Year: 2016

As we all struggle with our emotions about the campaign and the potential outcome of this 2016 US election day, here is some food for thought from posts during the past couple of years about US voting and elections.

1) \”Ray Fair: The Economy is Tilting Republican\” (May 19, 2016)

In the heat of the political season, it sometimes sounds as if American opinion has made a sharp swerve in the direction of opposing free trade. However, Cullen S. Hendrix argues that the data tells a more nuanced story in \”Protectionism in the 2016 Election: Causes and Consequences, Truths and Fictions,\” published by the Peterson Institute for International Economics (Policy Brief 16-20, November 2016). Cullen writes:

\”Two prominent explanations—that free trade is popular with elites but unpopular with the masses and that younger generations are more protectionist than older ones—can be rejected. Another three—the “China shock” sinking in, the current US electoral map privileging protectionist sentiment, and modern free trade agreements’ growing complexity—are more compelling. At root, the turn toward protectionism is the result of a disconnect between the United States’ rising trade exposure and a failure to adopt the social expenditure policies that have accompanied open markets in other advanced economies.\”

In response to the belief that free trade has become uniquely unpopular in the US, Hendrix offers some actual survey evidence. For example, here are answers to a Gallup poll question on whether trade is an \”opportunity\” or \”threat.\” The two answers were tied around 2012, but \”opportunity\” has surged ahead since then.  dipped a bit.

Or  here\’s survey evidence from the Pew Foundation on whether trade agreements have been good or bad for the US economy. \”Good\” is down a bit in the last couple of years, but still in the lead.

More detailed breakdowns of the survey data show that young people are more likely to favor free trade than older people. Cullen writes: \”In the main, younger voters are not clamoring for a
return to more protectionist policies. Indeed, most have never known a world without the World Trade Organization (WTO) and NAFTA; for younger voters, free trade and FTAs [free trade agreements] are the default state of affairs. Anti-FTA rhetoric hits home with people nearing retirement age, but not as much with older or younger Americans.\”

So why do politicians of all parties pushing for protectionism in 2016? There does seem to be a pattern that support for protectionism rises in election years. But in particular, protectionism tends to be more popular in the \”battleground\” states that decide national elections. Hendrix writes: \”In the 11 battleground states in the 2016 election (Colorado, Florida, Iowa, Michigan, Nevada, New Hampshire, North Carolina, Ohio, Pennsylvania, Virginia, and Wisconsin), the pattern is striking. In only one (Colorado, with 9 electoral votes) did the majority of respondents report that free trade had definitely or probably helped them or their families. In the remaining 10 (which together hold 137 electoral votes), the proportions agreeing with the statement ranged from 25 percent in Michigan
(where Bernie Sanders won the Democratic primary) to 27 percent in Ohio and 48 percent in Virginia.

In other words, if California and New York and Texas were the swing states, rather than being locked in for one party or another, politicians would be a lot less likely to talking up their skepticism about trade.

The other issue that Hendrix points out is that free-trade agreements have become vastly more complex, as they have less to do with just reducing tariffs and more to do with setting common standards for competition and regulation across industries. He notes: \”The text of the Israel-US Free Trade Agreement, which entered into effect in 1985, totals roughly 7,500 words. The text of the TPP [Trans-Pacific Partnership], inclusive of annexes and schedules, runs to roughly 2 million words—an astonishing 266 times longer. The TPP is not an isolated case: FTAs have grown longer and more complex over time, as they move beyond tariff barriers to touch on a host of regulatory issues related to market access, harmonization of standards, environmental issues, intellectual property, and health and safety.\”

This added complexity means that those who are just fundamentally opposed to trade can point to specific controversial provisions, and politicians can twist and dodge on the issue by saying that while they favor free trade in general, certain provisions of this particular agreement aren\’t acceptable.  Of course, in agreements between multiple nations that are several million words in length, there will always be controversial and just plain wrong-headed provisions.

Finally, Hendrix points out that the many European countries have embraced openness to international trade–for example, through the European Union–but have accompanied that embrace with generous programs for supporting displaced worker. Indeed, perhaps the defining characteristic of the what is sometimes called the \”Nordic model\” of the Scandinavian economies involves an embrace of free trade and market capitalism that is combined with high taxation and an active welfare state.

While I largely agree with Hendrix argument, I\’d add this point. Compared to a lot of countries around the world, US support for open international trade tends to be relatively low. I suspect that this situation arises because most other countries around the world have for a long time had much more exposure to international trade than does the US economy, which has an enormous internal market. Moreover, those who feel threatened by international trade tend to have much larger political megaphones than those who support it: indeed, free trade is a classic case of a situation with widespread but diffused benefits and more concentrated costs. During political campaigns, the US voices opposed to trade get louder and the defenders tend to duck their heads and wait for the wave to pass.

