lie winners and losers – although in both cases, the effects are modest. Among workers, the winners are generally higher-skilled Americans: For example, when a factory or hotel hires more low-skilled workers, demand also increases for the higher-skilled people who manage those workers or carry out other professional tasks for an enterprise that’s grown larger.

The Situation in Europe

I am now starting to argue that either we move soon on this, or Germany will inevitably have to go back (temporarily) to the Mark. The system won’t hold otherwise.

That is Edward Hugh, writing not about Greece but Spain, and advocating a 20% internal devaluation. Much more at the link, including second-hand commentary from Dani Rodrik.

My question: if Germany goes back to the Mark, why would it be temporary?

UPDATE: Rodrik comments here.

The World in Decession

In The World in Depression, Charles Kindleberger argued that the hegemon must provide five public goods to the rest of the globe:

1. Purchaser of last resort for distress goods.
2. Lender of last resort for governments and provider of liquidity to the global system.
3. Maintain a stable system of exchange rates.
4. Ensure macroeconomic coordination.
5. Provider of countercyclical lending.

Arguably the U.S. has fulfilled #s 1, 2, & 4 pretty well, while #5 has been taken over by export-biased economies and #3 is less necessary in a system of flexible rates. But Brad DeLong argues that there is a sixth:

The hope is that, by Walras's Law which tells us that excess demands across all markets must sum to zero, that relieving excess demand for AAA assets will produce as a consequence the relief of excess supply and full-employment balance in the markets for goods, services, and labor as well. ...

[W]e are extremely far from cracking the U.S. government's status as the supplier of AAA assets to the global economy right now. When we see signs that further issues of Treasury bonds or loan guarantees by the U.S. government are starting to erode the AAA status of U.S. government debt, then will be the time to back off of expansionary U.S. fiscal, monetary, and banking policy. Then--not now.

This is similar to #2 in reverse: creating highly rated, largely liquid instruments when the demand for such assets outstrips supply, and selling them to soak up excess liquidity in the system. When might demand for AAA assets outstrip supply? I can think of two scenarios:

1. When there is a negative shock restricting the supply of AAA assets.
2. When financial markets are not functioning normally.

Obviously both of these have recently occurred. In the first case, many assets formerly thought to be safe and liquid -- Eurozone debt, mortgage-backed securities and other asset-back securities -- are no longer thought to be safe and liquid, so all of the money that was previously in those assets has to go somewhere; they have largely gone to U.S. Treasuries. In the second case, financial markets are still not functioning smoothly, so investors are still looking for quality. Right now, that means T-bills.

This is policymaking-in-crisis, of course; as financial markets normalize and other safe/liquid investments return to markets supply will meet demand, the price of Treasuries will drop (i.e. interest payments will rise), and the U.S. will need to pull back its expansionist domestic policies. But until that day, the U.S. is not only helping itself by spending in deficit. It is helping foreign investors (including governments) as well.

How to Out-Crazy Kim Jong Il

Drezner notes that North Korea is playing chicken, and Carpenter asks how we can out-crazy the craziest regime on earth (they diavlog about it here):

If this is actually a game of chicken as Dan argues, how might the policy dilemma be framed in such a way that North Korea, who actually wants to avoid war, might start to believe that it's not the craziest party in the equation anymore or the one with the least to lose?

Easy. Fire Gates and appoint George W. Bush as Secretary of Defense, and pass a constitutional amendment giving him power to do whatever he wants. Game. Set. Match.

You know you're in trouble when

your Presidents confess that the euro was a bad idea imposed on the EU by a Franco-German cabal. I am surprised that Barosso doesn't mention that the Germans didn't want it either. (and Van Rompuy isn't crazy; 1992 refers to the Maastricht Treaty).

Herman Van Rompuy, President of the European Council, the body that brings together EU leaders in summits, ... confessed that the euro had been flawed from the moment of its creation in 1992, a situation that had not been made clear to voters.

