So this is fun:
My friend Blake Stanley is a talented musician and guitarist. He runs a YouTube channel by the name of JamTheory. He’s been kind enough to bring me on to several of his music projects in the past. He recently posted another original song titled “Never Wrong.” I was invited to contribute a guitar solo, which pops up at about 4:30.
It was fun to write and help with the video, though all the video editing credit belongs to Blake.
Hope you enjoy!
The Academic Programs team spent close to a week in San Diego in mid-January hosting our inaugural Winter Honors Program as well as our annual Faculty Summit. We had 70+ students and 60+ faculty in attendance.
The theme for WHP was “America in 2025 and Beyond” and featured classes on the future of conservatism (taught by Matt Continetti), the future of work (taught by Brent Orrell), the future of globalization (taught by Stan Veuger), and the future of pluralism (taught by David French). Follow-up sessions will take place online throughout the rest of January to early February.
The Faculty Summit addressed topics such as the economic and legal context of higher education, ideological diversity on campus, and academic freedom. Speakers included Jean Twenge, Musa al-Gharbi, Jon Shields, Elizabeth Corey, Beth Akers, Preston Cooper, John Yoo, Carole Hooven, and Robert George.
Overall, a very successful week for AEI’s Academic Programs.
My website’s blog has been out of commission for the last several years, mainly because the kind of commentary I would do on my blog shifted to Twitter or X. However, I’d like to resurrect it in 2025: not for any serious commentary, but primarily for announcements, recent events, and a little personality. So, I thought it would be fun to do a recap of some highlights from 2024:
Writing & Presenting
This was a pretty successful year for writing. I had 4 essays in Law & Liberty, 2 op-eds in Deseret News, and one journal article in Interpreter. You can find links to them all in the “Writing” section of my website.
I was also invited by USU’s Patrick Mason to contribute a chapter to a volume on Latter Day Saint history. It will discuss how “Mormonism” was used by pro-slavery intellectual George Fitzhugh as a means of arguing against Northern liberalism. In short, Fitzhugh believed that Mormonism’s emergence from the North was evidence of the unnatural culture of Northern liberalism. It will be an expansion of my Law & Liberty piece on the same topic. The chapter was submitted last summer and we should (hopefully) see it in print through University of Illinois Press sometime this year.
I also finalized another chapter for a different volume on…wait for it…James Bond and religion. This will be part of Rowman & Littlefield’s Theology, Religion, and Pop Culture series. I’m a huge James Bond fan and have been since I was a kid, so I jumped at the chance to write on two topics that are so close to my heart. My co-author Guy Burnett and I argue that the James Bond of the novels is a reflection of the 20th-century post-Christian West. Sounds like a stretch, I know, but just wait until you read it. We’re hoping to see it in print at the end of 2025 or early 2026.
I’m nearing the completion of my book on the pro-sociality of markets. I’ve been working on this the last couple of years and I hope to have it completed by the end of the month or mid-February. Most of my Law & Liberty essays from this past year were partially lifted from the book. There’s some interest in the manuscript from a publisher, but I’ll just leave it at that. Don’t want to jinx it!
Finally, I presented at the Mercatus Center’s Markets & Society Conference. My presentation was titled “‘A Pacific System': Peace, Markets, and Doux Commerce.” I argued that economic centralization leads to greater state-on-citizen violence as well as citizen-on-citizen violence. You can see the slides here.
Professional
The most recent professional change came at the end of 2024: I was officially offered an online adjunct faculty gig at Brigham Young University-Idaho. I’ll be teaching international business during the Winter 2025 semester. Excited for this new opportunity!
In my role as manager of Academic Programs at AEI, I handle faculty relations. This relationship-building culminated in our inaugural AEI Faculty Summit in January 2024. We had a little over 30 attendees and a wonderful lineup of speakers, including Chris Scalia, Sam Abrams, Max Eden, Jim Pethokoukis, Leon Aron, Adam White, Peter Berkowitz, and Jenna Storey. It was a great way to kick off 2024.
Another part of my job is overseeing AEI’s Summer Honors Program, an intensive, fully-funded educational and professional development opportunity for top undergraduate students. The program provides participants the opportunity to connect with the ideas, research, and network of AEI through an intensive one-week seminar led by an AEI scholar or partner instructor. In the summer of 2024, we offered 20 courses (the most in SHP’s history), hosted about 300 students, and heard from some amazing speakers, including FIRE’s Greg Lukianoff and Rabbi Meir Soloveichik (pictured below). We also had a great trip with our Summer Honors Academy students to Philadelphia, where we visited Independence Hall and the National Constitution Center and received some on-site teaching from AEI fellow Jay Cost.
We also had a few student summits throughout the year. These included both our Spring and Fall Summits for the AEI Collegiate Network, which is our student network for current undergraduates. The Spring Summit was held at the University of Florida and co-hosted with the university’s Hamilton Center. Our final summit was the First Generation Student Forum, which is designed to bring current first generation undergraduate students to DC to enter into discussions about the state of the American Dream today.
