Archive for the ‘Economics’ Category


Stable Integration: how our assumptions shape reality

May 26, 2011

I just finished reading The Warmth of Other Suns, Isabel Wilkerson’s incredible book about the Great Migration.  It deserves its own post (or three), but I’ll highlight one overlap here.  (Also, please don’t go back through the archives to see how long it has taken me to finish it.  And if you do, you should blame my semester and not the book).

In tracing the journey of one of her three main characters, Wilkerson writes about white flight from neighborhoods in the cities of the North.  She writes that while the arrival of black families was associated with decreases in housing prices, the decline worked almost exclusively through a mechanism of fear.  A whisper of black integration put neighborhoods into “real estate purgatory” that set off a downward cycle of anticipation in which no one would buy, rent prices fell in an attempt to attract poorer whites, homeowners sold for less than their home was worth to avoid getting “stuck,” and those who remained had no incentive to invest in or improve their properties.

Thus many white neighborhoods began declining before colored residents even arrived.  There emerged a perfect storm of nervous owners, falling prices, vacancies unfillable with white tenants or buyers, and a market of colored buyers who may not have been able to afford the neighborhood at first but now could with prices within their reach.  The arrival of colored home buyers was often the final verdict on a neighborhood’s falling property value rather than the cause of it” (376-7).

I recently read an article by Philip Nyden, Michael Maly, and John Lukehart from 1997 asking whether or not stable racially integrated neighborhoods exist in the United States.  In short, they do, and the article is worth reading if you have access to it.  But what really struck me was the slightly-updated-but-still-the-same-as-the-1950’s summary of the ways in which our assumptions shape reality:

…the persistent…misconception [is] that economically, racially, and ethnically mixed neighborhoods are inherently unstable and not viable.  For middle-income white homeowners and renters, racial or economic diversity is interpreted as a signal of neighborhood decline and imminent declines in housing values.  For lower-income groups, such diversity often flags the possibility of gentrification, increasing housing costs, and the concomitant displacement of low-income renters.

In both cases, those expectations shape what happens next.  On one hand, expecting decline, those who can get out.  On the other, expecting gentrification, potential buyers looking to make an investment start considering a neighborhood they wouldn’t have before—their very consideration inching prices up.

For me, there’s no doubt that personal prejudice still plays a significant role in perpetuating housing segregation.  But if we could get the market hysteria out of the equation, it’d certainly help.



Black comedy with Alan Greenspan

March 31, 2011

A couple days ago, Financial Times gave some column-inches to Alan Greenspan to bash the Dodd-Frank financial regulation bill. Not, of course, for being insufficient in its strictures (see Matt Taibbi for that), but rather for being too heavy-handed and market-distorting. The money statement, and the one that has elicited unending amounts of scorn and hilarious snark, is this:

Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.

To which Dean Baker says,

Just in case you have forgotten, we have 25 million people who are unemployed, under-employed or have given up looking for work altogether because Alan Greenspan did not understand financial markets and the economy. Perhaps the FT will have a column offering advice on disaster management from Michael Brown.

Crooked Timber dedicates a whole post, plus a gazillion comments, to mocking the “with notable exceptions” thing. I haven’t read them all because the sheer number of them is overwhelming, but there’s some pretty funny stuff in there. “With notably rare exceptions, Germany remained largely at peace with its neighbors during the 20th century.”

It’s also interesting to note that the vast majority of commenters on the original FT piece are largely derisive of Greenspan, and of FT for giving him undeserved airtime.

Finally and more substantively, the thrust of Greenspan’s argument appears to be that the financial sector is just too complicated to be regulated. This is, needless to say, a troubling line of argument, but not one that’s entirely uncommon. In fact, World Bank President Bob Zoellick essentially made a similar argument when he gave a talk here last year, saying that he had the World Bank put pressure on the Basel III financial regulatory talks so that the resulting regulations would not be an “overreaction” that resulted in unintended consequences. About Dodd-Frank, Greenspan says:

The financial system on which Dodd-Frank is being imposed is far more complex than the lawmakers, and even most regulators, apparently contemplate. We will almost certainly end up with a number of regulatory inconsistencies whose consequences cannot be readily anticipated.

I understand the idea of unintended consequences as an argument against sweeping reforms, but when the system to be reformed is so thoroughly broken, one would think that something more than cautious baby steps is called for.

Flying Whale


The WTO clubs baby seals?