Like many people, I find myself enormously attracted to the idea of early childhood education: that is, the idea that a well-chosen intervention aimed at small children could pay off over the longer term in improved academic performance and a reduced incidence of undesirable social behaviors like high school dropout rates, crime, or single teen mothers. But while the actual evidence on such programs offers some reason for encouragement, and certain provides a basis for additional experimentation, it\’s not as strong as I would like. The Fall 2016 issue of Future of Children has a 10-paper symposium, plus an overview essay, about the existing research on \”Starting Early: Education from Prekindergarten to Third Grade.\”

In the overview essay, \”Starting Early: Introducing the Issue,\” Jeanne Brooks-Gunn, Lisa Markman-Pithers, and Cecilia Elena Rouse offer a fair-minded overview. They write: \”[W]e believe the weight of the evidence, as reflected in the articles in this issue, indicates that high-quality pre-K programs can indeed play an important role in improving later outcomes, particularly for children from more disadvantaged families. At the same time, significant questions remain.\”

Discussions of early childhood education often starts out with iconic programs like the Perry Preschool Program and the Abecedarian program. Both chose a group of children and provided services randomly to about half the group. Both had long-term follow-up into adulthood. Both found substantial gains in both academic and broader life outcomes. And frankly, I\’m  not sure that either one is especially relevant to the practical challenges and questions that early childhood education faces today.

The Perry Preschool Program in the Ypsilanti, Michigan, had a sample size of 123 students, of whom about half receiving services , from 1962-67. The Carolina Abecedarian program in Chapel Hill, North Carolina, inclueed 111 total students, of whom a randomly selected half received services.  beween 1972 and 1982. These are high quality studies, well-designed and with excellent follow-up. They were also done  four or five decades ago. The sample sizes were small. The assistance was intensive: for example the Perry Program included half-day day care and weekly home visits for 30 weeks per year, while the Abecedarian program was full-time day care for 50 weeks per year. The parents were quite disadvantaged in terms of being low income and low education (which in the mid-1960s in particular was before Medicaid and even widespread kindergarten). The alternative early enrichment options for children from disadvantaged families back at this time were much less available than in more recent years.

The practical difficulty is that extrapolating these kinds of small-scale pilot program with a few dozen students up to to a city-wide programs, much less up to statewide or national programs, is an enormous leap, and the results have not always been encouraging. For example, I wrote a few years back that \”Head Start is Failing Its Test\” (January 29, 2013). Starting in 2002, a nationally representative sample of 5,000 students was randomly assigned to Head Start, or not. The study found that academic effects of being assigned had faded out by third grade, and there were also no meaningful effects in \”cognitive, social-emotional, health and parenting practices.\”

A more recent discouragement comes from a study in Tennessee, which Ron Haskins and Jeanne Brooks-Gunn discuss \”Trouble in the Land of Early Childhood Education?\” (Future of Children Policy Brief, Fall 2016).  They write; \”A recent evaluation has roiled the field of early childhood education with the finding that by the time they reached third grade, children who participated in Tennessee’s statewide pre-K program had worse attitudes toward school and poorer work habits than children who didn’t.\” Of course, when the Tennessee study showed positive results of pre-K in  kindergarten, it was hailed as a high-quality program and a well-designed study, but when it showed undesirable results by third grade, it was then criticized as a low-quality program and a poorly designed study.  But the

Other more recent studies in places like Tulsa, Oklahoma,  and Boston, Massachusetts, have found more positive results. In the overview essay in the Future of Children issue, here\’s how Brooks-Gunn, Markman-Pithers, and Rouse describe the overall evidence:

At the end of most evaluated [early childhood education] programs, researchers find effects on school achievement, though these effects diminish over elementary school. When program effects are large, they tend to be maintained into elementary school, though they are smaller than the initial impacts. At the same time, we see long-term effects on adult outcomes—for example, a reduction in crime or the completion of more schooling. It’s puzzling that during elementary school, the achievement-test scores of children who attended prekindergarten converge with the test scores of children who did not, a phenomenon commonly called fadeout. Studies document that those who participate in a pre-K program have a significant advantage in kindergarten in terms of educational achievement. But those assigned to the control group tend to catch up in the first through third grades; in most evaluations, more than half the difference between the two groups disappears by the end of first grade.

This conclusion is similar to that reached by Greg J. Duncan and Katherine Magnuson offer a broader and modestly more hopeful angle in their paper, \”Investing in Preschool Programs,\” in the Spring 2013 issue of the Journal of Economic Perspectives. I offered some discussion of their findings
in \”Preschool for At-Risk Children, Yes; Universal Preschool, Maybe Not\” (May 23, 2013).

This kind of finding is why Brooks-Gunn, Markman-Pithers, and Rouse refer to significant questions that remain to be answered. Why do the academic effects of early childhood education so often fade out? Is it lack of lack of follow-up in schools? The importance of peer effects as student who received pre-K assistance are blended in later grades with those who do not? Maybe the pre-K programs themselves vary in some way? Maybe the benefits of such programs are non-cognitive–but noncognitive skills can be quite important. Here are some of their thoughts about ongoing issues.

