Category: Economics

Wall Street Journal on the economic value of low-skill migrants

by philg

Like the New York Times, the Wall Street Journal has worked tirelessly to spread the Good News about the Miracle of Low-Skill Migration. An example from 2015… “Migrants Offer Hope for Aging German Workforce”:

By some estimates, Britain is on course to eclipse Germany as Europe’s biggest economy by 2030, thanks in part to its large numbers of young, energetic immigrants.

Germany “is going to be severely challenged” by demographics, said Peter Sutherland, the United Nations special representative for international migration. Managing the trends “requires a great deal of proactive thinking” and openness to immigration, he said.

About 20% of asylum seekers were from war-torn Syria—more than from any other country—and four out of five arriving Syrians are believed to be from “average or even well-off economic circumstances and have a good education,” the agency said.

In the 1950s, Italians and other Southern Europeans flooded in to help rebuild the country, contributing significantly to its fast postwar economic recovery. In the following decades, millions of Turks arrived and many ended up working in German industrial companies, helping its economy more.

This summer, however, the same newspaper informs us that the countries that have been getting rich via low-skill immigration every year since 1950 are now, in fact, poor. “Europeans Are Becoming Poorer. ‘Yes, We’re All Worse Off.’”:

Europe’s current predicament has been long in the making. An aging population with a preference for free time and job security over earnings ushered in years of lackluster economic and productivity growth.

Adjusted for inflation and purchasing power, wages have declined by about 3% since 2019 in Germany, by 3.5% in Italy and Spain and by 6% in Greece.

Karim Bouazza, a 33-year-old nurse [in Brussels] who was stocking up on half-price meat and fish for his wife and two children, complained that inflation means “you almost need to work a second job to pay for everything.”

The eurozone economy grew about 6% over the past 15 years, measured in dollars, compared with 82% for the U.S., according to International Monetary Fund data. That has left the average EU country poorer per head than every U.S. state except Idaho and Mississippi, according to a report this month by the European Centre for International Political Economy, a Brussels-based independent think tank. If the current trend continues, by 2035 the gap between economic output per capita in the U.S. and EU will be as large as that between Japan and Ecuador today, the report said.

Apparently, expert consensus is that there is no longer a connection between low-skill migration and economic vibrancy. The 2023 WSJ article does not contain any of the following words or phrases: “migrant”; “immigrant”; “refugee”; “asylum-seeker”.

Separately, here’s a luxury car in one of Europe’s richest countries, the Netherlands (photographed in Delft, July 6, 2023):

The Netherlands now contains 27 percent migrants and children of migrants and thus should be insanely rich if we believe the Wall Street Journal’s 2015 Science.

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The mad scramble for stuff is over? (Unifi network gear is back in stock)

by philg

Last year, I purchased a TP-Link Omada multi-point network because everything from the leading brand, Unifi, was sold out. Out of curiosity, I checked recently and everything that I would have purchased from Unifi, including a Dream Machine Pro router and their wall plate access point was back in stock.

How is the Omada system working, you might ask? Quite well, but there are occasional failures of the upstream connectivity between the Arris cable modem that I purchased and Xfinity and these require power cycling the Arris device to restore. The software being run by the Arris device is controlled by Xfinity and it looks as though there hasn’t been an update for two years (see this post regarding the same issue from December 2020; the software image name is the same as what our Arris reports running).

Anyone else noticed that long-scarce items are available once more?

Exception: aviation parts, which are labor-intensive. Cirrus owners still post messages desperately seeking spares. (See Small airplanes are super expensive, but still much less useful than pre-coronapanic)

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UC Davis applies UC Davis research to create unsuccessful physicians

by philg

Econ nerds at University of California, Davis did a huge study across hundreds of years of history and came to the conclusion that success was heritable, just as intelligence and conscientiousness tend to be genetically determined (see “The heritability of conscientiousness facets and their relationship to IQ and academic achievement”). I summarized this research in the following blog posts:

How is UC Davis applying its own research? “With End of Affirmative Action, a Push for a New Tool: Adversity Scores” (New York Times, July 2):

The scale rates every applicant from zero to 99, taking into account their life circumstances, such as family income and parental education. Admissions decisions are based on that score, combined with the usual portfolio of grades, test scores, recommendations, essays and interviews.

In other words, if your parents were unsuccessful, UC Davis wants you as a medical student!