March 28, 2011

That’s a headline you might expect to see at in the very near future. The WTO has just established three panels addressing complaints from Canada and Norway regarding the European Union’s recent decision (plus older regulations in Belgium and the Netherlands) to ban imports of seal pelts due to “the concerns expressed by EU citizens about seal products from hunts which involve shooting seals and clubbing them to death.” In non-trade-wonk language, Canada and Norway are asking the WTO to strike down the EU ban on seal products.

Canada’s request for the establishment of a panel claims that the EU regulations violate its obligations under the GATT and TBT agreements, and describes the issue thusly:

The European Union trade ban prohibits the importation and the placing on the market for sale in the European Union customs territory of any seal product except: (a) those derived from hunts traditionally conducted by Inuit and other indigenous communities, which contribute to their subsistence; and (b) those that are by-products of a hunt regulated by national law and with the sole purpose of sustainable management of marine resources. In addition, seal products for personal use may be imported but may not be placed on the market. The effect of the trade ban, in combination with the implementing measure, is to restrict virtually all trade in seal products within the European Union, and in particular with respect to seal products of Canadian origin.

If the WTO rules against the EU, it will be yet another case of a democratically established regulation intended to protect the environment being overturned in favor of an ideal of free-flowing unregulated commerce. Canada’s case will likely be that its seal-product export industry is a crucial part of the livelihoods of some of its vulnerable populations, and that the hunting of seals is done in a sustainable manner. The Canadian chapter of the Humane Society International (an organization which, is should be noted, is hardly a reliable opponent of current “free-trade” policies) anticipates these arguments:

National polling consistently shows the overwhelming majority of Canadians want the commercial seal hunt to end, oppose the Canadian government using tax dollars to promote the sealing industry and support the rights of foreign nations to prohibit trade in seal products… Canada’s seal slaughter is conducted by commercial fishermen who earn, on average, less than 5 percent of their annual income from killing seals.

It is worth noting that the U.S. banned the importation of seal products from Canada in 1972’s Marine Mammal Protection Act – yes, the same MMPA that was weakened by the famous GATT tuna-dolphin case. Furthermore, in 2005, a bipartisan resolution was introduced in the Senate calling on Canada to end the commercial hunting of seals.

In sum, Canada’s reaction to international pressure from the EU and the United States regarding its seal-hunting industry is not to eliminate or downside said industry, but instead to defend it using a minimally accountable transnational commercial institution that has historically sided with commercial interests over environmental protection or other sound regulatory measures. This is a rather telling indicator of the power of global commerce over international norms about environmental and consumer protection.

That said, environmental and animal rights organizations tend to have massive clout with American and European publics when they can show that cute furry cuddly things are in danger. And few things are cuter, furrier or cuddlier than baby seals (evidence above courtesy of Google Images). So this is also a golden opportunity for such organizations to raise a stink about the structure of the global economy; whether they are able to take advantage, and how they frame the broader issues at hand, will be very interesting to see.

Flying Whale


Ag subsidies revisited

March 24, 2011

Over at The American Prospect, Monica Potts has written one of the clearest and most concise summaries of what a progressive view on U.S. agricultural subsidies should take into account. This is a topic I’ve written about before on this blog, in reference to an excellent University of Tennessee report from 2003. Potts gives a brief historical outline and discusses why the debate should be about reforming subsidies rather than eliminating them:

Sometime between Fast Food Nation and Food, Inc., progressives arrived at the simplistic conclusion that crop subsidies are bad for the environment and our health, and we need to end them. But crop subsidies were established for a real reason. The market for items like corn, wheat, soybeans, and cotton — all nonperishable foods — have serious problems that subsidies were designed to address. The reasons for subsidizing these crops are complicated, but they boil down to this: You can’t trust the forces of supply and demand to set stable, fair prices.

I have little to add, just wanted to highlight this as a very well-written summary of the issues at hand. Worth reading the whole thing – and if your interest is piqued, so is the Tennessee document.

And yes, I owe a lot of attention to a couple of recent commenters – you are not being overlooked.

Flying Whale


Neoliberalism’s newest foe: Orrin Hatch?

March 10, 2011

The Hill is reporting that Sen. Orrin Hatch (R-Utah) is threatening to package together the South Korea, Colombia and Panama FTAs into a single giant toxic loogie of awful. As the ranking member of the Senate Finance committee, which has jurisdiction over trade issues, Hatch is not in a powerless position, so this might actually matter.

