Continuing on the subject I raised yesterday, if this article from ABC 7 Chicago is to be believed Illinois’s population isn’t shrinking because of Chicago:

“Before we ask why, we want to ask where. It is not the same throughout the state,” said Teresa Cordova, director of UIC’s Great Cities Institute.

Cordova said while whites and Blacks are leaving Chicago, the same number of Asians and Latinos are moving in. She said Illinois’ population loss is being driven by downstate declines.

“The decline is occurring in the smaller areas, smaller towns, primarily places that are rural,” she said.

I wish there were a bit more value added and finer granularity in the article. According to this Chicago’s population has declined by nearly 1% since the last sentence. It’s possible that Chicago’s population may not have declined by as large a percentage as, say, Peoria County, but may account for a large part of the state’s population decline. The Great Cities Institute’s web page did not elucidate further.

Another gripe I have about the linked article is that IMO “Asians” and “Latinos” are prime examples of false reification. What’s an Asian? It could mean anything from a Turkish immigrant to a Japanese immigrant. Similarly, Hispanics or Latinos are arguably a linguistic community but just as a general matter there’s a considerable difference between a Guatemalan immigrants and a Uruguayan one. Nearly 2/3s of Uruguayans have college degrees or better compared to fewer than 20% in Guatemala.

I guess we’ll need to wait for the details. However, it does corroborate what I’ve been saying for some time. The black population of Chicago has peaked and Chicago’s changing population probably won’t be feel nearly as paternalistic towards the black population as Chicago’s population did in 1990, 2000, or 2010.

The Financial Times reports that the preliminary results of the 2020 Chinese census have been released and that China’s population has declined:

China’s birth rates have weakened even after Beijing relaxed its decades-long family planning policy in 2015, allowing all couples to have two children instead of one. The population expanded under the one-child policy introduced in the late 1970s, thanks to a bulging population of young people in the aftermath of the Communist revolution as well as increased life expectancy.

[…]

Official data showed the number of newborns in China increased in 2016 but then fell for three consecutive years. Officials blamed the decline on a shrinking number of young women and the surging costs of child-rearing.

The real picture could be even worse. In a report published last week, China’s central bank estimated that the total fertility rate, or the average number of children a woman was likely to have in her lifetime, was less than 1.5, compared with the official estimate of 1.8.

“It is almost a fact that China has overestimated its birth rate,” the People’s Bank of China said. “The challenges brought about by China’s demographic shift could be bigger [than expected].”

A Beijing-based government adviser who declined to be identified said such overestimates stemmed in part from the fiscal system’s use of population figures to determine budgets, including for education and public security.

It’s the first time the population has declined since the “Great Leap Forward”.

Experience with official Chinese statistics suggests that the reported decline is being understated.

There is another explanation for the declining birthrate other than the official one. Young women are the preferred workers in China’s factories. They can either assemble iPhones or rear children but doing both is difficult.

Given that the birthrate has been below the replacement rate in every year of the last five, it’s a mathematical certainty that China’s working age population in 2040 will be lower than it is now. How that will affect the prospects for a “Chinese century” is a matter of speculation.

IMO China’s dependence on low margin manufacturing coupled with a shrinking population and an adverse dependency ratio will necessitate some difficult decisions. I recognize that the latest five year plan is trying to remedy that. It will be interesting to see how that fares.

The big news yesterday, of course, we that the Census Bureau had released its preliminary results for the 2020 decennial census:

In addition to these newly released statistics, today Secretary Raimondo delivered to President Biden the population counts to be used for apportioning the seats in the U.S. House of Representatives. In accordance with Title 2 of the U.S. Code, a congressionally defined formula is applied to the apportionment population to distribute the 435 seats in the U.S. House of Representatives among the states.

The apportionment population consists of the resident population of the 50 states, plus the overseas military and federal civilian employees and their dependents living with them overseas who could be allocated to a home state. The populations of the District of Columbia and Puerto Rico are excluded from the apportionment population because they do not have voting seats in Congress. The counts of overseas federal employees (and their dependents) are used for apportionment purposes only.

