Today’s Papers

March 21st, 2013 at 11:44 am

A few things that caught my sleepy eyes:

–Jim Tankersley reviews the work of the expansionary contraction crowd, which is almost exclusively the work of economist Alberto Alesina with co-authors.  I’ve long held the view that tax increases and budget cuts in weak economies are analogous to leeching in medieval medicine: it’s not that it doesn’t help—it’s that it hurts.  So this seemed like a good time to link to an earlier analysis of why this Alesina stuff is so wrong.

Or, better yet, you could just look at the economies that have applied these leeches—UK, Italy, Spain, Greece—and see for yourself.  What you really shouldn’t do is what Alesina himself does in the WaPo piece: cite the “booming stock market” as evidence that budget cuts from the sequester work just as he predicted.

“Sure the budget cuts [had] not taken place yet but investors and companies look into the future when they hire. Given that the future implies budget cuts, it must mean that they welcome them.”

Life lesson: beware the analyst that cites the latest stock market trend to support his theory.  He will almost always be wrong.

–Here’s a nice summary of what’s up down in Cyprus.  One development is that in looking around for alternatives to their initial—and fundamentally flawed—idea of taxing bank deposits to partially pay for the bailout, the Cypriots are talking to Russian investors: “How ironic if the end result of euro-zone overstretch into Cyprus turned out to be an expansion of Russian influence over European Union turf.”

–OTE’ers know that I’ve been a long-time critic of the H1B guest visa program where skilled immigrants are allowed to temporarily work here for a sponsoring employer.  I’m all for a welcoming policy stance towards immigrant workers of all skill levels but guest worker programs in general and especially the very flawed H1B program are not how to get there.  They’ve become the purview of offshorers and employers looking for cheap, imported labor to replace an underutilized domestic workforce (though people think employers must look for domestic hires before turning to guest workers, that’s not the case with the H1B’s).  Sen Durbin has good ideas on how to at least make the program work better, but it looks like he’s getting rolled.

–The housing market recovery rolls on.  A few interesting dimensions to this development:

–inventories are way down, suggesting a big, long, painful correction is largely behind us;

–apparently, the turn in the market took builders by surprise and they’re having trouble staffing up to meet the new demand.  If markets work at all, we should thus see wages rise in construction in coming months.

–many of the numbers you’ll read about here are a bit less impressive then they sound.  Home prices are up 23% in Phoenix but that’s because they’re rising from the ashes.

–don’t forget that part of what you’re seeing here is government intervention at work, as both the Federal Reserve and Fannie/Freddie have helped keep mortgage rates historically low and almost single handedly boosted liquidity in the credit market.


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12 comments in reply to "Today’s Papers"

  1. D. C. Sessions says:

    Home prices are up 23% in Phoenix but that’s because they’re rising from the ashes.

    Nicely done!

  2. PeonInChief says:

    H1B employers are notorious for getting around the requirement that they hire domestic labor first. Some years ago someone took video of a “workshop” where employers were taught how to search for domestic labor without finding it.

    • Auros says:

      Yup, I was about to remark on that. Companies do stuff like identify a worker in a foreign division or subcontractor whom they would like to bring to the US on an H-1B, and then creating a description of their desired hire that’s so detailed, and so specifically tailored to the person they’re actually planning on bringing, that nobody else will actually fit it. Once they have the worker in Silicon Valley or Seattle or NYC, that worker will, in fact, make more than they made back in their country of origin, but can still be given significantly less pay and benefits than the local workforce expects, and may lack latitude to even use minimum vacation benefits they accrue due to state regulations. The company can hold over them the fact that if they get laid off they’ll very likely have to leave the country. It’s not morally any different from “illegal immigrants” getting stiffed on wages. (Because, who are they going to complain to?)

      We ought to offer far more latitude for skilled workers to just move here and seek work in the open market. That would still put SOME downward pressure on wages, but it wouldn’t have nearly the effect of giving companies engineering braceros. 😛

    • Kevin Rica says:

      There should be a requirement that the job announcements are posted on a central electronic board under the supervision of the Department of Labor first and the company be allowed to hire abroad if, and only if, there are no qualified applicants. And any qualified applicant be allowed to take the job for 5% more than the current salary.

      If there is really a labor shortage — wages should be rising.

  3. Perplexed says:

    Do these “inventory” numbers include foreclosed homes sitting on bank balance sheets and in the “pipeline?” What about the 20% of homes that are “underwater?” I’m sure at least a few them aren’t so far underwater that they couldn’t be considered part of the for sale inventory.

    These “better move quickly or all the houses will be gone or overpriced” articles seem to appearing all over the place, just in time for the spring selling season. Quite the coincidence don’t you think? Any chance that its a PR campaign by home builders and others with inventories of unsold homes (like banks)? We know the news papers don’t like to spend money any longer on real investigative reporting. Wouldn’t it be be helpful then if they had to at least disclose the true sources of these articles and helpful statistics to support these memes?

    • Jared Bernstein says:

      Yes re REO homes (been through foreclosure and are owned by banks). No re underwater.

      • perplexed says:

        Thnx. Hopefully there are enough non-investor qualified buyers out there to actually keep some “wind behind the sails.” Some increased construction activity might help offset some of the hole created by the sequester reductions. The only drawback is that then the “shrink the government” crowd will claim that the sequester reductions improved the economy; go figure.

    • JohnR says:

      I’ve been seeing posters for the past month or so that feature a minority woman holding a baby with the caption (more or less) “I just bought a house for $1000 down and bad credit! You can too, if you go to [specific bank]!”
      Apparently, now that Fannie Mae and Freddie Mac have been chastised, we no longer need to worry about time-bomb mortgages. Or perhaps there are special safeguards now built in, with lots of careful government oversight. Or something.

  4. MDP says:

    Jared (and everyone else),

    How do you feel about the EB5 Program?


    • Jared Bernstein says:

      There’s a front page article in today’s WaPo on this. The economist in me thinks it’s fine: consumer sovereignty, value added, capital/labor/investor mobility. The human in me thinks it’s unfair for rich immigrants to buy their way in while others languish.

      • Kevin Rica says:

        Why? Do you believe as the Washington post does that we have a shortage of poor people?

        My only problem is that the people who buy visas will get here and start demanding the same rights as the native born rich: They will want poor people to come here and work cheap for the betterment of their superiors.