While Hatch is doing this ostensibly to force the passage of all three FTAs, this action might also give opponents of the deals their best possible chance to stop their passage:

While the AFL-CIO and other big unions oppose all three deals, the South Korean deal has won support from the United Autoworkers. And while other unions oppose the Korea and Panama pacts, they would see movement on Colombia by the administration as almost an act of war. For years, unions have drawn a line in the sand over Colombia, which they say has not done enough to stop violence against union organizers.

The article concludes, “Trade was supposed to be a winning issue this year for Obama and the GOP. Wednesday’s move shows it will be a victory that is hard to achieve.” So, “Obama and the GOP” don’t win; who else loses? Let’s see… multinational corporations looking to hide behind generous Panamanian tax-haven laws; banks looking to hide behind Panamanian bank secrecy regulations; Colombian resource extraction companies looking for new markets for their products, created at the expense of millions of displaced indigenous and Afro-descendant peoples; any companies in the U.S., Korea, Colombia or Panama hoping to be able to sue against public health, environmental or labor protection laws that infringe on their expected profits…

Those are the regular folks “Obama and the GOP” are fighting for with these trade deals. Don’t you feel sorry for all of them already? Luckily, Orrin Hatch has our back.

It’s a strange world.

Flying Whale


Occupational licensing on the rise; unions on the decline

February 9, 2011

A couple days ago, a front-page story in the Wall Street Journal laid out a case that the licensing of occupations – that is, the regulation of various jobs by prohibiting people from performing them unless they have a government license earned by passing specific education, training, or testing requirements – has gotten out of control, restricting competition and raising prices for consumers. The article gives all sorts of examples of ridiculous occupations for which one must be licensed by a state government to legally practice, including florists, interior designers, hairdressers, and cat groomers. These kinds of stories are easy to come by, and they’ve set the blogs aflame (Matt Yglesias in particular loves this issue). Moreover, it’s all easy fodder for libertarians, the Cato Institute, or anyone who wants to build a case against regulatory policy writ large.

Here’s one aspect of the issue I find most provocative. Occupational licensing might be viewed as a form of worker protection that, unlike unions, is very much on the rise. According to a 2009 NBER study by Morris Kleiner and Alan Krueger, far more workers are currently in licensed occupations – nearly 30 percent of the labor force – than are members of labor unions – about 12 percent (though the overlap is considerable; 45 percent of licensed workers are also unionized). In an intriguing Reuters piece, Felix Salmon makes a pseudo-progressive case that licensed occupations are the service economy’s version of a unionized workforce:

…state licensing is part of what a post-industrial economy looks like: post-industrial employment is, in the aggregate, more highly skilled and more consumer-facing. And that requires a different regulatory apparatus than an economy that largely takes place on a factory floor. So it should come as no surprise that more and more workers require a license these days… [licensing laws] are, in a sense, a form of worker protection which is acceptable to Republicans — think of them as unions for people who hate unions.

I’m not entirely sure what I think of licensing as a whole – more on that later – but I am sure that it’s a poor replacement for unions. It’s true that working in a licensed occupation comes with a wage benefit – Kleiner and Krueger estimate it to be 18 percent, which is comparable or even slightly higher than the wage benefit of private-sector unions. But that’s where the similarities end, even in pure labor market terms. Licensed occupations and labor unions are qualitatively different in at least these ways:

  • Federal vs. state: Labor law regarding unions exists at the federal level and applies, at least theoretically, to all U.S. workers. Most of the action in occupational licensing is at the state level, and different states have vastly divergent licensing laws. This has obvious implications for labor mobility and…
  • Effect on wage differential: Unions narrow the wage differential between different workers in different places working the same jobs. Indeed, this is a major goal of labor unions and one that has been so challenged by the global economy – equal work for equal pay within a sector, across regions, across demographic categories, etc. means fewer opportunities for wage arbitrage (i.e. a “race to the bottom” in wages). Licensing has no such effect, and arguably might increase variance in wages within a sector.
  • Collective action: The type of collective action that licensing encourages is narrow and occupation-based, compared to the broader collective action that exists under progressive unions. (My historical knowledge is a bit shaky here, but I’ll still share this thought I had: one might compare licensed occupations to the guild-style unions of the AFL earlier in the 20th century, before its merger with the CIO: i.e., regressive forces that sought to protect its members to the exclusion of others in the working class. Indeed, this seems to be a major thrust of much of the criticism of licensing.)
  • Employee voice: Concomitant with the above, unions bring all sorts of benefits aside from simple wage gains. Grievance processes and other formalized conduits for employee voice are not at issue at all with licensed occupations. One might posit that skilled service workers have less need for such benefits; but I’ve yet to see a serious argument that workers should have less voice.
  • Competition between occupations: Also related to the collective action item, licensing occupations results in nasty competition between related occupations. Interior designers have been fighting to be licensed (and succeeded in Florida) in part because the licensed occupations of architects and engineers have encroached on their ability to do the work they see as theirs. Similar turf battles exist between, say, dentists and dental hygienists. The ultimate result is pressure for all occupations in a given field to become licensed lest they become extinct once “competing” professions become licensed first.
  • Type of workers protected: By its very nature, licensing protects skilled occupations. Kleiner and Krueger find that some 45 percent of workers in licensed occupations have at least an undergraduate college degree. Unskilled workers – the very workers for whom unions are most important – are not only left out of this labor-market institution, they are arguably actively hurt by it. Some folks (Dean Baker comes to mind) would likely argue that licensing is basically a kind of protectionism that favors the relatively wealthy and skilled segments of the working force at the expense of the relatively poor and unskilled – especially in an era of globalization in which “free trade” means exposing unskilled workers to global competition while simultaneously sheltering skilled workers.

