Where do immigrants go?
The geographic distribution of immigrants leads to some of the biggest complaints about cross-national migration. Disproportionate numbers of immigrants go to California, Texas, and New York. Potential problems include school overcrowding, fiscal burdens on local governments and hospitals, and weaker incentives to assimilate. I’ve heard claims that it would be fine to take in extra immigrants, provided they would work on company towns in central Nebraska.
The question arises to what extent distributional problems are self-correcting. If a state declines in quality, some immigrants will start to look elsewhere. It resembles yesterday’s question of whether a blogging topic can become overcrowded.
We now have some recent evidence. For the first time in thirty years, immigrants are finding California a less appealing place to settle. The 2000 census measures 24.8 percent of all new arrivals going to California, down from 37.6 percent in the 1990 tally. New York arrivals are down as well, from 13.7 percent of the share to 11.8 percent. Those changes are so big that virtually every other state has a bigger share of the total, with Texas, Georgia, and North Carolina showing the largest gains.
The results also show that poverty is declining among both established and arriving immigrants in California, heralding positive future trends.
Here is coverage from USA Today. Here is the original research. Here is the home page of Dowell Myers of USC, the researcher.
The bottom line: Good news all around. A more even spread of immigrants, achieved by voluntary means, will ease California’s fiscal burdens and bring gains from trade to the other states.
The Wrath of Khan
Peter Gordon has a new blog which will focus on the economics of urban planning. Peter is insightful on many topics, however, as this recent post indicates.
Intelligence agencies consume a lot of money (actual amounts unknown) and they often fail miserably. Perhaps worse than the Iraq WMD failure by all of the Western intelligence agencies was their inability to detect 15 years of nuclear secrets sales by Pakistan’s Abdul Qadeer Khan. Yesterday’s WSJ featured an op-ed by Bernard-Henri Levy whose best-seller in France, “Who Killed Daniel Pearl?” seems to have been closer to reality than anything else. Levy argued that Pearl was murdered because he was on the trail of the Pakistani clandestine nuclear secrets sales. The Khan confession (and his strange public pardon by Pres. Musharraf) gives Levy’s version some substantial corroboration.
One free-lancer upends armies of professional spooks. Is anyone surprised?
Darwinian cattiness
…when women are at the most fertile point in their monthly cycle they tend to have a lower opinion of other women’s looks. And that’s not just because of mood swings. Menstrual phase had no effect on how the same women rated the looks of men, reports Maryanne Fisher of York University in Toronto, Canada.
Here is one version of the story. Here is another. Here is the home page of the researcher.
The future of blogging?
Read Glenn Reynolds at www.techcentralstation.com. His bottom line: We have enough blogs about wars and campaigns. Cover local politics, local bands, area restaurants. Use video if you can. In other words, think global, blog local, if you wish to change the world.
The economist in me: Can you have overcrowding in one blogging area? Say you have two roads to a destination, and drivers can observe how crowded each road is. Under some conditions drivers will allocate themselves efficiently across the two roads (average returns will equalize, marginal returns may not). So if the private returns to blogging in one area fall through crowding, some rough mechanisms operate to induce bloggers to leave that area. You might blog in a new area to attract a bigger audience, for instance. Alternatively, Glenn may be saying that local blogging has a higher social than private return, relative to blogging the national scene.
And if they had asked me? For economics, we are still at the margin where new blogs enhance each others’ value, rather than lowering it.
CDs as loss leaders
An increasing percentage of compact discs are sold in mega-chains, such as Best Buy or Wal-Mart, as loss leaders. Offer the CD at a very cheap price, and hope that the buyers also take home a television set. This practice is the central reason why Tower Records recently went bankrupt.
Loss leader CDs push music in a more mainstream direction. The impulse buy is for the TV, the musical purchase is planned, which favors established stars with new releases. Sudden impulse buys of unknown musical products, by definition, do not bring people into the store. In essence consumers have decided they would rather bundle hit musical releases with TV sets and computers (the Best Buy model), than with more obscure musical releases (the Tower model).
Consumers with mainstream musical tastes are better off, but how about consumers who prefer the niche products? On the downside, hit CDs are cross-subsidizing obscure CDs to a lesser degree than before.