• After the 1790 Census, each member of the House represented about 34,000 residents. Since then, the House has more than quadrupled in size (from 105 to 435 seats), and each member will represent an average of 761,169 people based on the 2020 Census.
• Texas will gain two seats in the House of Representatives, five states will gain one seat each (Colorado, Florida, Montana, North Carolina, and Oregon), seven states will lose one seat each (California, Illinois, Michigan, New York, Ohio, Pennsylvania, and West Virginia), and the remaining states’ number of seats will not change based on the 2020 Census.

The emphasis is mine. Illinois is one of three states actually to lose population over the last ten years (the other two are Mississippi and West Virginia). I cannot speak for any state other than Illinois. Its population has decreased due to bad governance which has taken a number of different forms.

Now the squabbling begins. States with Republican-dominated legislatures will redraw district lines to benefit Republicans; states with Democratic-dominated legislatures will redraw district lines to benefit Democrats. The most bitter squabbling will take place in the states that are losing representatives. Incumbents will be pitted against each other in those states.

Every member of the House of Commons in the UK represents about 100,000 people. Every member of the Bundestag in Germany represents about 117,000 people. Every member of the Assemblée nationale in France represents about 117,000 people. Every member of the House of Representatives represents 761,169 people. One of these things is not like the other. If there’s one thing that’s clear, it’s that we do not have meaningful democracy at the national level here.

The editors of the Washington Post point approvingly to an initiative by the Biden Administration:

The National Urban League’s Lewis Latimer Plan for Digital Equity and Inclusion wants to ensure that everyone can fully participate in the world the Web has created — from their education as children to their employment as adults to their health all along the way. The proposal, which emphasizes how historically marginalized groups have seen inequities compounded by a disproportionate lack of access to the Web, is chock full of recommendations for bringing broadband to those whose homes aren’t served or for whom service is too expensive. Yet the plan is most helpful in pointing out two additional gaps to bridge.

The first of these is what the report’s authors call digital readiness. There is little point in paying for an Internet plan if you don’t know how to use the Internet. The same goes for understanding how to operate a computer or tablet. But as many as half of Americans remain reluctant to explore online education because they are concerned they lack the technological skill; more than one-third of older adults have missed out of video visits with medical professionals this past year for similar reasons; workers unstudied in navigating the Web can’t fill plenty of good jobs.

This sounds like a first class boondoggle to me. There’s another reason that people are not digitally literate: they don’t want to be; they are technophobes.

My mother was a very intelligent woman. She had a masters degree; she read incessantly. But she never learned to operate her VCR and avoided technology as much as she could. She actively rejected my offers to help her. She gave away the answering machine I gave her. She simply didn’t want to have anything to do with technology. Don’t underestimate that as a factor, particularly in the elderly.

IMO they’d be better off ensuring that more people were functionally literate than trying to ensure digital readiness.

In a recent post James Joyner riffs off an article in Atlantic:

It’s possible for a function to simultaneously be essential to society and yet require relatively little skill to accomplish. That’s true of the mundane tasks we all perform to keep our households running and those required to keep our stores stocked. In any industry, there are jobs that require more skill, experience, and talent to do well than others.

I see no problem with acknowledging this reality or in seeking to ensure that people who would like to find work that’s more well-paying or meaningful are equipped with the skills necessary to do so. The problem, as Lowrie suggests, is the inference that those who lack particular skills are therefore lesser citizens, unworthy of dignity and respect.

Both pieces are such jumbles of fallacies, misunderstandings, and misconceptions, I thought I needed to try to explain why. For 48 hours I’ve been trying to organize my thoughts and I thought I’d give this approach a try. Wages are determined by a variety of factors including:

• Supply and demand
• Profitability/return on investment
• Cost of entry
• Substitutability
• Credentials/requirements
• Subsidies
• History
• Luck

Those aren’t all of the factors but they are important factors.

Supply and demand

Strong in the discussion of skills and compensation is the notion of “true worth” or “inherent worth”. Those are fantasies. What are real are supply and demand. People will pay what they can for things and beyond that, regardless of other considerations, they will not pay. Trying to compare two different goods or services and trying to determine their value relative to each other based on their costs of production or some assessment of their comparative social value is a futile pastime.