That’s a lot of differences, but it’s the last one I find more stark. To be sure, not all skilled workers in licensed occupations are high-wage. But if one views unions as vehicles for the working class to better their lives and enter the middle class – rather than as narrow interest groups protecting already inflated wages for a small segment of workers – occupational licensing is clearly a poor substitute.

I’ll have more on this in a following post, once I decide more clearly what I think about licensing and its effect on quality vs. restricted competition. I should leave off with a full disclosure, which is that Morris Kleiner, one of the leading scholars on this issue, is a professor of mine and I’m currently enrolled in a very relevant class of his entitled “Public Policies of Work and Pay.” I believe, but am not sure, that Kleiner would agree with the thrust of this post; perhaps an update on that will be forthcoming as well.

Flying Whale


The (myth of the) American Dream

February 5, 2011

I’ve been meaning to write this since watching Obama deliver the State of the Union last Tuesday.

Toward the end, refering to Joe Biden and John Boehner sitting behind him, he said:

…but we believe in the same dream that says this is a country where anything is possible. No matter who you are. No matter where you come from.  That dream is why I can stand here before you tonight. That dream is why a working-class kid from Scranton can sit behind me. That dream is why someone who began by sweeping the floors of his father’s Cincinnati bar can preside as Speaker of the House in the greatest nation on Earth. That dream — that American Dream.

From what I know, the two of them–and Obama himself–are pretty good examples of the American Dream.   They weren’t born into perfect circumstances and have still managed to become incredibly powerful in adulthood.  It’s just too bad that they are the exception, not the rule.  For most people, most of the time, the American Dream is out of reach.

Two things.  First, lest those of us who are inspired by the Obamas, Bidens, and Boehners feel lonely, we’re not.

The figure below contrasts the average US perception of mobility and inequality with the average response of 27 comparison countries (from the International Social Survey Programme).  Click to enlarge.

I find this data absolutely incredible.  I don’t quite know what to say other than that it makes my point about the myth of mobility quite nicely.  (Well, either that or Americans have managed to create a special mobility-and-equality-conducive environment that they are keeping secret from the rest of the world.  I’ll get to why that’s not the case in another post.)

Secondly, this news story serves as a reminder that the structures that keep just anyone from achieving the American Dream are real.

Late last month, a mother was sentenced to 10 days in jail (she originally faced up to 10 years) for falsifying records to get her daughters into a better school.

Poe [the superintendent] said residency disputes are usually resolved after parents prove that they live in the district, pay tuition or remove their kids from the schools.  This marked the first time that one of their residency challenges went before a jury in criminal court. Poe said prosecuting this case was meant to send a message.

“If you’re paying taxes on a home here… those dollars need to stay home with our students,” Poe said.

However, family and friends of Williams-Bolar call this an unfair case of selective prosecution.

I don’t know the case beyond the various news stories about it, and the NPR interview with the superintendent makes a pretty compelling case for why this situation went to court while prior cases haven’t.  But if you believe education is one of the best “ways out,” it highlights one of the many structures that limit real generational mobility at a large scale.

(As an aside, one of the worst things about this story is that the mother has been working to get her teacher’s license.  Now that she has a felony on her record, she probably won’t be granted licensure.)

On a slightly different note, I’ve been reading a fair amount of migration history that points to where some of the idea of the American Dream came from.  And also where it went.

More on that later.