Schumpeter, innovation, and growth

David Brooks mentions Brad DeLong's review of a new 2007 book on Joseph Schumpeter. Brooks doesn't write much about it, but it's a good, quick read for those interested in economic growth.

I don't teach anything about entrepreneurship and competition to undergraduates in my intermediate macroeconomics class at Queens. But as Schumpeter and many others after him pointed out, the process of innovation produces losers as well as winners.

As reviewed by DeLong, Schumpeter thought democracies were ill-equipped to manage innovation by compensating the losers while rewarding the winners, and he apparently made many predictions about politics that were flat-out wrong. From an aggregate perspective, it appears that the American political system is successful at either compensating losers or minimizing their numbers.

The Value of Life in Developing Countries

The recent Congressional hearings about the role of Blackwater security agents in Iraq revealed this tidbit, as written about by Maureen Dowd:

To compensate the family of an Iraqi guard accidentally shot to death by a Blackwater agent, an office in the State Department countenanced against awarding $250,000 lest other Iraqis decide to try and be accidentally killed. Rather, the department suggested a sum of $15,000.

Can the value of human life be measured in dollars? If so, is it a constant, or does it depend on other circumstances? If the latter, what do those circumstances include? Income? The level of background risk? Health economists seek to answer these difficult questions.

City-provided Health Insurance in San Francisco

San Francisco has passed legislation that provides for city-funded health care for uninsured residents, regardless of immigration status. The city is counting on successful preventive care being cheaper than the acute care it already dispenses for free to this population, which is surely something of a risk.

Saving from developing countries and the trade imbalance

Fed chairman Ben Bernanke expressed concern about the sustainability of the U.S. trade deficit and the imported foreign saving it represents. Why are developing countries supporting higher consumption in industrialized countries by exporting their saving?

One explanation is the Demographic Dividend: the resources freed up by the reduction in dependency owing to declining fertility and family size during the demographic transition. As development proceeds, mortality typically falls first. As babies and infants begin to survive in greater numbers, while labor market opportunities for women typically expand, fertility falls. Declining fertility and reduced family sizes allows households to save more resources, fueling investment either domestically or abroad.

For how long will investment opportunities in the U.S. continue to appeal to foreign savers? Presumably for as long as U.S. productivity remains the highest in the world (or among the highest, depending on how you measure it), and as long as political stability continues.

September 11 and economics

We seek to find meaning in everything, and it is tempting as a policymaker or economist to attribute the terrorist attacks of September 11, 2001, to some particular motivation. An obvious candidate is the economic status and opportunity of groups that produce terrorists, but economists believe any connection between poverty and terrorism is probably weak at best.

As summarized here, researchers at the National Bureau of Economic Research have examined this question, whether development and terrorism are inversely related, and they have determined that the evidence of such a connection is weak. As Alberto Abadie remarks, political freedom is more closely related to terrorism.

Immigration, Fertility, and Policy

Last Saturday the Times reported that a Chinese woman and her husband received asylum after a harrowing turn of events in 2006.

The couple had been residing illegally in the U.S., where she delivered two children, both U.S. citizens. Returning to China, she argued, would subject her to risk due to China's One Child Policy. When immigration officials tried to deport her in 2006, she miscarried twins, a personal tragedy and public relations disaster for the U.S.

Immigration and fertility policy are the two most overt types of population policies; countries can of course alter mortality as well. Seeing the two collide in an international setting like this reminds one of the fundamental questions of population science: what is the optimal population size?

Census reports poverty down, health insurance coverage down too

Yesterday the Census Bureau reported that the poverty rate fell for the first time this decade, while the number and percentage of individuals who report they have no health insurance rose in 2006.

Declines in self-reported insurance coverage among African Americans and Hispanics were responsible for the overall rise in the uninsured.

Health insurance is a funny thing in this country, because for many workers and companies, it's basically optional. One manual laborer I knew once said that she didn't need health insurance because she never got sick. She also may have had a larger family or extended family and thus a larger informal support network. But mostly, I think the reason she had no insurance was because she was an independent contractor and probably faced relatively high rates on her own.

