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Critics of the President’s State of the Union address noted it did little to promote bipartisanship. Yet, it has already stimulated bipartisan agreement on one of the President’s education proposals.

In the State of the Union, President Obama proposed free community college:

“I am sending this Congress a bold new plan to lower the cost of community college—to zero.

…Whoever you are, this plan is your chance to graduate ready for the new economy, without a load of debt. Understand, you’ve got to earn it—you’ve got to keep your grades up and graduate on time. Tennessee, a state with Republican leadership, and Chicago, a city with Democratic leadership, are showing that free community college is possible. I want to spread that idea all across America, so that two years of college becomes as free and universal in America as high school is today.”

One detail that failed to make it into the State of the Union address: The funding for the program would come by effectively killing the 529 college savings accounts, that exempt earnings from taxation if used for educational expenses.

This fact stimulated bipartisanship, albeit not the kind the President anticipated. As Jonathan Weisman (New York Times) explains:

President Obama, facing angry reprisals from parents and from lawmakers of both parties, will drop his proposal to effectively end the popular college savings accounts known as 529s, but will keep an expanded tuition tax credit at the center of his college access plan, White House officials said Tuesday.

The decision came just hours after Speaker John A. Boehner of Ohio demanded that the proposal be withdrawn from the president’s budget, due out Monday, “for the sake of middle-class families.” But the call for the White House to relent also came from top Democrats, including Representatives Nancy Pelosi of California, the minority leader, and Chris Van Hollen of Maryland, the ranking member of the Budget Committee.

Although this means of funding the community college proposal seemed particularly tone deaf, it does illustrate that bipartisanship is possible when protecting tax expenditures. Imagine if reformers focused on even larger tax expenditures (e.g. the $212 billion exclusion of employer-provided health insurance, the $176 billion expenditures for pensions and 401(k)s, or the $101 billion deduction of mortgage interest)? A new era of bipartisanship might bloom.

Related: See Josh Kraushaar in National Journal for an interesting piece on the SOTU and the implications for Hillary Clinton 2016.

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The Hagedorn, Manovskii, and Mitman working paper on the effect of unemployment insurance (UI) on employment has been getting a lot of press lately. In brief, they find that the end of the federal unemployment insurance extension accounts for about 1.8 million new jobs in 2014.

Mike Konczal does a useful deep dive on the paper here and is very skeptical of the result. In particular, he criticizes as implausible and empirically inaccurate labor market search models that imply employer monopsony power, which are essential to the plausibility of the result. These models are also essential to the revisionist literature on the minimum wage, holding that minimum wage increases do not reduce low-productivity workers’ employment. Curiously, Mike Konczal has defended search models in this aspect. He’s a smart guy and clearly thinks that applications of search theory to macroeconomic variables have problems that the application to the minimum wage doesn’t – but if search theory badly explains one phenomenon, it’s unlikely to do well explaining another. There’s a clear tension between claiming simultaneously that employer monopsony power explains why raising the minimum wage doesn’t reduce employment and that ending UI can’t have increased employment so much because employers don’t have that much monopsony power, even if the latter claim is limited to slack periods in the business cycle. (Why wouldn’t employer monopsony power be greater during slack periods in the business cycle? The Marxist concept of the “reserve army of the unemployed” comes to mind here.)

Another interesting parallel between the UI and minimum wage research is that the famous Dube et al. paper in Review of Economics and Statistics relied heavily on matched-border-county estimates, as does the Hagedorn et al. paper. Having looked at these data, I actually agree with Konczal that these models are inappropriate. The logic behind using matched border counties is that contiguous counties are alike in every relevant way other than the policy discontinuity associated with the state border (say, one county has a high minimum wage and the other does not). But border counties are actually usually quite dissimilar. Take Camden, N.J. and Philadelphia, Penn. These two counties are vastly different in size, so if Camden creates jobs at a higher rate than Philadelphia, Camden’s new jobs might still be a tiny percentage of Philadelphia’s. Yet the Dube/Hagedorn approach considers these counties to be equivalent, and takes the larger percentage increase in jobs for Camden as an indication of superior New Jersey employment policy. (See also David Neumark on empirical evidence that border counties are not appropriate control groups.)

In summary, if you are skeptical of the empirical strategy and theoretical justification of the literature saying the minimum wage has no negative employment effects, you should also be skeptical of the empirical strategy and theoretical justification of the new paper showing that unemployment insurance has big disemployment effects. If you like the Dube et al. minimum wage work, you should like the Hagedorn et al. UI paper. How many wonks are intellectually honest enough to adopt one of these two, ideologically inconvenient pairs of positions?

