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December 18, 2007

Economist's View - 5 new articles

"What's the Difference between Bloggers and Illegal Immigrants?"

Andrew Leonard responds to George Borjas:

What's the difference between bloggers and illegal immigrants?, by Andrew Leonard: Of all the bonafide economists who blog regularly, Harvard's George Borjas gets the award for Most Single-minded Focus. Borjas' issue is immigration, especially illegal immigration. If you're looking for academic support for the thesis that immigration depresses the wages of native-born American workers, he's your man. He's also concerned about the cultural impact of Mexican immigrants (legal or illegal) who he thinks are not as likely to assimilate with mainstream America as has every other previous wave of immigrants to the United States. He's very consistent...

But it's hard to know what to make of one recent entry comparing bloggers to illegal immigrants.

According to Borjas, there is "an important self-serving economic motive at play" when journalists decry the effect of blogging on traditional news-reporting.

It doesn't cost all that much to become a citizen journalist: a computer and your own time is about all it takes for you to start reporting your view of the world to whoever wants to read it.

The laws of supply and demand suggest that the rewards to being a Journalist would drop because anyone can now start reporting news and opinionating a la Paul Krugman or Maureen Dowd. It's as if the Journalistic profession has received its own influx of illegal immigrants -- increasing competition, lowering rewards, and creating havoc along the way.

Maybe now the Journalists will learn how those workers affected by immigration have long felt.

A a former freelance writer, reporter, editor and now blogger, I found this passage interesting for a couple of reasons. Journalists -- or at least those journalists who ever competed in the freelance market or interned at a publication for laughable pay -- have always understood the challenge posed by competition from people willing to work for low wages. No one needs a license or accreditation of any kind to be a journalist, and a distressingly large number of people are willing to work for free or close to it. Just the sight of a byline in print (or online) is compensation enough for some. One result of this is that per-word pay rates for freelance journalists have hardly budged over the decades, except for the very top tier of publications.

Even more intriguing, however, are the political implications of Borjas' analogy. I would submit that most journalists who honestly accept what the Internet means for their profession understand that there is no way to go back to the way it was before. The barriers to entry, such as they were, are gone forever. ... Competing successfully in this environment will require being really good at whatever one does -- whether that be blogging, investigative reporting, breaking news reporting, financial analysis or what have you. And even if done well, the financial rewards may indeed be less lucrative than in ages past. ...

To think that one can turn back the tide of competition unleashed by the Net is a lot like thinking that in a globalized world one can ameliorate the wage impact of illegal immigration by building a border fence or by passing laws imposing strict sanctions against employers who hire illegal immigrants. The work forces of China and India and eastern Europe and of course Mexico have joined the world economy just like bloggers have joined the media universe. ...

[T]o compare bloggers to illegal immigrants is to implicitly acknowledge that fence-building is not going to work... And we know that can't have been Borjas' intention, because his other posts have made abundantly clear that "securing our borders" is his first priority in any discussion of immigration policy.

On the Net, some of us just chuckle at such an idea. Borders? What borders?

Rogoff: The Fed Must Not Play Santa

Kenneth Rogoff explains why the Fed and the markets do not see eye to eye on the recent decision to cut the target interest rate by a quarter point:

The Fed must not play Santa to the markets, by Kenneth Rogoff, Commentary, Financial Times: US Federal Reserve officials were jolted last week by the cacophony of booing that greeted their quarter- percentage-point interest rate cut. Markets badly wanted double the amount. It is part of a growing town/gown rift between a model-oriented Fed and a profit-oriented financial community.

Market commentators ... almost unanimously expressed deep disappointment that the Fed did not seem more attuned to the growing risk of recession. The critics were especially peeved that the Fed's statement did not contain a clear acknowledgement that short-term growth risks easily trump short-term risks to core inflation. ...

Markets are right to be concerned about recession risks, but there is an awful lot of whining mixed in here. After all, most traders' year-end bonuses stand to benefit a lot from an even softer Fed policy stance. The markets were not satisfied with one dessert; they wanted two. ...

The real town/gown problem is one of horizon rather than perspective. Monetary policy has long and variable lags, particularly on slow-moving inflation expectations. Sharper Fed interest rate cuts today might well mute the housing price collapse, at least in nominal terms. However, if the Fed should ease too far, too fast, it could get hit by a boomerang a couple of years down the road, in the form of sustained higher inflation.

For the Fed, two to three years is the medium term, and it matters. For many financial market participants, two to three years is an eternity, and it does not matter. ...

Let us face it. Most investors think a good central bank should always drive as fast as it can above the economy's speed limit without crashing or breaking the inflation speedometer. Never mind inflated asset prices and higher inflation expectations that sow the seeds of a later crisis. As long as the benefits are here today and the risks materialise only in the future, the typical "streetwise" investor wants to see the central bank keep its foot on the gas pedal. ...

