Do we really need an expert witness?

Yes, you do.

This week’s decision by the Seventh Circuit in Cripe v. Henkel Corp., No. 17-1231 (June 7, 2017), written by Judge Frank Easterbrook, is a reminder for litigators of the importance of mastering the fundamentals. The court held that the plaintiff in a personal-injury action had failed to disclose any experts, or provide any expert reports, under Fed. R. Civ. P. 26(a)(2) to rebut the defendant’s expert on causation. When the defendant moved for summary judgment, the trial court granted the motion, given that there was no contrary evidence. The Seventh Circuit affirmed, reaching the profound conclusion that “[y]ou can’t beat something with nothing.”

From Foley & Lardner LLP.

The Squawk Box effect on CEO pay

From the Wall Street Journal:

How big is the CNBC effect? “CEOs who appear in CNBC interviews will earn $210,239 more” on average in the following year, the professors say, compared with similar CEOs who didn’t go on.

CEOs of small companies see a bigger bump. The effect for CEOs in the smallest firms was $130,925 greater than for CEOs in the largest companies, even though big business CEOs usually get paid more.

Cable TV is better than print. A CEO who got more print coverage than average in a year got a tiny boost in pay the next year.

How to get better voter turnout in close races

  1. Take a poll.
  2. Make sure media reports the poll.

From NBER:

Closer elections are associated with greater turnout only when polls exist. Examining within-election variation in newspaper reporting on polls across cantons, we find that close polls increase turnout significantly more where newspapers report on them most.

 

Refugees pay more in taxes than they collect in benefits

Research from the National Bureau of Economic Research:

Using the NBER TAXSIM program, we estimate that refugees pay $21,000 more in taxes than they receive in benefits over their first 20 years in the U.S.

Other findings:

  • Refugees that enter the U.S. before age 14 graduate high school and enter college at the same rate as natives.
  • Among refugees that entered the U.S. at ages 18-45, after 6 years in the country, these refugees work at higher rates than natives but they never attain the earning levels of U.S.-born respondents.

Could US corporate taxes get any worse? How about a border adjustment tax?

The current US corporate income tax code is extraordinarily complex. It tends to favor larger companies. It also tends to favor companies who can squirrel away their profits overseas. Even worse, it really favors companies that can afford to hire lobbyists to create loopholes and to hire lawyers and accountants necessary to exploit the loopholes.

The US has the highest corporate tax rate in the developed world, which is especially harmful to mid-size and smaller firms. Even with the high tax rate, the US collects much less in taxes (on a relative basis) than its peers, as shown in the figure below.

A border adjustment tax would reduce (or eliminate) the corporate income tax. It would alter the current corporate tax structure by essentially imposing a tax or levy of 20 percent on all imports – including components and parts used in assembly – while exempting US exporters from any taxes. In other words, US companies would no longer have to report revenue generated by their overseas sales as taxable income. At the same time, they could no longer claim expenses incurred by importing goods and materials as deductible from their federal tax obligation.

The proposed border adjustment tax may be the most revolutionary idea in corporate tax reform in decades. If approved, it would transform the corporate income tax code into something similar to the European value-added tax or VAT. Overnight, the tax would create new categories of corporate winners and losers and will most likely drive up prices for US consumers.

  • Winners: Export-driven companies, including manufacturers of electronic equipment, machinery, aircraft, munitions, cars, and tobacco. Indirect winners would be small and medium sized business that benefit from a vastly simplified tax code.
  • Losers: Any business that relies heavily on imports including retailers, foreign car dealers, toy manufacturers, and oil refineries. Major retailers like Walmart and Target that get many of their products from Asia and other markets with cheap labor would be hard hit by the border adjustment.

There’s a chance that the BAT may be DOA. Republican senator Lindsey Graham has said that he can’t find even 10 votes in the US Senate for the current boarder adjustment tax proposal.

Nevertheless, the current US corporate tax system is a massive drag on business growth and doesn’t even do a good job at what it’s supposed to do – generate tax revenues. At this point it’s difficult to conceive of a scheme that could be any worse than the corporate tax system currently in place.

In case you were wondering … here are the top imports and exports by state. It seems Wisconsin spends a lot of money on imported sweaters.

“We haven’t seen numbers like this in a long time” – small business confidence soars

Small business optimism is at its highest level since 2004, according to a National Federation of Small business survey. Small businesses expect to see increased sales, hire more employees, and expand capital investment.

“We haven’t seen numbers like this in a long time,” said NFIB President and CEO Juanita Duggan. “Small business is ready for a breakout, and that can only mean very good things for the U.S. economy.”