Gains to marriage, divorce, and NYC real estate

Maybe the next standard topic of New York conversations will be coupling or decoupling and how it's tied to real estate prices. The Times reported on divorce and capital gains in housing last week.

Apparently couples frequently do see marriage as an economic institution, or at least one that is constrained by financial considerations, among others. When housing prices rise and increase wealth, they facilitate divorce. Gary Becker is quoted as finding this consistent with his vision of marriage as an economic arrangement, with benefits that could be eroded or overshadowed by other events like an unexpected windfall in wealth.

New Demography Institute

The City University of New York has a new and vital component, the CUNY Institute for Demographic Research, or CIDR for short.

CIDR will be the new focal point for demographic research in the City University system, and it will provide an interdisciplinary setting available to researchers in and around New York. Look for our inaugural seminar series at the CUNY Graduate Center this fall.

Political and demographic tides

The September issue of The Atlantic contains an article about political futures in the U.S. in which the author cites the increase incidence of divorce and fractured nuclear families as presaging greater political appetite for interventionist policies. The idea is that without as many close family members to provide non-market insurance, people might increasingly look to the state to provide insurance against economic and other vicissitudes.

This viewpoint is certainly not without historic parallel, even if it is a stretch to assume outright that children of divorcees are destined to be Democrats. As Gary Becker and other have described, the evolution of the family during the last several centuries went hand-in-hand with the rise of market-based substitutes for traditional family roles. One could also see the rise of the modern welfare state as an endogenous response to the declining role of the extended family.

Women's work in Japan

Today's New York Times features an article on female labor force participation in Japan that discusses some of the challenges facing Japanese society. Aging in Japan is further along than elsewhere in the industrialized world, so in one sense their experiences offer a preview of what may await the rest of us.

Japan's labor force is already shrinking in absolute size, and it will continue to shrink as a result of smaller birth cohorts --- due to lower fertility --- replacing the aged.

As the Times article points out, you would think this kind of problem might facilitate greater female labor force participation. The nation needs more workers; where else will it get them? But unfortunately, the economic forces for change seem to be at least somewhat restrained by social pressures against change. It sounds like it is extremely difficult to be a female employee in Japan because of glass ceilings and issues with childbearing and maternity leave.

An inversion of the gender gap in wages

Queens College's Andy Beveridge is quoted in the Times as revealing evidence that in 2005, the median annual wage for young full-time female workers in several big cities was perhaps $5,000 more than males in the same category.

The article cited a lawyer who speculated the reason might be that females are more driven to begin their careers earlier in life, in order to be well established before engaging in childbearing. It would be interesting to see whether this kind of life-cycle compression really could be seen in data.

Saving us from ourselves

This week's New Yorker features two articles right next to one another that are subtly linked. Atul Gawande writes about health insurance, Michael Moore's Sicko, and the impediments in our own minds to reforming our system. And James Surowiecki writes about fuel economy standards and game theory.

Surowiecki's point is that people who drive gas-guzzling Suburbans and Hummers can still rationally vote for higher fuel economy standards. What is rational for themselves as individuals --- buying huge trucks --- they can recognize as not collectively optimal.

Gawande has been writing about Americans' reluctance to recognize this kind of problem in the U.S. market for health insurance. It may be individually rational, if heartless, for each of us to turn our backs on the chronically ill, allowing insurance companies to boot them out of coverage or charge them higher premia. Because after all, we're not sick. Not yet, anyway. But it is collectively optimal for everyone to have health insurance, period. Unfortunately it's not clear that Surowiecki's Suburban drivers recognize this yet.

Another interesting parallel is that Suburban drivers think they'll be safer in accidents. But the average American seems not to think he or she will ever get sick enough to run into problems with coverage, or at least is not willing to pay to insure everyone against that risk. Maybe the latter misperception (is it?) can be helped with films like Sicko, although pundits have claimed the film shows nothing new.

