Author Archives: Tim Kane

Why Trump’s Immigration Plan Matters (More Than the MSM Realizes)

In a Rose Garden speech yesterday afternoon (a beautiful mid-May Thursday that is 18 months before the next presidential election), President Trump offered some lengthy remarks about the long-awaited White House proposal to modernize the legal immigration system. This morning, leading newspapers and networks are mistakenly dismissing the plan and missing two watershed changes that Trump’s Plan embodies.

In a nutshell, the new Trump Plan – which seems to have not been publicly released, even in Talking Points form – will restructure the composition of green cards while maintaining the net level of 1.1 million immigrants per year. It’s very much like revenue-neutral tax reform. In this case, Trump is proposing to bring in vastly more “merit-based” new citizens while reducing the number of family-based and (in his words) “random” new citizens. Such a shift is one of the few areas of consensus among policy wonks, and despite the immediate political resistance to the word “merit” by some of Trump’s antagonists, it has been used for decades as a short-hand for employment-based entry and programs that emphasize needed skills and more educated migrants. Regardless, there’s a common complaint we’re hearing from the media:

  • “Cool Reception for a Plan on Immigration” is the title of a page A12 New York Times story, which noted that the plan has no champions among Republican Senators. The story also emphasized that the plan “did not address protections for the so-called Dreamers … or the 11 million undocumented immigrants currently living in the United States.”
  • “[T]his proposal does not address some of the thorniest elements of the immigration debate,” said the Times editorial on page A28.
  • “The new proposal … appears destined for the congressional dustbin (and) … sidesteps some major components of the immigration system that can be far more complex and controversial to resolve,” concludes a lengthy page 1 article in the Washington Post.
  • The Post‘s editorial on page A20 calls it an “improvement over the administration’s previous bar-the-door approach … but the initiative omits even passing reference to the reality of 10 million or 11 million undocumented immigrants,” etc., etc.
  • The Wall Street Journal offers a story on page A4 (but no editorial) which declares in its third paragraph: “It doesn’t address some pressing immigration policy issues….”

Politicians weren’t much better in their neglect of the plan’s substance. It’s fine to disagree with something on the merits (no pun intended), but Senator Chuck Schumer shouldn’t say the new plan is, “the same partisan, radical anti-immigration policies” as before. Trump called for preserving the world’s most open legal level of 1.1 million immigrants per year — that deserves a nod of praise even if you’re the leader of Senate Democrats.

The hypnotic grip of comprehensive immigration reform is hard to shake, apparently. Never has a concept so vexed policymaking. It’s as if a surgical team couldn’t just remove a ruptured appendix without also adding a new stent in the patient’s aorta, transplanting a lung, and doing some liposuction while they’re in there. No, my friend, comprehensive policymaking isn’t a good idea. It has failed every time it has been tried for two decades. President George W. Bush backed the McCain-Kennedy bill in 2007 with a massive, extended campaign. It failed, just like the 2006 effort led by Arlen Specter. Nor did President Obama have a better touch, backing the failed Gang of Eight bill in 2013.

The only thing that efforts to construct comprehensive immigration reform has achieved is polarizing the issue, even fracturing the parties internally. Witness the double failure of House Republicans last year to pass a bill and the current failure of Pelosi’s House majority to even produce a proposal.

The Trump Plan has room for improvement, to be sure, which I’ll gladly debate another day. Don’t let that distract you from what it achieves. First, it charts a new course – a new strategy if you will – of incremental reform rather than comprehensive reform. Second, it locks in Republicans to a new baseline of preserving current legal immigration levels.  If you haven’t been paying attention, the hard line of 1.1 million was in real jeopardy. Now, there’s no going back.

The chart below shows how large the U.S. lead is in terms of total immigrants, with over 48 million total foreign-born residents. It comes from an analysis of United Nations data by Gilles Pison. The global war for talent will define the great power competition of the 21st century, and the U.S. is already far ahead.

There are many important issues in immigration policy, but for me the most important issue by far was holding the line. Legal immigration is literally and philosophically bigger than illegal immigration. It is the key to our national creed and one of the engines of our economic power. Yesterday was a big win.

Does a Border Wall Enhance Home Values?