Source: Small Business Economic TrendsNFIB | NFIB

$5 million lawsuit alleges Raisinets boxes “recklessly” underfilled

Stuff like this gives lawyers a bad name.

A lawsuit filed Tuesday in a California federal court claims Nestlé packages some of its Raisinets in opaque movie-theater-style containers that lead customers to believe they are buying a full box, when in fact only 60% of the box contains chocolate-coated raisins.

The plaintiff—Sandy Hafer, a California resident who allegedly bought Nestlé’s Dark Chocolate Raisinets—claims that she and other candy consumers had relied on Nestlé’s “deceptive packaging” in deciding to buy the Raisinets. According to the suit, which seeks class-action status, had Ms. Hafer and others known the boxes weren’t full, they wouldn’t have bought the candy or would have paid significantly less.

Stuff like this gives regulators a bad name.

Federal law governing “slack fill”—or the empty space in a container—says a container is filled in a manner that is misleading if it contains slack fill that doesn’t have a functional purpose, like protecting the package’s contents.

The lawsuit seeks at least $5 million in damages that would include refunds for potential class members, plus any interest accrued. A 3½-ounce box of Raisinets sells for $1 at Target Corp. stores and has as many calories as a McDonald’s double cheeseburger.

Source: Raisinets Boxes ‘Recklessly’ Underfilled, Lawsuit Alleges – Law Blog – WSJ

Kenneth Rogoff: Four percent growth is not impossible

Kenneth Rogoff was the chief economist of the International Monetary Fund from 2001 to 2003.

[I]f the US economy really does have massive quantities of underutilized and unemployed resources, the effect of Trump’s policies on growth could be considerable. In Keynesian jargon, there is still a large multiplier on fiscal policy. It is easy to forget the biggest missing piece of the global recovery is business investment, and if it starts kicking in finally, both output and productivity could begin to rise very sharply.

Source: The Trump Boom? by Kenneth Rogoff – Project Syndicate

Wells Fargo meets the Wehrmacht: employee rewards and risky behavior

Employee of the Month. Sounds like a great idea. For the price of a cheap plaque and a good parking spot, bosses can motivate employees to deliver superior service. So the thinking goes.

Academics call it “status competition.” And sometimes it backfires.

Wells Fargo has been accused of opening millions of fake bank accounts. Employee compensation was tied to opening new accounts and workers could lose their jobs if they didn’t meet targets. They also had status competitions.

According to the Miami Herald, the east coast region for Wells Fargo was run by Laura Schulte for about five years. Staff recall her sales promotion called “Schulte’s All Stars.” A 2010 copy of the all star list obtained by Bloomberg ranked managers by a mix of metrics, all gauging volume in different ways. Some workers were on track to be in the “Schulte Hall of Fame.” Sure, targets were hit, but laws likely were broken.

What this have to do with the Wehrmacht?

Research published by the National Bureau of Economic Research highlights the tradeoff between the benefits of higher performance against the costs of risky behavior using an … um … “interesting” data set.

In World War II, the German air force had a version of employee of the month. It was a daily bulletin called the Wehrmachtsbericht, produced by the propaganda department and broadcast daily over the state controlled media.

Being mentioned by name in the bulletin was one of the highest forms of recognition used by the German armed forces. Only 1,200 of the 18 million men in the armed forces were mentioned by name in the bulletin.

German pilots would get mentioned for an extraordinary number of air victories. Here’s Hans-Joachim Marseille’s mention in the bulletin on June 18, 1942 (his second mention):

First Lieutenant Marseille shot down ten enemy planes in a 24 hour period in North Africa, raising his total score of aerial victories to 101.

The bulletin served two purposes. The first, as propaganda to raise morale among the German people. The second, was to inspire German soldiers to achieve top performance.

But did it work?

The researchers divided pilots into two groups: top-ranked pilots and everyone else. Top ranked pilots were in the top 20 percent of victories (number of enemy planes shot down). Everyone else was in the other 80 percent.

A statistical analysis of pilots victories found that performance overall improved in the periods after a pilot gets a mention in the bulletin. The highest ranked pilots saw a 20 percent increase in their scores while the lower ranked pilots saw a modest increase.

What’s the cost?

It’s safe to say that dogfights are a dangerous undertaking. To shoot down an enemy plane, the pilot has to put himself in harm’s way. A pilot seeking to increase his score is increasing the chances that he’s going to get shot down himself.

Top-ranked pilots saw no significant change in their “exit rate.” The other 80 percent of pilots saw their exit rate increase by 20 percent—and, in some cases, more than double.

