Following Up: A Gift and a Goof on Tariffs and Inflation

Tags

Biden, Biden administration, Bloomberg.com, business, CBS Eye on the World with John Batchelor, China, cost of living, economics, Following Up, inflation, prices, tariffs, Trade

Commentators usually don’t get gifts like the one I received in yesterday’s Bloomberg.com report on the latest developments in the continuing Will-He-Won’t-He drama concerning President Biden’s upcoming decision on cutting or eliminating some tariffs on U.S. imports from China in order to ease raging inflation.

As I’ve repeatedly emphasized (most recently in print, here), to anyone who knows anything about business, the idea that tariff levels and consumer prices have much to do with each other is nonsensical. The reason? It assumes that businesses base what they charge their customers on the costs they pay for the goods and services for whatever they’re trying to sell.

But actually, the predominant driver of their selling prices, at least over any significant period of time, is the level of demand for their products or services. If it remains strong, businesses will keep raising their selling prices as high as they can regardless of what their input costs are. That’s a great way to increase profits. And if they want to keep growing these profits (and what business doesn’t?), they’ll keep raising these prices as long as customers will pay them – as long as that demand stays strong.

When do businesses lower selling prices? For those that want to maximize profits (and what business doesn’t?), only when demand for their products and services weaken – that is, when customers decide for whatever reason that these prices have risen too high.

So there is absolutely no reason to believe that lower prices for inputs from China independent of demand will cause businesses to lower the prices they charge their customers, and thus help bring inflation rates down. Instead, they’ll just pocket the new profits. And according to the aforementioned Bloomberg piece, we just got confirmation from the horse’s mouth – businesses themselves.

Reported the Bloomberg correspondents:

“The White House has asked retail companies for a commitment to lower prices following any duty reductions but executives rebuffed that request and told US officials it was an unrealistic expectation,” said “people familiar with the deliberations, who asked not to be identified.”

And apparently there are no plans to seek public price-reduction commitments from sectors of the economy that receive any tariff relief. Maybe because at least some administration officials finally recognize how ludicrous the tariff-inflation connection has always been?

But even as the Bloomberg reporters gave me this gift on the subject, I made a goof. During my latest radio interview on the subject on “CBS Eye on the World with John Batchelor,” I spazzed out and several times referred to businesses never cutting their “costs” when their input costs fell. I hope that most listeners understood that I was trying to say that they never cut their selling prices, but the record needs to be set straight. Here’s a link to the podcast, and apologies for any confusion.

(What’s Left of) Our Economy: You Bet that Mass Immigration Makes America Less Productive

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amnesty, Bureau of Labor Statistics, construction, demand, Donald Trump, economics, Forward.us, hotels, illegal aliens, immigrants, Immigration, labor productivity, productivity, restaurants, supply, total factor productivity, wages, {What's Left of) Our Economy

An archetypical Washington, D.C. swamp denizen thought he caught me with my accuracy pants down the other day. Last Sunday’s post restated a point I’ve made repeatedly – that when countries let in too many immigrants, their economies tend to suffer lasting damage because businesses lose their incentives to improve their productivity – the best recipe for raising living standards on a sustainable, and not bubble-ized basis, as well as for boosting employment on net by fostering more business for most existing industries and enabling the creation of entirely new industries.

The reason mass immigration kneecaps productivity growth? Employers never need to respond to rising wages caused by labor shortages by buying labor-saving machinery and technology or otherwise boost their efficiency. Instead, they continue the much easier and cheaper approach of hiring workers whose pay remains meager because immigrants keep swelling the workforce.

It’s a point, as I’ve noted, strongly supported by economic theory and, more important, by evidence. But Todd Schulte, who heads a Washington, D.C.-based lobby group called Forward.us, wasn’t buying it. According to Schulte, whose organization was founded by tech companies like Facebook with strong vested interests in keeping U.S. wages low, “the decade of actual [U.S.] productivity increases came directly after the 1986 legalization AND 1990 legal immigration expansion!”

He continued on Twitter, “giving people legal status and… expanding legal immigration absolutely has not harmed productivity in the last few decades in the US.”

So I decided to dive deeper into the official U.S. data, and what I found was that although there are bigger gaps in the productivity numbers than I’d like to see, there’s (1) no evidence that high immigration levels following the 1986 amnesty granted by Washington to illegal immigrants and the resulting immigration increase mentioned by Schulte improved the national productivity picture over the pre-amnesty period; and (2) there’s lots of evidence that subsequent strong inflows of illegal immigrants (who Schulte and his bosses would like to see amnestied) have dragged big-time on productivity growth.

First, let’s examine the productivity of the pre-1986 amnesty decades, which provides the crucial context that Schulte’s claim overlooks.

According to U.S. Bureau of Labor Statistics figures, during the 1950s, a very low immigration decade (as shown by the chart below), labor productivity grew by an average of 2.63 percent annually. Significantly, this timespan includes two recessions, when productivity normally falls or grows unusually slowly.

Figure 1. Size and Share of the Foreign-Born Population in the United States, 1850-2019

During the 1960s expansion (i.e., a period with no recessions), when immigration levels were also low, the rate of labor productivity growth sped up to an annual average of 3.26 percent.

The 1970s were another low immigration decade, and average labor productivity growth sank to 1.87 percent. But as I and many other readers are old enough to remember, the 1970s were a terrible economic decade, plagued overall by stagflation. So it’s tough to connect its poor productivity performance with its immigration levels.