What is the value of building a barrier between countries? While President Trump is fond of the refrain, “A country without borders is not a country at all,” the reality is more complex. The United States prospered dramatically from 1776-1990, a two century stretch during which it essentially had no physical barrier along its borders. Indeed, it’s not clear that a border wall does much at all to stop immigration. Unless a border is fully militarized, migrants will circumvent physical barriers with tunnels, ladders, or simply cutting holes in the fence (which currently happens roughly twice a day along the nearly 650 miles of fencing that exists along the southern border).

So is a border wall of no value?

Not so fast. I have long suspected that a border wall is ineffective at stopping illegal immigration, but that it is effective at deterring drug trafficking and property crime. Having lived in San Diego for seven years during the late 1990s and 2000s, the construction of border fencing was part of the daily news. I vividly remember seeing new housing developments sprout up in the South County, particularly nice new homes in Chula Vista, during the boom years. Real estate agents said that after the local border fence had been constructed, property crime had gone down, allowing the development of safe, new neighborhoods. Was it true?

Using data from Zillow.com, I compared the property values in four different regions of San Diego County. Zillow has median property values for 87 distinct zip codes throughout the county which I allocated into North County, Central County, South Coastal (Chula Vista), and Border (for the four zip codes in the dataset that include the US-Mexico border). All other factors that affect property values should be roughly equal among the four regions, which gives us a fair assessment of how growth rates in real estate values changed before, during, and after construction of the border fence.

The history is relatively simple. Before the year 1995, border fencing was being put up sporadically.  Only after President Clinton established Operation Gatekeeper in 1995 did the construction of a major barrier, backed by enforcement agents, begin. And it wasn’t until 2006 that the Congress fully funded a larger border wall via the Secure Fences Act. Since it took time in both instances for funding and construction (and a change in perception of conditions), I used the years 2000 and 2008 as critical points in the time series data.

Zillow data begins with observations in April 1996, so I was unable to assess real estate values prior. Nonetheless, I was able to crunch the numbers for two series across three time periods: Pre-2001 (4/1996-1/2001), 2001-2008 (1/2001-12/2008), and Post-2008 (12/2008-11/2018). The two time series are (a) median value per square foot across all home types and (b) the Zillow Index for Single Family Residences.  Here are the results in terms of average annual growth rates.

results

This is a straightforward result. Compared to Central San Diego neighborhoods, the border areas experienced much slower growth rates in property values before 2001. They equalized in terms of the Zillow Index and the median value per square foot ($) in the latter two periods. In fact, after 2008, there is a clear growth boost of 1/3rd of a percentage point in Border and South Coastal neighborhoods attributable to the border barrier.

Did immigration patterns change between the neighborhoods? Not at all. Did patterns of casual trespass change? Absolutely. It is difficult to see these results without appreciating that the value of a wall is in its deterrent effect on property crime or some other value-reducing transient behavior.

No Substance to the Shutdown Fight

My son asked me who should be blamed for the government shutdown: President Trump or the Democrats? There are many ways to answer that question, and each way offers an insight.

Most importantly, the American people need to step back and realize that the fight is entirely symbolic. Both sides are claiming that building the wall will fundamentally change the country for the better/worse. One Democratic senator said, “What we don’t want to do is waste taxpayer money on a vanity project that’s ineffective.” Trump claims it is essential to stop a national emergency, which even he thankfully began walking back when the most ardent congressional supporters expressed via back-channel that such a declaration was a precedent they will never allow. So we are stuck in the midst of a feud about a border wall that, for the most part, already exists.

But who is to BLAME? Clearly both sides are to blame. Dems like to say the President is throwing a temper tantrum. Maybe. You could just as easily see his position as a principled stand, especially because it exposes Dem hypocrisy that they would never support a border wall which many Democrats — such as Barack Obama and Bill Clinton and current legislators — have explicitly called for and voted for before.

The fairest answer to the blame question is that Trump is to blame in the short term but Democrats are to blame in the long term. There’s no denying that this is Trump’s shutdown, and it doesn’t help R’s to hedge on that reality. But there’s no denying the bigger picture that Democrats have sabotaged immigration legislation for over a decade.  It’s all pretense. It’s a game of symbolism for political advantage. Think I am wrong? Then I would challenge you to show me what the compromise position is that Nancy Pelosi is offering? Doug Schoen is 100% right that both sides need to compromise, but the key word is “both.” Does anyone think Trump wouldn’t accept something big that Dems want so long as he gets the wall?