We are no longer in the technology boom years of the 1990s Greenspan era. No matter how much the Fed steps on the gas pedal, it is going to be hard to keep US trend growth much above the 2 per cent levels ...

This is hardly a fun message for the Fed to have to deliver, particularly when markets seem to believe that central banks are virtually omnipotent, at least when it comes to ramping up year-end bonuses.

Indeed, most of the Fed's bad reviews of late come from having to tell markets that, in some years, returns and bonuses are going to be weak. ...

Yes, Fed communication could be improved, particularly by announcing decade-long inflation targets that would give greater clarity to Fed objectives. But as long as trend growth stays weak and housing prices keep dropping, great clarity alone is not going to make markets happy.

Markets do not want to see academic robes on the Federal Open Market Committee; they want Santa Claus suits.

In case you missed this: The European Central Bank announced it would offer unlimited funds at below market interest rates.

"The Democrats and Working Class Whites"

Lane Kenworthy on the reasons for the "defection of whites, especially working-class whites, from the Democrats." The argument is that the defection has not been confined to the south as many claim, it is a general trend, and that economic factors are a large part of the explanation. If that is true (though I'd like to hear the response of Bartels, Schaller, Krugman, and others before coming to that conclusion), if it is the case that Democrats are losing working class voters, what do Democrats need to do to reverse the trend? To relate this to the post below this one, is a populist message such as Edwards is delivering the key to turning the defection around, or is some other strategy needed? Does invoking FDR help or hurt the Democrat's efforts?

This reminds me of something Brad DeLong said:

But when I read Paul [Krugman]'s call for "smart, bold populism," I am reminded of earlier calls a couple of decades ago by Milton Friedman, Marty Feldstein, and their ilk for smart, bold conservatism or smart, bold libertarianism. But they did not get what they ordered: on the economic policy front the policies of Reagan and of Bush II have been a horrible botch. What populist policies that we can think of would be smart? And how can we make our high politicians allergic to populist policies that are stupid?

Lyndon Johnson, yes. William Jennings Bryan, no.

A populist tide makes me wary, probably for the reasons Brad suggests, but smart populism I can embrace. Now I just need to figure out exactly what that is. Here's Lane Kenworthy:

How the Democrats Lost Their Class, by Lane Kenworthy: The notion that the Democrats' electoral troubles since the 1960s are mainly a function of southern whites turning Republican is quickly becoming conventional wisdom. Thomas Schaller offers a version of this story in his book Whistling Past Dixie. In an article titled "What's the Matter with What's the Matter with Kansas?", Larry Bartels concludes that the entire Democrat-to-Republican shift in presidential voting among working-class whites occurred in the south. Paul Krugman embraces Bartels' findings in The Conscience of a Liberal. Here's how Krugman puts it:

"The overwhelming importance of the Southern switch suggests an almost embarrassingly simple story about the political success of movement conservatism. It goes like this: Thanks to their organization … movement conservatives were able to take over the Republican party, and move its policies sharply to the right. In most of the country this rightward shift alienated voters, who gradually moved toward the Democrats. But Republicans were nevertheless able to win presidential elections, and eventually gain control of Congress, because they were able to exploit the race issue to win political dominance of the South." (p. 182)

This view of developments contains an important truth: Southern whites were heavily Democratic until the mid-sixties. Now they are less so, and today the south is the easily the most Republican region of the country.

Yet the notion that the defection of whites, especially working-class whites, from the Democrats has been largely confined to the south paints too simple a portrait.

Since 1972 the General Social Survey has asked American adults about their "party identification," along with a battery of other questions. People's political preferences ultimately matter to the extent they influence actual voting choices. But analyzing presidential voting alone, as Bartels does, can miss part of the story. Presidential voting is heavily influenced by the particular candidates the two parties nominate. Arguably, people's underlying preferences and beliefs are better understood by looking at their party identification. The following chart shows the share of working-class whites identifying as strong-Democrat, moderately-strong-Democrat, or independent-leaning-Democrat since the early 1970s.

The country is split here into three regions: the south, the midwest and plains states, and the east and west coasts. In the south, identification with the Democrats fell roughly 20 percentage points — from 60% to 40% — between the mid-1970s and the early 1990s and has held steady since then. This is consistent with the picture offered by Bartels and Krugman.

Yet the same thing happened in the other two regions — even on the coasts, where the most solidly "blue" states are located.

With several graduate students at the University of Arizona, I have been examining this development ("The Democrats and Working-Class Whites"). It turns out not to be a function of our measure of party identification or of the working class. Nor is it specific to men or to the most religious. And most of those who left the Democrats didn't become "independents." In fact, since the early 1990s approximately 40% of working-class whites have identified as Republican — the same as the share that identifies as Democrat.

