Grits and Tamales

Life in the Deep South, by Gabriel Aguilera

Category Archives: Economy

Globalization Inevitable?

International economic integration is not ineluctable, not by a long shot. The challenge is making it more sustainable politically, socially, environmentally, and morally. This is the work of politician-statespersons who will need political capital to craft newer, better, and fairer deals. As for the one-percenters and the well-to-do, they need to understand that they benefit disproportionally from public goods so they have to pay more — a lot more than they have been paying while squirreling away gazillions in tax havens. Without better deals and more public investment, the pitchforks will come out and darker days of populistic violence, wars, environmental catastrophes, and dystopia await. We’ve been there before in the wake of a long globalization boom.

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Then and Now: The Pull of Immigration

Circa 1976-77, my parents bought their old beater home in Boyle Heights, Los Angeles. It had 3.5 bedrooms, garage and large back yard overlooking the 10 Freeway near the corner of Marengo and Evergreen streets. They paid $50,000 and could afford the mortgage on a combined income of approximately $375 per week. They had six children. Basic health care at the local clinic was available and we had General Hospital for minor emergencies that my parents could afford to pay. Elementary schools were good in those days too. We had enough to eat. It was a modest way of life but we had a chance to chase the American Dream. Thanks to affordable higher education at local city colleges and the California State University system, we caught it.

It is tricky to get purchasing power parity PPP comparisons of income then and now because of the big shifts in relative prices. In today’s dollars estimates of my parents’ weekly $375 in 1977 range from $1140 to as much as $3,010. Compare this to bare subsistence living in Mexico’s countryside as that country marched towards its economic catastrophe of the 1980s. Prior to the 1990s the borders were loosely monitored. During the 60s and 70s my dad crossed back and forth many times, and was chased out of the US seven times.

The pull factors from differences in relative wages were massive in the late 1970s, taking into account the relative ease of crossing the border. Today the pull factors are not as strong because, according to economists, technology and, to a lesser extent, globalization. In other words, the working classes today are in PPP terms significantly worse off.

The American dream is dying.

In Defense of the Welfare State

Tony Judt pens an excellent defense of the welfare state here. This passionate and measured essay is itself an education and well worth reading with some care. It will be deeply disturbing to those whose perspective of states and markets is shallow and dogmatic. What I found most fascinating — something we rarely debate — is the discussion of the scope of public goods and their value. I share Judt’s perspective and have had a lot of fun debating this point of view with my colonels. The reason is that they get intuitively the notion that the end of public investment in war is not market efficiency but victory. I push them to think about the goals of investments in other public goods. I ask them: what is victory in education, prisons, or public health? Then the conversation gets really interesting and productive.

September 11, 2014

The last decade was bookended by a terrorist strike on the homeland and a financial crisis that spawned a great recession. In between, the politicians thoroughly bungled one war, erroneously waged another, and came dangerously close to massively expanding the one we had bungled in the first place. (Hillary Rodham Clinton, btw, was on the side of massive expansion of said war). In the wake of Sept. 11, 2001 we made many dreadful economic and strategic mistakes. Only by keeping these in mind can we sensibly grieve for losses and sacrifices of those who died that day and all who have sacrificed since as a consequence of the global war on terror.

A Crash Course on Mexico (In Books)

I recently wrote a review of Shannon O’Neil’s fine book on US-Mexico relations. It got me thinking what handful of books I would assign if I wanted to assign a brief crash-course on Mexico, with a focus on politics, society, and political economy?

First, I would assign Nora Hamilton’s “Mexico: Political, Social and Economic Evolution,” which is an excellent tour of the topics in the title. Up next is Leslie Bethell’s “Mexico Since Independence.” It is a collection of narrative historical essays by top scholars, bringing the reader up to speed through most of the PRI regime. It’s concise and in-depth, which is hard to do in a single volume. I have been re-reading this piecemeal lately and have found even more illuminating than when I first read it grad school. With this rich background in hand, I would next assign Haber et. al. “Mexico Since 1980.” This is a neat but hard book, but it will help the student think systematically about Mexico’s future, why deeper economic and political reforms are so challenging and difficult to implement and why deep changes are possible albeit unlikely today. Last, Shannon’s “Two Nations Indivisible: Mexico, the United States, and the Road Ahead” of course provides the best recent take on US-Mexican relations and the way forward.

Maurer

Nora Hamilton

Two Nations Indivisible

Mexico Since Independence

On Profit-padding bank stabilization

“Profit-padding regulation” was coined by Rosenbluth and Schaap (IO, 2003). I’ve just built on this to say “profit-padding bank stabilization,” which I think is more descriptive of what we are talking about. This, by the way, is the card President Obama has chosen to play in the U.S. in the wake of the current crisis.

The idea is that you buy up banks’ bad assets and you drop rates close to zero. Big banks raise their fees and gauge consumers (and students), they make big profits. Now, in theory, this provides big banks incentives to not do stupid things (i.e. take on excessive risks), since they are making big profits in order to get healthy again. However, it seems that banks are doing stupid things and demonstrating lots of hubris, egging on the likes of Senators Warren, Caldwell and McCain to introduce tougher regulation to reduce their risky behavior (bankers are thumbing their noses, btw).

Why might they be doing this, hubris and stupidity aside? [It has been famously pointed out in what has become a cliche for political scientists that stupidity is never an interesting analytic category] One possibility, which should be sending chills up our spines, is that banks are “gambling for resurrection” because  banks are still in rotten shape, essentially bankrupt or barely profitable, and are being kept afloat by a combination of accounting magic, regulatory forbearance, easy money, and the fact that there is something of a modest recovery underway. Think of the gambler who has lost all his cash and has moved on to the credit card to try to make up what he has lost.

The Politics of the Stimulus: Two Views

Ezra Klein has a long but excellent post on the Obama Administration’s response to the economic crisis.  Krugman responds here.  I think Klein is right about the politics and Krugman takes him to task on the economics and rightly nails the Obama Admin for adopting conservative fiscal talk and, more generally, not making a stronger case politically.   I have faith in Obama’s team ability to learn and my bet is that they’ll play this well heading into the 2012 election.

Those of us who have devoted lots of time thinking about the politics of banking crises knew that this time it would not be different.  Not in a context with big capital inflows, big debt, and lax prudential regulation.

Europe, by the way, is exactly where we were with the first stimulus discussed by Klein and Krugman in their essays.  I believe it is the appropriate analogy.  They approved a financial package that too small to ward off speculation beyond the short run, though they did approve as much as was politically possible at this time.  Essentially, their banks are broke and their forthcoming financial crisis will produce a recession that is likely to be deeper than ours.  The Great Recession will continue.  Italy, Spain, Greece, etc will drop the Euro.   During the first year of Obama II we will finally get the massive stimulus we will need.  Maybe.

Unions and the Auto Industry in the Deep South

Unions are not having much luck organizing in the auto industry according to this.  This actually gave me an idea for a paper I will likely not have time to research or write; namely, about how deep antipathy for the Democratic Party and labor provides a competitive advantage in the scramble for foreign direct investment.  This is a highly testable proposition (I’ll say about this more later).  This map provides a nice look at where the auto plants are in the South.

U.S. Blacks Moving (back) to South, Reversing Trend

African Americans are returning to the SouthNaunihal pointed out that Latinos are up 200% in Montgomery “Monty” Alabama.  They now total 4% of the population.

Koreans in Montgomery

On the growth of the automobile industry in Montgomery.   One effect is that Koreans are moving to Monty!  Korean grub must be OK.

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