Now we come to the 1980s. Its expansion (and as known by RealityChek regulars, comparing economic performance during like periods in a business cycle produces the most valid results), lasted from December, 1982 to July, 1990, and saw average annual labor productivity growth bounce back to 2.24 percent.

As noted by Schulte, immigration policy changed dramatically in 1986, and as the above chart makes clear, the actual immigant population took off.

But did labor productivity growth take off, too? As that used car commercial would put it, “Not exactly.” From the expansion’s start in the first quarter of 1982 to the fourth quarter of 1986 (the amnesty bill became law in November), labor productivity growth totalled 10.96 percent. But from the first quarter of 1987 to the third quarter of 1990 (the expansion’s end), the total labor productivity increase had slowed – to 5.76 percent.

The 1980s are important for two other reasons as well. Nineteen eighty-seven is when the Bureau of Labor Statistics began collecting labor productivity data for many U.S. industries, and when it began tracking productivity according to a broader measure – total factor productivity, which tries to measure efficiency gains resulting from a wide range of inputs other than hours put in by workers.

There’s no labor productivity data kept for construction (an illegal immigrant-heavy sector whose poor productivity performance is admitted by the sector itself). But these figures do exist for another broad sector heavily reliant on illegals: accommodation and food services. And from 1987 to 1990 (only annual results are available), labor productivity in these businesses increased by a total of 3.45 percent – worse than the increase for the economy as a whole.

On the total factor productivity front, between 1987 and 1990 (again, quarterly numbers aren’t available), it rose by 1.23 percent for the entire economy, for the construction industry it fell by 1.37 percent, for the accommodation sector, it fell by 2.30 percent, and for food and drinking places, it increased by 2.26 percent. So only limited evidence here that amnesty and a bigger immigrant labor pool did much for U.S. productivity.

As Schulte pointed out, the 1990s, dominated by a long expansion, were a good productivity decade for the United States, with labor productivity reaching 2.58 percent average annual growth and total factor productivity rising by 10.87 percent overall. But when it comes to labor productivity, the nineties still fell short of the 1950s (even with its two recessions) and by a wider margin of the 1960s.

But did robust immigration help? Certainly not in terms of labor productivity. In accommodation and food services, it advanced by just 0.84 percent per year on average.

Nor as measured by total factor productivity. For construction, it actually dropped overall by 4.94 percent. And although it climbed in two other big illegal immigrant-using industries, the growth was slower than for the economy as a whole (7.17 percent for accommodation and 5.17 percent for restaurants and bars).

Following an eight month recession, the economy engineered another recovery at the end of 2001 that lasted until the end of 2007. This period was marked by such high legal and illegal immigration levels that the latter felt confident enough to stage large protests (which included their supporters in the legal immigrant and immigration activist communities) demanding a series of new rights and a reduction in U.S. immigration deportation and other control policies.

Average annual labor productivity during this expansion grew somewhat faster than during its 1990s predecessor – 2.69 percent. But annual average labor productivity growth for the accommodation and food services sectors slowed to 1.19 percent, overall total factor productivity growth fell to 1.19 percent, and average annual total factor productivity changes in accommodations, restaurants, and construcion dropped as well – to 6.36 percent, 2.67 percent, and -9.08 percent, respectively.

Needless to say, productivity grows or shrinks for many different reasons. But nothing in the data show that immigration has bolstered either form of productivity, especially when.pre- and post-amnesty results are compared. In fact, since the 1990s, the greater the total immigrant population, the more both kinds of productivity growth deteriorated for industries relying heavily on illegals. And all the available figures make clear that these sectors have been serious productivity laggards to begin with.

And don’t forget the abundant indirect evidence linking productivity trends to automation – specifically, all the examples I’ve cited in last Sunday’s post and elsewhere of illegal immigrant-reliant industries automating operations ever faster — and precisely to offset the pace-setting wage increases enjoyed by the lowest income workers at least partly because former President Trump’s restrictive policies curbed immigration inflows so effectively. 

In other words, in the real world, changes in supply and demand profoundly affect prices and productivity levels – whatever hokum on the subject is concocted by special interest mouthpieces who work the Swamp World like Todd Schulte.

(What’s Left of) Our Economy: Will Americans Need “That Seventies Show” to Tame Inflation?

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consumer price index, consumers, CPI, demand, economics, elasticity, energy, Federal Reserve, food, inflation, interest rates, Jerome Powell, monetary policy, Paul A. Volcker, recession, retail sales, supply, {What's Left of) Our Economy

I haven’t commented much in detail on dccisions by the Federal Reserve to fight inflation, mainly because they’re so thooughly covered in the press. But yesterday’s announcement by the central bank that it would raise the short-term interest rate it controls by an amount not matched in nearly thirty years could loom especially large over the nation’s economic future, and some of its ramifications deserve more attention than they’ve received.

First, as widely noted, the Fed could be tightening monetary policy – in an effort to slow and eventually reverse price increases by slowing economic activity – even though a recession sooner rather than later looks likely. In fact, the timing of yesterday’s interest rate hike and seemingly solid assurances that increases will continue for the foreseeable future may be even stranger, because the recession may already be here.

Some important signs:  Yesterday also saw the release of a Census Bureau report indicating that U.S. retail sales dipped on a monthly basis in May.  If this result holds (and we’ll find out on July 15), that would mark the first such decrease since December, and the news would be ominous given the dominant role played by personal spending in the American economy. 