I had the chance to attend a couple professional development seminars this year as well. The first was with Pepperdine University’s School of Public Policy. While there, I was able to see the Makoto Fujimara exhibit they had on display. By random chance, I was able to briefly meet Fujimara and have him sign my copy of Art and Faith: A Theology of Making. Later in the year, I attended the Mercatus Center’s Pluralism Summit. There, I heard from Daryl Davis and his stories of converting Klansmen away from the KKK. I had the privilege of chatting with him for a little bit before snagging a selfie. Both seminars were fantastic.
Fun Stuff
The summer of 2024 was the summer of 90s nostalgia. I saw several concerts: Creed (w/ 3 Doors Down), Alanis Morissette (w/ Joan Jett), Beck, and Primus (w/ Coheed & Cambria). I also went to a guitar clinic with Mark Tremonti, guitarist of Creed, Alter Bridge, and Tremonti. He went over licks, picking patterns, exercises, improvisation, songwriting, and creative chording. The heat from him shredding up close and in-person nearly melted my face off. Afterwards, we got a rundown of his gear for that night’s Creed show. Cherry-on-top, his signature now graces the front of my Fender.
Lissette and I also did a few trips. In July, we did a visit of various Latter-day Saint historical sites in upstate New York and Pennsylvania. These included the Sacred Grove and Smith family farm, the Hill Cumorah, the Grandin Building (publisher of the Book of Mormon), the Whitmer farm, the Harris farm, and the Priesthood Restoration site in Oakland Township, PA. This was the first time we’ve ever visited these sites. Given my own historical work on Joseph Smith’s First Vision, it was very exciting. We also spent July 4 at Niagara Falls: another first for the two of us.
My father came to visit us this summer as well. He’s a history buff, so we all headed out to Gettysburg. We got a proper tour from a Gettysburg guide, who has probably forgotten more about the battle than I’ve ever known.
I went to Kentucky with a friend to do some bungee jumping for the first time ever. It was exhilarating. Did a couple of jumps. The pre-jump is nerve-wracking. You step the edge and the worker says, “Let go of the rail. Put your hands to your side. Alright, 3, 2, 1…” And then you leap. The first two seconds after you leave the platform are terrifying. Your bodily instincts kick in and you think, “I’ve killed myself.” But then you feel the bungee cord behind you, the calm sets in, and you just enjoy the ride. It was fun to do my own GoldenEye reenactment.
Finally, Lissette and I did something we’ve wanted to do for some time: we went on a Christmas cruise. It was our first time on the MSC line. We headed out of New York City and our first stop was in Florida at Port Canaveral. We visited the Kennedy Space Center, a first for both of us. Then we headed to the Bahamas, where we relaxed and took it easy.
Overall, it was an eventful year. I’m looking forward to 2025!
The books above arrived yesterday, making them the latest additions to my library. The picture does a decent job of capturing my general interests, intellectually speaking. My concern about and interest in the topic on the right is heavily influenced by the topic on the left. (I’ve made this evident in my past writing.) I’m excited to dive into both, but Gardner’s reminds me of some recent work on internal migration that I wanted to highlight:
Data from Indonesia show “moderate aggregate gains but important heterogeneity. Removing all frictions is predicted to increase aggregate productivity by 22 percent. These gains are modest relative to the potential gains suggested by studies such as Gollin et al. (2014), but are in line with what one may expect from other microeconomic studies. For the people born in some locations, however, the results are much larger, with predicted gains peaking at 104 percent. We show, theoretically and empirically, that gains are larger for origins that have higher dispersion in average wages across destinations. Because complete barrier removal may be impossible, we also compute the gains from moving to the US level of movement costs, which we see as a high-mobility benchmark. We predict an aggregate productivity boost of 7.1 percent, with the origin that gains most seeing a 25 percent increase. We conclude that while migration that improves the static allocation of labor is unlikely to have very large productivity effects of the sort estimated, for example, by Hsieh and Klenow (2009), targeted policies may have big impacts on the lives of some communities” (pg. 2232).
Data from China demonstrate “that, on net, increased access and returns to internal migration are beneficial for rural households. Food consumption becomes less variable. The findings rule out a negative wealth effect from having a migrant and rule out the possibility that the total consumption risk a household faces increases as a result of having a migrant. Furthermore, the results suggest that low-yielding assets are liquidated. The proceeds of the liquidation of the assets, potentially combined with net positive transfers from migrants, serve to increase households’ cash on hand. The increased cash on hand may fund the observed increase in food consumption and the observed increase in investment in high-risk, high-return assets. An alternative interpretation of the liquidation of low-yielding assets is that they were used to finance the costly migration of a household member” (pg. 111).
As Lant Pritchett has shown, labor mobility is the most well-established anti-poverty program around.
Some recent noteworthy studies:
Data from India indicates that foreign direct investment can reduce capital misallocation. The researchers conclude, “Capital misallocation can be an important hurdle for development. By preventing the firms with the highest returns from growing, it reduces the quantity produced, increases the prices consumers face, and reduces the wage bill. If changing the local banking market is complicated because of bureaucracy or political capture, governments have a powerful lever that can be used to reduce misallocation: Increasing access to foreign capital for domestic firms.”