Trends in inequality

This weekend the New York Times reported on the ultra-rich, philanthropy, and tax rates and brought to mind the debate over trends in U.S. income inequality. Are we in another Gilded Age of hyper-rich robber barons?

What I've not seen is a broader treatment of trends in inequality in well-being, one that includes the dimensions of health and life span. Since income and health tend to be correlated, I think such a project would be revealing if difficult.

Public health and politics

A parade of surgeons general testified in Congress today about political interference with scientific views concerning public health. It may not come as much of a surprise, given the Bush Administration's track record with scientific accuracy. During the run-up to the Medicare expansion in 2003, CMS Actuary Richard Foster had said he felt threatened by political appointees and was kept from revealing the true cost of the new prescription drug benefit.

It is certainly less surprising now, to the extent that the Administration's reputation has sunk so low that political hacks are some of the few folks who want to work in it.

To be sure, the executive branch has never been a place for free-flowing ideas, and it probably shouldn't be. But it is distressing to see scientific views so restrained.

Happiness and marriage

The New York Times reported on research by Kelly Musick and Larry Bumpass regarding marriage and happiness. Maybe not surprising to anyone who's been married, they found a "honeymoon" of maybe 3 years followed by a downward dip in cross sectional data.

What is interesting is that over time, couples who stay together may get better at moderating each others' emotions. Robert Levenson at UC Berkeley pursues research in this area. Key issues are who displays these kinds of balancing characteristics and why.

Immigration in the news again

Today the Senate voted to resume debate on the immigration bill, but we will have to see whether enough back-room deals can be cut to keep it afloat.

Meanwhile, on Nick Kristof's blog appears an article about doctors, training, and brain drain in Africa, or essentially an emigration issue that is something like the reverse of what the U.S. is currently grappling with.

When it is in individuals' best interests to relocate but it may be socially undesirable --- meaning either that immigrants take jobs or leave holes in their home economies --- what do you do? Erect barriers to entry? It sounds wacky, but economists would probably suggest some kind of entry tax or "stay-put" subsidy to stem undesired flows of migration.

Sage words on environmental protection

Barry Commoner was recently interviewed in the New York Times, and it is a fun read. I like how he sticks to his guns regarding his philosophy on the environment. I also like how he states a key issue we must all grapple with:

"What I have experienced over time is that environmental problems are easier to deal with in ways that don’t go into their interconnections to the rest of what we are."

I think what he is saying is that human behavior is pretty complicated. It is difficult to "solve" some problems either decisively or without creating another. Getting it right requires careful thought about exactly what the interconnections are and why they are there.

This is the philosophy of modern economics and much of social and physical science: identifying the reasons for the big picture as well as the big picture itself, and better informing policy about how to solve the big picture through tackling the reasons.

I also identified with Barry Commoner's statement that taking public transit to Queens College is extremely time consuming!

Height, health, and history

Today Paul Krugman writes about new research by Komlos and Lauderdale in Soc Sci Q on trends in adult height among industrialized countries during the past century. As is the case with life expectancy at birth, average height in the U.S. is not as high as you might expect it to be, given that average incomes in the U.S. are the highest in the world.

I wish the authors had looked at within-country spreads in height, or the variance around the average. That would be informative because we know that there is considerably more variance in life span in the U.S. than in other industrialized countries. I would expect greater variance in height as well.

Are tougher immigration laws good or bad for wages?

A discussion with a colleague today led to my reflecting about this issue.

I thought of a recent insight offered by none other than Gary Sheffield of the Detroit Tigers, who expressed his views about Latin Americans, African Americans, and representation in Major League Baseball.

His take on why African American representation in the MLB has fallen so much is that teams and coaches can "tell [them] what to do -- being able to control them." His point was that a Dominican player probably felt less able to speak his mind around his employers, since he probably isn't a U.S. citizen, may have come from a more impoverished background, and fears losing his job that much more.

