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I'm a poor economics graduate student. But all my years reading Bryan Caplan, I feel compelled to put my money where my mouth is with regards to macroeconomics. So I'm taking a third of my paltry savings and jumping into this market if/when the S&P nears 1500. Opening a brokerage account today.

Is anyone seeing warning flags from China and the Fed that I'm not seeing?


You really need to think about two questions. First, are current market levels sustainable and could the market go higher. I would answer yes to both. The current slow economic expansion will continue and the market still has plenty of upside. No recession is in sight at this point. Second, if and when the market turns, will you get out?

The latter question is more important than the former. If you don't exit when the market turns you could be holding equities at an S&P level well below 1500.

Market timing is more important than any other factor and almost no one is good at it. Since no one is good at market timing, the single most important determinant of long-term returns is when you enter the market.

Current P/E ratios do not suggest that this is an ideal market entry point (based on history).

I wonder if the higher average P/E ratio (compared to 50 years ago) is simply an erosion of the equity premium.


The rise in the P/E ratio is also driven by the collapse in interest rates. You get to judge how permanent that is.

See "In Investing, It’s When You Start And When You Finish" ( for some historical information.

Don't most students compute the dynamics of Y/L under the neoclassical exogenous-growth model at least once? It's stuff every student does in the first couple of EC200 classes.

But, of course, nobody seriously thinks that contemporary per-capita growth stems solely from capital mobilization. We've already eaten all that low-hanging fruit, so to speak; that's why the Long Nineteenth Century was imperialist over territory in a way that the postwar world is not. Nowadays we have to out there and invent more stuff to push out the technological frontier, not just build yet more factories using existing tech.

Re #6: Raj Chetty writes that Indians are underrepresented in graduate scholl and academia. I actually found that somewhat amusing. In the business school program (a small, AACSB-accredited program), the faculty representation from the Indian sub-continent includes
1 in economics
1 marketing
1 in finance
1 in MIS
out of 17 f-t faculty...23.5%...

#6 - like an opportunistic infection, broadcasting to its fellow pathogens that the USA's defense mechanisms against predatory scamming have been completely neutralized

I agree. Although, Raj Chetty did use some dubious language about "traditional" fields, in general, the sub-continentals are over represented in academia.

Supposed to be I response to Donald Coffin.

In the new Eric Rasmusen paper on how immigration can hurt a country, he asks if there are any examples of immigration making things worse.

See "The rationale for immigration may be more complex than previously thought" in the Economist.

IN EUROPE, immigrants are blamed for rising crime and for stealing jobs which would otherwise go to native workers. So it is to America that defenders of immigration turn for ammunition. There, opposition to immigration is more muted. Immigration is widely perceived to bring many benefits, and not just in the form of people willing to do the dirtiest jobs that natives no longer want to do. They also come in the form of entrepreneurialism and innovation: imagine Silicon Valley without immigrants. Certainly, immigration entails some costs, the perceived view goes. Immigrants take some jobs that locals could otherwise have had. Yet on balance, the effect is positive, if not always easily measurable.

At first blush, the new findings of two professors at Columbia University, Donald Davis and David Weinstein, appear to challenge this view. Their analysis*, which relates uniquely to America, claims that immigration into the United States costs native workers around $72 billion a year, equivalent to nearly 1% of GDP. That is a much bigger figure than economists previously reckoned. As it happens, it is about the same scale of losses which America makes from pursuing protectionist trade policies."

There is also a significant body of literature showing that immigration can raise the price of a scarce production factor, notably housing. Over the years I have seen some number of papers on this subject, all of which suggest that immigrants (immigration) make housing less affordable.

There is some disagreement as to whether the driving force is regulation of supply or land scarcity. Glaeser notably points to regulation rather than land scarcity. However, his methodology for calculating land prices is wrong (any real estate agent would laugh at it). Brad DeLong argues for land scarcity (land within reasonable commuting distance).

One paper noting the linkage between immigration and housing as a scarce production factor can be found at.

“Wages, Rents and Prices: the Effects of Immigration on U.S. Natives Gianmarco I.P. Ottaviano, (University Bologna and CEPR) (2006)”

Note that the author (Ottaviano) describes less affordable housing as a gain in the form of ‘housing income’. In other words, one of the ‘benefits’ of immigration is less affordable housing. .

In theory, immigrants could make housing more affordable. Clearly immigrants do lower construction wages and make actual home building cheaper. However, if land is a scarce production factor then every dollar in lower building costs is more than offset by higher land costs. The ‘more than offset’ part comes from a higher population / land ratio. Empirically this does appear to be the case in some parts of the U.S. For example, in some parts of California land is 4/5ths of the price of a home. For the United States as a whole, land prices have accounted for a higher and higher fraction of home prices over time.

The California example is just so enormous and obvious.

Immigration has sucked for its "hosts" many times since the very first mountain thugs swept down on neolithic communities pillaging and destroying them by "settling" amongst thriving, wealthy communities but sustaining their peculiar gangster "me & mine" politics to the point of destroying the delicate interconnected factors that made stable, advanced, specialized societies. Sumerians, Hittites, Lukka, Karkisha, Shardana, Visigoths, Lombards, Alans, Mongols, Crusaders, Berbers, Turks, all showed up & coasted on the indigenous civilization's wealth and wisdom until they destroyed it with their gangster political simony, nepotism, their fanaticism and short-term rapaciousness.

The abstract of the Ottaviano paper says

"We also calculate the distributional effects on highly, medium and less educated natives and we find that all these groups in the average U.S. state experienced increases in their total real income (wage plus housing income) as a consequence of the 1990-2005 immigration. This is due to the combination of two facts: foreign-born workers do not perfectly substitute natives in production and immigrants have lower house ownership rates than natives, so that house price increases act as a transfer from immigrants to natives."

Basically the paper says that immigration increases both the wages and housing assets of native individuals. Yet you (and Steve Sailer, and GIVCO) seem to interpret the paper as providing evidence that immigration is bad for natives.


By the way, if immigration had led to plummeting housing values in California, you surely would have very different feelings about it. I can't imagine any possible way in which you would have interpreted falling housing values as showing that immigrants are ruining neighborhoods. Nope, just inconceivable. "Look, a bunch of Mexicans moved in and now my house is worth half of what it was before, clearly I was wrong about those people, they're just GREAT for the economy."

$130, academic publishing is a racket.

Re #3: a relevant clerihew (see

John Rawls
Was plagued by catcalls
From the sort of girl whose lust is
Aroused by A Theory of Justice.

But you can't set clerihews to music.

Rasmusen fails to consider the most reasonable model: a three factor production function that permits distinguishing "non immigrant" labor from immigrant labor in which immigration improves the returns to the non-immigrant factors. The real questions are how strong are the substitution/complementarities among factors, which is not necessarily those of a Cob Douglas.

Rasmussen does consider a model much like what you are proposing, though his three factors are capital, high-skill labor, and low-skill labor. He considers domestic low-skill labor to be equivalent to immigrant labor, which is fairly reasonable considering what we see on the ground, where immigrants compensate for their reduced language and cultural skills by being harder-working. The result there was that both capital and high-skill labor benefit, while low-skill domestic labor loses income.

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