Let’s put the $5.7 border funding request in context. Five billion is small, almost but not quite one tenth of one percent of the annual U.S. federal budget. According to a government source, the feds spent $4.11 trillion in 2018.  The OMB reported 2017 outlays of $50.5 billion for the Department of Homeland Security, $111.7 billion for the Education Department, $1.0008 trillion for Social Security, and $41.3 billion for the Labor Department, just to name a few major categories. So the standoff for Trump’s signature issue – a one-time outlay of $5 billion – is a tenth of the annual DHS budget, or a hundredth of what DHS will spend in the coming decade.

What is the Democrats’ compromise offer? Will they accept a DACA fix in exchange for $5b wall funding?  Will they accept increasing refugee allowances to 100,000 legal immigrants per year along with $2.5b of partial wall funding? Trump gets nothing is not a compromise. It’s a willful effort to humiliate him, to win politically at all costs.

If your instinct is that Trump is losing public support, you are half right. Democrats are losing support, too, according to a CBS poll.

poll-1.jpg

If only negative opinion mattered to the Speaker in absolute terms. Instead, politics is a zero-sum game. So as long as Nancy Pelosi is blamed relatively less than the President, she may interpret the damage to the country as a win for the Democratic Party.

So in the end, who does Dad think is really to blame? Maybe the correct answer is that American democracy has become a serious quagmire. In other words, if you spend your time trying to blame one side or the other, you are probably contributing to the real problem which is a breakdown in civility. The shutdown fight is less about immigration policy than it is about the increasing inability of US institutions to reach compromise.

Facts about “The Wall” & the US Government Shutdown

There’s one bizarre fact that surprises both advocates and opponents of President Donald Trump’s commitment to building a wall along the US-Mexico border. Advocates demand the wall be built, and note that Trump was elected president with this mandate. Opponents insist that a wall must never be built. Just to be clear, we argued against a “Great Wall of Texas” in an Atlantic essay over five years ago.

But here’s the fact that neither side seems to realize: The wall has already been built.

Johnny Simon posted a dozen photo images of the 650+ miles of border barriers already in existence along the 1954 mile US-Mexico border. They are worth a look.

The US government is currently in the midst of the longest partial shutdown in history, the consequence over a standoff for funding for extending the border wall. President Trump refuses to authorize any budget legislation unless it includes $5.7 billion appropriated toward the wall. Democrats in the legislature refuse to allow any appropriations at all. Neither side shows any signs of giving in, nor any compromise position. That hardline negotiation strategy by both sides leaves the country in a bind. What’s the endgame? Nobody knows.

However, it’s worth reflecting on some facts about the wall itself:

  • There was no barrier between the USA and Mexico for over 200 years, until the early 1990s when local US border patrol agents began putting up an ad hoc barrier (using 20-year old metal runway plating) to hinder drug trafficking and crime in San Diego.
  • Roughly 650 miles of barrier exists, which is roughly 1/3 of the length of the border. Most of it is in CA and AZ, and almost none is in TX. Roughly half of the existing barrier blocks pedestrians and vehicles, and the remaining half can block vehicles only. Importantly, much of the border is a natural barrier of deserts and mountains, but the Texas border is dominated by the Rio Grande river and is privately owned on the US side.
  • The existing wall had widespread bipartisan and public support. The “Secure Fence Act of 2006” passed with large, bipartisan support in the House (283-138) and Senate (80-19). That bill authorized construction of a physical barrier of up to 700 miles.
  • The existing wall is effective at stopping crime but ineffective at stopping illegal immigration. It is fair to say the wall does next to nothing to stop immigration, which I say based on interviews with many border patrol agents and personal experience over a decade living in San Diego, LA, and Palo Alto.
  • US border agents prevent exactly 0% of illegal immigrants from entering the country. This is a gross misunderstanding of their mission, which is really to apprehend and process migrants into US custody.

 

 

What’s to like about Trump and Clinton?

Election Day 2016! In a few hours, we will know who the next president of the United States is. Although both Hillary Clinton and Donald Trump are flawed, and it has been a negative process, I want to take a moment to reflect that in fact both main party candidates will bring something positive to the White House. It seems to me that the media cannot help but focus on the character of the candidates, a rich mine of ugliness to be sure.

