A random selection of charts.

Chart below is for the UK:

 

Where’s the allegedly “huge” economic contribution made by immigrants?

There’s no question but that the ability to import skilled labour which is in short supply in the recipient country is of great value, which is not an excuse for grotesque and deliberate failure to train enough people as has happened with the UK’s health service over the last few decades. In contrast, there’s the question as to whether MASS immigration serves any purpose. Seems not to judge from the figures below.

Figures and charts, unless otherwise stated, come from “Characteristics and Outcomes of Migrants in the UK Labour Market” published by Oxford University’s “Migration Observatory”.

Employment rates for male immigrants in 2014 were 79% as compared 77% for male natives. Employment rates for female immigrants were 62% and 72% for natives (p.3).


Hourly rates of pay.

According to the above chart, there is little difference between immigrants and natives when it comes to hourly rates of pay (though there WAS a significant difference a decade ago). To be exact (according to p.7) there was no significant difference for females as between immigrants and natives in 2014. As for males, the hourly rate for migrants was £14.6 and £15.2 for natives.

Incidentally, the above mentioned higher earnings of immigrants up to a decade ago doesn't prove immigrants were making a big contribution in that period since employment rates among natives were well ahead of employment rates among immigrants up to about a decade ago (see above chart).

To summarise so far, employment rates for natives are about 5% higher than for immigrants, a difference almost entirely attributable to females. And hourly rates of pay for natives are slightly ahead of rates for migrants. So the claim that immigrants make a particularly big economic contribution is starting to look like nonsense.

The only saving grace could be that migrants work much longer hours than natives, but that doesn’t seem to be the case. The “Observatory” work does not give any figures for hours worked. However, a Channel 4 / IPPR work ("Britain's immigrants: an economic profile") gives some figures (for 2005/6). See table 5.5 reproduced below which is entitled “Average weekly hours worked, economically-active working-age population, by country of birth, 2005/06.”
 

Average hours worked for natives is 36.5 according the above table. As for migrants, no average figure is given, but I get the average for the six largest immigrant groups (table 4.1) to 37.6 hours.

Thus the slightly longer hours worked by migrants approximately cancels out their slighly lower hourly pay. So on that basis immigrants make no net contribution.

But that all leaves out an elephant in the room: one left out by almost every study of the economics of migration. That’s the fact that given NET immigration (numbers arriving in a country exceeding numbers leaving), the country has to create extra infrastructre. The cost of that infrastructure (roads, hospitals, etc) comes to several tens of thousands of pounds per person.

The cost of that new infrastructure is not of course charged specifically to the new arrivals: the country as a whole bears the cost. Thus the idea that there is anything to be gained from MASS immigration is nonsense.

Our crazy fiscal / monetary decision making process.

With central banks almost out of ammunition or at least out of conventional ammunition (i.e. interest rate cuts) it has become increasingly clear that more fiscal stimulus might be an idea. But the people who actually decide whether to increase fiscal stimulus (i.e. the deficit) are a collection of economically illiterate squabbling children sometimes known as “politicians”. To put it politely, that doesn’t make much sense.

So why not remove that decision from politicians and put it in the hands of professional economists, based say at the central bank? Of course economists are nowhere near perfect, but they cannot help being better than politicians. If you want medical advice, you go to a doctor, not a politician. That’s not because doctors are perfect, but because they know more about medicine than politicians.

Now the obvious objection to taking the above deficit decision away from politicians idea is that it is undemocratic: a decision is being taken away from democratically elected politicians. But actually that’s not true. Reason is that politicians don’t have the final say on the size of a stimulus package anyway. And that’s because an independent central bank can always overrule what it regards as too much fiscal stimulus by raising interest rates. 


The conclusion so far is that economists, not politicians should decide the size of the deficit.

Now there might seem to be another problem there, namely that if economists decide how big the deficit is to be, they inevitably then influence decisions which clearly are political, like what percentage of GDP to allocate to public spending or how that is split between education, law enforcement and so on.