Nonetheless not all hope is lost for buyers with indie tastes. Amazon.com and other Internet services offer a wide variety of releases and lessen the need for such a cross-subsidy. And keep in mind that the cross-subsidy went two ways. The customers who prefer music from Madagascar no longer have to cross-subsidize the Eminem displays in Tower. The CDs are held in Amazon-linked warehouses, which is cheaper, even once you take shipping into account. Furthermore the desire to build up the Amazon brand name cross-subsidizes obscure products of all kinds, many of which Amazon makes little or no money from.
The other key musical trend of our time is illegal downloading, which hurts the top artists most of all. Indie releases use the Internet for publicity, and world music artists learned to live without copyright protection a long time ago. Legal downloading, through iPod, subsidizes music of all kinds. None of the iTunes songs make money for Apple, rather music of your choice (if they can get the rights) is a loss leader for hardware. Most people buy iTunes, not for the latest hits, but to hold a diverse mix of their past and yet-to-be-known future favorites. And most satellite radio channels do not play hits but rather serve niche tastes. XM offers a wide variety of channels, in part to make its brand name well-known and focal.
The bottom line: Don’t worry about music as a loss leader. Cross-subsidies all over the place, and point in many differing directions. But at the end of the day, both the demand and supply for musical diversity are alive and well.
Food for thought
In case you were getting too bullish about the prospect of a Comcast buyout of Disney, Variety magazine (Feb.16-22, p.67) throws some cold water on the idea:
A hefty 34% of Disney’s operating income is derived from its Theme Parks & Resorts division, a business which is struggling against a range of cyclical economic woes. Theme Parks is slated to eat up nearly 70% of Disney’s total capital expenditure ($900 million) next year. And Comcast has no expertise in this area.
The Disney retail stores have been on the sales block for some time, with no potential buyer identified. Plus Disney just lost its deal with Pixar, the source of its big animated hits, and much of Disney’s income comes from overseas. Comcast has virtually no experience in the international arena. Well, there is always ESPN…
Should we raise taxes?
Martin Feldstein says no. Brad DeLong says yes, at least once the economy recovers further. Alex Tabarrok says maybe, if we can cut the right deal. I would say that taxes, real taxes, already have been raised, the Bush Administration just hasn’t admitted it yet. Milton Friedman has long insisted that the level of government spending is the best measure of what government is taking from the economy.
Addendum: Co-blogger Alex agrees, read his very nice statement of the argument.
Kidney swaps
Your spouse is dying of kidney disease. You want to give her one of your kidneys but tests show that it is incompatible with her immune system. Utter anguish and frustration. Is there anything that you can do? Today the answer is yes. Transplant centers are now helping to arrange kidney swaps. You give to the spouse of another donor who gives to your spouse. Pareto would be proud. Even a few three-way swaps have been conducted.
But why stop at three? What about an n-way swap? Let’s add in the possibility of an exchange that raises your spouse on the queue for a cadaveric kidney. And let us also recognize that even if your kidney is compatible with your spouse’s there may be a better match. Is there an allocation system that makes all donors and spouses better off (or at least no worse off) and that maximizes the number of beneficial swaps? In an important paper (Warning! Very technical. Requires NBER subscription.) Alvin Roth and co-authors describe just such a mechanism and show that it could save many lives. Who says efficiency is a pedestrian virtue?
See here for more on how to alleviate the shortage of transplant organs.
The Peter Principle
Remember the Peter Principle? It suggested that we would all be promoted to a level where we are incompetent.
Economist Ed Lazear asks whether we might expect such a result from profit-maximizing businesses. His article, “The Peter Principle: A Theory of Decline,” appears in the latest Journal of Political Economy.
Here is the abstract:
Some have observed that individuals perform worse after being promoted. The Peter principle, which states that people are promoted to their level of incompetence, suggests that something is fundamentally misaligned in the promotion process. This view is unnecessary and inconsistent with the data. Below, it is argued that ability appears lower after promotion purely as a statistical matter. Being promoted is evidence that a standard has been met. Regression to the mean implies that future ability will be lower, on average. Firms optimally account for the regression bias in making promotion decisions, but the effect is never eliminated. Rather than evidence of a mistake, the Peter principle is a necessary consequence of any promotion rule. Furthermore, firms that take it into account appropriately adopt an optimal strategy. Usually, firms inflate the promotion criterion to offset the Peter principle effect, and the more important the transitory component is relative to total variation in ability, the larger the amount that the standard is inflated. The same logic applies to other situations. For example, it explains why movie sequels are worse than the original film on which they are based and why second visits to restaurants are less rewarding than the first.