Trump’s language is often vulgar, inexcusably and extremely so, the praise for foreign dictators seems bizarre, and his business practices seem tawdry, but it’s wrong to take from that a conclusion that Trump is a Nazi. Please, get a new meme to describe the GOP nominee. On the other hand, Clinton’s paranoia is alarming, and her relationship with the truth so fickle that it is impossible to imagine anything less than criminal negligence in her treatment of classified intelligence as Secretary of State. Worse, perhaps, is the certain corruption of the Clinton Foundation. Alas, personal enrichment under the guise of charity is sad, but not very original in world history. To conclude, however, that Hillary Clinton is going to betray the USA and that her policies will be bad when in fact they are mysteriously vague, is illogical. I need to believe that there will good to come from the next President. Here’s hoping:

Donald Trump

  • Change agent!!!
  • Likely to be a revolutionary change in tax simplification.
  • Has expressed more willingness to compromise on illegal immigration than Clinton! (Yes, he said “the good ones can stay.”)
  • Will probably be voted out in 2020 by a center-left Democrat who will truly reshape the course of history.

Hillary Clinton

  • Stability.  NATO, Japan, other allies can breathe a sigh of relief because Hillary is more likely to advance a strong American leadership role abroad, much stronger in fact than Obama.
  • TPP will almost surely pass under a new name. Very good for the world.
  • May do more to fight political correctness than Trump. Calm clarity beats loud snark on such things. Race relations likely to improve, over Trump, but also over Obama.
  • Will probably be voted out in 2020 by a center-right Republican who will truly reshape the course of history.

Bottom line: I think whoever wins in 2016 will lose in 2020. They will shape the Supreme Court, but may be inconsequential to history. The most important 2016 election results are: (1) Senate, (2) House, and (3) by a wide margin, the Presidency. Paul Ryan as speaker is where I am betting all my chips, not as a prediction, I mean as our best hope for our children.

We Americans will take a bad president over a good king any day. And today is the day!
statue-of-liberty-largeface

Brexit thoughts

So the United Kingdom has voted to leave the EU. Let the overreaction commence! As a reminder, Glenn and I devoted an entire chapter to the EU in our book BALANCE, titled “Europa.” It was a chapter motivated by Grexit, and I cannot help but wonder if Greece staying in the EU led to Britain wanting out. And we all forget how new and, importantly, immature the European superstate is. It is not a nation based on a national identity, yet it regulated like one, like a foreign throne lording over faraway subjects. Not a good look.

The psychology of fear is overwhelming financial markets and, yes, this might be a dangerous tipping point for a fragile world economy. But nothing substantive need change at all, especially the open trade between the British Isles and the continent. Nobody can predict how spiteful MEUs will react now, though there is a dangerous sense that they may feel the need to make an example of the Brits. If leaving the EU is painless, what’s to keep in the other strong states?

Too much is being made of the monumental step “backwards” the UK just made, and these points are being made by the so-called elites vs the common folk. I see it like this.

The march of civilization nudges smaller states into larger coalitions that become states. Peoples throughout history have gotten the balance wrong more often than not. Too much centralization. Too little. Every political union must manage that internal tension, and wise leaders manage it slowly and flexibly. The EU, seems to me, was awfully rigid and its leaders too often used a scolding, moralistic tone.

There is an economically optimal balance of sovereignty that was perfected in the federation described in the US Constitution.  The EU aimed to achieve gains from unity, but it had far too little federalism. It overreached. On immigration, on rule-making, it became overbearing. And then it bailed out the fraudulent fiscal state of Greece. Who paid?  And who pays for the next bailout?

Think about it this way: will residents of Ohio or Florida be willing to bail out Illinois? How about asking the people of Columbus to pay for the ridiculous high-speed rail SF-to-LA boondoggle?

“More than likely, the California high-speed rail will require large government subsidies for years to come,” the proposal said.

The report quoted above was hidden from taxpayers in CA. Not a good look.

Why valuation economics are messing up the Internet, Inequality, and Productivity debates

How much is the Internet worth?  How bad is income inequality in advanced economies?  What is causing the productivity slowdown?

These three questions are related, but I doubt few people know why. The reason is that all three problems are misinterpreted based on the standard microeconomic measure of income and value. I’m going to make this brief, but keep in mind this is just an introduction to a series of work I’m planning to blow up the policy discussion economists have been having.