Well that alleged problem is actually a complete and total non-problem. I’ll illustrate.

Suppose public spending is 40% of GDP and there is no deficit. Economists then decide that a recession has started, and hence that a deficit equal to 5% of GDP is needed. Economists at the central bank would then say to politicians, “You can borrow and spend more (and/or cut taxes) and to the tune of 5% of GDP. As to whether that extra spending (net of tax) comes mainly in the form of more public spending or reduced tax, that’s entirely up to you. Also the question as to exactly which forms of public spending are expanded or which taxes are reduced, that again is entirely up to you.”

Conclusion: the size of the deficit should be decided by economists, not politicians and in doing that, there is no loss of democracy – apart from the “democratic right” of politicians to make a total pig’s ear of running the economy.

____________

Stop press (a few hours after putting the above online): I see a Nobel laureate economist supports the above idea. See Bloomberg article entitled "A Nobel Winner's Radical Proposal to Solve the Euro Area's Woes".

 

The new Money Market Mutual Fund rules.

A recent Brookings Institution article by Robert Pozen entitled “US money market reforms: the gain isn't worth the pain…” criticises the new rules for MMMFs.
 
First some background. MMMFs are institutions which seem to be more popular in the US than elsewhere, and they accept deposits and invest only in relatively safe bonds: bonds issued by blue chip corporations, cities, the US government etc. Before the crisis which started in 2007/8 MMMFs promised depositors they’d return $X to depositors for every $X deposited. And that is very much the promise that ordinary banks make to depositors.

Now there’s a glaring anomaly in that promise, or perhaps “fraud” would be a better word: the promise effectively means saying depositors’ money is totally safe. But the mere fact that the money is loaned out means the money is quite clearly NOT totally safe. As Adam Levitin (professor of banking law) put it in the first sentence of the abstract of his paper “Safe Banking”, “Banking is based on two fundamentally irreconcilable functions: safekeeping of deposits and relending of deposits. Safekeeping is meant to be a risk-free function, but using deposits to fund loans inevitably poses risk to deposits, thereby undermining the safekeeping function.”

In short, the basic promise made by MMMFs prior to the new rules was a “have your cake and eat it” promise: you allegedly get the advantage of total safety, while reaping the advantage of taking a risk. That’s just plain, simple fraud. It’s a Ponzi scheme, sort of.

Now if you remove that “too good to be true” offer, then clearly interest rates will rise, which is basically what Pozen complains about. But what he doesn’t mention is that whenever interest rates change, the losses by one lot of people are exactly matched by gains for another lot. E.g. when interest rates rise, the above mentioned cities and corporations pay more interest, but against that, savers (pensioners in particular) will gain. So on the face of it, it’s a wash: there is no overall gain or loss. Well not quite.

It all depends on what the OPTIMUM rate of interest is, and I suggest the optimum rate is the rate that prevails in a free market: in particular, what might be called an “honest free market”. That’s a market where “have your cake and eat it” and “too good to be true” promises are outlawed.


Runs.

Another problem with the “too good to be true” offer made by banks and MMMFs is that it encourages runs in times of trouble.

That is, as long as everything seems to be OK, depositors can have their cake and eat it: they’re guaranteed their money back at the same time as undertaking the risk involved in lending. But as soon as trouble looms, well you might as well get out before the bank closes its doors, or the MMMF announces it has to break the buck.

Those sort of runs are disruptive: the 2007/8 crisis was to a significant extent a run on shadow banks.

In contrast, if depositors’ stakes in an MMMF vary with the value of the underlying assets / loans, then as soon as it looks like those assets have fallen in value by Y%, the value of the latter stakes fall by about Y% as well. So there’s no point in running.

When BP made a nasty mess in the Gulf a few years ago, it was immediately obvious BP would have to pay billions by way of fines and compensation to fishermen and others adversely affected. But there wasn’t a run on BP shares because the shares were marked down before anyone had a chance to run, apart maybe from a few insiders actually working near the relevant BP rig in the Gulf who had information about the disaster an hour or two before others.