In other words, firms know that you sometimes get lucky, and they set the promotion bar high on purpose. After your promotion you experience a “regression toward the mean”, and your observed performance declines in quality, relative to your promotion-winning triumphs. But on average the promotions are still deserved. In other words, the Peter Principle will appear to be true in a well-functioning organization, even when promotions are handed out rationally.
My take: Lazear offers a characteristically nice demonstration of a clever idea. Behavioral factors may skew promotions in less efficient directions, but they will not overturn the central argument. People often overweight recent observations, but of course worker skill levels change through time. It is not obviously inappropriate to weight some observations more than others. Furthermore if people overvalue first impressions as well, the two behavioral effects may cancel to some degree.
Here is an earlier version of Lazear’s paper. Thanks to Eric Crampton for the pointer.
Economists versus spam
The short history of society’s fight against spam–usually defined as unwanted commercial e-mail–may be about to pass into a significant third phase. In the first phase, it was geeks who led the resistance, using techie weapons such as e-mail filters with fancy Bayesian mathematics. In the second phase, politicians joined in, eager to get their names on to new legislation–in America, for instance, 36 states and Congress have passed laws of some sort against spam. Now, in the third phase, the economists are taking over.
The market opening for the economists is obvious. Both the geeks and the politicians are widely seen to have failed miserably.
Great writing from The Economist but it is not clear that we have an answer that will be accepted. The obvious solution is to price email. Even at a penny per email most spam would become uneconomic. The Economist argues, however, that internet culture is against pricing and micropayments are more expensive than they are worth. They recommend instead several groups who are creating clubs of approved bulk emailers. The emailers who join are guaranteed passage of their email past spam filters – club members either pay to get on the list or are fined if recipients complain. Unfortunately, these ideas only work indirectly by making the job of spam filters easier. If the clubs take off, a positive tipping point may be reached but that is a big if and in the meantime the plan assures that for many people spam will get worse before it gets better.
This economist has another idea. The problem of spam is really a negative externality generated by the people who actually buy the products spammers offer. Thus, I suggest sending out fake spam and prominently posting the names of all those who respond….. What product to advertise in the fake spam? I suggest, “length enhancers.”
Insourcing: the current trend
Michael Walden writes:
While outsourcing has captured current attention, it is not a new phenomenon. If the term is defined as jobs operated by U.S. companies in foreign countries, the current total is 10 million positions, or 7 percent of domestic U.S. employment. Further, there’s been an upward trend in the number of outsourced jobs since the mid-1990s, when trade barriers were significantly reduced following the signing of the NAFTA and GATT agreements.
What is less well publicized and understood is that “insourcing” also occurs in our economy. Insourcing happens when foreign companies establish jobs in the United States.
The latest statistics show insourcing accounts for over 6.5 million jobs nationwide. Although this is less than the number of outsourced jobs, the gap has actually narrowed in the past quarter century. That is, there’s been a recent trend of foreign companies adding jobs in the U.S. faster than U.S companies have increased jobs in foreign countries….
The scorecard on job outsourcing versus job insourcing has actually moved in the favor of the U.S. in recent decades, and policy-makers must consider both when evaluating the worldwide movement of jobs.
Thanks to Daniel Drezner for the link, read his accompanying discussion of the Europeans are dealing with outsourcing.
If pigs had wings
The Disney board just turned down the current Comcast offer. Of course Comcast is free to come back with better terms. The first bid was considered no more than an opening salvo in a longer bidding battle. Disney already has hinted it would consider a better offer.
Now if a better Comcast offer for Disney made sense, what would this imply?
1. It would mean that cable operators are correct in wishing for an earlier release of films to television. DVD releases would end up speeded up as well. Moviegoing would become more of a social event, rather than the only means of seeing a given film. Date movies and large screen spectaculars probably would become more popular in the theater, as they would offer a more unique product. Moviegoing as a whole might well decline in popularity. Large-screen televisions would increase in appeal.
