Sunday, January 27, 2019

Do International Migrants Reduce Wage Growth? Legal Immigration is a Plus

Politicians and pundits have battered Americans with claims and counter-claims regarding the impact of immigration on American wages. Wage data from the U.S. Census Bureau and Bureau of Labor Statistics for 381 metropolitan areas between 2013 and 2017 show a clear positive relationship between legal immigration and wage growth.

In terms of the percentage of legal international migration, the top one-fifth of metros in terms of immigration gains experienced wage increases of 10.4% ($4,329) for all workers, 13.4% ($11,763) for management, and 15.6% ($3,284) for food service workers. The one-fifth of metros experiencing the lowest immigration gains experienced wage gains of 7.4% ($2,870) for all workers, 4.1% ($2,425) for managers, and 10.0% ($1,987) for food service workers.

Legal immigration was supportive of higher wage growth between 2013 and 2017 (see Data in Table 1).

Statistically speaking, correlation coefficients show a positive relationship between percent of population growth from immigration and wage expansion for all occupational categories examined.

Contrary to expectations, the strongest positive relationship between immigration and wages was for low wage occupations. Unfortunately, today's debates regarding illegal immigration on the U.S./Mexico border undermine legal immigration and economic growth, other factors unchanged.

Thursday, December 20, 2018

French Reject Climate Change Solutions: Citizens Want Someone Else to Pay

French President Macron last week scrapped his carbon fuel tax, which was designed to reduce carbon emissions and slow climate change. One million French environmentalists and others rioted against the tax. In environmentally friendly Washington State, voters twice rejected a carbon tax suggesting that even environmentalists want a less transparent solution to climate change: specifically, one that hides the costs and taxes someone else.

French and Americans prefer energy taxes to be hidden by subsidies, and managed by government enterprises. The latest U.S. Department of Energy data from 2016 show that electricity producers in the U.S. received $15 billion in subsidies with approximately $6.7 billion going to renewable energy. Thus, despite accounting for only 17% of electricity production, renewable electricity producers received almost 45% of subsidies.

Even with the subsidies, renewable electricity costs per megawatt hour (MWH) of production, including plant and equipment costs, greatly exceeds that of more conventional methods of generation. For example, relative to nuclear electricity production, costs per MWH for wind was five times that of nuclear, and solar was six times that of nuclear. But instead of producing more electricity with carbon free and cheaper nuclear, the U.S. has embarked on closing nuclear facilities, and expanding wind and solar.

The higher cost of electricity due, in part, to the contraction of cheaper conventional and opening of more expensive renewable has been differentially borne by low income Americans.

In 2016, U.S. income earners in the lowest 20% paid 34.2% of their income for utilities and fuel, while the top 20% of U.S. income earners spent only 2.8% of their income on utilities and fuel. Similarly, between 2013 and 2016, the share of income spent on utilities declined for high income Americans, but expanded rapidly for the lowest 20%.

In terms of efficiency and transparency, federal, state and local governments should implement a carbon tax that allows consumers and business, not government, to decide how to allocate scarce resources. Rebates could then be issued to families with lower incomes that are disproportionately harmed by the carbon tax.

French President Macron was finally on the right side of an issue, but the French public, like the American public, wish to ignore a market-based, transparent solution.

Ernie Goss

Wednesday, November 21, 2018

Recreational Marijuana's Impact on the Mile High Economy: More Jobs, Government, Crime, and Taxes

As of October 2018, 31 states and D.C. have legalized marijuana in some form. Alaska, California, Colorado, D.C., Maine, Massachusetts, Nevada, Oregon, Vermont, and Washington have adopted the most liberal laws for recreational use of marijuana.

To gauge economic impacts, Colorado, the first state to legalize recreational use, represents the best case for analysis. Since 2013, when marijuana was legalized in the state, how has the Colorado economy performed relative to the nation?