In addition, on top of the economy’s shrinkage during the first quarter of this year, a well regarded source of forecasts on the path of the gross domestic product (GDP – economist’s main measure of the economy’s size and how it changes) is predicting no growth whatever in the second quarter. That result would enable the nation to skirt a recession according to one popular definition of the term holding that such slumps only occur when GDP adjusted for inflation falls for two consecutive quarters.

At the same time, a flat-line real GDP for the second quarter would mean that, on a cumulative basis, the economy has contracted over a two-quarter stretch. That sounds like a pretty good approximation of a recession to me. In fact, this cumulative shrinkage could still take place even if after-inflation GDP eaks out a small gain between April and June. (We’ll get the first official read on the subject on July 28.)

And maybe more important, when it comes to the lives of most Americans, what’s the difference between a recession (especially if it’s modest) and very slow growth? Indeed, for the record, the Fed itself yesterday lowered its own projection for real U.S. growth for this entire year from 2.8 percent to 1.7 percent.

Second, examining the Fed’s inflation-fighting record during the late-1970s – which it’s also been widely noted bears some strong resemblances to the present – raises immense questions regarding the central bank’s chances of making major inflation progress without triggering a recession that would be anything but modest.

In case you’re not old enough to remember that historical episode, inflation was actually higher during the late-1970s, and also stemmed partly a combination of oil price shocks generated by overseas events plus a development that’s too often ignored nowadays – a substantial deterioration in the nation’s international financial position. Though this current account deficit back then was tiny by today’s standards, it had just become a noteworthy shortfall as a share of GDP after years of small surplus or balance, and was broadly interpreted as a sign that Americans’s spending was spinning out of control (You’ll find a great account of this period here.)

As current Fed Chair Jerome Powell is fond of recalling, that towering late-1970s inflation was broken mainly by the steadfastness of that period’s Chair, Paul A. Volcker – who raised interest rates to levels that were as astronomical as they were wholly unprecedented. But although Volcker took the helm of the Fed when inflation (as measured by the headline Consumer Price Index, or CPI) wasn’t that much higher than today’s rates, it took a near-doubling of these rates from levels that also were much higher than today’s to bring price increases down to acceptable levels, and even this effort took three and a half years and dragged the economy into not just one, but two recessions – and severe ones at that. (My sources for the interest rate infomation is here. For the inflation and growth data, I’ve relied on the official government data tables I always use.)

Specifically, on Volcker’s first day as Fed Chair (in August, 1979), the federal funds rate it controls stood at 11 percent – versus the 1.75 percent ceiling to which the Powell Fed just approved. The annual inflation rate was 11.84 percent – versus the 8.52 percent recorded last month. And the economy was growing by three percent annually – versus the current rate of probably one percent at best.

Volcker engineered rate hikes to the 20 percent neighborhood – three times! (as depicted in the chart below) – and recessions that produced real GDP nosedives of eight and 6.1 percent (in the second quarter of 1980 and the first quarter of 1982), but the CPI didn’t retreat back into the single digits until May, 1981, and it took until the end of 1982 for a read of 3.8 percent to be recorded.

 

That history doesn’t seem to warrant much optimism that the Powell Fed can cut headline inflation to 5.2 percent by year end while increasing rates only to 3.4 percent (as it’s now expecting).

Third, at his press conference following the rate hike announcement, Powell echoed the conventional wisdom: that although the Fed can cut excessive levels of economic demand enough to tame inflation, it can’t address inflation by affecting economy’s ability to create enough supply to meet that demand, and thereby restore a satisfactory inflationary balance between the two.

But supply and demand are actuallly very closely connected. As I’ve discussed when posting about possible tariff cuts on imports from China, when consumer demand is strong enough, companies can pass along increases in their prices because their customers literally are willing to pay. When consumers are cautious, however, such price hikes become much more difficult.

To be sure, these rules don’t always hold. The big exceptions are products on which consumers will cut spending only as a last resort – like food and energy. They’re (rightly) seen as so important that demand for them is called “inelastic” by economists.

Since food and energy prices have been so central to today’s inflation, it’s easy to see why the conventional wisdom on the Fed and the economy’s supply side is generally accepted. But it’s also true that if consumers become stressed enough (for example, by interest rate increases high enough to slash growth, employment, and income levels), they’ll cut their overall spending even if they keep paying higher prices for those staples. Further, they can in principle reduce their purchases on non-staples enough to bring demand down substantially, and with it, inflationary pressures.

No one could reasonably relish this kind of outcome. But if the 1970s experience teaches any lessons for today, it’s that serious hardship for much of the population can’t be avoided if the inflation war is to be won. In my view, Powell has rightly stated that this victory is essential for America’s long-term prosperity. And President Biden deserves credit for endorsing such priorities. But will the Fed Chair actually take the Volcker-like steps needed to beat down inflation? Will a U.S. President still declaring he wants to be reelected remain a fan if he does? Because I can’t yet bring myself to believe either proposition, I can’t yet bring myself to be optimistic that inflation will drop significantly any time soon.

(What’s Left of) Our Economy: Everything You Wanted to Know About Immigration & the Economy — & Less

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economics, immigrants, Immigration, innovation, labor shortages, Open Borders, productivity, The Washington Post, wages, {What's Left of) Our Economy

Leave it to the zealously pro-Open Borders Washington Post. It chose as the reviewer of a book by two economic historians apparently unaware of the relationship in U.S. history between immigration levels and productivity improvement a business professor seemingly just slightly less clueless about this crucial link either historically and going forward.