Perhaps the problem is too much focus in pre-K programs on \”constrained\” skills, where \”constrained skills (such as phonemic awareness and letter knowledge) and unconstrained skills (such as knowledge of the world). Young children are typically taught constrained skills, which are associated with success until second or third grade. Beyond third grade, however, mastery of comprehension is associated much more with unconstrained skills.\”

Perhaps there should be more explicit emphasis on noncognitive skills like executive function: \”Executive function includes such abilities as attention, working memory, and inhibitory control— all of which are associated with cognitive and behavioral outcomes for both children and adults. Raver and Blair offer research to show that the development of executive function before children enter elementary school predicts their early math and reading skills. The authors also review promising individual and classroom interventions to improve executive function. Research on how to integrate the learning of memory, attention, and planning into the classroom is just beginning …\”

Perhaps some of the issue involves the qualifications and pay of pre-K teachers: \”The proportion of pre-K teachers who have a bachelor’s degree and certification for teaching early childhood education has increased over the past 15 years. Still, far fewer pre-K teachers than kindergarten teachers are college graduates, owing to differences in requirements. State and city pre-K programs usually require teachers to hold a bachelor’s degree, which has led to disparities between pre-K teachers in programs administered by public school systems and those in Head Start and community programs. Wage differentials are also high. Indeed, many pre-K teachers experience financial hardship and lack health insurance. …  Until we pay more attention to the links between training and classroom interactions, we can’t evaluate the efficacy of current training and education programs. The same is true for implementing curricula in the classroom.\”

Perhaps some of the issue is the extent to which parental involvement is encouraged: \”One of the goals of Head Start and other pre-K programs is to provide support, information, and even instruction to parents in the context of prekindergarten. In fact, being in favor of involving parents in their children’s pre-K programs seems much like supporting motherhood and apple pie. But even though everyone believes such involvement is necessary, we know little about whether it makes the programs more effective. In fact, Katherine Magnuson and Holly Schindler report that when parenting programs attached to pre-K programs have been evaluated, many have proven to be ineffective. But programs that target specific competencies are more likely to have benefits, especially those that help parents deal with their children’s behavior problems. Also, a few programs targeting mothers’ literacy and reading have been effective.\”

The  promise of early childhood education focused on the most disadvantaged children is real. There are dozens of studies that have found positive effects. But the practical problem of designing and implementing programs to work at larger scale are also very real. As Brooks-Gunn, Markman-Pithers, and Rouse note: \” We also need a better understanding of how to take high-quality programs to scale—the most relevant example being the rollout of city- and state-level pre-K programs.\”

The relevant discussion from Adam Smith occurs at the tail end of Book 1, in Part III of Chapter 11. Here, I\’ll quote from the ever-useful version of The Wealth of Nations available online at Library of Economics and Liberty website. Smith doesn\’t use the modern terminology of \”productivity\” or \”technology,\” but phrases his argument in terms of \”the natural effect of improvement.\” He writes (paragraph 240 and following):

It is the natural effect of improvement, however, to diminish gradually the real price of almost all manufactures. That of the manufacturing workmanship diminishes, perhaps, in all of them without exception. In consequence of better machinery, of greater dexterity, and of a more proper division and distribution of work, all of which are the natural effects of improvement, a much smaller quantity of labour becomes requisite for executing any particular piece of work; and though, in consequence of the flourishing circumstances of the society, the real price of labour should rise very considerably, yet the great diminution of the quantity [of labor] will generally much more than compensate the greatest rise which can happen in the price. …

This diminution of price has, in the course of the present and preceding century, been most remarkable in those manufactures of which the materials are the coarser metals. A better movement of a watch, than about the middle of the last century could have been bought for twenty pounds, may now perhaps be had for twenty shillings. In the work of cutlers and locksmiths, in all the toys which are made of the coarser metals, and in all those goods which are commonly known by the name of Birmingham and Sheffield ware, there has been, during the same period, a very great reduction of price, though not altogether so great as in watch-work. It has, however, been sufficient to astonish the workmen of every other part of Europe, who in many cases acknowledge that they can produce no work of equal goodness for double, or even for triple the price. There are perhaps no manufactures in which the division of labour can be carried further, or in which the machinery employed admits of a greater variety of improvements, than those of which the materials are the coarser metals. …

Both in the coarse and in the fine woollen manufacture, the machinery employed was much more imperfect in those ancient, than it is in the present times. It has since received three very capital improvements, besides, probably, many smaller ones of which it may be difficult to ascertain either the number or the importance. The three capital improvements are: first, The exchange of the rock and spindle for the spinning-wheel, which, with the same quantity of labour, will perform more than double the quantity of work. Secondly, the use of several very ingenious machines which facilitate and abridge in a still greater proportion the winding of the worsted and woollen yarn, or the proper arrangement of the warp and woof before they are put into the loom; an operation which, previous to the invention of those machines, must have been extremely tedious and troublesome. Thirdly, The employment of the fulling mill for thickening the cloth, instead of treading it in water. Neither wind nor water mills of any kind were known in England so early as the beginning of the sixteenth century, nor, so far as I know, in any other part of Europe north of the Alps. They have been introduced into Italy some time before.

The consideration of these circumstances may, perhaps, in some measure explain to us why the real price both of the coarse and of the fine manufacture, was so much higher in those ancient, than it is in the present times.

 Was Adam Smith correct in his claim that about a dramatic fall in the price of watches due to improved productivity during the century before the Industrial Revolution took off? Kelly and Ó Gráda write (footnotes omitted):

\”Most recent studies of the Industrial Revolution focus on the sustained innovations in the three sectors of textile spinning, iron making, and steam power that began in Britain in the latter half of the eighteenth century. To one usually well-informed contemporary observer, things appeared quite different. Discussing technological progress in The Wealth of Nations Adam Smith (1976, p. 270) ignores most of the famous inventions in these sectors, and instead chooses a paradigm of technical progress one good that is entirely absent from most current histories of the Industrial Revolution: watches. In fact, Smith makes the notable claim that the price of watches may have fallen by up to 95% over the preceding century, a claim we attempt to evaluate here.