Profitability/return on investment

How profitable a sector is has implications for wages in that sector. Highly profitable sectors will always have higher compensation rates than low margin sectors like retail or hospitality.

Cost of entry

By this I mean what the ante is for a job, how much you need to spend to secure the job. Some jobs have very high costs of entry. The practice of medicine, for example, has an entry cost anywhere from a half million dollars on up but some jobs have even higher entry costs. For example, if you want to be assured of a job at Goldman Sachs, it will be very expensive and, in all likelihood, your parents will need to have made the right decisions for you since before you were born. There’s a sort of pipeline that runs through exclusive private schools, to Ivy League schools, to top business schools for your MBA, ending in jobs in the financial sector. While it’s possible to get that gold-plated job without having been in the pipeline the odds are against it.

Substitutability

Substitutability is a term of art in economics meaning the ability of goods or services to be replaced by another good or service in use or consumption. It isn’t pointed out frequently enough but in most jobs how well qualified you are for the job or how well you perform the isn’t nearly as important as how many others could perform your job. Compensation is based less on your performance than on the performance of others who may only resemble you superficially. There just isn’t that much difference in pay between the most highly credentialed, most skillful burger-flipper at McDonalds and the least credentialed or least skillful.

Credentials/requirements

While credentials, prerequisites, requirements, and licensing may ensure that people are actually capable of doing the job, they also serve to raise the cost of entry and limit the labor supply.

Subsidies

The effect of subsidies on wages is easily explained by basic supply and demand. If you constrain the supply of something and subsidize its consumption, its price will increase—the subsidy increases willingness to pay by removing some of the discipline imposed by pricing. A lot of jobs these days are subsidized, either directly through government payoffs or indirectly via regulations or both.

History

History is an important determinant of wages, too. I’ll give an example. For the first century of so of public education most public school teachers were single women. For a variety of reasons including sexism and the belief that, since single women were not expected to be able to support a family, their wages were kept low. That began to change about a half century ago and in many places, viz. Chicago, it’s no longer the case but the fact remains that teachers were starting from a very low base for historical reasons.

Luck

I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all.

Ecclesiastes 9:11

Luck is an important factor, too. An uninformed reading of that is that it’s all luck; a more informed one is that luck plays a part.

Let’s consider some scenarios as illustrations of these factors at play. From the Atlantic piece:

At a strip-mall Korean restaurant, I caught a glimpse of the kitchen and stood dumbfounded for a few minutes, watching a guy slicing garnishes, expending half the energy I would if I were doing the same at home and at twice the speed. The economy of his cooking was magnetic. He moved so little, but did so much.

Being a prep cook is hard, low-wage, and essential work, as the past year has so horribly proved.

That’s a great illustration of a number of the factors. However necessary the hospitality sector is, it operates at notoriously low margins, the cost of entry to work in them is essentially zero, the requirements for the job are few, and you can be replaced at any time by an ever-growing number of competing job-seekers. It makes little difference if you’re the greatest prep cook or busboy in the world. You can still be replaced by someone who can do a barely adequate job and there are lots of them. There’s a handful of very highly compensated chefs but most of the cooks are poorly paid and the most skilled prep cook is unlikely to make a lot more than the least. It’s basic supply and demand.

Here’s another example, from James’s post:

LeBron James, a Black man whose formal education ended in high school, made more money, by orders of magnitude, than I, a white man with a PhD, will make in my entire lifetime, by the time he turned 19.

529 players work in the National Basketball Association, a $9 billion industry. There are a million and a half college professors in higher education nearly all of whom have doctorates which brings in about $600 billion/year. Do the math. $17 million/player in the NBA; $400,000/professor in colleges and universities. Those are the upper limits of what can be paid were the entire proceeds to be paid to the workers. To get a job playing in the NBA you need to have skills. To get a job as a college professor you need a doctorate.

Now let’s try to piece all of these things together. I think there’s dignity in all work and supporting yourself and your family. It doesn’t matter to me whether the work is digging ditches, stocking shelves, or being a neurosurgeon. They’re all respectable and deserving of respect. Unfortunately, many people in today’s United States don’t think that way. They only look to how much money you make and your conspicuous lifestyle. There’s nothing I can do about that. There are people who make scads of money but are shmucks. I don’t particularly respect them but there are lots of Americans who do. Nothing I can do about that either.