Why is this relevant for the immigration debate?

Suppose you are an undocumented worker. Do you command a higher or lower wage than you would if you were legal?

On the one hand, you might say that the risk of deportation is costly, so you should demand a higher wage than you otherwise would in order to bear that risk and work in the U.S. Relative to wages earned in the home country, this story is probably true.

But if employers knew their employees were illegal, and if those employees were aware of their knowledge, employers might offer lower wages to illegals. In this situation, illegals are like the Latin American baseball players Sheffield is describing, while domestic low-wage workers are like the African American ballplayers he describes.

Could new "Z" visas for guest workers raise wages, for guest workers and for domestic workers who must compete with them for jobs?

Perspectives on Immigration

David Brooks writes today that the culture clash on immigration is less Republican vs. Democrat, more college educated vs. not, if it is anything in particular.

I thought of a recent New Yorker article, on college attendance as an adult version of the first childhood sleepover. Everything at your friend's house is foreign, uncomfortable, and scary. For many of us, college is a time of much personal growth through exposure to the unfamiliar.

To be sure, real differences exist between people, and it would be wrong to suggest that getting along is just an issue of exposure and understanding. The Dutch experience with immigration in recent years is a good example of how tolerance and understanding alone can sometimes be insufficient under certain circumstances --- namely when immigrant groups may not be so tolerant themselves.

While obtaining a college education may not necessarily convey an open, tolerant perspective on immigration, at least it might.

Immigration reform will have to wait ... again

It's hard to ascertain whether there were too many cooks spoiling the soup, too many compromises to fully satisfy either camp, or just not enough clauses and pages, but it looks like immigration reform has been shelved again.

Death throes of immigration bill?

The New York Times is reporting that another cloture vote is set for tonight, June 7. If it fails and debate continues, Harry Reid will probably table the bill for months.

Although it's sometimes a good sign when a compromise bill comes under attack from the extremes of both sides, in the Senate that can be a liability. It will be interesting to see whether the piecemeal amendments stop or not.

Immigration, skills, and competition

Tom Friedman's Wednesday column expressed the view that Ph.D graduates and other highly educated immigrants on student visas should automatically get green cards.

It seems easy to agree with this view, but the naturalization of high-skill immigrants has an economic impact with winners and losers, just like immigration consisting of low-skill workers.

Why is it easier to agree with Friedman? The people who compete with immigrants who have Ph.D's are natives with Ph.D's. As a member of the latter group, I can tell you that there are many foreign-born professors with whom I am "competing."

But I'm in favor of immigration, and I think granting citizenship to more Ph.D recipients would be a good thing. Is that because I have certain political views or come from a particular background, or is it because I think my well-being is more insulated from competition in the labor market?

It seems to me that a key stumbling block impeding immigration reform must be the exposure to the downside of labor market risk --- losing your job --- that is disproportionately felt by domestic unskilled workers.

More details about immigration bill emerge

I wish I knew a canonical source for this. Maybe that's no accident; the Senate's job is probably easier without full disclosure of the draft bill's contents!

Something that really struck me about reporting today was the plan to provide 400,000 guest worker visas per year. That may not sound like a lot, but it's about what new illegal immigration is each year. That is, 400,000 more folks come without papers each year.

I think senators are right to be concerned that such a program, with required returns of 1 year in-between stays of 2 years, might really create a two-class society. But it seems to me that we already have something like that, by default.

To me, the most nebulous portion of all this is the terms of the "amnesty" (don't say that word too loudly) for the 12 million undocumented folks here already. David Brooks writes of "stiff fines" these people would face. Many undocumented immigrants already pay taxes, so it's hard to know what these fines might be. It's still unclear to me whether illegals currently in the country would have to return home or what.

Immigration bill details

I'm sure the specifics of the immigration legislation working its way through Congress will be in a state of constant flux, but the latest version is relatively well described by the Washington Post here.