To begin, I live in Silicon Valley, literally in a Stanford apartment on Sand Hill Road. I’m not one of the tech geniuses building the future, but I do watch them from a front row seat, and I really believe the value creation here is vastly under appreciated in Washington, not to mention European capitals and most editorial pages. Even my friend Tyler Cowen seems to be missing the big picture:

The results are mixed, but again I don’t see a strong case for a disproportionately high consumer surplus from these [Internet] services, if anything the contrary. (from his blog, May 2015)

The productivity slowdown is too big in scale, relative to the size of the tech sector, to be plausibly compensated for by tech progress. (from his March 4, 2016 NYT column, “Silicon Valley Has Not Saved Us From a Productivity Slowdown”)

The mistake economists have been making is to ignore value above the demand curve. Classic economics dating back to Adam Smith recognized a dual paradox of value, with one type of value high in utility (e.g., water, food, tools, clothing) and a more economic type of value signaled by prices in exchange (e.g., diamonds, gold, and other conspicuous goods). My theory is that the paradox is actually a trinity, and the classic dichotomy ignored value in consumption (or maybe a better word is desire). A forthcoming essay in COMMENTARY will make a more detailed case, but it will not include this figure which contrasts a Demand curve (Willingness to Pay, a.k.a. WTP) with something you won’t see in textbooks, yet:

PPT Value Theory for HooverThe first objection I’ve heard to this theory is that the WTA-WTP gap has already been explained by the endowment effect, and not only that, but the pioneers of behavioral economics were already awarded a Nobel Prize. Sorry, but no, the endowment effect has been overinterpreted, and it is NOT fully fleshed out.  For starters, the effect often disappears for commodities and appears elsewhere when people are not even endowed. It presumes that there is an objective value to a good (the exchange price) which is distorted by irrational subjective attachment. I think this “irrational primates” explanation goes too far. It makes more sense to appreciate a desire for something above the demand curve, to wit: a penniless bum is budget constrained and cannot afford an icy-cold can of Coca-cola (so his WTP is zero), but if he were given a can of soda, his consumption would far exceed zero. Indeed, there is a rich literature on contingent valuation that recognizes the WTA of many things approaches infinity (e.g., the value of an extra decade of life).

Why does this matter to Tyler and the techno-skeptics?  Simply put, the WTA value of modern things is vastly higher than older, more tangible, more commoditized goods. I have conducted some preliminary, not-ready-for-peer-review research and discovered a huge gap differential:Slide4

I also tested two theories, again just preliminary. My first theory is that consumption valuation increases with time. The endowment effect should be linear — if you take a teddy bear away from a kid for seven days instead of one, he should be seven times as displeased. But I expect displeasure to be nonlinear, namely increasing exponentially. It is. Here’s my question of nearly 50 colleagues at the Hoover Institution about the WTA of pizza over three time periods. Slide2

My second theory is that valuation increases with rarity. Commodities that are easy to exchange should yield a WTP-WTA gap that is no larger than the friction of exchange. (And for the endowment nerds out there, I suspect this is most of what the canonical “college mug” experiments of Kahneman were picking up). But what if you were asked to sell a ticket to the concert of your favorite entertainer?  What if it was their last concert ever? The way I framed the question to colleagues was by using three different types of tickets to a favorite sports team: a regular season ticket, a playoff ticket, and lastly a ticket to the championship game. The nonlinear valuations were confirmed.  To be fair, these were not per-review quality studies, but I have no doubt those will show the same result.Slide3

Now let’s connect the dots back to Tyler. Is it true demand for Internet access on airline flights is low? Yes, but that’s explained by the short duration.  People are willing to accept loss of something at a low value when the time is brief. I bet the value of a year of Internet is worth millions of dollars to Tyler Cowen, even though he can easily do without it on every flight. And it’s worth more than access to a library because there is no substitute for the Internet. It is unique, not a commodity.

If we did a better job as economists of measuring consumption values, we could chart the exponential increase in progress that has been missing from traditional output & productivity measures. The productivity slowdown masks a consumptivity explosion. And further to the point, even the poorest people in modern economies are enjoying the boom. Lower mortality, cleaner air, better parks, and free wifi are all real trends and really invaluable.