Month: December 2007

The CBO has a good review of the literature on the costs of illegal immigration for state and local governments.  Key grafs:

Over the past two decades, most efforts to estimate the
fiscal impact of immigration in the United States have
concluded that, in aggregate and over the long term, tax
revenues of all types generated by immigrants–both
legal and unauthorized–exceed the cost of the services
they use….However,
many estimates also show that the cost of providing
public services to unauthorized immigrants at the state
and local levels exceeds what that population pays in state
and local taxes.

…The amount that state and local governments spend
on services for unauthorized immigrants represents a
small percentage of the total amount spent by those
governments to provide such services to residents in
their jurisdictions.

For example,… the Oklahoma Health Care Authority estimated …that,
since fiscal year 2003 (the first fiscal year considered), the
services provided to unauthorized immigrants have
accounted for less than 1 percent of the total individuals
served and cost less than 1 percent of the total dollars
spent for Medicaid services.

If you look, you can find some places where the costs are significant, in San Diego for example 9 percent of the law enforcement budget was associated with illegal immigration.

I’m starting to wonder if the answer should be "no."  Say you’re on the left and you think that banks have screwed over borrowers and that remedying or preventing this injustice should be a top priority.  The Fed is not the place to look to.  Barney Frank was exaggerating when he said: "If I was going to list the top 87 entities in Washington in order of
the history of their efforts on consumer protection, the Fed would not
make it," but he said that for a reason.  Most of all, the Fed looks after the stability of the banking system, and the macroeconomy, which in my view is how it should be.

From a market-oriented point of view, the case for a Fed role in consumer protection is simply that the agency is better informed and more competent than Congress or the executive branch, not to mention more insulated from political pressure.  But that means — as we are seeing today — that Congress will not think the Fed is doing a good job when it comes to consumer protection.  The Fed ends up politicized, and under fire, when it should instead be free to pursue its central mission of maintaining macro stability.  It might be better to let some other regulatory agency go ahead and make the politically-demanded mistakes here.  We don’t want Congress to get into the habit of thinking it can tell the Fed what to do.

How many Representatives are willing to stand up and say: "Voters, I feel your pain, but your behavior was stupid and possibly even fraudulent"?

Have you noticed that significant segments of the press seem to be turning against the Fed?  We live in dangerous times, and it is unfortunate that the subprime crisis exploded in an election year.

I was surprised by Daniel Gross’s piece comparing Bernanke’s Fed to FEMA during Katrina, linked to directly above.  Other than "report the problem earlier," the key question is what Bernanke’s Fed should have done differently.  It would be better to focus on that, but of course that’s a much harder question to answer.  A replacement for Michael Brown — even drawn randomly from a pool of CEOs or regulators — would likely be far higher in quality, a replacement for Bernanke would likely be far lower in quality, and that’s more important than any of the supposed parallels.

Well, economists are arrogant people.  And because they can’t explain something, it becomes irrational.  The way I look at it, there were two crashes in the last century. One turned out to be too small.  The ’29 crash was too small; the market went down subsequently.  The ’87 crash turned out to be too big; the market went up afterwards.  So you have two cases: One was an underreaction; the other was an overreaction.  That’s exactly what you’d expect if the market’s efficient.

The word “bubble” drives me nuts. For example, people say “the Internet bubble.”  Well, if you go back to that time, most people were saying the Internet was going to revolutionize business, so companies that had a leg up on the Internet were going to become very successful.

I did a calculation.  Microsoft was an example of a corporation that came from the previous revolution, the computer revolution.  It was hugely profitable and successful.  How many Microsofts would it have taken to justify the whole set of Internet valuations?  I think I estimated it to be  something like 1.4.

Here it is, which is interesting throughout, hat tip to Mark Thoma.  I do think Fama is skippiing a bit too quickly from "the efficient markets hypothesis is hard to test," to "there is a presumption in favor of efficient markets."