The NYT article actually confirms the UC Davis economists’ conclusions:

There is also a family dynamic. Children of doctors are 24 times more likely to become doctors than their peers, according to the American Medical Association. It’s hard to know why the profession passes down from generation to generation, but the statistic drove the association to adopt a policy opposing legacy preferences in admissions.

The tendencies to enjoy sitting in biology lectures, studying for tests, and slicing up cadavers are “passed down from generation to generation” but the Followers of Science at the New York Times can’t come up with an explanatory mechanism.

Separately, let’s have a look at UC Davis’s most famous recent pre-med major, Carlos Dominguez. KCRA:

Dominguez came to the U.S. near Galveston, Texas in 2009 from El Salvador.

A U.S. and Immigration and Customs Enforcement official confirmed to KCRA 3 that ICE has placed a detainer with the Yolo County Sheriff’s Office, which means the agency would take custody of Dominguez should he be released from local custody.

Detainers are requests to state or local law enforcement agencies to remove non-citizens arrested for criminal activity once they have been released from their custody.

The ICE official referred to Dominguez as Carlos Alejandro Reales-Dominguez and said his immigration case had been closed in April 2012. He had come to the U.S. as an unaccompanied minor from El Salvador in 2009 near Galveston, Texas, and was transferred to a family member at the time.

Mr. Dominguez thus will qualify for preferential admission to UC Davis Medical School due to the adversities of (1) being an undocumented immigrant, and (2) having an encounter with our racist criminal justice system.

The good news for folks who actually live in Davis, California, is that their health is guaranteed to be excellent because the town is rich in (“essential”) marijuana:

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Djibouti and Puerto Rico

by philg

Happy Industrial Workers of the World Day.

From the World Bank, here’s a chart of labor force participation in Puerto Rico:

41 percent of the folks who are 15+ work. Compare to 70 percent in Singapore, New Zealand, Jamaica, and Ghana. Where can we go to find places where people are less likely to work? Djibouti!

Related:

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The economics of hydropower

by philg

We recently visited the Glen Canyon Dam, which destroyed Glen Canyon and replaced it with a reservoir to hold surplus water in a river that doesn’t have any surpluses (calculations were made in the early 20th century, a period of remarkable wetness when compared to the previous 800 years). From the Carl Hayden Visitor Center:

(Is the visitor center named after a senior engineer who made the dam possible? One or more of the 18 workers who died so that the dam could live? No. It is named for a U.S. Senator who funneled tax dollars into this project.)

The dam powers 400,000 households, which means that the trashing of what would have easily qualified as a National Park does not generate enough power for the houses that are occupied by a single year of immigration into the U.S. What did this cost?

$2.17 billion in pre-Biden (2015) money. The BLS says that this is roughly $2.82 billion in Bidies. If we can arrange for God to give us a new raging river ever 3-6 months suitable for damming, in other words, we can provide clean hydropower to the new American households formed by migrants at a capital cost of $7,000 each.

On the third hand, maybe it would cost us a lot more today to build a monster dam. At the Navajo Bridge, just downstream of the dam, the government notes that modern construction techniques are similar to what we used in 1929, but bureaucracy and regulation are dramatically more challenging:

How much inflation has there been in concrete-rich power-generating facilities? We can look at nuclear plant construction. This 2019 paper says that the cost has gone up about 10X, in constant dollars, compared to the 1970s (takes us twice as long as costs 5X as much per day). If we had help from God (new river ever 6 months), in other words, it would cost $70,000 per new household (see How much would an immigrant have to earn to defray the cost of added infrastructure?) to provision the power generation infrastructure.

(Comparison: progressive technocrats in California have spent $9.8 billion so far on their high-speed rail dream… without laying even one mile of track (CNBC).)

What would Glen Canyon look like if this massive silt-collecting dam hadn’t been built? Here’s the Horseshoe Bend, just downstream, photographed at 0.5X on the iPhone 14:

What does the dam look like?

A concrete salesman’s dream! Note that last bucket of concrete was poured in September 1963, the same year in which your beloved (I hope) blog host was born. The project was supposed to take 6.5 years, including all of the prep work and the bridge, but was finished after 6 years for substantially less than forecast (by Kiewit, whose Boston Harbor project was rendered lethal by government bureaucrats as described in Book review for Bostonians: Trapped Under the Sea).

Related:

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Long term effects of taking away $5-10,000 from every upper middle class family with a female child?

by philg

We are informed that the Future is Female. In “The Future is Female”: Women’s March in Boston 2018, for example, the future governor of Maskachusetts is described as having worn a shirt reading “The Future is Female”. Such T-shirts may be found at retailers in MA: All genders are welcome, but the future belongs to only one?