What caused this development? We conclude that it was due in large part to the crisis of the late 1970s. The economy fell apart under a Democratic president and Democrat-controlled Congress, leading many in the working class to question whether the party was still the better of the two at securing their material well-being. Ronald Reagan offered a simple and seemingly plausible solution — less government — which also tapped into desire for tax relief. The Democrats' economic woes were compounded by the twin foreign policy disasters of 1979 (the Soviet invasion of Afghanistan and the Iranian hostage crisis), rising crime, forced busing, and affirmative action.

The deep recession of the early 1980s brought a temporary halt to the white working-class defection. But as the economy recovered in the mid-to-late eighties, as Reagan's actual policy shifts proved less radical than his rhetoric, and as the Soviet bloc crumbled beginning in 1989, the defection resumed.

As the chart above reveals, little has changed since the early 1990s. This is puzzling. After all, Republican presidents presided over the two most recent economic recessions (early 1990s and early 2000s), and far and away the healthiest economic period for workers in the past generation was the Clinton years of the late nineties. We find, consistent with Thomas Frank's What's the Matter with Kansas? argument, that this is due partly to heightened importance of social issues such as homosexuality and abortion to working-class whites. Another key factor is that the cohort of working-class whites who turned 20 since the mid-1970s, when the defection from the Democrats began, has always been less pro-Democrat. They have been gradually replacing the much more pro-Democrat cohort that came of age during the Roosevelt and Truman years.

This does not mean Democrats don't, or won't, win elections. They still get the votes of many working-class whites. And as John Judis and Ruy Teixeira ably document in The Emerging Democratic Majority, they now tend to win a sizable majority of the votes of urban professionals, as well as African Americans, Latinos, and women.

But regaining the consistent support of a majority of working-class whites would certainly help. Depending on the definition, this group constitutes roughly a third to half of the voting-age population.

Paul Krugman: Big Table Fantasies

Paul Krugman says that when it comes to understanding how bitter the political fights over issues like health care reform are likely to be, "Mr. Obama comes off looking, well, naïve":

Big Table Fantasies, by Paul Krugman, Commentary, NY Times: Broadly speaking, the serious contenders for the Democratic nomination are offering similar policy proposals — the dispute over health care mandates notwithstanding. But there are large differences among the candidates in their beliefs about what it will take to turn a progressive agenda into reality.

At one extreme, Barack Obama insists that the problem with America is that our politics are so "bitter and partisan," and insists that he can get things done by ushering in a "different kind of politics."

At the opposite extreme, John Edwards blames the power of the wealthy and corporate interests for our problems, and says, in effect, that America needs another F.D.R. — a polarizing figure, the object of much hatred from the right, who nonetheless succeeded in making big changes.

Over the last few days Mr. Obama and Mr. Edwards have been conducting a long-range argument over health care that gets right to this issue. And I have to say that Mr. Obama comes off looking, well, naïve.

The argument began during the Democratic debate, when the moderator ... suggested that Mr. Edwards shouldn't be so harsh on the wealthy and special interests, because "the same groups are often responsible for getting things done in Washington."

Mr. Edwards replied, "Some people argue that we're going to sit at a table with these people and they're going to voluntarily give their power away. I think it is a complete fantasy; it will never happen."

This was pretty clearly a swipe at Mr. Obama, who has repeatedly said that health reform should be negotiated at a "big table" that would include insurance companies and drug companies.

On Saturday Mr. Obama responded... "We want to reduce the power of drug companies and insurance companies and so forth, but the notion that they will have no say-so at all in anything is just not realistic."

Hmm. Do Obama supporters who celebrate his hoped-for ability to bring us together realize that "us" includes the insurance and drug lobbies?

O.K., more seriously, it's actually Mr. Obama who's being unrealistic here, believing that the insurance and drug industries ... will be willing to play a constructive role in health reform. The fact is that there's no way to reduce the gross wastefulness of our health system without also reducing the profits of the industries that generate the waste.

As a result, drug and insurance companies — backed by the conservative movement as a whole — will be implacably opposed to any significant reforms. And what would Mr. Obama do then? "I'll get on television and say Harry and Louise are lying," he says. I'm sure the lobbyists are terrified.

As health care goes, so goes the rest of the progressive agenda. Anyone who thinks that the next president can achieve real change without bitter confrontation is living in a fantasy world. ...

There's a strong populist tide running in America right now. ... And there's every reason to believe that the Democrats can win big next year if they run with that populist tide. ...

So what happens if Mr. Obama is the nominee?

He will probably win — but not as big as a candidate who ran on a more populist platform. Let's be blunt: pundits who say that what voters really want is a candidate who makes them feel good, that they want an end to harsh partisanship, are projecting their own desires onto the public.

And nothing Mr. Obama has said suggests that he appreciates the bitterness of the battles he will have to fight if he does become president, and tries to get anything done.

links for 2007-12-17

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