When I say someone is “unskilled” what I mean is that they do not have valuable marketable skills. See above for an explanation of what those are.

I cannot assess the truth or falsehood of Mary Anastasia O’Grady’s latest Wall Street Journal column. In it she assesses Biden Administration policies with regards to Central America in a strongly accusatory manner:

The Biden administration says it wants to tackle the “root causes” of migration. But progressives don’t want capitalism to take hold in poor countries. The upshot is that somebody’s going to get rich off President Biden’s $4 billion aid package for the region. But it won’t be la gente.

In assessing the migrant flow from Central America’s Northern Triangle—Honduras, Guatemala and El Salvador—Team Biden places heavy blame on successful entrepreneurs. In a March interview with NPR, Juan González, the White House’s National Security Council senior director for the Western Hemisphere, called the “private sector” a “predatory elite that benefits from the status quo, which is to not pay any taxes or invest in social programs.”

Mr. González’s pejorative is shorthand for the view that a small number of wealthy business owners are responsible for persistent, widespread poverty. This narrative, popular during the Central American wars of the 1980s, is outdated at best. Yet it remains the left’s central talking point.

The facts on the ground are different. Far from causing the lack of demand for labor or a shortage of tax revenue, local businesses that operate in the formal economy create good jobs and generate a major portion of the tax revenue. They also contribute to the government’s health and pension systems. But there aren’t enough of them. Even educated youths often don’t find work.

The trouble is that most of the economy is underground. The development challenge is to make it attractive for those businesses, which aren’t registered and don’t pay taxes, to become legal and grow. That’s not done by scapegoating the compliant.

To be sure, crony capitalism undermines growth. But Mr. González is wrong to finger the traditional entrepreneurial class as the culprit. The biggest crooks in the Northern Triangle tend to be politicians and narcos snagging shady state contracts.

I would hasten to mention that these policies did not begin with the Biden Administration but they do seem to be doubling down on them. I think there are some things that we should agree on about our aid policy and some on which people should be open to being persuaded.

We should agree that our present foreign aid policy is not working by any key performance indicators, at least not by any KPIs that we would actually want. It has been said with some justice that foreign aid consists of poor people in rich countries paying rich people in poor countries.

What I think we should be willing to agree is that the biggest impediment to economic growth and development in poor countries is bad government. It is very difficult to find a counter-example. China, for example, was desperately poor until it abandoned its state policy of autarky. In other words a great part of the solution to China’s problems was better government. The same is very much the case in practically every poor country you can name.

What should we be trying to accomplish with our foreign aid and how can those objectives be accomplished?

As is not particularly surprising I am reading some cries of anguish about President Biden’s proposed increase in the tax rate imposed on capital gains. The editors of the Wall Street Journal declaim:

If you need more evidence that ideology more than common sense is driving the Biden Presidency, look no further than its trial balloon to raise the top tax rate on capital gains to 43.4%. It’s the dumbest way to raise taxes for many reasons, not least because it will cost the government revenue.

The premise behind the tax increase is that a preferential tax rate for long-term capital gains is an unjustified loophole. (Gains on assets held for less than a year are taxed at the individual income rate.) Yet that preferential rate has persisted for decades, through Democratic and Republican administrations. The current top rate is 23.8%, which includes a 3.8% ObamaCare surcharge. Even in the economically irrational 1970s the top capital-gains rate never broke 40%, as the nearby chart shows.

There are good economic and fairness reasons for the preferential rate. First, under current tax rules, all gains from investments are fully taxed, but all losses are not fully deductible. Losses can offset gains in any given year, but losses that exceed gains can only be offset against personal income up to $3,000. The preferential rate compensates for this asymmetry.

Second, gains in asset values aren’t adjusted for inflation, so investors who hold assets for an extended period pay taxes on increases that are partly illusory. Other parts of the tax code, including the income-tax brackets, are indexed for inflation, but not capital gains that arguably need it the most since assets are often held for decades.