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Dragnet’s Joe Friday may have never uttered those words, but he would be impressed nonetheless by the facts on crime. There was a fascinating piece by Erik Eckholm in yesterday’s New York Times on the Drop-in-crimedramatic reductions in crime over the past several decades. Overall, crime peaked in 1991 and has fallen steadily since then.

 

All of this leads to the big question: why? Is it a change in tactics (e.g., aggressive policing, the “broken window” theory)? Is it a product of an increase in the costs of criminality (e.g., mandatory sentencing and the decision to keep 1.5 million people in prison)? Is it a product of good economic times? Perhaps it simply reflects demographics (e.g., the aging of the population, the decline in teenage pregnancy)? In the end, law professor Franklin E. Zimring (UC-Berkeley) is quoted as describing the search for an explanation as “criminological astrology.”

 

Max Ehrenfreund (Washington Post Wonkblog) has designated the above “chart of the day” as “something of a Rorschach test. Everyone sees what they want to see in it.” That may be something of an overstatement. Certainly, the advocates of the war on drugs, police militarization, aggressive policing and harsh sentencing laws will view it as evidence that their strategies have worked. They will have the challenge of explaining why similar trends are evident elsewhere, including Canada, that have not embraced the US model. And I am not at all certain of how the Left would make sense of the fact that crime has fallen as inequality has increased.

Will the decline in crime have an impact on public policy? Will it lead to a rethinking of police militarization and mass incarceration? I hold little hope given that public opinion seems immune to the facts.

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Even if crime has fallen dramatically, according to Gallup the majority of Americans in most years on record believe that crime is getting worse. As Gallup observes: “federal crime statistics have not been highly relevant to the public’s crime perceptions in recent years.” A public concerned with crime and (willfully) ignorant of the long-term trends will continue to demand an aggressive police presence. And that demand will be met.

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Of Plutocrats and Arguments

At the meeting of the American Economic Association in Boston last weekend, there were protests organized by a group calling itself “Kick It Over,” who, as the Washington Post styled it, were “battling for the soul of economics.” Their protest included heckling and disruptions of the talks given by Gregory Mankiw, Larry Summers, and Carmen Reinhart.

For his part, Mankiw wrote a short post on his blog after the conference recounting some of the protesting and responding to the charges of the protesters. He reports that one of them asked him how much the Koch brothers had paid him:

After the first session was over, one of the hecklers came up to me and asked, “How much money have the Koch brothers paid you?”  My answer, of course, was “not a penny.”

Mankiw argues in his post that if he is making mistakes, it is in good faith: “If I am wrong, it is sincere wrong-headedness, not the result of being on some plutocrat’s payroll, as some on the left want to believe.”

That is an important point to make. Assuming bad faith on the part of a person holding a position different from one’s own poisons, rather than furthers, the conversation. It is also, as Mankiw notes, not an effective strategy to get people to change their minds. Insulting people rarely is.

But there is an even more important point to make: Even if it is true that a person received funding from a donor or foundation with a specific point of view, nevertheless his or her arguments, claims, and positions should be evaluated on their merits. One’s motives—whatever they are, good or bad—are irrelevant to the truth of one’s positions and to the soundness of one’s arguments.

This is an elementary point in logic. Attacking the motives of a person is an example of the ad hominem fallacy, or more generally the genetic fallacy—both of which are, in fact, fallacies.

Now, it is true that there might be cases in which attacking a person’s credibility might be effective, and possibly even relevant. The testimony of a witness in a trial who stands to gain depending on the outcome of the trial might for that reason warrant less credibility. But merely pointing out that the source of one’s arguments might be questionable does not suffice to refute those arguments. The arguments might still be sound, after all.

Thus Mankiw concedes too much when he denies having received funding from the Koch brothers. What he should have responded to that protester instead is: “What difference does it make? If I’m wrong, demonstrate my mistake.”

Too often today speculation about people’s motives passes for acceptable rational discourse. But it is not acceptable. Whether you received funding from Charles Koch or George Soros or anyone else, we owe you the respect of assuming that you are a rational and autonomous person presenting a position in good faith. Our job, then, is to evaluate your position, charitably yet critically, on the merits.

Assuming that one’s intellectual opponents must be some combination of naive, ignorant, or evil is easier than attempting to refute their position. But it is not only disrespectful, it is also pointless. You do not know what your opponent’s motives are. One might be the most evil person in the world, but one’s claims might still be true.

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Jobs, Jobs, Jobs

There is great buzz over today’s jobs report. The economy added 321,000 jobs in November.