Overall, the gain in “victories” from mentioning pilots in the bulletin was outweighed by the loss in pilots from taking additional risks.

There’s a management lesson: Incentives can spur superior service, but can also encourage risky action. Think through the implications of your incentives.

Research roundup: Hacking, gaming, working, reorganizing

  • On hacking, President-elect says, “I’ll tell you what: no computer is safe. I don’t care what they say.” He may be right. Even major law firms are getting hacked. [Wall Street Journal]
  • Pokemon Go was a big hit last summer. Super Mario Run is running out of steam. Mobile gamers don’t like to pay $10 upfront to play a game. [Wall Street Journal]
  • Fed researchers say an aging population and people staying longer in school are causing low labor force participation.  . . .  But are people staying in school because they can’t get jobs? [St. Louis Fed]
  • If a country’s economy is heavily dependent on agriculture, higher food prices may reduce poverty. [Marginal Revolution]

Signs are pointing to strong growth for the U.S. economy and that’s a big deal

Global growth will pick up faster than previously expected in the coming months as the Trump administration’s planned tax cuts and public spending fire up the U.S. economy, the OECD recently announced, revising its forecast upward from earlier this year.

In its most recent Economic Outlook, the Organization for Economic Cooperation and Development projected the U.S. economy would grow by 2.3 percent in 2017 and to 3 percent in 2018. Global growth is expected to accelerate from 2.9 percent this year to 3.3 percent in 2017 and reach 3.6 percent in 2018.

Markets have shown some early confidence that the economy will improve with the new administration. The Dow Jones Industrial Average is up almost 5 percent since election day and the S&P 500 is up more than 3 percent. Consumers seem to be sharing the confidence with early reports of strong retail sales for Black Friday and Cyber Monday.

During his campaign, Mr. Trump pledged to boost infrastructure spending by as much as $1 trillion, although the details of how that would be financed are sketchy. He has also promised to cut corporate and personal income taxes. In addition, changes to employment regulations and the Affordable Care Act are expected to spur hiring by businesses and bring more Americans into full time employment.

Costly and onerous overtime rules imposed by the Obama administration have been blocked by a federal judge and are likely to be overturned during the Trump administration. Changes to the ACA are expected to jettison mandates triggered by having more than 50 employees or by working more than 29 hours a week. Be prepared for more people working more hours.

Financial reforms are on the way with an expected overhaul of Dodd-Frank. House Finance Committee Chairman Jeb Hensarling and others in Congress have laid out the key principles they say will guide financial reforms: restoring rule of law to the regulatory process and allowing banks to regain control of their own lending and other business decisions so long as they are credibly taking risks with their own funds rather than relying on the protection of taxpayers. This may be the end of “Too Big to Fail.”

Rising interest rates will strengthen bank profits and provide a tailwind to encourage more lending while also slowing the growth in housing prices.

Does growth really matter? Yes, it’s a big deal

When economists talk about growth, they are trying to get a handle of how much better (or worse) off are we versus a year ago. Are we getting richer or poorer or just standing still? When we talk about growth, we talk about year-over-year percentage growth rates. But, what is a “good” growth rate?

Here’s some perspective, looking back in time.

Average incomes doubled from the bottom of the Great Depression in 1933 to the middle of the post-war boom of 1950—a space of just 17 years. Over that period, incomes grew an average of 4 percent a year. Incomes doubled in less than one generation.

It took another 27 years afterward (1950 to 1977) for incomes to double. The people watching the TV show Happy Days were twice as rich as the people portrayed in the show. That amounts to an average annual growth rate of 2.5 percent a year.

Then, after that, it took another 38 years (1977 to 2015) for incomes to double. Over that period of time, average incomes grew by 1.8 percent a year. It took almost two generations for incomes to double.

A difference of 1.5 percentage points in the growth is the difference between doubling incomes every generation or doubling every other generation.

Think of it this way. Since 2010, GDP growth has been about 2.2 percent a year. At that rate, it would take more than 30 years for incomes to double. If that growth can be boosted to 3 percent a year, incomes would double eight years faster. That’s a big deal. That’s one reason stock prices rise on even modest upward revisions to GDP forecasts.

Look on the flip side, regulations and taxes that stifle growth—even if by less than one percent—can have serious long run effects on our standard of living. When a politician says, “Well it’s just half a percentage point off the growth rate,” you should answer, “Well that’s another five to ten years we lose in income growth.” That’s a big deal.

So, let’s get out there and grow this economy. Your kids and grandkids will thank you for it.

