Highlights from Good Economics for Hard Times 🌱

  • EU gets immigrants less than .5% its population every year
  • Countries with people most desperate to leave are not due to wages but due to military and safety concerns. Fewer than 3% of Greece population emigrated from 2010-2015 even during 2013-2014financial crisis with 27 percent unemployment and since EU citizens can freely move around EU
  • More people should migrate because there are very good wage incentives, but for some reason they don’t
  • According to many studies, even the unbiased US National Academy of Sciences reported that research shows that there is likely little impact from immigration on the wages of natives
  • Immigrant populations help native populations when they spend their wages in that country to increase demand. Immigrant labor slows mechanization and allows new job opportunities. In California 1964 Mexican immigrants were kicked out, and harvesting tomato machines went from 0% adoption to 100% adoption from 1964-1967.
  • Economic theory suggested that for poorer countries opening trade leads to higher wages for low skilled workers since the country doesn’t have much capital and should specialize in high labor goods, whereas in rich countries low skilled labor wages will decline since they will focus on producing things with capital and thus less demand will be for labor. But, in the real world we don’t really observe this. Between 1985-2000 Mexico, Columbia, Brazil, India, Argentina, Chile opened up trade by unilaterally cutting their tariffs but inequality increased in all of the countries. Specifically in Mexico: 1985-1987 Mexico massively refused coverage of import quota and average duty on imports-> 1987-1990 blue collar workers lost 15 percent of wages while white collar workers gained the same proportion. Does this suggest that these countries don’t specialize based on comparative advantage and instead just choose to produce with capital? This evidence though is all confounded with other major policy shifts like privatization and labor market reforms happening at the same time. Study about India showed that the more impacted a region was by the liberalization (like for regions specializing in steal vs wheat where tariffs on steal went down more than wheat tariffs) the slower poverty reduction was in that region.
  • Maybe it is better for countries to not be opened up to trade internationally until they have established trade in their own country. New buyers would be skeptical to purchase from the country if there is not an established standard of quality from them.
  • Explanation for why economic theory doesn’t hold related back to how people and industries don’t want to move and adapt to the environment and instead hunker down.
  • In China 1978 bottom 50% and top 10% each had 27% of Chinese income-> 2015 top 10% has 41% and bottom 50% has 15%
  • Throughout the 2000s China used policy to keep the value of it’s currency low, so that they could sell exports very cheaply. This allowed exports to grow without the increase in exports driving up the price of the Chinese currency and choking off the export growth from more expensive goods. This allowed China to establish its quality and brand name in exports which made them so powerful today (they no longer manipulate their currency but they are still competitive). They were the first to do this so now that they have control and it may not make sense for another country to do the same kind of thing since China has such good control of markets already)
  • Imports represent 8% of US consumption and a paper calculated that if the US were to become an autarky and completely cut off imports we would lose only around 2.5% of our GDP (and for comparison this is like how much GDP grows in a year- 2017 it grew 2.3%)
  • Imposing tariffs (like on steel) probably isn’t the way to go to help people losing their job in the steal industry, because this will just displace a new industry like those who rely on imports (like my dad) and industries like agriculture that are impacted by other countries’ retaliations with their own tariffs. Instead we could focus on making workers more mobile to switch occupations and for workers that are older and less flexible we could provide them more aid to keep their jobs for the next few years until they retire and get social security
  • Study giving randomized black and white first names and criminal status with the same resumes showed that white applicants get 23% more callbacks than blacks with the same resume. Interestingly, before the β€œban the box” (states required removing questions about whether you have a felony) policy whites call 7% more callbacks but after the policy whites got 43% more callbacks. This gives evidence that employers are using race to infer a person’s criminality and then ability as an employee.
  • Psychologists these days give the advice that we should tell our children NOT that they β€œshould be nice” but that β€œthey are nice and they just need to act in line with their true nature”
  • Studies show that self-discrimination undermines confidence and test performance (also considering access to better education, tutors, etc) SAT and other factors in admission to colleges aren’t really unbiased. So instead of affirmative action just being a way to let in more people of a different race, it could also be looked at as a way to admit candidates with more β€œmerit” who will have more talent/potential
  • Total factor productivity (a measure of how productive people are: how much GDP output a person with same education and capital is able to produce) has actually been stagnating in recent years from around 1970-present even though it was growing much more rapidly from 1920-1970. This is interesting considering how much we hear about how technology is getting better and better with AI, etc.
  • Cities that wanted companies to move to them like Amazon’s 2nd headquarters give tax subsidies of hundreds of thousands of dollars per job created to lure companies, but it turns out even with this subsidy the areas that got the company to come on average 5 years after the plants were set up had higher total factor productivity of 12%, so it was worth. But, this likely takes away the benefits from other places where workers would have gone instead so there may be no gain for the country from this bidding, but it makes sense for the cities to do it.
  • Cities in developing countries seem to often grow outwards instead of upwards, making it more difficult for people to move into the real city and have a cross pollination of ideas like there is in cities like New York or San Francisco.
  • Top (highest earnings category) tax rates in US were +77% 1936-1964 (actually +90% during the 1950s under republican administration), taxes were cut to 70% in 1965 by democrat administration, and has since drifted to around 30%. But not we have polarized democrats: raise them and republicans: lower them
  • Bunch of studies shows no impact of growth after tax cuts (and some even show no impact from raises) to highest income class. Studies span national US policy, other countries policy, and intra state US policy. Uchicago study intra US states showed cutting top 10% taxes produces no significant growth in employment and income, whereas tax cuts for bottom 90% do
  • With the largest corporations now taking more and more market share and becoming essentially like monopolies that can’t be replaced, it may be the case that these industries won’t experience as much innovation because there are more barriers to entry for new entrants. Patents provide good incentive for companies to invent because they are temporary, but these companies are getting so big that they are too big to disrupt. But, Europe which has much more strict antitrust rules has also been experiencing sluggish growth, so breaking monopolies might not help.
  • We don’t know what causes growth in any countries rich or poor, and many studies fail to provide any good evidence especially for what to do to cause growth quickly after implementing some policy. About the Commission on Growth and Development the quote by Bill Easterly: ”After two years of work by the commission of 21 world leaders and experts, an 11 member working group, 300 academic experts, 12 workshops, 13 consultations, and a budget of $4million, the experts’ answer to the question of how to attain high growth was roughly: we do not know, but trust experts to figure it out”
  • Out of 335 CEO successions at family firms, the 122 that were β€œfamily successions” experienced falling returns on assets by 14 percent in the subsequent 3 years whereas those who hired outsider CEOs did not experience this apparently: they don’t say how well they did they just say they did well.
  • In poorer countries it is often the case that government jobs pay more, have more benefits, have more stability, and are sparser in supply. So, people in these countries often compete to secure these jobs. This is in stark contrast to developed countries that promote capitalism like the US.

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