Jobs and GDP . Between 2013 and 2018, Colorado experienced a 19.7% boost to inflation-adjusted GDP compared to a much lower 12.1% for the rest of the U.S. On a per capita basis, Colorado expanded inflation-adjusted GDP by 10.8% versus a lower 7.5% for the nation. In terms of job gains for the same period of time, Colorado grew its jobs by 14.7% compared to a much lower 10.0% for the U.S.

The Size of Government . Per 1,000 in population between 2013 and 2018, Colorado added 6.1 state and local government workers, while all other states kept state and local government as a share of the population flat. Had Colorado expanded state and local government at the same pace as the nation, the state would have had 34,204 fewer government employees in 2018.

Crime Rates. Between 2015 and 2016 per 100,000 inhabitants, Colorado reported an increase in violent crimes of 24.2 compared to the nation's 12.5. During this same time period per 100,000 inhabitants, Colorado's robberies climbed by 2.9, while the U.S rate rose by a lower 1.1.

Tax Revenue. Colorado's growth in tax revenues from the pot trade rose from $67.6 million, for the year after legalization, to $247.4 million in 2017. This rapid tax revenue growth has motivated other states to legalize or consider the legalization of the recreational use of marijuana.

This narrow examination of economic data from Colorado suggests a mixed picture of the economic impact of such an expansion.
Ernie Goss

Wednesday, October 24, 2018

Retiring Baby Boomers and Rising Interest Rates Explode Federal Debt.

There is at least one thing that Democrats and Republicans agree on: higher and higher federal spending. Since President Trump took office in the first quarter of 2017, federal spending has expanded by a compound annual growth rate (CAGR) of 3.9%, while tax collections have advanced by a more modest 0.9% CAGR.

As a result, the federal debt exploded by a CAGR of 4.6% to an estimated $21.6 trillion in the third quarter of 2018, representing 104.8% of the nation's annual output, and the highest since the last quarter of the Obama Administration.

Both Democrats and Republicans signed on to this spending growth with Democrats resisting tax cuts, but embracing spending increases. The federal debt will only get worse. With more than 10,000 boomers retiring each day, social security payments are soaring at a CAGR of 4.6%, and Medicare benefits are exploding at a CAGR of 5.0%.

Furthermore, ultra-low interest rates allowed the federal government to borrow needed funds at historically low rates. Since December 2016 to the present, the yield (interest rate) on U.S. Treasury bonds has risen by three-quarters of one percentage point. As a result of rising interest rates and a larger federal debt, interest payments have climbed by a CAGR of 5.0%. Should rates on U.S. Treasury debt rise to the 1990-2007 average, annual federal interest payments would grow by $160 billion to $200 billion, annually.

Without spending restraints, Gen-Xers and Millennials will face higher taxes, elevated interest rates, rising inflation, or all three of these "evils." Former Colorado governor Richard Lamm summed it up quite well saying, "Deficits are when adults tell the government what they want, and the kids pay for it." Ernie Goss

Wednesday, August 22, 2018

Trump’s Economic Progress Exceeded Obama’s: Less Regulation and Tax Cuts Play Important Roles

By the end of July 2018, President Trump had presided over the U.S. economy for approximately 1.5 years. Compared to President Obama’s last 1.5 years, how has the Trump economy stacked up?

Overall economic growth. For the first 1.5 years of the Trump administration, the U.S. economy expanded by 4.1%, but for the last 1.5 years of the Obama Administration, the U.S. economy advanced by a much smaller 2.2%. Not only was growth significantly stronger in the Trump era, growth in the Obama Administration was trending downward in his last 1.5 years. Conversely, growth in the Trump Administration is trending upward.

Table 1 compares the Trump Administration’s first 1.5 years to the last 1.5 years of the Obama Administration’s across several critical economic performance measures.

As listed, the economic performance of the Trump Administration surpassed that of the Obama Administration across all metrics except the growth in jobs, corporate profits, and the expansion in the federal deficit.

The president’s influence on the overall economy is limited with other factors such as global growth and Federal Reserve policy playing significant roles. Nonetheless, there is evidence that Trump’s economic policies of less regulation and lower taxes are pushing most economic metrics in a more favor-able direction than experienced during the 1.5 years before Trump took office.