\”To test whether watch prices had been falling steadily and steeply since the late seventeenth century, we use the records of more than 3,200 criminal trials at the Old Bailey court in London from 1685 to 1810. Owners of stolen goods gave the value of the items they had lost. Because watches were frequently stolen, we can reliably track how their value changed through time. Contemporaries divided watches into two categories: utilitarian silver or metal watches and more expensive gold ones. After adjusting for inflation, the price of each type of watch falls steadily by 1.3% a year, equivalent to a fall of 75% over a century. If we assume modest rises in the quality in silver watches, so that a watch at the 75th percentile in the 1710s was equivalent to one of median quality in the 1770s, we find an annual fall in real prices of 2% or 87% over a century, not far from what Smith suggests.

\”Most of the cost of a silver watch mechanism was the labor involved in cutting, filing, and assembling the parts, so assuming a constant markup (which is probably valid given the small scale of individual producers and the absence of foreign import penetration before 1815) we can gauge the rise of labor productivity in watchmaking by comparing how the price of a watch fell relative to nominal wages. During the period 1680–1810, real wages were roughly constant, so this rise in labor productivity is similar to the fall in real prices of watches.\”

There is a lively body of economic research looking at economic history in the centuries before 1800, with a focus on processes of growth and change during that time. Finding data to test Smith\’s watch-making example is a vivid illustration. But those looking for bigger-picture discussions of economic movements might also check out these papers from the Journal of Economic Perspectives:

In \”Gifts of Mars: Warfare and Europe’sEarly Rise to Riches,\” Nico Voigtländer and Hans-Joachim Voth discuss what they call the \”First Divergence\” (Fall 2013, 27:4, pp. 165-186), a period from 1400 to 1700 in which the economies of western Europe surged ahead of the rest of the world. They write

\”[W]e argue that Europe’s rise to riches during the First Divergence in this paper, we argue that Europe’s rise to riches during the First Divergence was driven by the nature of its politics after 1350—it was a highly fragmented continent characterized by constant warfare and major religious strife. Our explanation emphasizes two crucial and inescapable consequences of political rivalry: war and death. No other continent in recorded history fought so frequently, for such nd death. No other continent in recorded history fought so frequently, for such long periods, killing such a high proportion of its population. When it comes to destroying human life, the atomic bomb and machine guns may be highly efficient, but nothing rivaled the impact of early modern Europe’s armies spreading hunger ut nothing rivaled the impact of early modern Europe’s armies spreading hunger and disease. …

War therefore helped Europe’s precocious rise to riches because the survivors had more land per head available for cultivation. We argue that the feedback loop from higher incomes to more war and higher land-labor ratios was set in motion by the Black Death in the middle of the 14th century. As surplus incomes over and above subsistence increased, tax revenues surged. These in turn financed near-constant wars on an unprecedented  scale. Wars raised mortality not primarily because of fi cale. Wars raised mortality not primarily because of fighting itself; instead, armies crossing the continent spread deadly diseases such as the plague, typhus, or small pox. The massive, continued destruction of human life that followed led to reduced population pressure. In our view, it was a prime determinant of Europe’s unusually high per capita incomes before the Industrial Revolution.\” 

Museums own paintings, but apparently, they don\’t own the copyright over photographing those paintings or making derivative works like posters of paintings. At least, that\’s the argument strongly made by Alain Marciano and Nathalie Moureau in their essay, \”Museums, Property Rights, and Photographs of Works of Art: Why Reproduction Through Photograph should be Free,\” which appears in the most recent issue of the Review of Economic Research on Copyright Issues (2016, 13:1, pp. 1-28). Here\’s an overview of their argument (footnotes and citations omitted):

\”[T]he law is generally unambiguous: the physical artwork must be distinguished from the image of this artwork, which means that owning the artwork does not imply owning the reproduction of the image of the artwork. … The property right on a work of art must be distinguished from the intellectual property right. The property right bears on the object itself but is dominated — most of the time — by the intellectual property right when conflicts take place. Indeed, having a property right on the work of art itself does not mean having intellectual property right over the artwork. …

\”Actually, the intellectual property stays with the artist whilst he or she is alive and moves to his or her heirs for the next 70 years after the artist’s death. From the moment the work of art has been produced right up to 70 years after the death of the artist, the intellectual property right and the right of copy and reproduction belong to the artist or his or her heirs and not to the owner of the work. Indeed, the latter does not have the right to reproduce, sell or, even simply distribute copies, unless the artist him- or herself decides to transfer the copyright to the owner through a contract. After the 70-year period, the work of art falls into the public domain, which means, as it is well known, that its reproduction is free and that every individual has or should have the right to photograph, reproduce, copy and distribute the copies of the work of art. Furthermore, because first-generation copies of works of art are not considered as works of art, they cannot, therefore, be protected by a copyright. Thus, as the owner of a work of art, museums fall into one of the two categories: either they own a painting protected by an intellectual property right or the painting is in the public domain, and in both cases, museums do not have the right to prevent individuals from photographing the work. These are the only possibilities. 