José Manuel Barroso, the Commission President, has criticised Mrs Merkel for not taking on opponents to the euro bailouts "Until now Germany has been one of the big winners from the euro. More politicians in Germany should say that clearly," he told the Frankfurter Allgemeine Zeitung. "It was not Greece, Ireland or Spain who invented the euro. It was a German-French project."

Surprising Fact of the Day

From the Freakonomics blog, via Will Wilkinson:

Who spends more on social welfare: the U.S. or Sweden and other Nordic countries? Nearly everybody will say Sweden. But the answer, at least as of the mid-2000s, might surprise you. It depends heavily on how you deal with taxation, unfunded mandates, and whether you discuss spending as a share of the country’s output or in absolute dollars. ...

People’s perceptions are driven by the standard statistic reported in the news and in the OECD database: gross public social welfare spending as a percentage of GDP. In 2003, Sweden spent 37 percent relative to GDP, Denmark 32 percent, Norway 28 percent, Finland 26 percent, and the U.S. lagged behind at 17 percent. ...

If we take into account these differences in style [ed.: not quoted here, but described in the link above], the appropriate measure is net public and private social welfare expenditures per capita. By this metric, the U.S. then leads the way at $7,800, followed by Sweden at $6,700, Norway at $6,300, Denmark at $5,800, and Finland at $4,900.

I await the inevitable rebuttals, but this is did surprise me quite a bit.

UPDATE: Here's the inevitable rebuttal.

Is the Subprime Crisis a Transformative Event?

The new issue of International Affairs is out, and is titled "Global economic governance in transition". That is obviously a topic that interests me, so I was happy to find it, and a contributors list including Paola Subbachi, Andrew Cooper, Alexander Payne, and others is more than enough to attract my attention.

I'm still working my way through the articles, but I did want to highlight Eric Helleiner's contribution, "A Bretton Woods moment? The 2007-2008 crisis and the future of global finance." (Ungated pdf here.) Helleiner argues that those expecting the 2007-2008 crisis (which did not end in 2008 and still has not) to be a transformative moment spawning a new global order to be disappointed. But this is not because the system is irredeemably controlled by bank lobbyists, or obstructionists in Congress, or Chinese planners, or recalcitrant Greeks. Rather, it's because Bretton Woods itself was not a moment, but a process:

The success of the Bretton Woods conference was a product of a remarkable combination of concentrated power in the state system, a transnational expert consensus and wartime conditions. The absence of a similar political environment today makes its accomplishments very difficult to replicate. Even more important, the significance of the Bretton Woods conference itself should not be overstated. Not only did the innovative aspects of the conference agreements have long historical roots, but the implementation of the agreements after the conference was a troubled and painstaking process. The creation of a new international financial system, in other words, was not a product of that single meeting but rather the outcome of a much more extended historical process. The importance of this analytical point is brought out even more clearly when we examine the successor to the Bretton Woods financial system—what I call the ‘neo-liberal globalized’ financial regime—which emerged through a process with no clear foundational moment.

Helleiner identifies four phases in the process of change of governance structures: a legitimacy crisis, an interregnum, a constitutive phase, and an implementation phase. He claims that the global economy is currently in the interregnum, and a new global order could yet emerge. Helleiner argues that the subprime meltdown and ensuing policy responses have destroyed the legitimacy of the 'neo-liberal globalized' financial regime based on the Anglo-American model. Interestingly, he argues that the legitimacy crisis did not arise because of the crisis itself, but rather the responses of governments to it:

The fact that US and British policy-makers have responded to the crisis in a much more interventionist way than they recommended to East Asian countries during the 1997–8 crisis has undermined their credibility abroad. Since this crisis originated in their own markets, US and British policy-makers can no longer offer up their own regulatory practices as a model. As one Chinese official recently put it, ‘We used to see the US as our teacher but now we realise that our teacher keeps making mistakes and we’ve decided to quit the class.’