Doubt that? Then take a look at this morning’s rave by Harvard business professor Michael Luca about a new study by Ran Abramitzky and Leah Boustan of Stanford and Princeton Universities, respectively, titled Streets of Gold: America’s Untold Story of Immigrant Success.

According to Luca, Streets of Gold “reflects an ongoing renaissance in the field of economic history fueled by technological advances — an increase in digitized records, new techniques to analyze them and the launch of platforms such as Ancestry — that are breathing new life into a range of long-standing questions about immigration. Abramitzky and Boustan are masters of this craft, and they creatively leverage the evolving data landscape to deepen our understanding of the past and present.”

And their overall conclusion (which rightly takes into account the non-economic contributions of immigrants to American life) is that (in Abamitzky’s and Boustan’s words): “Immigration contributes to a flourishing American society” – especially if you take “the long view.”

But there’s no indication in Luca’s review that the authors weigh in on a key (especially in the long view) impact of immigration on the U.S. economy – how it’s affected the progress made by the nation in boosting productivity: its best guarantee for raising living standards on a sustainable basis.

As I’ve written repeatedly, mainstream economic theory holds that one major spur to satisfactory productivity growth is the natural tendency of businesses to replace workers with various types of machinery and new technologies when those workers become too expensive. Most economists would add that although jobs may be lost on net in the short-term, they increase further down the road once these productivity advances create new companies, entire industries, and therefore employment opportunities.

By contrast, when businesses know that wages will stay low – for example, because large immigration inflows will keep pumping up the national labor supply much faster than the demand for workers rises – these companies will feel little need to buy new machinery or otherwise incorporate new technologies simply because they won’t have to.

And more important than what the theory says, abundant evidence indicates that businesses have behaved precisely this way in the past (when scarce and thus increasingly expensive labor prompted acquisitions of labor-saving devices that helped turn the United States into an economic and technology powerhouse), into the present (as industries heavily dependent on penny-wage and often illegal immigrant labor have tended to be major productivity laggards).  

Reviewer Luca demonstrates some awareness that this issue matters in the here and now and going forward, writing that “Compared with the rest of the country, businesses in high-immigration areas have access to more workers and hence less incentive to invest in further automation.”

He also points out that “This has implications for today’s immigration debates.”

But his treatment of the current situation is confused at best and perverse at worst (at least if you buy the economic conventional wisdom and evidence concerning the productivity-immigration relationship).

Principally, he claims that “the United States is expected to face a dramatic labor market shortage as baby boomers retire and lower birthrates over time result in fewer young people to replace them.” Let’s assume that’s true – despite all the evidence that more and more employers are filling all the job openings they’ve been claiming by automating. (See, e.g., here, here, and here.)

Why, though , does Luca simply conclude that “Increased immigration is one approach to avoiding the crunch. Notably, the other way to avert this crisis is through further automation, enabled by rapid advances in artificial intelligence. Immigration policy will help shape the extent to which the economy relies on people vs. machines in the decades to come.”

Is he really implying that a low-productivity — and therefore low-innovation — future would be a perfectly fine one for immigration (and other) policymakers to be seeking?

Just as important, although Luca clearly recognizes that these questions have at least some importance nowadays, he provides no indication of where the book’s authors stand.

So let the reader beware. Luca clearly believes, as Post headline writers claim, that Streets of Gold makes clear “What the research really says about American immigration.”  What his review makes clear is that this claim isn’t even close.

   

Following Up: Podcast On-Line of Latest National Radio Radio Interview on Tariffs and Inflation

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Biden, CBS Eye on the World with John Batchelor, China, economics, Following Up, Gordon G. Chang, inflation, Janet Yellen, tariffs, Trade

I’m pleased to announce that the podcast is now on-line of my appearance last night on “CBS Eye on the World with John Batchelor.” The segment features John, me, and co-host Gordon G. Chang discussing a bad recent idea that can’t seem to be killed off entirely – the proposal to fight lofty U.S. inflation by cutting tariffs on some goods imports from China. Here’s the link.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: Are Apple Products “Designed in California…& Extorted by China?”

Tags

Apple Inc., Breitbart.com, China, Donald Trump, economics, forced technology transfer, free trade, globalization, infotech, John Carney, national security, privacy, surveillance, tech, TheInformation.com, Tim Cook, Trade, {What's Left of) Our Economy

You have to give Tim Cook credit for sheer gall, at least if a recent report is true (as it appears to be, since it he hasn’t yet denied it). There was the Apple, Inc. CEO in 2018, at a forum in Beijing no less, in effect warning former President Donald Trump to ditch his plans to impose America’s first ever serious tariffs on Chinese goods, largely because “What I’ve seen over my lifetime is that countries that embrace openness, that embrace trade, that embrace diversity are the countries that do exceptional — and the countries that don’t, don’t.”

And not two years before, according to this account, Cook had promised China that over the next five years, the infotech giant would make a $275 billion effort to strengthen the People’s Republic’s technology and manufacturing base if China’s thug regime would back off a major crackdown it had launched on the company’s massive Chinese operations.

Moreover, as made clear in the December 7 article in TheInformation.com, Cook’s commitments not only have inevitably and massively affected U.S. and China trade and broader economic flows, and will continue to do so going forward. They’re likely to endanger America’s national security. After all, Cook, for reasons having squadoosh to do with free trade or free markets or economic fundamentals, evidently pledged to

>invest “many billions of dollars more” than what the company was already spending annually in China: in part on building new research and development centers”;

>help Chinese manufacturers develop “the most advanced manufacturing technologies” and “support the training of high-quality Chinese talents”;

>collaborate on technology with Chinese universities and directly invest in Chinese tech companies”; and

>collaborate on technology with Chinese universities and directly invest in Chinese tech companies”;

>use more components from Chinese suppliers in its devices”; and 

>give business to Chinese software firms”.