A recent World Bank report finds:
Global value chains (GVCs) account for almost 50% of global trade today. Over the past 30 years, they have helped poor countries grow faster, lifting many out of poverty.
GVCs can further boost inclusive and sustainable growth, create better jobs and reduce poverty, if developing countries implement deeper reforms and industrial countries pursue open, predictable policies.
A 1% increase in GVC participation is estimated to boost per capita income levels by more than 1% - about twice as much as conventional trade.
New technologies, such as automation and 3D printing, are a frequent cause for concern. But they are more likely to boost GVCs as trade and communication costs come down, new products are developed, and productivity increases.
A brand new Federal Reserve paper concludes, “Most previous work on the “China shock” emphasized its detrimental consequences for U.S. employment. Our findings send a different message: the price effects of trade with China were large and beneficial to U.S. consumers. We estimate that falling prices in product categories that were more exposed to trade with China created hundreds of thousands of dollars in consumer surplus for each displaced job. These prices effects are particularly large in product categories selling to low-income consumers” (pg. 42).
According to the Tax Policy Center,
The earned income tax credit (EITC) provides substantial support to low- and moderate-income working parents, but very little support to workers without qualifying children (often called childless workers). Workers receive a credit equal to a percentage of their earnings up to a maximum credit. Both the credit rate and the maximum credit vary by family size, with larger credits available to families with more children. After the credit reaches its maximum, it remains flat until earnings reach the phaseout point. Thereafter, it declines with each additional dollar of income until no credit is available (figure 1).
By design, the EITC only benefits working families. Families with children receive a much larger credit than workers without qualifying children. (A qualifying child must meet requirements based on relationship, age, residency, and tax filing status.) In 2018, the maximum credit for families with one child is $3,461, while the maximum credit for families with three or more children is $6,431.
…Research shows that the EITC encourages single people and primary earners in married couples to work (Dickert, Houser, and Sholz 1995; Eissa and Liebman 1996; Meyer and Rosenbaum 2000, 2001). The credit, however, appears to have little effect on the number of hours they work once employed. Although the EITC phaseout could cause people to reduce their hours (because credits are lost for each additional dollar of eanings, which is effectively a surtax on earnings in the phaseout range), there is little empirical evidence of this happening (Meyer 2002).
The one group of people that may reduce hours of work in response to the EITC incentives is lower-earning spouses in a married couple (Eissa and Hoynes 2006). On balance, though, the increase in work resulting from the EITC dwarfs the decline in participation among second earners in married couples.
If the EITC were treated like earnings, it would have been the single most effective antipoverty program for working-age people, lifting about 5.8 million people out of poverty, including 3 million children (CBPP 2018).
The EITC is concentrated among the lowest earners, with almost all of the credit going to households in the bottom three quintiles of the income distribution (figure 2). (Each quinitle contains 20 percent of the population, ranked by household income.) Very few households in the fourth quinitle receive an EITC (fewer than 0.5 percent).
Recent evidence supports this view of the EITC. From a brand new article in Contemporary Economic Policy:
First, the evidence suggests that longer-run effects[1]”Our working definition of “longer run” in this study is 10 years” (pg. 2).[/ref] of the EITC are to increase employment and to reduce poverty and public assistance, as long as we rely on national as well as state variation in EITC policy. Second, tighter welfare time limits also appear to reduce poverty and public assistance in the longer run. We also find some evidence that higher minimum wages, in the longer run, may lead to declines in poverty and the share of families on public assistance, whereas higher welfare benefits appear to have adverse longer-run effects, although the evidence on minimum wages and welfare benefits—and especially the evidence on minimum wages—is not robust to using only more recent data, nor to other changes. In our view, the most robust relationships we find are consistent with the EITC having beneficial longer-run impacts in terms of reducing poverty and public assistance, whereas there is essentially no evidence that more generous welfare delivers such longer-run benefits, and some evidence that more generous welfare has adverse longer-run effects on poverty and reliance on public assistance—especially with regard to time limits (pg. 21).
Let’s stick with programs that work.
In June, the Council of Economic Advisers released a report on the economic effects of the Trump administration’s deregulation. They estimate “that after 5 to 10 years, this new approach to Federal regulation will have raised real incomes by $3,100 per household per year. Twenty notable Federal deregulatory actions alone will be saving American consumers and businesses about $220 billion per year after they go into full effect. They will increase real (after-inflation) incomes by about 1.3 percent” (pg. 1).
David Henderson (former senior economist in Reagan’s Council of Economic Advisers) writes, “Do the authors make a good case for their estimate? Yes…I wonder, though, what the numbers would look like if they included the negative effects on real income of increased restrictions on immigration and increased restrictions on trade with Iran. (I’m putting aside increased tariffs, which also hurt real U.S. income, because tariffs are generally categorized as taxes, not regulation.)”