What if a group of evil people identifying with one of the 73 non-female genders decided to oppress those identifying as “female” by taking away $5,000 to $10,000 from every reasonably successful family with a daughter? Would Americans resist this attempt to take away important capital that could otherwise be used to give a young woman an education, startup capital, travel experiences, etc.?

Here’s what StubHub was offering, on May 20, for seats at the Taylor Swift tonight in Detroit, Michigan:

You can buy a house in Detroit for the cost of two tickets (StubHub fees are on top of these quoted rates?) and associated concert expenses.

What will be the long-term effects of this brilliant mining out of families with female children? Wikipedia says that Taylor Swift is childless and “an advocate for … women’s empowerment”. But how are women empowered if, as girls, their college fund is looted of $10,000+ so that they can hear some songs that are regularly played for free on the radio?

(A white male California Democrat posted “The Numbers Are In on How Biden-Era Funding Is Skewing Scientific Research Ever-Wokeward” to Facebook (a professor, he likes everything about the Democrats except that white male professors have the lowest priority for getting research money!). An Italian immigrant scientist contributed to the discussion, which led to a Democrat responding with “for someone coming from a country that has only achieved any level of relevance in recent times by succumbing to fascism, I guess there is some cold comfort and making fun of liberal ideals that psychologically incapable of internalizing.” My response to this attack on Italy:

If you value the ability to listen to Taylor Swift in your Prius, shouldn’t you at least celebrate Italian radio pioneer Guglielma Maria Marconi? She did her work decades before Mussolini came to power. Unlike 2SLGBTQQIA+ community member Nikola Tesla, who attempted long-distance transmission by dumping power into the ground (literally), Ms. Marconi followed Katherine Clerk Maxwell’s equations and Henrietta Hertz.

It is fair to say that Taylor Swift is my touchstone!)

Loosely related, “The Future is Female” art exhibit in Bentonville, Arkansas, January 2019, complete with $38 T-shirts:

Related:

  • the future of the Biden family, Navy Joan, lives in Arkansas and yields $480,000/year tax-free for her plaintiff mom (New York Post) after an initial payment of $2.5 million (i.e., more than $10 million in spending power over 18 years) and is one of a handful of Americans who can afford both a Taylor Swift concert ticket and a college education (though her mom, Lunden Roberts, has demonstrated that there are better ways for an American to earn money than by going to college and working W-2)

Update at 7:24 pm Eastern:

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PhD-level thinking in economics

by philg

“Fed researchers: $15 minimum wage in Minneapolis and St. Paul boosted pay — but cost jobs” (MinnPost.com):

The push to raise the minimum wage to $15 an hour in both Minneapolis and St. Paul has successfully boosted the average worker’s hourly pay in both cities, but it has also led to sharp drops in the numbers of available jobs and hours worked, new research from the Federal Reserve Bank of Minneapolis has found.

Note that this is consistent with what I learned from fast food restaurant owners in Maskachusetts. Workers aren’t stupid so they cut their hours to retain eligibility for free housing, free health care, free food, and free smartphone. (See Fast-food economics in Massachusetts: Higher minimum wage leads to a shorter work week, not fewer people on welfare)

Here’s my favorite part of the article:

“Somebody who loses their job because of a minimum wage increase is going to find another job,” said UC Berkeley economist Michael Reich. “Probably not right away, they’re going to work fewer weeks per year — but they’re not going to be permanently unemployed.”

Professor Dr. Jill Biden, PhD’s colleague Professor Dr. Reich, PhD posits the existence of someone who wasn’t worth $15/hr to Employer A. In the superstar academic’s opinion, this person will be, after a period of unemployment spent playing Xbox, drinking beer, and watching TV, worth more than $15/hr to Employer B. (The worker has to produce at least some amount over $15/hr in order to be worth hiring at $15/hr.) A combination of unemployment and increased age will make the worker more valuable.

These are the technocrats pulling the levers of the U.S. economy…

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Measuring income inequality in a centrally planned economy with income-based pricing

by philg

We are informed that income inequality is one of the biggest problems facing Americans, but I wonder if the activities of central planners is going to make it ever-tougher to get accurate measurements. Looking at gross cash income is relatively easy. Adjusting for federal, state, and local income taxes is also relatively easy. It gets tougher when we want to factor in the value of means-tested welfare programs such as housing subsidies from a housing ministry, Medicaid, SNAP/EBT, and Obamaphone, but some valiant attempts have been made in this area (see “Is rising income inequality just an illusion?” (The Hill, 2021) for a description of some of the efforts).