Steep price hikes under Obamacare: Taking “affordable” out of the ACA

 

obamacare-exchange-oregon-2017Health insurance prices on the Obamacare exchanges have been published on HealthCare.gov, and it’s not good news. Higher premiums, higher deductibles, and fewer choices.

Fewer plansLast year, residents in Portland, Oregon had a choice of 87 plans. This year, we get only 37 plans from which to choose.

Higher premiums: For my family of 2 adults and 4 kids, the average premium has increased by $290 a month—that’s a 25 percent increase. The cheapest plan is $939 a month, but you pay $50 just to walk into the doctor’s office. That’s $50 per person, per visit. That adds up.

Higher deductibles: To make matters worse, deductibles have increased.

  • Last year, several plans had zero deductible. This year, only one plan has zero deductible (Kaiser Permanente KP OR Gold 0/20).
  • Last year, three plans had the highest deductible of $13,700. This year, 10 plans have a deductible of $14,300. If you have to burn through $14,300 of your own money before any meaningful health coverage kicks in, what the heck are you paying for?

Cheap plans are a bad deal. Bronze plans are sold as the most “affordable” plans. But they come with some high costs. The lowest deductible is $10,000. And, as noted earlier, the cheapest of the cheapest plans have outrageous copayments for primary care visits.

Let’s compare the plans. Look at the figure above.

Gold plans have premiums averaging $1,700-$1,800 a month (that’s more than $20,000 a year).

  • The cheapest Gold plans are all Kaiser Permanente plans, which means you have to haul yourself all over town to see your doctor and you have to get a referral to see a specialist. What you’re saving in money, you’re spending in time and frustration.
  • The next best alternative is a Moda plan with a $1,000 deductible for $1,732 a month (Moda Health Plan, Inc. Beacon Be Protected)

Much of the ACA attention is focused on Silver plans. Last year, I was able to get a zero deductible Silver plan for $1,100 a month. That was pretty good, but the provider pulled out of the Obamacare exchange, so that plan’s gone.

  • For 2017, the “best” Silver plan has a $4,000 deductible and a monthly premium of $1,261 and, again, it’s a Kaiser plan.
  • For $1,285, Providence offers a plan with a $5,000 deductible (Providence Health Plan Connect 2500 Silver).

Bronze plans are such stinkers that they are not even worth considering. For almost every Bronze plan, there is a Silver plan with a similar premium and a lower deductible.

That’s what happens when regulators load up scads of things as mandated “preventive services” (i.e., no out-of-pocket) and forbid insurance underwriting to manage risk. We end up with high premiums and high deductibles, when most people would prefer lower premium with “just in case” coverage.

Welcome to 2017: Fewer choices, worse choices, and higher prices. When November 1 rolls around, it might be worth checking out the plans available off the ACA exchange.

Ban the box backfires

“Ban the Box” laws prevent employers from conducting criminal background checks until well into the job application process. (“Ban the Box” comes from the check box on many job applications asking, “Have you every been convicted of a crime?”)

Proponents of “Ban the Box” claim that by ignoring an applicant’s criminal record until late in the application process, ex-cons would have better employment opportunities.

A secondary goal is to reduce racial disparities in employment.

New research suggests that “Ban the Box” has backfired.

We find that [Ban the Box] policies decrease the probability of being employed by 3.4 percentage points (5.1%) for young, low-skilled black men, and by 2.3 percentage points (2.9%) for young, low-skilled Hispanic men. These findings support the hypothesis that when an applicant’s criminal history is unavailable, employers statistically discriminate against demographic groups that are likely to have a criminal record.

Source: NBER

Global trade stalls while protectionism expands: Are you ready for a trade war?

Global trade is slowing and protectionism is growing. Trump and Clinton will make it worse. Are you ready for a trade war?

In October, our newsletter sent up a warning flag that growth in global trade seemed to be slowing down.

Now, it appears the growth in global trade has stopped.

Export-Growth-EconMinute

 

In the U.S., it’s even worse. As shown in the figure above, U.S. exports have decreased by 4 percent over the past year. That’s a reduction of $95 billion.

Recent research finds world export volumes peaked and flattened in early 2015. The same finding holds for import volume and for total volume (export plus import). In other words, no matter how you measure it, world trade has come to a standstill. And, it’s a worldwide halt in trade growth. Both industrialized countries’ and emerging markets’ trade volumes have stalled.

So what?

Trade is a big deal and it boosts the U.S. economy. Yes, even trade with Mexico. Yes, even trade with China. Strong exports did more to pull the economy out recession than $830 billion stimulus blowout.