But what if we did include the tariffs? A recent policy brief suggests that the current savings from deregulation will actually be cancelled out by the new tariffs. As the table shows below, the savings due to deregulation stack up to $46.5 billion as of June. However, the tariffs imposed between January 2017 and June 2019 rack up to a dead loss of $13.6 billion. By the end of 2019, however, the dead loss will rack up another $32.1 billion. If the currently planned tariffs are put into effect on top of the already existing ones, then we’re looking at a dead loss of up to $121.1 billion.*
Maybe if economists start putting clap emojis in their work, people will finally get that tariffs aren’t good for the economy.
From a brand new study in the Journal of International Economics:
Using household survey data for 54 low and middle income countries harmonized with trade and tariff data, this paper offers a quantitative assessment of the income gains and inequality costs of trade liberalization and the potential trade-off between them.
A stylized yet comprehensive model that allows for a rich range of first-order effects on household consumption and income is used to quantify welfare gains or losses for households in different parts of the expenditure distribution. These welfare impacts are subsequently explored by deploying the Atkinson social welfare function that allows us to decompose inequality adjusted gains into aggregate gains and equality (distributional) gains.
Liberalization is estimated to lead to income gains in 45 countries in our study, and to income losses in 9 countries. The developing world as a whole would enjoy gains of about 1.9% of real household expenditures, on average. These income gains are negatively correlated with equality gains, such that liberalization typically entails a trade-off between average incomes and income inequality. In fact, such trade-offs arise in 45 out of 54 countries, and are primarily the result of trade exacerbating income inequality. By contrast, consumption gains tend to be more evenly spread across households.
While trade-offs are prevalent, our findings also suggest that liberalization would be welfare enhancing in the vast majority of countries in our study: in a large part of the developing world, the current structure of tariff protection is inducing sizable welfare losses. Explaining what drives these patterns is beyond the scope of this paper but an interesting avenue for future research (pg. 16).
I’m sure this offers a bit of a conundrum for those who have conflated concerns over inequality with caring for the poor.*
*It should be noted that global inequality is actually decreasing. And this isn’t really a paradox when you realize that concerns over poverty and inequality aren’t one and the same.
What would happen if foreign direct investment (FDI) simply disappeared? Or, more specifically, what would “a hypothetical world without outward and inward FDI from and to low- and lower-middle-income countries” look like? A brand new study tries to quantify this hypothetical. They find,
On average, the gains from FDI in the poorer countries in the world amount to 7% of world’s trade in 2011, the year of our counterfactual analysis. Second, all countries lose from the counterfactual elimination of FDI in the poorer countries. Third, the impact is heterogeneous. Poorer countries lose the most, but the impact varies widely even within this group – some lose over 50% and some very little. The impact on countries in the rest of the world is significant as well. Some countries lose a lot (e.g. Luxembourg, Singapore, and Ireland) while others (such as India, Ecuador, and Dominican Republic) lose less. Pakistan and Sri Lanka actually see an increase in their total exports due to the elimination of FDI.
Figure 1 Percentage change in total exports from eliminating outward and inward FDI to and from low- and lower-middle-income countries
There’s more:
On average, the gains from FDI amount to 6% of world’s welfare in 2011. Further, all countries in the world have benefited from FDI, but the effects are very heterogeneous. The directly affected low- and lower-middle-income countries see welfare changes up to over 50% (Morocco and Nigeria), while some of the remaining 68 countries, such as Ecuador, Turkmenistan, and Dominican Republic are hardly affected. A higher country-specific production share of FDI leads to larger welfare losses, all else equal. Intuitively, a larger importance of FDI in production leads to larger welfare losses when restricting FDI. A larger net log FDI position leads to larger welfare losses. Intuitively, if a country has more inward than outward FDI, restricting FDI will lead to larger welfare losses, as FDI is complementary to other production factors and therefore overall income increases more than FDI payments.
Figure 2 Welfare effects of eliminating outward and inward FDI to and from low- and lower-middle-income countries (%)
The authors conclude, “Overall, the analysis reveals that FDI is indeed an important component of the modern world economic system. The results suggest positive payoffs to policies designed to facilitate FDI, particularly those concerning protection of intellectual property.”
From a recent working paper out of the Center for Growth & Opportunity:
We use two sources of data—the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP)—to explore the differences in occupational licensing between natives and immigrants. Each dataset provides unique advantages, allowing us to paint a clearer picture of how occupational licensing differs between natives and immigrants than would be possible by using either dataset alone.
Though the CPS and SIPP differ in some key ways, where comparable our results are quite similar between the two datasets. We find that immigrants are significantly less likely to have an occupational license than natives; this gap is larger for men than for women and is especially large for the highest education level. The wage premium from having a license may not differ between natives and immigrants when controlling for English language ability, suggesting that though immigrants are less likely to have a license, they seem to benefit at least as much as natives from having one. Licensed workers tend to work more hours per week than otherwise similar unlicensed workers, so the wage premium understates the earnings premium.
Using the CPS, we find that the native/immigrant licensing gap declines with years since migration, consistent with immigrants assimilating toward natives. We also find large differences in licensing rates by region of origin; in particular, women from the Caribbean, Southeast Asia, and Africa have a higher probability of having a license than otherwise similar natives.