Since every economic and academic entity in China is ultimately under the thumb of the Chinese government, Cook’s submission to Beijng’s pressure has made enormous amounts of resources and knowhow available to a Chinese regime that has challenged American security interests in East Asia and around the world, and that powerfully threatens Washington’s ability to protect Americans’ privacy and political freedoms through its increasingly impressive hacking and other surveillance capabilities (including via the wildly popular TikTok video-sharing app).

In the worst (but ever more plausible) case, in a future conflict with Beijing, Chinese weapons that kill U.S servicemen could be partly and/or indirectly financed and developed by Apple – and, as I’ve made clear, e.g., here and here, by the numerous other U.S. companies that have fueled China’s tech and therefore military prowess.

But also crucial to point out – the deal signed by Cook (far from the only target of China’s successful campaigns of forced tech and manufacturing production transfer over a period stretching back decades), also challenges a core idea of free trade theory in a way first pointed out by friend John Carney of Breitbart.com.

As Carney wrote more than two years ago, economists and others who were crticizing Trump’s tariffs were making an especially important mistake. They were assuming “that all of the goods that are imported from China are made there because China is the lowest cost manufacturer of those goods. If that were true, moving production out of China would necessarily increase costs of production and reduce efficiency.”

But as he proceeded to remind, China couldn’t be such a paragon of manufacturing value. If it were, why would Beijing have been relying for so long on such a wide variety of “mercantilist tactics to attract and retain manufacturing business from global businesses, including requiring companies to manufacture goods in China in order to access its domestic markets and imposing steep tariffs on imports for foreign-made goods”?

In fact, Carney continued, “China’s policies…impose what economists call ‘deadweight losses’ on the global economy by preventing companies from moving their supply chains to cheaper sources.” And tariffs can serve as an essential counter-weight. 

Apple is nothing if not public relations-obsessed, and several years ago responded to public concern about all its production in the People’s Republic with an ad campaign stressing that its products are “designed in California.”  At least for accuracy’s sake, the company should now add “and extorted by China.”  And the news should greatly energize Washington’s efforts to stop U.S. companies from strengthening and enriching this burgoning menace.               

Following Up: The Cheap Labor Lobby Looks Ever Shadier

Tags

Aman Kapoor, Biden administration, Cato Institute, Cecelia Rouse, Chronicles, conflict of interest, David Bier, economics, economists, Following Up, FWD.us, George J. Borjas, idea laundering, Immigration, Immigration Voice, Jeremy Beck, Koch Brothers, NumbersUSA, Open Borders, Pedro Gonzalez, think tanks, wages

In late September, I posted on evidence that one of the supposedly most authoritative studies on the effects of large-scale immigration on the wages of the existing U.S. workforce came up with an answer (in a phrase, “no big deal”) based on no hard evidence whatever.

Since then, I’ve come across material indicating that the intellectual fraud committed by the Biden administration economists and National Academies of Sciences, Engineering, and Medicine (NAS) “experts” team involve was much worse – along with documentation apparently showing that a leading U.S. private sector think tank whose research has armed much of the corporate Cheap Labor Lobby agitation for Open Borders-like policies is literally shilling for that powerful interest group.

As I wrote in that previous post, a mid-September blog item lead-authored by President Biden’s chief White House economic adviser Cecelia Rouse attempted to calm fears that the kinds of juiced up immigration inflows sought by the administration wouldn’t significantly harm already hard-pressed low-income and low-skill U.S. workers. But its case boiled down to nothing more than the kind of appeal to authority that typically seeks to cover up for a paucity of facts and figures – and indeed, an appeal to (NAS) authorities who the White House blog admitted themselves can’t cite much concrete evidence for their conclusions themselves.

But a month later, a post by Jeremy Beck of the immigration realist organization NumbersUSA spotlighted a much more serious problem with the NAS’ immigration analysis. It relied on mathematical models that didn’t actually find or conclude that Americans today holding or seeking poorly paying jobs have nothing important to worry about from big immigrant inflows. Instead, these models proceeded from this assumption.

Beck’s post was based on a conference presentation made by Harvard University labor economist George J. Borjas, who’s not only one of the world’s top specialists on immigration economics, but one of the very few noted economists critical of any aspect of what might be called pre-Trump U.S. immigration policies. So maybe his word shouldn’t be taken as gospel? Maybe not, but it’s noteworthy that the conference panelist he was paired with (another prominent labor and immigration economist) uttered not a word of objection. Nor did the moderator of the session, a Cato Institute analyst who could not be more enthusiastic about mass immigration. (Beck conveniently supplies the full video of the event.)

And speaking of the Cato Institute, that’s the think tank accused of hiring itself out to U.S. corporate interests anxious to pump up the supply of workers available them, and therefore drive down the wages they can command.

The charges appear on the website of the journal Chronicles. The publication and its contributors, like NumbersUSA, are definitely on the restrictionist side of the immigration policy debate. But the post, by Chronicles Associate Editor Pedro Gonzalez presents what it purports to be emails from an organization called Immigration Voice complaining that Cato immigration analyst David Bier has been writing less on the issues it paid him to focus on (boosting the numbers of foreign tech workers that can be employed by firms in the United States) and more on subjects of concern to another group seeking to increase immigration inflows that began paying him more.