\”However, museums do not always follow these requirements … Indeed, and this started to occur in the 1990s, museums are now not only almost systematically preventing visitors from taking pictures and using them, but also request very high fees for taking professional pictures. They systematically oblige photographers who want to take a picture to fill out forms and to follow long and complicated procedures before granting the authorisation to photograph the works of art that are in their collections. This means that museums transpose their property right into an intellectual property right and a right of reproduction that they do not own and cannot have. … In addition, museums also place a copyright on the first generation copies of the works of art they own. More broadly, museums also market derivative products under a copyright label, even if these products involve old master reproductions whose legal protection ended many years previously. As mentioned above, this is also illegal — a copy made of an image cannot be restricted in any way by the owner of the artwork.\”

This issue has grown in prominence because many cash-strapped museums are relying on sales of derivative products as part of their annual revenue flow. Indeed, this isn\’t currently the law, but one could make an argument that museums should have copyright over images of their artwork, even artwork that is in the public domain, because it\’s a way that society can help art-lovers to subsidize museums. Marciano and Moreau argue that such a policy of giving museums the copyright over images of their art (unless this explicitly negotiated with the artist) would not be appropriate, for several reasons.

They argue that the net revenue to museums from sales of reproductions, after the costs of making and selling the copies is taken into account, is not very large. They point out that there is a trade-off for the broader mission of museums: many museums are limiting the availability of images from paintings in the name of promoting a public appreciation of art. One might want to ban flash photography, although the authors argue that the dangers of flash photography for art are often highly overstated, but such a rule would be quite different from banning all photography. Sure, some lousy photographs might get made, and even sold, but copyright law does not exist to assure quality copying. Indeed, one can argue that if the market for making photographs of paintings was more competitive, then museums would have improved incentives to take advantage of their proximity to the art to take especially high-quality photographs.

Nothing in this argument would limit artists from continuing to own the intellectual property related to their artwork, whether it is held in a museum or not, as the artists do under current law.

Migration across national borders might sometimes seem like water behind a dam–a pent-up force waiting to break loose unless restrained by a physical or legal wall. But look a little closer, and episodes of large-scale migration are often driven by fundamental factors like differences in birthrates and economic prospects, as well as by past historical and political ties. Gordon Hanson and Craig McIntosh make this point in their essay \”Is the Mediterranean the New Rio Grande? US and EU Immigration Pressures in the Long Run,\” which appears in the just-published Fall 2016 issue of the Journal of Economic Perspectives.  

\”The tens of thousands of migrants streaming into Europe during late 2015 and early 2016 created an indelible image of how humanitarian crises—in this case associated with the Syrian civil war—propel international migration. Although political instability in the Levant may have kicked migration to Europe into a higher gear, immigration flows to the continent in the medium- and long-run are likely to be sustained by sharp differentials in labor-supply growth between regions to the north and to the south of the Mediterranean Sea. The present European migration scene is the latest act in a long-running global drama in which cross-country differences in population growth, abetted by disparities in aggregate labor productivity, create pressures for international migration. Periodically, economic or political crises unleash these pressures and generate sustained flows. 

\”During the last quarter of the 20th century, the principal actors in this global drama were Mexico and the United States. The US baby boom came to an abrupt halt in the early 1960s, causing growth in native-born labor supply to slow sharply two decades hence, once the baby-boom generation had fully reached working age. In Mexico, birth rates declined much later. High fertility in the 1960s—when Mexico’s fertility rate (the number of births per woman of childbearing age) averaged 6.8, versus 3.0 in the United States—meant that Mexico’s labor force was expanding rapidly in the early 1980s, just as a severe financial crisis hit. This crisis, and the decade and a half of economic instability that ensued, unleashed a great wave of Mexican migration to the United States. Encouraging this flow was steady US economic growth during the “Great Moderation” period from the mid-1980s up through 2007. In a pattern common to migration events stretching back into human history, early migrants eased the transition for later arrivals by offering advice on how to find jobs and housing, opening familiar stores and restaurants, and creating enclaves in which Spanish was spoken alongside English. 

\”The Mexican migration wave to the United States has now crested. Fertility rates in Mexico, at 2.3 births per woman of childbearing age, are only modestly above those in the United States, at 1.9. Labor-supply growth in the two countries is projected to be roughly the same in coming decades. Although living standards in Mexico remain well below US levels, Mexico has tamed the macroeconomic volatility it experienced during the 1980s and 1990s. Net US immigration from Mexico plunged after the onset of the Great Recession in 2007 and has been slightly negative every year since. Absent a significant new economic or political crisis in Mexico, or unexpectedly robust US economic growth, it is unlikely that Mexico-to-US migration rates will again reach the levels witnessed between the early 1980s and the mid-2000s. 

\”The European immigration context today looks much like the United States did three decades ago. In Europe, which long ago made its demographic transition to low birth rates, declines in fertility in the 1970s and 1980s set the stage for a situation in which the number of working-age residents is in absolute decline. Countries in the North Africa and Middle East region, in contrast, have had continued high fertility, creating bulging populations of young people looking for gainful employment in labor markets plagued by low wages and the scarcity of steady work. Further to the south, population growth rates in sub-Saharan Africa, a region with still lower relative earnings, remain among the highest in the world. Many countries in North Africa and the Middle East are in a period of profound political and economic upheaval. Migrants escaping military conflict in Afghanistan, Iraq, Libya, and Syria are crossing the Straits of Gibraltar, the land and sea borders that divide Turkey and Greece, and the narrow Mediterranean passage that separates northern Libya and southern Italy. Further to the south, conflicts in Chad, Eritrea, Mali, and Nigeria are also generating labor outflows. These new triggers are being tripped in a demographic environment that is ideal for perpetuating emigration well into the future. As further motivation, established populations of Algerians in France, Moroccans in Spain, the Turkish in Germany, and sub-Saharan Africans in Italy may offer support and solace to the new arrivals as they settle in.\”