Using the SIPP, we find that a lack of English language proficiency lowers the probability that an immigrant has a license, even when controlling for other individual characteristics such as education level. Utilizing the richer set of occupational licensing questions available in the SIPP, we find no evidence to suggest that license characteristics differ between natives and immigrants, and thus we find no evidence that natives and immigrants are acquiring different types of licenses.
Our results suggest that occupational licensing disproportionately affects immigrants, especially male immigrants, those lacking English proficiency, and the most educated group. Indeed, insofar as occupational licensing helps to protect incumbent (largely native) workers in an occupation from competition, it is unsurprising that immigrants are particularly impacted (pg. 18-19).
They also find, “Skill-based immigration would favor immigrants with high levels of education. Our results indicate that it is precisely this group that exhibits the largest licensing attainment gap with natives. Increasing the flow of immigrants from this education level may lead to substantial occupational mismatch for this group of immigrants if they face difficulty in acquiring licenses needed to work in their pre-migration occupations” (pg. 20).
Regressive regulations like this are low-hanging fruit that can easily be changed.
From Art Carden over at Forbes:
A new paper forthcoming in the journal American Economic Review: Insights estimates the effect of trade with China on American consumers and shows us what we stand to lose if we don’t end the trade war.
In “Estimating US Consumer Gains from Chinese Imports,” economists Liang Bai of the University of Edinburgh and Sebastian Stumpner of the University of Montreal and the Bank of France study price data from the Nielsen Homescan panel to find that trade with China reduced the prices Americans paid for consumer tradables by 0.19 percentage points per year. You can download a draft of the paper here.
Bai and Stumpner argue that about a third of the consumers’ gain from trade with China comes from greater product variety while the other two-thirds come from lower prices for the goods people were already buying.
Another way to put it is that inflation was lower–prices didn’t rise as rapidly–because of trade with China…The direction of the result won’t surprise economists, who have argued for centuries that international trade helps a country’s citizens by making it possible for them to get more with every hour of their hard-earned labor.
Scott Lincicome of the Cato Institute weighs in as well:
Trade and globalization have provided undeniable economic benefits for the vast majority of American families, businesses, and workers. Most obvious are the consumer gains. Several recent studies have found that freer trade with China, for example, has generated, through increased competition and lower prices, hundreds of billions of dollars in U.S. consumer benefits — benefits that, according to economists Xavier Jaravel and Erick Sager, are the equivalent of giving every American “$260 of extra spending per year for the rest of their lives.”1 Consumer gains from imports, in general tilted toward the poor and the middle class, are especially tilted toward them when it comes to goods that are made in China and sold at stores like Walmart. The magnitude of such benefits also debunks the well-worn myth that free trade is mainly about cheap T-shirts. Indeed, trade’s consumer surplus is a big reason that Americans today work far fewer hours to own far better essentials than at any prior time in U.S. history.
Then there are trade’s overall benefits for the economy. A 2017 Peterson Institute paper calculated the payoff to the United States from expanded trade between 1950 and 2016 to be $2.1 trillion, increasing U.S. GDP per capita and per household by around $7,000 and $18,000 — with benefits, again, disproportionately accruing to households in the bottom income decile. The U.S. International Trade Commission, moreover, found in 2016 that U.S. bilateral and regional trade agreements such as NAFTA generated small but significant annual increases in GDP, as well as in employment and real wages among highly skilled and less skilled American workers. As the American Enterprise Institute’s Michael Strain has noted, trade-skeptical populists who downplay this impressive macroeconomic boost ignore that, as our current economic moment attests, a small bit of extra GDP growth can mean big things for lower-wage, lower-skill workers in terms of employment and possible government assistance.
Trade and globalization also support American companies and workers, even in manufacturing. The Commerce Department, for example, has estimated that almost 11 million jobs depended on exports of U.S. goods and services in 2016, and foreign direct investment in the United States — the necessary flip side of our oft-maligned trade deficit — supported millions more. Meanwhile, American companies that adapt and thrive in today’s economy most often do so by making use of imports and global supply chains. The San Francisco Fed, for instance, recently estimated that almost half of U.S. imports are intermediate products purchased by American manufacturers to make globally competitive finished goods; the country’s biggest exporters, therefore, are also its biggest importers. Numerous other studies have found that the vast majority of the value of an American company’s assembled-abroad product (such as an iPhone, assembled in China) accrues to the U.S. company, including its workers and shareholders — not to the place of final assembly (despite what a gross bilateral trade balance, which attributes an import’s full cost to its final export source, might say).
…My 2017 survey of the academic literature on over a century of U.S. protectionism pre-Trump showed that, with very few exceptions, it imposed immense economic costs on American consumers, workers, and companies (more than $600,000 per year for every U.S. job created) while also failing to open foreign markets or resuscitate protected American firms and workers over the longer term. In case after case, the jobs still disappeared, and the companies either went bankrupt or came back to the government for more help. And it’s happening again: Though American steel consumers are paying much higher prices than their global competitors, U.S. steel-industry stocks lag far behind the S&P 500 index. For these and related reasons, economists of the Left, Right, and center continue to oppose tariffs overwhelmingly (93 percent of a recent IGM Economic Experts Panel of dozens of top economists, to be exact), and they support freer trade and globalization.