I’ve noted here that spending power for cultural activities is actually infinite in many states for those who are on welfare (see “Why you want to be on SNAP/EBT“) because the price of museum or garden admission, for example, is reduced to $0.

California’s central planners are adding an interesting wrinkle with income-based electricity pricing. “PG&E monthly bills could jump for many customers due to new state law” (Mercury News, April 12):

Customers for California’s three major power companies — including PG&E ratepayers — can expect to see some big changes in their monthly electricity bills in the coming years as compliance with a new state law begins to unfold.

PG&E, Southern California Edison and San Diego Gas & Electric, the three major California utilities whose services include electricity, have filed a joint proposal with the state Public Utilities Commission that sketches out proposed changes in monthly bills.

At present, those bills are primarily based on how much electricity and gas customers consume.

A new proposal would add a fixed monthly charge that would be based on the household income levels of the respective customers.

PG&E says many customers would ultimately pay less for electricity — although the distinct possibility remains that an unknown and potentially significant number of more affluent customers might wind up with even higher electric bills.

The new law creates a need for a new government ministry of income verification:

It also appears that a formal effort will be made by state officials to confirm the household income declarations of utility ratepayers.

“The proposal recommends a qualified, independent state agency or third party be responsible for verifying customers’ total household incomes,” PG&E said in an emailed statement.

California is usually the leader in new ideas for expanding government. As more states adopt programs like this, I wonder if it will become practically impossible for academics to estimate spending power inequality in the U.S. (the relevant measure; if you can spend $200,000 per year on housing, health care, food, etc., what does it matter if your earned income is $0?).

This reminds me to relive some happy California memories. From Queer Ecology at Muir Woods (November 2020; San Francisco schools were closed, but youngsters could go to the forest (reservations required) and learn):

San Diego trip report and Meet in San Diego tomorrow or this weekend? describe my June 2022 trip to the Golden State:

Related:

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Silicon Valley Bank and Moral Hazard

by philg

Dedicated to diversity and regulated/supervised by a San Francisco Fed that was dedicated to diversity (see also “San Francisco Fed elevates a gay woman — its vice president — to the top job” (LA Times, 2018)), Silicon Valley Bank is being described as a casualty of its own wokeness. A friend who used to run a multi-$billion investment fund sent me this article by an economist, which attributes the need for an FDIC bailout… to the existence of the FDIC. Some excerpts:

The wrong way to think about moral hazard

Deposit insurance gives bank executive an incentive to take socially excessive risks. In some cases the risks won’t pay off. But that doesn’t mean executives don’t have an incentive to take excessive risks.

Things didn’t pan out for SVB. But that doesn’t mean their executives made an unwise gamble. It’s very possible that SVB’s strategy had a very high expected payoff, and they were simply hit by bad luck (rising interest rates.) Of course from a social perspective their decisions may have been bad, but not necessarily from a private perspective. “Heads I win, tails part of my losses are borne by taxpayers”. Of course I’d take more risk with those odds.

… back in the 1920s people cared a great deal about bank safety. Banks knew this, and managed their balance sheets far more conservatively than do modern banks. That’s why big city banks used to look like massive Greek temples; they had to convince depositors that they had the capital to survive hard times. The vast majority of big banks survived the Great Depression. US GDP in 1929 was about $100 billion and deposit losses during the Great Depression were $1.3 billion. Today, a 50% fall in NGDP (as in 1929-33) would wipe out almost our entire banking system. Modern bankers are far more reckless “despite” regulation. The negative effects of deposit insurance are far more important than the positive effects of regulation.

How do we get to Yglesias’s utopia [of more big banks]? Abolish deposit insurance (he wouldn’t agree). You’ll see a massive shift of deposits toward the larger, more diversified banks, making our system resemble the Canadian system.

FDR opposed deposit insurance, as he (correctly) feared it would create moral hazard. Unfortunately, Congress refused to listen to his good advice.

“FDIC fees are not a tax on the public.” Yes, they are.

“We aren’t bailing out bank executives”. No, we are not bailing out SVB executives, but we are (implicitly) bailing out their competitors.