According to a bitter message allegedly sent by Immigration Voice president Aman Kapoor, “this guy is like mercenaries, working to push the agenda of the highest bidder. We have [sic] him money when no one knew him and he was fresh out of Congress as a staffer, and no one was willing to support him. Now he has become an influencer because of the papers we suggested him to write any [sic] gave him money to do that….” And because the other Cheap Labor Lobby group, FWD.us, “is giving them money,” Bier is “only pushing” its favored topics.

In other words, there’s no honor among hired gun employers.

It’s not as if the Cato Institute wouldn’t be supporting Open Borders-like policies without Cheap Labor Lobby funding. It’s a libertarian outfit, and its platform strongly opposes pretty much any government interference in any aspect of the economy. But as Gonzalez observes (making points that, as I’ve written, apply to pretty much all of America’s major think tanks to varying extents), “Cato presents itself as providing independent policy research. Kapoor’s allegations raise concerns about the integrity, independence, and transparency of this research, which can have an outsized influence on policy debates.”

In other words, these financial ties create exactly the kind of appearance of conflict of interest that every organization with any integrity seeks either to avoid or to deal with by making crystal clear which of its products are literally made-to-order – and need above all to please the client rather than seek the truth.

And the two main reasons that think tanks like Cato that engage in these practices are so influential directly distort and therefore corrupt national policy debates and the decisions they produce. First, the big bucks provided by donors like Immigration Voice and FWD.us give it the wherewithal to spread the word about its work with some of the best public relations that money can buy. Second, the lack of donor transparency enables the funders to take advantage of what I’ve called idea-laundering: using think tanks to issue materials that push their particular agendas while garbing them in quasi-academic raiment to create the impressions of objectivity and intellectual respectability.

At this point I need to acknowledge that I myself have spoken at Cato conferences and written chapters for Cato books. They’ve concerned foreign policy, a field in which the Institute’s non-interventionist positions would be difficult to match with any corporate or other selfish private ends. In fact, I’ve heard that in at least one instance, Cato’s opposition to the first Persian Gulf War, they’ve cost the organization contributions. And in 2012, the Institute resisted for a time what some staff and board members viewed as an attempt by billionaire industrialist brothers Charles and the late David Koch to politicize the organization excessively.

I’ll also give Cato credit for hosting the aforementioned Borjas presentation. But Cato’s immigration work in general now looks a good deal less than principled – and about as reliable as that of the academic specialists who seem determined to deal with some of the biggest problems caused by supercharging immigration inflows by simply defining them out of existence.

P.S. Thanks to U.S. Tech Workers, an organization pressing to reform U.S. immigration laws to promote the hiring of Americans in specialty positions, for alerting me to the Chronicles post. 

(What’s Left of) Our Economy: Lots to Like in Biden’s (Trump-y) China Trade Policy Vision

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allies, Biden, Biden administration, Center for Strategic and International Studies, China, Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP, decoupling, Donald Trump, economics, economists, exports, Katherine Tai, managed trade, multilateralism, multinational companies, Phase One, tariffs, U.S. Trade Representative, USTR, Wall Street, World Trade Organization, WTO, {What's Left of) Our Economy

Despite my strong interest in U.S.-China trade issues, I’d originally decided not to post on chief U.S. trade official Katherine Tai’s Monday speech on the Biden administration’s strategy for these challenges for two main reasons. One, her remarks were widely (and reasonably well) covered by major news organizations; and two, the big news they revealed was, as expected (including by me), making clear that the Trump administration’s sweeping and often steep tariffs on Chinese goods would remain in place for the foreseeable future.

Since then, however, the think tank that hosted the event (the Washington, D.C.-based Center for Strategic and International Studies) has posted not only her presentation as delivered, but the transcript of a lengthy Q&A session that followed. And those exchanges, along with passages from her speech that have received little attention, shed lots of new light on a great many other significantly promising points about the Biden China trade approach that Tai only touched on in her speech, and one-and-a-half points that are still worrisome.

The grounds for encouragement?

First, Tai made an especially forceful and pointed argument that the pre-Trump China trade and broader economic policies (which Biden strongly supported as a Senator and as Barack Obama’s Vice President) had been a major failure. In her prepared text’s words, “For too long, China’s lack of adherence to global trading norms has undercut the prosperity of Americans and others around the world.”

In addition, China’s predatory policies (my term, not hers)

“have reinforced a zero-sum dynamic in the world economy where China’s growth and prosperity come at the expense of workers and economic opportunity here in the U.S. and other market-based democratic economies. And that is why we need to take a new, holistic, and pragmatic approach in our relationship with China that can actually further our strategic and economic objectives for the near term and the long term.”

In other words, after decades of promises and hopes that commerce between the two countries would become a winning proposition for both (as mainstream economists also insisted), the Biden administration has officially declared such interactions to have been win-lose – with the United States and especially its workers the losers.

Indeed, Tai wasn’t even close to being finished horrifying the economic mainstream or the corporate China Lobby. She pointedly refused to call Trump’s January, 2020 Phase One trade deal a “failure,” and declared that even though it “did not meaningfully address the fundamental concerns that we have with China’s trade practices and their harmful impacts on the U.S. economy,” it ”is useful and has had value in stabilizing the relationship.”