Third, a capital-gains tax is a second tax on corporate income. A neutral revenue code would tax all income only once. But the U.S. also taxes business profits when they are earned, and President Biden wants to raise that tax rate by a third (to 28% from 21%). When a business distributes after-tax income in dividends, or an investor sells the shares that have risen in value due to higher earnings, the income is taxed a second time.

They conclude:

So why raise a tax rate that would reduce investment, reduce wage growth and reduce revenue for the government? Temporary economic insanity is one possible explanation.

Mr. Lindsey suggests another: punishment for its own sake. Without a rational basis for the tax increase, this sounds right. This is what happens when you turn your economic policy over to Bernie Sanders and Elizabeth Warren. Envy is in the political saddle, and Joe Biden is going along for the ride.

while former Fed governor Lawrence Lindsey explains in an op-ed:

The Biden administration last week proposed to increase the capital-gains tax rate—currently 20% for most assets held for at least a year—to 39.6% for people making more than $1 million. Since capital gains are also subject to the 3.8% Medicare tax, the new capital-gains rate would be 43.4%.

What makes this unusual is that 43.4% is well above the rate that would generate the most revenue for the government. Congress’s Joint Committee on Taxation, which does the official scoring and is no den of supply siders, puts the revenue-maximizing rate at 28%. My work several decades ago puts it about 10 points lower than that. That means President Biden is willing to accept lower revenue as the price of higher tax rates. The implications for his administration’s economic thinking are mind-boggling.

and continues:

As indicated by other proposals, the current administration rates money going to lower-income people extremely highly relative to higher-income people—higher than has traditionally been the case in U.S. economic policy. It also seems to put little weight on excess economic burdens and leaky-bucket costs. The wisdom of those choices will be tested at the ballot box.

But to an economist, a Pareto-pessimal choice is unwise by definition. There is no set of “weights” one can devise to justify this proposal, because there are no highly prized winners to offset the losses to the low-weighted losers.

Basically, he’s asking “what in the world are the Biden Administration’s economists thinking?” I would suggest that economists had no hand in the proposal.

My own view is that the tax rate imposed on capital gains should be lowered if anything but that “capital gains” need to be redefined. Stock speculation should be treated just as gambling winnings and losses are. I think we need a lot more investment and a lot less stock speculation. That what we’re seeing today is the latter is obvious from even a casual glance at the stock price to earnings ratio would tell you.

The editors of the New York Times come out in opposition to eliminating the cap on state and local taxes (SALT) that was introduced in President Trump’s tax reform in 2017:

The top 20 percent of American households, ranked by income, would receive 96 percent of the benefits of the change, according to a detailed analysis by the widely respected Urban-Brookings Tax Policy Center.

The primary beneficiaries would be an even smaller group of the very wealthiest Americans. The 1 percent of households with the highest incomes would receive 54 percent of the benefit, on average paying about $36,000 less per year in federal income taxes.

A tax cut with such a skewed distribution of benefits ought to be unacceptable to any politician genuinely concerned about the rise of economic inequality.

concluding:

Most members of this editorial board are paying more in federal taxes because of the SALT deduction cap. In a narrow financial sense, we would benefit from its repeal. But we believe in the broader benefits of progressive taxation, and in the necessity of concrete steps toward creating a more equal society. Members of Congress who have espoused those principles repeatedly now have an important opportunity to demonstrate their sincerity.

Opponents of the cap on state and local taxes point out that it was intended as an attack vehicle on high tax states like New York and California (and Illinois). Its intention is irrelevant to whether it is good or bad policy. I think that all deductions should be capped, frequently at much lower levels than such caps as presently exist. For example, limiting the deductibility of home mortgage interest to $1 million is rather obviously not primarily going to benefit the poor or people with middle incomes. Additionally, it’s a backdoor subsidy to realtors and real estate developers.

Marginal rates are a sideshow in the debate on taxation. The real action is in how income is calculated. Our present system of taxation at the federal level is slightly progressive. That is true because of the limit on the income on which the payroll tax is levied and the various things that are deductible from income for tax purposes. The former should be raised and the latter lowered. That would make our system much fairer than it is at present and IMO is vastly preferable to adding additional brackets and deductions.

That was undoubtedly the highlight of last night’s Academy Awards show—Tyler Perry’s acceptance speech for the Jean Hersholt Humanitarian Award.