I disagree with that last statement. The executives at SVB got to keep all of their big earnings from the big years that they had due to their aggressive risk-taking. Mary C. Daly gets to keep her $500,000+/year (including benefits) SF Fed compensation from incompetently supervising SVB. When things fell apart, none of these people had to pay anything back to the FDIC. It is the chumps with low-interest accounts at conservative banks who are left to pay.

Separately, I’m shocked that McKinsey wasn’t involved somehow in SVB! How can there be a group of elites robbing the peasants without McKinsey’s assistance? At least one of the usual suspects was there… “How Goldman’s Plan to Shore Up Silicon Valley Bank Crumbled” (WSJ):

Silicon Valley Bank executives went to Goldman Sachs Group Inc. in late February looking for advice: They needed to raise money but weren’t exactly sure how to do it.

Soaring interest rates had taken a heavy toll on the bank. Deposits and the value of the bank’s bond portfolio had fallen sharply. Moody’s Investors Service was preparing for a downgrade. The bank had to reset its finances to avoid a funding squeeze that would badly dent profits.

While few could have predicted the market’s violent reaction to the SVB disclosures, Goldman’s plan for the bank had a fatal flaw. It underestimated the danger that a deluge of bad news could spark a crisis of confidence, a development that can quickly fell a bank.

Goldman is the go-to adviser to the rich and the powerful. It arranges mergers, helps companies raise money and devises creative solutions to sticky situations of the financial variety—a talent that has made the firm billions.

Yet, for SVB, Goldman’s gold-plated advice came at the steepest possible cost. SVB collapsed at warp speed in the second-largest bank failure in U.S. history, setting off a trans-Atlantic banking crisis that regulators are working furiously to contain.

How big was the failure compared to the investments that are needed to build things with silicon? SVB’s pre-coronapanic/free-money-shower value was about $13 billion. A single Samsung fab is on track to cost 25 billion Bidies: “Samsung’s new Texas chip plant cost rises above $25 billion” (Reuters). The bump due to inflation in this one factory, according to the Reuters article, is in the same neighborhood as the SVB market cap, at least in nominal dollars.

We’re not hearing much about Signature Bank’s failure. For 8 years up to and including its seizure by the FDIC, Barney Frank was on the board: “Barney Frank defends role at Signature Bank: ‘I need to make money’” (FT):

FT says that Barney Frank made about $2 million by serving on the board of failed bank. None of that will be clawed back by the FDIC…

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Why do we have trouble maintaining infrastructure if we’re richer than ever? (Death Valley examples)

by philg

We are regularly informed by politicians and their media allies that the United States is the best and richest country in the world and that Americans have never been richer. And nobody is richer in the U.S. than the federal government, which can and does literally print money (soon to mint a $1 trillion coin because the best way to address a financial problem is never to work harder or spend less?). Here are photos from Death Valley National Park, owned by the federal government, from December 2022:

What was built as a wheelchair-accessible path will no longer work for our disabled brothers, sisters, and binary-resisters because the pavement is so deteriorated. How about at the local airport? A core mission of the federal government is making sure that U.S. airports are functional and this one is actually owned by the Feds.

The runway at Furnace Creek Airport, L06, is described as being “In Failed Condition”. The aspiration for the airport, lowest in North America at 210 feet below sea level, is greatly reduced from 1954, when it had a jet-capable 5,500′ runway. Airnav says “UP TO 4 INCH SALT HEAVE ARND RWY CRACKS. COULD DMG ACFT WITH WHEEL FAIRINGS OR CAUSE A POTENTIAL TO BLOW OUT A TIRE.” The National Park Service, whose job it might be to keep this airport in decent condition, says “poor condition; numerous cracks, bumps, ruts, and areas of crumbling asphalt over the entire length of the runway. Consider treating like a gravel/unpaved surface, and use caution at takeoff and landing.”

Pilots in California and Nevada used to meet at this airport to socialize and play a round of golf. Now it is useless except to helicopters and maybe a few taildraggers with tundra tires.

How can we square the myth (we’re richer, smarter, and better than ever) with these facts on the ground of infrastructure that we were once rich enough to create but are no longer rich enough to maintain?

The news is not all bad if you’re a member of the laptop class in Death Valley. Not only did the working class have to pay $7,500 toward your electric car (plus any wealth transfers ordered by a state), but the working class also has to buy you free electricity in Death Valley at public chargers (we plugged in our rented BMW hybrid). The working class member’s gas-powered dinosaur must be filled at $5/gallon within the park:

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