\”As an example, we predict the number of African-born first-generation migrants aged 15 to 64 outside of sub-Saharan Africa to grow from 4.6 million to 13.4 million between 2010 and 2050. During this same period, the number of working-age adults born in the region will expand from under half a billion to more than 1.3 billion, meaning that international migration would only absorb 1 percent of the overall population growth. Given an African continent expected to contain almost four billion people by 2100, the presence or absence of a migration safety valve would have profound implications. The coming half century will see absolute population growth in sub-Saharan Africa five times as large as Latin America’s growth over the past half century. Even with our predictions for expanded population pressures to certain countries of Europe, which are likely to be perceived as very high levels of immigration by those countries, Europe would be absorbing only a small share of Africa’s projected population increase.\” 

Back in 2011, the Harvard Business School launched what it called th US Competitiveness Project. The 2016 report, authored by  Michael E. Porter, Jan W. Rivkin, Mihir A. Desai, and Manjari Ramanis, is called Problems Unsolved and a Nation Divided: The State of U.S. Competitiveness 2016. 

For the record, the term \”competitiveness\” can be controversial in a lot of policy discussions, because while being more \”competitive\” seems like it should be a good thing, the ways in which you are competitive matter. After all, the US would be in some sense more \”competitive\” in global markets if US wages were lower, but that wouldn\’t be a desirable policy. The report offers this definition: \” A nation is competitive if it creates the conditions where two things occur simultaneously: businesses operating in the nation can (1) compete successfully in domestic and international markets, while (2) maintaining and improving the wages and living standards of the average citizen. When these occur together, a nation prospers. When one occurs without the other, a nation is not truly competitive
and prosperity is not sustainable. If business succeeds but the average worker is losing ground, or when worker incomes rise but businesses can no longer compete, the nation is not competitive. A hallmark of a competitive economy, then, is prosperity that is widely shared.\”

Some of the discussion in the report is an overview of themes that will be familiar to readers of this blog: how US productivity growth has slowed, labor force participation has fallen, and the like. There are also survey result from HBS alumni about how they see the economy and the policy environment. Here, I\’ll make no effort to review the report as a whole and I\’ll ignore the opinions of HBS alumni, but instead will just point to some facts and figures that jumped out at me.

For example, this figure divides up total US jobs into those in industries which compete in international markets (like machinery and IT equipment), and industries which are \”local\” in the sense that  they face relatively little international competition (like health care and business services). Two facts emerge. One is that the total number of US jobs in internationally competitive sectors has been essentially flat at about 40 million since 1990, while all the growth in US jobs in the last 25 years is due to the \”local\” industries. The other fact is that the jobs in internationally competitive industries tend to pay a lot higher wages.

The report offers some figures showing the decline in \”labor force participation,\” which refers to the share of the population that is either employer or unemployed–but leaves out those who are detached from the labor force and neither working nor looking for work. Given the different workforce patterns of men and women in recent decades, it\’s conventional to separate labor force participation rates by gender. This figure shows \”cohorts,\” which refers to the share of \”prime-age\” US men working at different ages. For example, the top line shows for the cohort of men born from 1933-1942, labor force participation was near 98% at age 30, before declining to 86% by age 54. However, for each cohort of men born since then, the labor force participation rate has dropped. For those born from 1983-1992, for example, about 90% were in the labor force at age 30.

This decline in labor force participation is an international phenomenon, but it is especially pronounced in the US. In this figure, the circles show labor force participation in 1990, while the bars show labor force participation in 2014. The US is shown in red.

Small businesses are also playing a lesser role in the US economy. The share of all US businesses that is less than 5 years old has been dropping over time, going back several decades.

In addition, the share of jobs being generated by small businesses is dropping. The figure shows that the total number of jobs at firms with 1-9 employees, or with 10-99 employees, is about the same now as it was back in the late 1990s. US job growth since the late 1990s is all at larger firms.

One final snapshot is to point out that the household distribution of income has large stagnated for the last 15 years or so. As I\’ve argued in the past (for example, here and here), the big surge of rising inequality was a 1980s and 1990s phenomenon.

Wisely, the report doesn\’t try to dig very deeply into these patterns of slow economic growth, effects of a globalizing economy, labor force participation, small business, and incomes that are stagnating at a much more unequal level than several decades ago. It just puts the topics on the table for discussion.

For the past 30 years, my actual paid job (as opposed to my blogging hobby) has been Managing Editor of the Journal of Economic Perspectives. The journal is published by the American Economic Association, which back in 2011 decided–much to my delight–that the journal would be freely available on-line, from the current issue back to the first issue in 1987. Here, I\’ll start with Table of Contents for the just-released Fall 2016 issue. Below that are abstracts and direct links for all of the papers. I will almost certainly blog about some of the individual papers in the next week or two, as well.