The big gainers would be the cable companies, who would capture a share of the revenue currently going to DVDs. The big losers would be Hollywood and, to a lesser extent, companies such as Wal-Mart and Best Buy, which sell large numbers of low-priced DVDs (they would make back some money on TV sales). In part the offer is an attempt to yank DVD revenue away from movie producers and put it in the hands of a company that pipes movies into your home. The age of video on demand would finally arrive, Comcast is known for its strong promotion of this concept.
2. A takeover would signal a final end to the privileged position of the major networks. Don’t forget that Disney owns ABC, so the biggest cable company would now own a major network. Network programming would end up driven by the demands of cable television. Cable and satellite TV already account for the bulk of American viewing; only 14 percent of the American viewing public does not have either cable or satellite TV. In addition local news would continue to decline in importance and TV will become racier, given the looser role of the FCC in supervising cable content.
3. A takeover would later be seen as a turning point for the convergence of all media with the Internet. Cable supplies most of the bandwidth, and the ascendancy of cable companies will enable your TV, Internet connection, and other electronic devices to talk to each other. With a cable company leading the charge, and controlling and owning the relevant content, it could more easily internalize these benefits and charge you for the integration.
But reread the first word of the title of this post, “If.” Here is Rudyard Kipling’s poem If.
Can’t all this happen without Comcast buying Disney? If these outcomes are value-maximizing won’t arms-length transacting get us to the same place? You can bet on this question with a phone call to your broker. But before making your bet, read about this attempt to use stem cell technologies to grow pig wings.
Should you buy Latin American art?
A recent study by Sebastian Edwards suggests that Latin American art, in the latter quarter of the twentieth century, brought supra-normal returns with low risk relative to the market portfolio. Under one measure, the mean annual return was a solid nine percent. Here is the abstract:
In this paper I use a large data set to analyze two aspects of the Latin American arts: (1) the nature of artistic creative process, and (2) Latin American art as an investment. I use data on auctions to understand the relation between artists’ age and the value of their work. The analysis on creativity suggests that Latin American artists have followed very different patterns from that followed by U.S. artists. There is strong evidence suggesting that American artists born after 1920 did their best work at an earlier age than their older colleagues; exactly the opposite is true for the case of Latin America. Indeed, the results reported in this paper suggest that Latin American artists born after 1920 did their best work at a significantly older age than their colleagues from earlier cohorts. The analysis of art as an investment is based on the estimation of hedonic price indexes, and indicates that Latin American art has had a relatively high rate of return indeed much higher than that of other type of paintings. The results also indicate that returns on Latin American art have a very low degree of correlation that is, a very low beta relative to an international portfolio comprised of equities. This means that adding Latin American art will lower the overall risk of an international portfolio.
How can this be?: Most national art markets are driven by collectors from that country or region. The high investment returns on Latin painters suggest that the wealth of the wealthy, in Latin America, grew faster than expected for several decades. At the same time, some Latin painters, such as Frida Kahlo, attracted sudden and unexpected interest from North American buyers. So two particular idiosyncratic factors drove these superior returns. Mexican art is a great avocation of mine, but I cannot recommend it as a means of reducing your future portfolio risk. Buy what you love, and consider it consumption expenditure.
Cell phone numbers for sale
“The New phone number rules that allow you to keep your phone number when you switch carriers has given rise to phone nascent number property rights. On E-bay you can bid on 867-5309 (made famous by Tommy Tutone’s Jenny I got your number). As I write this the bid is over $8000 dollars with seven days to go. What other numbers are famous or valuable? Will we see a land rush like the internet names?”
From Slashdot, thanks to Noah Yetter for the pointer. And when I checked, the bid for the number was up to $56,000. Here are some classified ads selling cell numbers. I’d like CTA-102 in my number, $50 to anyone who can deliver it.
My President
Under the Federalists, the US government imprisoned journalists, exiled political opponents, increased taxes, centralized power and pushed for war (see here). The American experiment in liberty was failing. Hope rested only with the great philosopher-politician, Thomas Jefferson. By the narrowest of margins, Jefferson was elected President and the Revolution of 1800 saved the American revolution.