Say again: free trade is good.
NBER Digest has a nice rundown of recent work on Trump’s trade war. One study finds
that the costs of the new tariff structure were largely passed through as increases in U.S. prices, affecting domestic consumers and producers who buy imported goods rather than foreign exporters. The researchers estimate that the tariffs reduced real incomes by about $1.4 billion per month. Due to reduced foreign competition, domestic producer prices also increased. The prices of manufactured goods rose by one percentage point relative to a no-trade-war scenario. The reduction in real incomes represents the welfare cost of higher consumer prices, less the government revenue collected by the tariffs and the additional income of domestic producers who were able to sell their products at higher prices.
This could end up being “especially costly for multinational companies that have made substantial sunk-cost investments in supply chains in other countries, for example by relying on facilities in China or other impacted countries. The study estimates that around $165 billion worth of trade has been rerouted to avoid them.”
estimate[s] that the new tariff regime reduced U.S. imports by 32 percent, and that retaliatory tariffs from other countries resulted in an 11 percent decline of U.S. exports. They use these responses to estimate import demand and export supply elasticities, and then apply these estimates to calibrate a general equilibrium model of the U.S. economy with detailed input-output linkages. They estimate that higher prices facing U.S. consumers and firms who purchased imported goods generated a welfare loss of $68.8 billion, which was substantially offset by the income gains to U.S. producers who were able to charge higher prices ($61 billion). The researchers estimate the resulting real income decline at about $7.8 billion per year, a value broadly comparable to the net income decline estimated in the previous study.
What’s more, “The average real wage of workers in tradeable sectors declined by 0.7 percentage points, with a standard deviation of 0.4 percentage points across counties, with workers in the Midwest suffering more than those in other regions.” The protectionist policies also appear to be (of course) political. It turns out that “the U.S. tariffs protected industries that tended to employ workers in the most politically competitive counties. Foreign governments imposed retaliatory tariffs in sectors based in more Republican-leaning counties. The researchers estimate that counties with at least an 85 percent Republican vote share bore losses over 50 percent greater than counties in which the Republican vote share was less than 15 percent.”
Surprise, surprise.
The following comes from the Congressional Budget Office’s July report. It pretty much captures one of the major trade-offs of minimum wage hikes.
The people who get the wage increases will obviously be better off. Not so for the 1.3 million (at $15 an hour) who lose their jobs.
So the question boils down to this: are we willing to make that trade?
It is honestly kind of hard not to laugh at the Chinese response to Trump’s tariffs. From the Peterson Institute:
China increased its retaliatory tariffs hitting US exports on June 1 in response to President Donald Trump’s latest escalation of his trade war. Yet, this action is only half of the bad news for US exporters. The other half is that China has begun rolling out the red carpet for the rest of the world. Everyone else is enjoying much improved access to China’s 1.4 billion consumers, a fact that has been little noticed or reported in accounts of the US-China economic confrontation.
…Trump’s provocations and China’s two-pronged response mean American companies and workers now are at a considerable cost disadvantage relative to both Chinese firms and firms in third countries. The result is one more eerie parallel to the conditions US exporters faced in the 1930s.
Another important implication of China’s action is that Americans are likely suffering more than President Trump thinks due to his trade war. Inflicting such punishment on Americans may be one factor motivating China. A separate motivation may be that it is trying to minimize the harm to its own economy by importing vital goods at better prices from other parts of the world.
Lovely.
As reported by The Washington Post,
When economists at the University of Chicago and the Federal Reserve studied the 2018 duty on washing machines, they found the expected rise in retail prices from foreign manufacturers such as Samsung and LG. Surprisingly, though, these brands also increased dryer prices. Then domestic manufacturers followed suit, simply because they could.
All told, the research shows, U.S. consumers are spending an additional $1.5 billion a year on washers and dryers as a result of the tariffs. That’s an extra $86 for each washing machine and $92 for each dryer, the authors estimate. And less than 10 percent of that goes to the U.S. treasury — about $82.2 million — the study showed…Foreign manufacturers are passing some costs on to consumers, while domestic ones are simply pocketing extra profits, according to the study.
…Manufacturers also capitalized on buyer habits when they bumped up the price of dryers, which were not subject to the tariffs. “Many consumers buy these goods in a bundle,” Tintelnot said. “Part of the price increase for washers was hidden by increasing the price of dryers.”
In sum, “U.S. consumers shouldered 125 to 225 percent of the costs of the washing-machine tariffs. And the duty was mostly a dud on the job-creation front,” costing consumers about $815,000 for every one of the 1,800 jobs created.
That’s exciting. Looks like tariffs are exactly what they are cracked up to be.
From a recent NBER paper (quoting from an earlier draft):
As theory would suggest, we find robust evidence that the impact of the minimum wage depends on how close a restaurant is to the margin of exit, proxied by its rating. Looking at city-level minimum wage changes in the San Francisco Bay Area (the “Bay Area”), we present two main findings. First, at all observed minimum wage levels, restaurants with lower ratings are more likely to exit, suggesting that they are less efficient in the economic sense. Moreover, lower rated restaurants are disproportionately affected by minimum wage increases. In other words, the impact of the minimum wage on exit is most pronounced among restaurants that are closer to the margin of exit.