Tuesday, July 24, 2018

Rural versus Urban Economies: Trade and Fed Policy Divide the Two

Just as the drunk with one hand in the fireplace and the other in the refrigerator is, on average, doing well, the agricultural and energy dependent states have been, on average, doing (performing) well. Currently however, state averages blend healthy growth in urban areas in each state with economic fatigue in the rural areas of the same states.

Between 2009 and 2013, Creighton's Rural Mainstreet survey typically indicated very healthy growth in rural areas that are dependent on agriculture and energy. During this time period, driven by the Federal Reserve's easy money policies that stimulated agriculture and energy exports, our surveys and government data tracked rural areas growing at brisk rates. During the Fed's expansion policies from 2009 to 2013, average yearly export growth in agriculture, food and oil products soared by 12.6%.

In 2014, the Fed ended Quantitative Easing, one of its major stimulus programs, which lowered long-term interest rates, and in 2015 began raising short-term interest rates. The end of the Fed interest rate stimulation programs, or easy money policies, raised the value of the U.S. dollar and restrained exports, particularly of agriculture and energy commodities. Thus, urban areas of the region, more dependent on manufacturing and housing, continued to expand while rural areas relying on agriculture and energy moved into negative territory.

During the Fed's less accommodative money polices, 2014-17, the average yearly export sales of agriculture, food, and oil products plummeted by 6.3%. As a result, employment in urban areas of the region over the past three years expanded by 4.1%, while employment in rural areas of the same states contracted by 0.3%.

The current trade skirmish/war has the potential to widen the economic performance gap between rural and urban areas. China's retaliatory tariffs on $34 billion worth of U.S. goods are directly aimed at rural regions of the nation that produce soybeans, cotton, rice, sorghum, beef, pork, dairy, nuts and produce. Not surprisingly, soybean prices have tumbled by $2 per bushel over the past week. Other ag commodity prices are under downward pressures.

Historically, the first casualty of a trade war is agriculture, and agriculturally dependent areas of the nation.
Ernie Goss

Thursday, June 14, 2018

Bitcoin: A Poker Chip or Money? Only 1 of 700 U.S. Businesses Accept Bitcoin

In 1999, prophetic economist Milton Friedman, winner of the 1976 Nobel prize in economics, said, "I think the internet is going to be one of the major forces for reducing the role of government. The one thing that's missing, but that will soon be developed, is a reliable e-cash."

Bitcoin, and other cryptocurrencies are attempting to fill Friedman's void. But can Bitcoin be regarded as money? Since its introduction in January 2009, the currency has expanded by 1,624,036% measured against the U.S. dollar rising from $0.04 to $7,638.62 on June 2, 2018.

During this same period of time, the price of gold (in U.S. dollars) climbed by 6.4%, and the value of the U.S. dollar against the Eurozone currency, the Euro, actually declined by 9.7%.

To serve as money, whether dollar, gold or Bitcoin, it must first be a medium of exchange, and second a store of value. How has each served these two functions?

Medium of exchange (acceptance): According to, 11,291 businesses accepted Bitcoin for payment of products and services at the end of 2017. Despite acceptance rates growing by 38% per year, less than one in 700 U.S. businesses accepted Bitcoin as a unit of payment at the end of 2017. Data on the acceptance of gold to purchase goods and services were not available, but 100% of U.S. businesses are legally required to accept the U.S. dollar for payment for goods and services.

Store of value: In 2017 against the Euro, the Bitcoin varied by 71.3% from its average, the U.S. dollar varied by 7.3% from its average, and gold deviated by only 0.1% from its average. Since the beginning of this year against the Euro, Bitcoin plummeted by 50.2%, the U.S. dollar sank by 3.2%, and gold rose by 2.6%. Clearly, Bitcoin from 2009 to 2018, was not a reliable store-of-value.

Verdict: Bitcoin, at this point-in-time, is more of a poker chip than money. However, the rapid acceptance of Bitcoin for payment will support its wide-spread use as money in the years ahead--just not likely in 2018, 2019 or 2020.

Ernie Goss