The most remarkable provision is the requirement that the 12 million estimated undocumented immigrants up and return to their home countries in order to pursue citizenship legally. Talk about a jarring change, both to those individuals and their families, many of whom may be in the U.S. legally already; but also to the domestic economy.

There are about 9.3 million native-born workers and about 6 million foreign-born workers without a high-school degree, according to statistics compiled in a CIS report by Steven Camarota. If illegals comprise 50% of that figure, or about 3 million workers, then requiring them to return home would reduce the domestic unskilled labor force by 20 percent.

The good news would be that unskilled native workers and legal immigrants would see higher wages, perhaps as much as 6 percent higher if the elasticity is 0.3. But domestic consumers should be prepared to pay higher prices and possibly face shortages.

How much longer will you really live, redux?

Re: "Training to Be Old," NYT Business 4/10/2007

The number of remaining years of life is a critical parameter for insuring a happy and secure retirement, and yet it seems to be a difficult number to know, with much popular confusion. The workers approaching retirement in "Training to Be Old," NYT Business, 4/10/2007, at least seem to be erring on the side of caution in expecting a much longer retirement than their parents and grandparents had, which is wise.

But they seem to be receiving advice regarding their remaining years that is of varying quality. One statistic in the article, that there is a 40 percent change that at least one member of a married couple at age 65 will survive to 90, is quite accurate, based on Social Security cohort life tables. The first statistic cited, that retirees will live 11-13 more years than their parents or grandparents, is just wrong and probably based on the wrong statistics. Done correctly, the comparisons show that a male approaching retirement, say age 57, is likely to live to age 81, or 8 more years than his father probably did and 11 more years than his grandfather. Women are likely to live to about 84, only 5 more years than their mothers and 8 more years than their grandmothers. Why the discrepancy? Women's still large lead in life expectancy has been diminishing for some time now.

Rules of thumb are extremely important for planning. But it would be nice to use correct ones.

How much longer will you really live?

An article in the New York Times on Sunday, April 8, quoted a male "soon to be 59 years old, and life expectancy is 76" for him.

In fact, remaining life expectancy for a male of his age today is more like 22 years according to Social Security cohort life tables, or around 30% higher than the 17 years implied in the man's statement. Another way of stating this is that the man's expected life span as of today is 81 years rather than 76.

There are really two things going on here:

• One is that remaining life expectancy plus your age is always higher than the "life expectancy" you may read about in the paper, which is always life expectancy at birth.
  
  So even though a male infant born today might face an average life expectancy of about 80 years, a male in that cohort who survives to 59 should expect about another 25 years, for a total expected life span as of reaching age 59 of 84.
  


• The other point is that an individual's length of life is based on what we call cohort life tables, which are actual observed mortality for those who have already died plus forecasts of future mortality for those who are not.
  
  In practice, cohort life expectancies will not deviate from period life expectancies much at advanced ages, where the trends in mortality over time are more muted.
  

Although it is difficult to find unless you know what you are looking for, these statistics are compiled, forecast, and reported by the Social Security Administration and are available in Actuarial Study No. 120 by Bell and Miller.

You could instead examine remaining life expectancy in the SSA's period life tables, which gives you an underestimate of your average remaining years of life because mortality rates will continue to fall. Based on that period life table, a 59 year old man
has about 21 years remaining.

So what is the point of all this?

Re: "No Longer an Outsider Looking In," NYT Real Estate 4/9/2007

If he is as healthy as he sounds in the article, Bob Trenta is likely to enjoy about 22 years or more in his new fourth floor walk-up on the Upper West Side, or about 30 percent longer than he reportedly expected. Remaining life expectancy is a critical parameter for an enjoyable and financially secure retirement, but it is unclear how many have accurate information. To be sure, one cannot save too little by underestimating it, and speaking for younger generations, I can vouch for the benefit of inheritances. But unless he is a smoker or has a preexisting health condition, Mr. Trenta should definitely keep taking the subway rather than taxicabs.

If you underestimate your remaining life span, you risk saving too little. Check published life tables when planning for retirement.