In addition, going forward, Tai told her audience that more trade Trump-ism was likely. She indicated that the administration might approve a new Trump-like initiative to impose new tariffs to enforce Phase One more effectively. She also poured decidedly cool water on the idea that the President would move to join a Pacific Basin trade deal (now called the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership” or CPTPP) touted as a means of containing China, but nixed by Trump partly because its rules created wide open backdoors for goods with lots of China content.

More broadly, Tai signalled that the United States was now perfectly fine with dispensing with free trade orthodoxy in practice much of the time in favor of “managed trade” – which a questioner defined correctly as “governments setting targets [for exports and imports] and trying to achieve them” and which was embodied in China’s Phase One commitments (not yet satisfied) to boost buys of U.S. imports. ‘

Tai depicted such arrangements as having “evolved out of a frustration with the previous model. [which she described as “let’s seek market access and then, you know, let the chips fall where they may.”] And so the question that I bring to this issue that you’ve presented is not ideologically how do I feel about it, but what is actually going to present results and what is actually going to be effective.”

And she plainly portrayed them in a much more favorable light than the notion of relying on the World Trade Organization (WTO), which trade policy traditionalists have fetishized as the globe’s best hope for creating an international trade system that promoted free and fair competition through a set of detailed rules and regulations, along with a supposedly impartial legal system for resolving disputes.

In Tai’s words, however, “We brought 27 cases against China, including some I litigated myself, and through collaboration with our allies. We secured victories in every case that was decided. Still, even when China changed the specific practices we challenged, it did not change the underlying policies, and meaningful reforms by China remained elusive.”

As a result, Tai said, “as much as we will continue to invest and commit and try to innovate in terms of being a member at the WTO and seeking to bring reform to the WTO…we also need to be agile and to be open-minded and to think outside of the box with respect to how we can be more effective in addressing the concerns that we really have been struggling to address with China on trade.”

In addition,Tai also surely shocked her audience (and yours truly – pleasantly) by openly questioning the decades-long bipartisan push to increase U.S. exports to China:

“I think that part of the story of the U.S.-China trade relationship over these recent few decades has been about this thirst on the part of our business sector in particular for increased market access to China. In business sector I include our agriculture sector, obviously. You know, I think along the traditional lines of the way we’ve thought about trade and how benefits come from trade, it has been very focused on securing market access. I think that what we’ve seen is our traditional approach to trade has run into a lot of realities that are today causing us to open our eyes and think about, is what we’re looking for more liberalized trade and just more trade or are we looking for smarter and more resilient trade?”

With China facing mounting economic troubles due largely to its Ponzi-like real estate housing system and a stagnating population, that’s a valuable warning for American producers who still expect China to keep growing spectacularly and to offer gigantic, ever-expanding new markets for their goods and services.

Nonetheless, Tai specified that the Biden administration isn’t on board with widespread calls to decouple America’s economy from China’s:

“I think that the concern, maybe the question is whether or not the United States and China need to stop trading with each other. I don’t think that’s a realistic outcome in terms of our global economy. I think that the issue perhaps is, what are the goals we’re looking for in a kind of re-coupling? How can we have a trade relationship with China where we are occupying strong and robust positions within the supply chain and that there is a trade that’s happening as opposed to a dependency?”

I understand Tai’s reluctance to embrace decoupling openly. It runs too great a risk of making life in China for U.S. companies doing entirely ordinary, unobjectionable business there even harder than it’s already become, especially lately. But the reference to “re-coupling” struck me as totally unnecessary – and as unrealistic as the notion that Washington is skilled enough to preserve just as many connections to make sure that bilateral commerce does serve mutual legitimate interests, but not so many as to maintain or worsen dangerous dependencies on China, or increase its economic and technological power.

And Tai’s speech lauded the Biden aim of dealing with the China economic and technology challenges in concert with U.S. allies way too enthusiastically. As I’ve written, my prime worry has always been that priotizing this kind of multilateral approach will force the US to accept lowest-common-denominator measures that will always be sorely inadequate because so many of these allies depend so heavily on trading with and investing in China.

Nevertheless, Tai declared that “vitally, we will work closely with our allies and likeminded partners towards building truly fair international trade that enables healthy competition,” and even called this approach “the core of our strategy” on China and trade generally.

As I’ve written, U.S. Trade Representatives are rarely the last word on trade policy. So whatever Tai’s just said, I’m still not ruling out the possibility that the President will use some pretext (promises of climate change progress?) to bring back the bad old days. Certainly, that’s what Wall Street and multinational businesses want. But these Tai observations have made such a U-turn much more difficult politically. And if you agree with my cynical view that politics (mainly due to growing American public hostility toward China) and not principle is what’s produced Mr. Biden’s unexpectedly Trumpy positions toward the People’s Republic, that ain’t bean bag.

Im-Politic: In Case You Doubt Biden’s Immigration Plans Will Hammer U.S. Wages

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Biden, Biden border crisis, Breitbart.com, budget reconciliation, chain migration, Council of Economic Advisers, demand, economics, Im-Politic, Immigration, Jobs, labor market, labor shortage, migrants, Neil Munro, supply, wages, workers

We’ve just gotten a bright, flashing sign that, despite some recent stopgap steps (like this and this) obviously meant to convey the impression that the Biden administration hasn’t completely and dangerously lost control of America’s southern border, the President is just as determined as ever to open the floodgates to seemingly unlimited numbers of foreigners.

Worse, the development I’m writing about also makes clear that the President cares not a whit about the likely economic harm his policies will inflict on workers legally in the country at present – too many of whom haven’t exactly been killing it economically for decades now.