The OECD is a waste of space.

Catherine Mann of the OECD describes her comfortable life-style in Paris and tells us that “fiscal austerity has been very damaging to individual countries”. Er yes. Some of us (e.g. MMTers) have been saying that for years.

Problem is that at the height of the crisis, the OECD (along with sundry other incompetents at the top of the economics profession) were advocating consolidation / austerity. For confirmation of that, see this Guardian article “The OECD’s deficit fetishism..”.

So my question to Catherine Mann is: “Wouldn’t you be better employed sweeping the streets?”

Or as Bill Mitchell put it in reference to the OECD:

“Now its policy positions leads to the destruction of jobs, the degradation of working conditions for those who keep their jobs, and the reduction in living standards and the rise in poverty. In that sense, it has gone from being a highly progressive and important institution in rebuilding economies to an incompetent bastion of neo-liberalism.

As I have noted in the past, if there were any areas that governments can cut spending with little harm then it is in the support they give to the IMF and the OECD. I would withdraw all funding to these agencies and let them die in their own hubris and incompetence.”

Apparently inflation is now a fundamental economic objective. Mad or what?

Many economists – those people who allegedly know all about economics – currently seem to argue that raising inflation is an end in itself. This Bloomberg article is a typical example.
 
The first paragraph reads “Japan’s central bank has long been battling an ailment that now afflicts much of the developed world: unduly low inflation, which tends to go together with lackluster economic growth. If it wants to succeed in its efforts, it may have to aim to overshoot its inflation goal.”

Well the “tends to go together with” point is true in that given a rise in demand we tend to get a rise in numbers employed (desirable) and a rise in inflation (not at all desirable in itself).

However the consensus is that inflation of up to about 2% is a price worth paying for getting numbers employed as high as possible. (I’ll assume no Job Guarantee so as to keep things simple).

The author (an economics prof) then says “The lack of success might stem from an inadequately ambitious strategy. One key to achieving higher inflation is convincing people and companies that prices will start rising faster.”

Now hang on. If employers raise their prices and unions raise wage demands SIMPLY BECAUSE they think inflation will rise, that does not of itself raise demand. So we get the DISADVANTAGE of inflation (i.e. inflation itself, so to speak) without the attendant advantage, i.e. increased numbers employed!

A possible escape from that nonsense is to argue that given higher inflation, households and firms will try to spend away their stock of money since no one wants to be in possession of an asset that is declining in value, and that “spending away” will raise demand (sometimes known as the “hot potato effect”). But the author of the article says nothing about that.

Moreover, it’s equally possible that people react to a decline in the value of money by trying to save and stock up on MORE of the stuff because they’re aiming to have some given stock of money in REAL TERMS.

So which of the two latter effects predominates? That question is crucial. If the second effect predominates then the entire “artificially raised inflation gets us out of recessions” argument collapses.

So does the author cite any evidence on the latter crucial question? Nope!

Does Michael Saunders of the Bank of England think QE doesn’t increase inequalities?

It rather looks like it according to an FT article entitled “BoE must be ‘constantly on alert’”. Let’s run thru this very slowly.
 
QE consists of the central bank printing money and buying assets, mainly government debt. Now if a new buyer with a very deep pocket enters a market, prices of items on sale in that market have a tendency to rise. Or have I missed something?

And assets (houses, shares, government debt, you name it) tends to be held by the rich: not those living on social security. Ergo QE increases inequality. Or have I missed something?

Indeed, the BoE’s own research supports the idea that QE increases inequality.
 
Not that I object to that inequality effect too much because when we’ve QEd the ENTIRE national debt, we’ll then be in what Milton Friedman and Warren Mosler considered the optimum position: having no government borrowing at all.

This is a classic case of “Pareto optimality trumps everything else”. That is, if a change raises GDP (which it does according to Friedman and Mosler), then any increased inequality can be countered by redistributing money from winners to losers. Net result: everyone is better off, or at least they can be, depending on exactly how the redistribution is done.