The New York Times:

“After more than five years of elusive gains, ordinary Americans may finally be about to see the benefits of the recovery where it really counts: in their pocketbooks and wallets. … For the year as a whole, the gain in jobs, with one month still to go, is shaping up as the best in 15 years.”

Washington Post:

November’s numbers cap the best three-month period of labor market expansion since the financial crisis… Some economists said that November’s data — across-the-board job creation, coupled with a slight uptick in wages — has put the American economy in its best position in years.”

(more…)

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President Obama is preparing to issue an executive order on immigration—the executive action that has been promised for some time. As one might guess, the NYT editorial board is pleased. Some supporters of liberalized immigration (including a path to citizenship) are concerned over the damage that Obama’s actions will do to the rule of law. As Damon Linker (The Week) explains:

The rule of law is far more about how things are done than about what is done. If Obama does what he appears poised to do, I won’t be the least bit troubled about the government breaking up fewer families and deporting fewer immigrants. But I will be deeply troubled about how the president went about achieving this goal — by violating the letter and the spirit of federal law.

Yes, yes, yes… presidents have taken extralegal action in the past—George W. Bush’s post-9/11 war on terror is a convenient case in point. But as Linker notes: “No matter how you feel about Bush’s actions, up until now, executive transgressions of the law have been made in the name of protecting the common good from a grave threat in a time of emergency.” Where is the emergency today?

Have we really gotten to the point where the executive can ignore and even violate, on the absurdly open-ended basis of “discretion,” the express intent of a federal law he is constitutionally empowered to execute — not because of an emergency, not because of a national threat, but merely because he wants to be a nice guy?

It appears that we have. (more…)

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Unless the polls are systematically biased or there is a late-breaking surge in support for “Yes,” the “No” campaign looks set to squeak by with a narrow victory in the Scottish independence referendum. On the betting markets, a “Yes” vote has plunged below an implied probability of 20%. What has this decline in the prospects for independence done to capital markets? In my last post on the subject, I found that British firms and the pound were nearly untouched by what was at the time significant momentum for “Yes,” but that a nine-firm Scottish equity index was hit hard. If those losses reflected unease about independence, then the latest news should have caused growth in my Scottish equity index.

The biggest decline in the Yes team’s chances actually came overnight September 11-12, when the chances of Scottish independence abruptly fell about 10 percentage points on the release of new polls in the evening of September 11. (For a full list of recent polls, see Wikipedia.) The Yougov poll showing “No” in the lead (a dramatic reversal from its previous poll) seems to have been leaked just before the closing bell on September 11.

betfair independence odds

Accordingly, I examine the performance of the Scottish equity index on the London Stock Exchange between 4:30 PM and 5:00 PM local time on September 11, when the odds of Scottish independence declined so rapidly. These are the nine stocks I include in the index: SL, SSE, FGP, WEIR, SGC, AGGK, WG, ADN, and MNZS. Of these, eight of nine rose on the poll news. Again, I weight by each stock by its market cap to create the index. The index rose 0.5% on the news, a rather small increase compared to the 1.7% decline after the shock Yougov poll showing “Yes” ahead. The overall patterns were pretty similar, though. The two transportation companies, Firstgroup and Stagecoach Group, were basically unchanged between the two. Energy-linked firms and Standard Life led gainers. Aggreko (temperature control systems) registered a small gain, and Aberdeen Asset Management a somewhat larger one.

Roughly a ten-percentage-point drop in independence likelihood led to a 0.5% gain in the value of Scottish equities, less than a third of the loss in Scottish equities after an eight-percentage-point gain in independence likelihood just a few days prior. On balance, these results suggest we should revise downward the costs of secession suggested by the prior post.

One objection to this interpretation might be that the leak of the Yougov poll just before the closing bell gave traders little time to respond. But this does not appear to be the case. The Scottish equity index was flat at the opening bell on September 12, suggesting that there was no new information for traders to consider.

Here are two more interpretations. First, betting markets are less liquid and well-capitalized than financial markets. The actual gain in the probability of Scottish independence after the first Yougov poll may have been greater than the immediate response on betting markets. Second, the shock of a poll actually showing “Yes” ahead may have led traders to overestimate the likelihood of Scottish independence, and perhaps even the costs of secession (in a moment of panic). Having been inured to the initial shock and its aftermath, traders then took later news with more equanimity.

Overall, though, the results are still suggesting net economic costs to Scottish independence. How much of the emphasis should be put on the “Scottish” part of that phrase and how much on “independence” remains a matter of debate, but clearly energy and financial firms are more affected than transportation and service ones.

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