Marginal Revolution

21 accents

Of the lot I enjoyed the Kiwi imitation most, but they're all good.  I was least convinced by Texas.

Is federalism unfair to urbanites?

Ed Glaeser writes:

Poor people come to cities because urban areas offer economic opportunity, better social services, and the chance to get by without an automobile. Yet the sheer numbers of urban poor make it more costly to provide basic city services, like education and safety, and those costs are borne by the city's more prosperous residents. Taking care of America's poor should be the responsibility of all Americans. When we ask urban residents to pick up the tab for educating the urban poor, then we are imposing an unfair tax on those residents. That tax artificially restricts the growth of our dynamic cities.

It is fair to say that urban dwellers receive higher positive and negative externalities from their neighbors, relative to suburbanites.  I'm not sure why the bundle as a whole is unfair, least of all to the wealthier city residents (or why there is so much talk of unfairness to the wealthy in the first place), or for that matter why it is a significant marginal distortion.  The net value of the externalities is surely positive for people who live in cities and pay the higher rents.  All taxes involve some distortions but it seems like what is essentially a tax on city land does not involve a higher distortion than the average tax, if anything the contrary.  What's really the case for lower property taxes and higher federal income taxes, combined with a move against federalism?

If there is any unfairness, maybe it is toward the people can't afford to live in desirable cities but would like to.  If we lower the property tax burden in cities, rents will rise and this problem will become worse rather than better.  The more general point is that urban land owners, not all residents, benefit disproportionately from good policy changes.  Urban improvements have unfair distributional effects by the very nature of city land.

If there is a case for federalizing urban education and welfare, surely it refers to what will help the poor (if indeed that would), not what will help the urban non-poor.  And are city residents even a meaningful class of people to which the concept of fairness applies in a significant way?  Glaeser is very very smart but frankly I found most of this piece puzzling; perhaps I have misunderstood him.

Are there countercyclical cultural trends?

In other words, which trends or tendencies flourish when the economy is underperforming?  This source makes a (weak) case for facial hair.  In 1926 George Taylor claimed that hemlines went up with strong economies; presumably skirts become longer when times are bad.  This post and chart suggest that dystopian science fiction movies go away in bad times.

Which of these tendencies -- if any -- are the most reasonable to actually believe?

Paul Krugman on trade and wages

Here is his new paper, but start first with this Mark Thoma summary, and two graphs from Brad DeLong.  The main point is that some U.S. imports may be more labor-intensive and less skill-intensive than previous classifications had indicated.  Here is one key paragraph (p.20):

But what are we to make of NAICS 334, Computer and Electronic Products? In U.S. data it ranks as the most skill-intensive of industries, yet it is also an industry in which more than three-quarters of imports come from developing countries, especially China.

If these sectors count as "importing labor," we can find that trade is creating more downward pressures on U.S. wages than we had thought. 

I don't think Krugman is quite right to claim: "the apparent sophistication of imports from developing countries is in large part a statistical illusion."  I would sooner say that China and some other Asian countries are specializing in new (and sophisticated) techniques of cooperation, made possible by long-term historical investments in human capital and social norms.  At least in certain sectors, they are combining complementary labor inputs, with complementary capital inputs, more effectively than before; it's hard to explain that change in the impoverished vocabulary of the substitution-obsessed Heckscher-Ohlin model.  The skill is in the combination not in the people themselves.  "Capital-intensive" vs. "labor-intensive" or "skilled" vs. "unskilled" are not simple either/or questions.   

So I think Krugman is confused on the semantics, but in the final analysis this perspective supports and perhaps even strengthens his point.  If the paper looked at wages and employment in northern Mexico, following the move of China onto the world stage, the revisionist conclusions would fall more easily into place.  On one hand Chinese competition hit Mexico (a home of unskilled but relatively cooperative labor) very hard; on the other hand northern Mexico responded successfully by moving up the value chain rather than by folding and losing.  Both developments suggest that the Chinese competition is not just a simple example of skill-intensive labor.

You might say: "Chinese competition with northern Mexican textiles and plastics isn't at all like Chinese competition in the hi-tech sector."  I would sooner say: "The Chinese are applying common production techniques across the board."  Of course the phenomenal Chinese levels of both personal savings and labor migration to urban areas also support the overall interpretation of complementarity.

Addendum: Here is a good paper on the changing nature of Chinese exports.