…Our results suggest that a $1 increase in the minimum wage leads to an 14 percent increase in the likelihood of exit for the median 3.5-star restaurant, but no impact for five-star restaurants (the point estimate is in fact negative, suggesting that the likelihood of exit might even decrease for five-star restaurants, but the estimate is not statistically different from zero). These effects are robust to a number of different specifications, including controlling for time-varying county characteristics that may influence both minimum wage policies and restaurant demand, city-specific time trends to account for preexisting trends, as well as county-year fixed effects to control for spatial heterogeneity in exit trends.
…Overall, our findings shed on the economic impact of the minimum wage. Basic theory predicts that the minimum wage will cause firms that cannot adjust in other ways to cover their increased costs to exit the market. We find that lower rated firms (which are already closer to the margin of exit) are disproportionately impacted by the minimum wage. After a minimum wage increase, they are more likely to exit the market altogether and more likely to raise their prices (pg. 2-5).
This matches previous research, which finds that labor-intensive restaurants tend to exit and make room for capital-intensive restaurants. This same research finds that consumers bear the costs of minimum wage hikes. Lastly, the authors found “a short-run disemployment effect of just under −0.1 that likely grows by three to five times in the long run” (pg. 71).
From a forthcoming article in the American Economic Review (quoting from the draft version) on Hungarian minimum wage hikes:
Most firms responded to the minimum wage by raising wages instead of destroying jobs. Our estimates imply that out of 290 thousand minimum wage workers in Hungary, around 30 thousand (0.076% of aggregate employment) lost their job, while the remaining 260 thousand workers experienced a 60% increase in their wages. As a result, firms employing minimum wage workers experienced a large increase in their total labor cost that was mainly absorbed by higher output prices and higher total revenue. We also estimated that firms substituted labor with capital and their profits fell slightly. These results suggest that the incidence of the minimum wage fell mainly on consumers. Given the relatively small effect on employment, our results also suggest that minimum wages can redistribute income from consumers to low-wage workers without large efficiency losses. Our findings also indicate that the optimal level of the minimum wage is likely to vary across industries,cities and countries. In countries where low-wage jobs are concentrated in the local service sector (such as Germany or the U.S.) raising the minimum wage is likely to cause limited disemployment effects or efficiency losses. Moreover, in cities where mainly rich consumers enjoy the services provided by low wage workers this redistribution will be from rich to poor. The heterogenous responses across industries also underline the advantages of sector-specific minimum wage polices used in some European countries such as Italy or Austria. For instance, setting a higher minimum wage in the non-tradable sector than in the tradable sector can push up wages relatively more where it will generate more modest disemployment effects (pg. 23-24).
I saw this floating around Facebook recently with the news of Elizabeth Warren’s student loan plan. For those unfamiliar with what Mayfield is referencing, here’s the entry from the HarperCollins Bible Dictionary:
As another Bible dictionary clarifies, “Though Leviticus 25 does not explicitly discuss debt cancellation, the return of an Israelite to his land plus the release of slaves implies the cancellation of debts that led to slavery or the loss of land.”
So does Warren’s plan benefit “the marginalized”?
According to Adam Looney at the Brookings Institution, Warren’s proposal is “regressive, expensive, and full of uncertainties…[T]he top 20 percent of households receive about 27 percent of all annual savings, and the top 40 percent about 66 percent. The bottom 20 percent of borrowers by income get only 4 percent of the savings. Borrowers with advanced degrees represent 27 percent of borrowers, but would claim 37 percent of the annual benefit.”
He continues,
Debt relief for student loan borrowers, of course, only benefits those who have gone to college, and those who have gone to college generally fare much better in our economy than those who don’t. So any student-loan debt relief proposal needs first to confront a simple question: Why are those who went to college more deserving of aid than those who didn’t? More than 90 percent of children from the highest-income families have attended college by age 22 versus 35 percent from the lowest-income families. Workers with bachelor’s degrees earn about $500,000 more over the course of their careers than individuals with high school diplomas. That’s why about 50 percent of all student debt is owed by borrowers in the top quartile of the income distribution and only 10 percent owed by the bottom 25 percent. Indeed, the majority of all student debt is owed by borrowers with graduate degrees.
Drawing on 2016 data from the Federal Reserve’s Survey of Consumer Finances, Looney’s final analysis
shows that low-income borrowers save about $569 in annual payments under the proposal, compared to $900 in the top 10 percent and $2,653 in the 80th to 90th percentiles. Examining the distribution of benefits, top-quintile households receive about 27 percent of all annual savings, and the top 40 percent about 66 percent. The bottom 20 percent of borrowers by income get 4 percent of the savings…[W]hile households headed by individuals with advanced degrees represent only 27 percent of student borrowers, they would claim 37 percent of the annual savings. White-collar workers claim roughly half of all savings from the proposal. While the Survey of Consumer Finances does not publish detailed occupational classification data, the occupational group receiving the largest average (and total) amount of loan forgiveness is the category that includes lawyers, doctors, engineers, architects, managers, and executives. Non-working borrowers are, by and large, already insured against having to make payments through income-based repayment or forbearances; most have already suspended their loan payments. While debt relief may improve their future finances or provide peace of mind, it doesn’t offer these borrowers much more relief than that available today.