That sign consists of a post on the White House’s website by the Chair of the President’s Council of Economic Advisers (CEA) and three other government economists touting “The Economic Benefits of Extending Permanent Legal Status to Unauthorized Immigrants.” Just so we’re totally clear on their intent, in plain English, the title would read, “The Economic Benefits of Giving Amnesty to Illegal Aliens.” And the strength of the administration’s Open Borders ambitions is clearest from the utterly threadbare manner in which the authors deal with a central question: whether amnesty would drive down the wages of workers who live in America legally now.

This question of course is especially salient now because, due to the labor market turmoil generated by the CCP Virus pandemic and resulting behavior changes and official responses, U.S. employers are experiencing problems hiring enough workers, and consequently, these workers are enjoying major new leverage in bargaining for higher wages.

As pointed out in the CEA post, “Permanent legal status is likely to increase the effective labor supply of unauthorized immigrants” and that, “Given that providing legal status to unauthorized immigrants would increase their effective labor supply, critics of legalization argue there could be adverse labor market consequences for native and other immigrant workers.”

Here of course is where you’d expect the highly credentialed experts who wrote this post to respond with reams of evidence (or at least citations of scholarly works), decisively proving that, however commonsensical it seems to conclude that increasing the supply of anything (including labor) all else equal will reduce the supply of that thing, it ain’t so in the case of illegal aliens.

But as initially (at least to me) pointed out by Breitbart.com‘s Neil Munro, nothing of the kind happened. Here’s what the CEA said:

“While there is not a large economics literature on the labor market effects of legalization on other workers, in a well-cited National Academies report on the economic and fiscal impact of immigration, a distinguished group of experts concludes that in the longer run, the effect of immigration on wages overall is very small.”

I could write an entire blog post on what’s jaw-droppingly wrong with this sentence’s methodology. Chiefly, it’s not only an appeal to authority – which logically is an implicit confession that the appealers don’t know much themselves about the subject they’re writing about. It’s an appeal to authorities who themselves don’t seem to know much about their subject, or can’t cite any evidence. Therefore they can only offer an evidently unsupported conclusion.

But what’s most important to me about this CEA point is that it never challenges the wages claim made by those “critics of legalization.” All the authors can counter with is a contention that, at some unknown point, the wage depression resulting from amnesty will become “very small.” That’s some comfort to Americans workers today. And for possibly decades.   

Also crucial to point out is how narrow and thus misleading the post’s analytical framework is. It clearly assumes that amnesty won’t stimulate ever greater inflows of foreign laborers who compete against the domestic worker cohort that exists at any given time – which would include the millions of amnestied illegals. Yet everything known about the impact of looser immigration policies – and even official announcements thereof – demonstrates that they exert a powerful magnet effect on other foreigners. Nor do you need to take my word for it. That’s what many migrants themselves have said about the Biden administration’s approach. (See, e.g., here and here.)

The so-called magnet effect of the Biden roll-back of its predecessor’s immigration policies isn’t the only reason to expect the White House’s current approach to supercharge the supply of American workers. To mention just one example, his immigration reform bill and budget reconciliation bill would ease Trump-era limits on “chain migration” – a policy that enables immigrants into the country legally if a spouse, parent, child, or sibling already lives here legally. Further, once these chain migrants arrive, their own relatives receive the same easy entry. And so on. Special bonus: The restrictions on chain migration-related visas granted for employment reasons will be eased even further.

If a better way to keep a huge share of American workers underpaid (especially those in low-wage portions of the economy, which heavily rely on the kinds of low-skill employees who dominate the illegal alien population), let me know. And of course in the cruelest irony of all, as the CEA post shows, among the leading advocates of these wage-hammering measures are the very liberals and progressives that have for decades claimed to be champions of Americans left behind. 

Making News: Video of China Panel Presentation Now On-Line

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China, conservatives, economics, Intercollegiate Studies Institute, Making News, national security, Trade

I’m pleased to announce that the podcast is now on-line of my participation in a late July panel discussion on “China, Geonomics, and Great Power Competition.” Here’s the link.

The event was especially interesting because it was held as part of a conference put on by the conservative Intercollegiate Studies Institute (ISI), and because for decades intellectually honest conservatives have been torn over the question of how and even whether to respond to China’s wide-ranging economic predation. (As with liberals, other conservatives have simply served as corporate-funded backers of coddling China.)   

On the one hand, many have recognized that growing national economic power (which China has amassed largely through its tariffs, technology blackmail, intellectual property theft, and other practices having nothing to do with free trade or any form of free markets) tends to translate into growing national military power. Therefore, some limits on doing business with the People’s Republic have always been considered justified (e.g., no arms sales). On the other hand, even these conservatives’ fundamental opposition to limits on economic activity has bred a decided reluctance to endorse any but the most threadbare curbs – which folks like me have viewed as pathetically inadequate (for reasons I lay out).

As ISI has explained, the purpose of the overall conference was to “hash out what a conservative approach to the economy should look like today” – which reflects its admirable willingness to reexamine longstanding dogmas. So IMO, the Institute deserves a lot of credit for including China policy on this list, and I’m grateful to have been included in this piece of the process. P.S.  I attended most of the rest of the conference, and found the treatment of other issues fascinating. If ISI posts the entire event at one link, I’ll pass it along as soon as I can find it.   

In the meantime, keep checking in with RealityChek for news of upcoming media appearances and other developments.