In some ways, the \”Coleman report\” launched the study of how to reform the US K-12 education system that has been going on ever since. The Civil Rights Act of 1964, among its lesser-noticed provisions, required a report \”concerning the lack of availability of equal educational opportunity for individuals by reason of race, color, religion, or national origin in public institutions at all levels in the United States, its territories and possessions, and the District of Columbia.\” James Coleman, a quantitative sociologist at Johns Hopkins University, was signed up to lead the research and writing effort. The Equality of Educational Opportunity report was published in June 1966. The Russell Sage Foundation Journal of the Social Sciences has devoted its September issue to a 13-paper symposium that looks at how the insights of the report have held up, and what the agenda for equal opportunity in education should be moving forward.

\”The thinking at the time was that school quality inhered in a school’s facilities and resources, such as modern science laboratories, a well-stocked school library, and highly qualified teachers, all of which were regarded as “school inputs,” in the language of the report. It was expected that the segregated schools attended by black children would be found to be badly lacking in the inputs thought to be educationally important. From that vantage point, gauging “equality of opportunity” would be revealed in comparisons of school resources, black against white. For that part of the agenda, no fancy statistics were needed.

\”EEO [Equality of Educational Opportunity] presented evidence on this point, but evidence that many found hard to believe. The report concluded that school resource disparities revolving around race distinctively were not large. There were differences, to be sure—the South lagged behind the rest of the country, and rural areas behind urban—but differences by race within the same geographic space generally were small, too small to account for what today we call the black-white achievement gap.

\”This is one of several conclusions that made the EEO report controversial, and for many a disappointment. Other significant conclusions trace to the expansive view of equal educational opportunity that was introduced by the research team. Their reformulation shifted attention from disparities in schooling “inputs” as problematic in themselves to disparities in inputs that had bearing on educational “outcomes”—notably achievement test scores—and to achievement differences across social lines as markers of unequal opportunity. These radical reframings of the issue are undoubtedly among the report’s most profound and lasting contributions.

\”Pursuing this line of inquiry, the report compared test scores across racial and ethnic lines, across dimensions of family background (for example, parents’ educational level), by grade level, and across different regions and community contexts (urban or rural). In a more analytical vein, it examined variations in test scores and test score gaps in relation to school resources, focusing on average resource differences across schools. The school resources examined included teacher qualifications, curricular coverage, and facilities and expenditures, along with compositional characteristics of the student body (such as the percentage of minority enrollment and the percentage of families of low socioeconomic background).

\”These aspects of the report’s work were truly groundbreaking, and very likely not at all by congressional intent. Here, too, EEO’s main conclusions were both surprising and, for many, disappointing. These conclusions are addressed in detail in several of the papers in this issue. In thumbnail, EEO concluded that

1. differences across schools in average achievement levels were small compared to differences in achievement levels within schools;
2. the differences in achievement levels detected did not align appreciably with differences in school resources other than the socioeconomic makeup of the student body; and
3. family background factors afforded a much more powerful accounting of achievement differences than did any and all characteristics of the schools that children attended.

\”The report’s focus on academic achievement (test scores) to assess equality of educational opportunity was revolutionary. Reliance on achievement tests for monitoring and accountability is now routine, and many volumes have been written on how to do such assessments well. But that was not the case a half-century ago.

\”The report also was transformative in directing attention to the broader social context of children’s academic development. If school resources were the sole engine, then evaluating the performance of schools in isolation would be fine. But Coleman’s research team understood that resources provided by families and neighborhoods contributed to children’s initial school readiness, their achievement levels, and their learning trajectories. That, too, is taken for granted today—there is much interest, for example, in out-of-school time learning (OTL) opportunities—but at the time education policy was inward-looking: education reform meant school reform. Today it is also routine to pose questions about the social factors in children’s learning and the determinants of the achievement gap across social lines by asking: is it family or it is school? In the 1960s, when the report posed that question, it was not routine.

\”The report also established that racial segregation remained the norm throughout the United States, a finding that proponents of school desegregation embraced and used to advance their agenda. The same cannot be said of its conclusions regarding the near-irrelevance of school resources for advancing the cause of educational equity and the imbalance of family and school in children’s learning.\”

I can\’t hope to summarize the symposium in a few words, so here, I\’ll just offer a comment from the paper by Stephen Morgan and Sol Bee Jung called \”Still No Effect of Resources, Even in the New Gilded Age?\” Morgan is currently a sociologist at Johns Hopkins, as Coleman was 50 years ago, and Jung is a graduate student in the department. They write:

This paper investigates the effects of family background, expenditures, and the conditions of school facilities for the public high school class of 2004, first sampled in 2002 for the Education Longitudinal Study and then followed up in 2004, 2006, and 2012. The results demonstrate that expenditures and related school inputs have very weak associations not only with test scores in the sophomore and senior years of high school but also with high school graduation and subsequent college entry. Only for postsecondary educational attainment do we find any meaningful predictive power for expenditures, and here half of the association can be adjusted away by school-level differences in average family background. Altogether, expenditures and facilities have much smaller associations with secondary and postsecondary outcomes than many scholars and policy advocates assume. The overall conclusion of the Coleman Report—that family background is far and away the most important determinant of educational achievement and attainment—is as convincing today as it was fifty years ago.