I have heard this claim quite -- that the Anglo-American economies were more interventionist in 2008 than the Washington Consensus proscribed for East Asia in 1997 -- a lot in the past few years. (I recall Emmanuel making it, for example, tho I'm too lazy to dig up posts right now.) It's always struck me as completely wrong-headed in two ways: first, it assumes that the Anglo-American economies were anti-interventionist; second, it assumes that the East Asian crisis and the subprime crisis are similar events.

It doesn't more than two seconds of thought to realize how absurd these claims are. On the first point, as Joshua Green's recent profile of Timothy Geithner (discussed here) emphasizes, large intervention in financial crises has be the modus operandi of the U.S. for quite some time. Green emphasizes the experiences of Geithner and Summers in the Mexican crisis in 1994 and the Asian crisis in 1997 in formulating this instinct, but the pattern is more entrenched than that: the U.S. has not hesitated to intervene in financial markets during panics since the Great Depression.

Which brings us to the second point, which is that the Asian financial crisis and the subprime crisis are not remotely similar. The former was a currency/balance of payments crisis, while the latter was a banking crisis*. Asian countries in the late-1990s had very different economies than Atlantic countries in the late-2000s. Why in the world should we expect the same reaction to different types of crisis in different countries? And why in the world does divergent responses to these crises represent a loss of legitimacy? Wasn't the big criticism of the Washington Consensus its "one-size-fits-all" ideology? If the Asian crisis had been a banking crisis, and if Asian governments had responded by bailing out their banks, does anyone think the US/UK/IMF would have been critical of that policy?

In fact, the Atlantic economies have been very consistent in their policies: they intervene when necessary to support their financial firms, boost their economies, or protect their investments. The conditionality attached to IMF loans given to Asian countries didn't exist because the Atlantic economies wanted to be mean to Asian upstarts, but because they wanted their money back. And here's why this was necessary: because unlike the US and the UK, Asian economies could not borrow in their own currencies, nor could they borrow from private markets at less than pecuniary rates. More developed economies can do those things, and when they can't they face fairly significant austerity as well. Witness Greece.

So no, I don't think the subprime crisis represents the beginning of a transformative process, according to Helleiner's own typology: if there is no crisis of legitimacy, there can be no interregnum. Whether the EU crisis eventually does remains to be seen, and in my opinion it represents a much greater chance**. What the Atlantic economies have done in this crisis is combine the monetary lessons from Friedman with the fiscal lessons from Keynes in pretty much textbook fashion. I'd hardly call that a paradigm shift.

*The Asian crisis eventually led to the collapse of LTCM... which caused the U.S. government to intervene in financial markets. I.e., the US reacted the same then as it did now: it protected its firms when their collapse would have broad systemic consequences.

**I don't necessarily consider the subprime crisis and the EU sovereign debt crisis to be two separate events, but I do think they have very different implications for global governance.

PSA

The World Bank's World Development Indicators data set is now free and open to the public. To celebrate, somebody put together this handy graphing tool that will plot any series in the set. Pretty cool.

(ht to someone in my RSS feed. Sorry, but I don't remember who.)

Germany Passes Stabilization Package

A while back I commented that the Euro stabilization fund required approval of domestic legislatures, and noted that this might be difficult to achieve in some places. Well Germany passed it, but only just. Germany's signature is the most important, so the stabilization plan is basically operable.

Remember that this is just putting a bandaid on a gunshot wound; Europe still has still decide what it's going to be.

The current debate goes beyond the emergency bailout for indebted nations to questions about the future of economic integration among the countries using the euro currency. The bloc has neither a common fiscal policy nor a consensus of how best to balance stability and growth. Many members, including France, feel that Germany’s historic fear of inflation has led to a monetary policy that has unduly restricted economic growth.

“In terms of ideology, Germany is blind in the deflation eye and France is blind in the inflation eye,” said Ms. Guérot of the European Council on Foreign Relations. “It’s about economic cultures, how you want to organize your societies and your social cohesion. And it’s hard to find the appropriate mechanism because it goes right to the heart of how your society is structured.”