The Urban Institute’s analysis has similar findings (though their tone is more optimistic):
I’m not sure whether or not Warren’s plan is a good one (I’m skeptical, especially given some of the results abroad). But I’m not big on acting like college graduates in a rich country are the marginalized of society.
Nicholas Bloom–whose research on the economics of management I’ve relied on in my own work–and colleagues have an interesting article in Harvard Business Review:
For 2010 and 2015, the U.S. Census Bureau fielded the Management and Organizational Practices Survey (MOPS) in partnership with a research team of subject matter experts, including one of us (Nick), as well as Erik Brynjolfsson and John Van Reenen. The MOPS collects information on the use of management practices related to monitoring (collecting and analyzing data on how the business is performing), targets (setting tough, but achievable, short- and long-term goals), and incentives (rewarding high performers while training, reassigning, or dismissing low performers) at a representative sample of approximately 50,000 U.S. manufacturing plants per survey wave. We refer to practices that are more explicit, formal, frequent, or specific as “more structured practices.” From the MOPS and related data, researchers have demonstrated just how important the use of these structured management practices is for companies and even entire economies, since firms that implement more of these practices tend to perform better. We wanted to know what effect these management practices have on workers.
We found that companies that reported more structured management practices according to the MOPS paid their employees more equally, as measured by the difference between pay for workers at the 90th (top) and 10th (bottom) percentiles within each firm.
The authors fully admit, “To be honest, it surprised us…If anything, we expected the opposite…We hypothesized that more structured management would lead to rewarding high-performers over others, therefore leading to a rise in inequality inside of the firm. As the chart above shows, the reality is exactly the reverse – and that remains true even after controlling for employment, capital usage, firm age, industry, state, and how educated the employees are.” They continue,
Our research finds that the negative correlation between structured management and inequality is driven by a strong negative correlation between the use of structured monitoring practices and inequality. By contrast, higher usage of structured incentives practices was positively correlated with inequality, albeit weakly. In other words, our finding seems to suggest that companies that collect and analyze specific and high-frequency data about their businesses tend to have a smaller gap between the earnings of workers at the top of the income distribution and the earnings of workers at the bottom of the distribution.
The authors offer several possible explanations:
Previous research shows that firms with more structured management practices are more profitable on average, and there’s long been evidence that when companies make extra profits they share some of them with workers. Perhaps companies with more structured practices allocate these profits such that less well-paid workers get more of the pie.
The relationship could also result from increased efficiency. Maybe firms with more structured practices have more efficient low-paid workers, as a response to training or monitoring practices, and their pay reflects that extra efficiency.
Finally, it could be that firms with more structured practices are more focused on specific tasks and rely more on outsourcing. More and more companies are outsourcing tasks like cleaning, catering, security, and transport. If outsourcing is more common for firms that use more structured practices, workers performing tasks outside of the companies’ core tasks would no longer be on those companies’ direct payrolls. If the jobs that are outsourced are lower-paying than the jobs that are held by employees, the companies’ pay data will become more equal.
Other research finds that paying employees higher wages
Motivates employees to work harder.
Attracts more capable and productive workers.
Lead to lower turnover
Enhance quality and customer service
Reduce disciplinary problems and absenteeism
Require fewer resources for monitoring
Reduces poor performance caused by financial anxiety
Looking forward to Bloom et al.’s published work.
Contract enforcement is a major player in measuring the ease of doing business in a country. A new working paper demonstrates the importance of enforceable contracts to firm productivity:
In Boehm and Oberfield (2018) we study the use of intermediate inputs (materials) by manufacturing plants in India and link the patterns we find to a major institutional failure: the long delays that petitioners face when trying to enforce contracts in a court of justice. India has long struggled with the sluggishness of its judicial system. Since the 1950’s, the Law Commission of India has repeatedly highlighted the enormous backlogs and suggested policies to alleviate the problem, but with little success. Some of these delays make international headlines, such as in 2010, when eight executives were convicted in the first instance for culpability in the 1984 Bhopal gas leak disaster. One of them had already passed away, and the other seven appealed the conviction (Financial Times 2010)
These delays are not only a social problem, but also an economic problem. When enforcement is weak, firms may choose to purchase from suppliers that they trust (relatives, or long-standing business partners), or avoid purchasing the inputs altogether such as by vertically integrating and making the components themselves, or by switching to a different production process. These decisions can be costly. Components that are tailored specifically to the buyer (‘relationship-specific’ intermediate inputs) are more prone to hold-up problems, and are therefore more dependent on formal court enforcement.
…Our results suggest that courts may be important in shaping aggregate productivity. For each state we ask how much aggregate productivity of the manufacturing sector would rise if court congestion were reduced to be in line with the least congested state. On average across states, the boost to productivity is roughly 5%, and the gains for the states with the most congested courts are roughly 10% (Figure 3).