For those who would like to surf the issue, here\’s a table of contents:

The Coleman Report and Educational Inequality Fifty Years Later
2(5), pp. i–iii

The Coleman Report at Fifty: Its Legacy and Implications for Future Research on Equality of Opportunity
Karl Alexander and Stephen L. Morgan
2(5), pp. 1–16

I. The Legacy of EEO and Current Patterns of Educational Inequality
Is It Family or School? Getting the Question Right
Karl Alexander
2(5), pp. 18–33

School Segregation and Racial Academic Achievement Gaps
Sean F. Reardon
2(5), pp. 34–57

Racial and Ethnic Gaps in Postsecondary Aspirations and Enrollment
Barbara Schneider, Guan Saw
2(5), pp. 58–82

Still No Effect of Resources, Even in the New Gilded Age?
Stephen L. Morgan, Sol Bee Jung
2(5), pp. 83–116

First- and Second-Order Methodological Developments from the Coleman Report
Samuel R. Lucas
2(5), pp. 117–140

II. Looking to the Future

Educational Equality Is a Multifaceted Issue: Why We Must Understand the School’s Sociocultural Context for Student Achievement
Prudence L. Carter
2(5), pp. 142–163

What If Coleman Had Known About Stereotype Threat? How Social-Psychological Theory Can Help Mitigate Educational Inequality
Geoffrey D. Borman, Jaymes Pyne
2(5), pp. 164–185

A New Framework for Understanding Parental Involvement: Setting the Stage for Academic Success
Angel L. Harris, Keith Robinson
2(5), pp. 186–201

Necessary but Not Sufficient: The Role of Policy for Advancing Programs of School, Family, and Community Partnerships
Joyce L. Epstein, Steven B. Sheldon
2(5), pp. 202–219

Accountability, Inequality, and Achievement: The Effects of the No Child Left Behind Act on Multiple Measures of Student Learning
Jennifer L. Jennings, Douglas Lee Lauen
2(5), pp. 220–241

Can Technology Help Promote Equality of Educational Opportunities?
Brian Jacob, Dan Berger, Cassandra Hart, Susanna Loeb
2(5), pp. 242–271

Connecting Research and Policy to Reduce Inequality
Ruth N. López Turley
2(5), pp. 272–285

Here\’s why the question matters: At an intuitive level, portfolio investment is supposed to be about financial flows, while foreign direct investment is about investments that involve a degree of ownership and responsibility. Thus, when thinking about the possible dangers of international capital flows, it\’s common to focus on the risks of portfolio investment zooming in and out of a country, and how this can lead to stock market boom and bust, sharp fluctuations in exchange rates, and even banking and financial crises. In contrast, the usual assumption is that foreign direct investment is much less mobile, and that it involves tighter connections across markets and global supply chains, along with transfers of technology and expertise. Thus, discussions of the potential dangers of international capital flows often focus on whether it\’s possible to put some restraints on portfolio flows, while not hindering foreign domestic investment.

Blanchard and Acalin look at the actual data on foreign direct investment, and find that it\’s often behaving more like portfolio investment, with some pattern that suggest it is driven by a desire to shift resources across borders in a way that reduces corporate taxes. They write (footnotes omitted):

\”Conventional wisdom on capital flows holds that FDI inflows are “good flows,” while assessments of portfolio and other flows are more ambiguous. When considering restrictions on capital flows, the first reaction of researchers and policymakers is to want to exclude FDI inflows.

\”In looking, however, at measured FDI flows to emerging markets (in the course of a larger project on capital flows), we have found three facts that suggest that measured FDI is actually quite different from the depiction of FDI above. The first is a surprisingly high correlation between quarterly FDI inflows and outflows. A reasonable prior would be that this correlation should be close to zero or even negative: If a country is for some reason more attractive to foreign investors, it is not obvious why domestic investors would want to invest more abroad, especially within the same quarter. The second is an increase in quarterly FDI inflows to emerging-market countries in response to decreases in the US monetary policy rate. Again, a reasonable prior would be that FDI flows do not respond much, if at all, to changes in the policy rate within a quarter—i.e., the effect should be close to zero.  … The third fact, closely related to the first two, is an increase in quarterly FDI outflows from emerging-market countries in response to decreases in the US monetary policy rate. Again, a reasonable prior would be that FDI outflows do not respond much, and, if they did, they would decrease in response to a decrease in the US policy rate. This is not the case.

\”These facts suggest two conclusions. The first is that, in many countries, a large proportion of measured FDI inflows are just flows going in and out of the country on their way to their final destination, with the stop due in part to favorable corporate tax conditions. This fact is not new, and, as discussed below, countries have tried to improve their measures of FDI to reflect it. But the magnitude of such flows came to us as a surprise.

\”The second is that some of these measured FDI flows are much closer to portfolio debt flows, responding to short-run movements in US monetary policy conditions rather than to medium-run fundamentals of the country. …

\”FDI inflows and outflows are highly correlated, even at high frequency and using different methodologies. FDI flows to emerging-market economies appear to respond to the US policy rate, even at high frequency. This suggests that “measured” FDI gross flows are quite different from true FDI flows and may reflect flows through rather than to the country, with stops due in part to (legal) tax optimization. This must be a warning to both researchers and policymakers.\”

For more inforrmation on these issues, one common  source for foreign direct investment is an annual report from UNCTAD, and I discuss one of their recent reports in \”Snapshots of Foreign Direct Investment Flows\” (September 8, 2015). The most common source for portfolio investment is an annual report from the IMF, and I discuss one of their reports from a few years back in \”International Portfolio Investment in 2012\” (December 9, 2013).