In 1960, 20 percent of homes in the U.S. didn’t have a phone and no one had a cell phone. Today, even the homeless have mobile phones. One big reason is trade that has driven down the price have having a phone.

As trade improves incomes in China, India, and other developing countries, that money will be spent on imports from the U.S. By 2020, per capita income in China is projected be $6,000 higher than today. That’s a billion or more people with huge increases in purchasing power.

There’s a national security component, too. Evidence is building that that the more trading partners a country has, the less likely it will be to engage in a war. That was the entire basis for the European Economic Community, which morphed into the EU.

Who’s to blame?

Research indicates protectionism is a big reason for stagnating trade. Across the world, countries have adopted policy initiatives harming foreign commercial interests. In recent years, protectionist measures outnumbered free trade measures by a 3-to-1 margin.

In the U.S., both Clinton and Trump have campaigned on anti-trade issues. Both Trump and Clinton have openly opposed the Trans-Pacific Partnership.

  • Trump says he’s against “bad trade deals,” but hasn’t named a trade deal that he think’s is “good.”
  • Clinton once praised TPP as the “gold standard” of trade deals, but has since reversed her position.

While we can never predict what will happen once Trump or Clinton enter the White House, it’s clear that pro-growth trade policies are not a priority for either Trump or Clinton.

There’s an old saying that protectionism is a politician’s delight: It delivers clear benefits to those that are protected, while spreading the costs across the public. In this way, protectionism is one of the worst forms of cronyism. Cronies can always get trade deals while the unconnected sit on the sidelines. Be prepared for a short list of winners and a long list of losers as world trade dries up.

The challenge to business, your business: How to make money in the age of protectionism, if you’re not a crony?

If you’re an importer, line up suppliers who won’t be subject to onerous trade rules. Or, set up a U.S. subsidiary who can technically satisfy the new rules. Yes, it’s a pain.

If you’re an exporter, find strategic partnerships in the countries with why you do business. A joint-venture with a local partner (such as a distributor), may allow you to satisfy “local content” rules without providing actual local content.

Economics International and Economics On Demand.

The world is facing rapid change and increasing uncertainty. But, every change presents an opportunity and uncertainty can be reduced.

Economics International Corp. brings common sense to complexity. We work on issues involving litigation, regulation, and public policy.

If you need an open mind and a fresh to review your business, Dr. Fruits will spend a half day or more learning your business and your markets and make himself available for consultation and research. It’s Economics On Demand. For a monthly fee, Dr. Fruits will be on-call to answer your questions, dig up research, crunch numbers, run workshops, or give speeches. Discount for up-front annual payment. It’s designed to be flexible, so you can pick anEconomics On Demand plan that’s right for your business. Emailfruits@econinternational.com or call 503-928-6635 and we can discuss your needs.

Thriving in the face of change: 3 business lessons from Pokémon Go

Pokémon Go is a free-to-play location-based mobile game available on iPhones and Android devices.

The game allows players to capture, battle, and train virtual creatures, called Pokémon, who appear on device screens as though in the real world. It makes use of GPS and the camera of compatible devices.

The game’s been out a week, and it’s a huge hit. But, a lot of people – including business people – seem downright hostile to the game. Big mistake!

The unexpected success of this game provides three lessons for businesses faced with change and innovation.

Lesson #1 – Accept. It’s natural to have a gut reaction to new things. Often that gut reaction begins with “I don’t understand it.” The next gut reaction is, “I don’t like it.” My Facebook feed is filled with grumpy folks telling Pokémon hunters to go home, get a life, or get a job (or all three).

It doesn’t matter if you like Pokémon Go. It’s here. And it’s here to stay. It might be a summer fling, or it might be around for a while. Bell bottom trousers were a fad, but they were a fad that lasted a decade. May as well accept the fact that millions of people are playing a game that gets them out of the house and walking around the community.

Lesson #2 – Understand. How does this thing work? When an innovation hits the scene, don’t ignore it – understand it. Learn how it works, how it works for users, and how it can work for you.

Facebook was built for college students. When it first came out, most older folks didn’t understand it and couldn’t understand why anyone would use Facebook.

Today, the average Facebook user is about 35 years old. More than 1-in-4 Facebook users are age 50 or older. Almost two-thirds of Americans get their news from Facebook. Facebook has grown from a quirky website that no one understands (what the heck is a “poke?”) to a massive piece of Internet real estate that almost everyone uses.

Pokémon Go gets people out and about. People go where Pokémon go. People hang out where Pokémon hang out. “Lures” are goodies that attract Pokémon to a site for 30 minutes. Lures can be purchased for 99 cents. Think about it. Now think about it as a business wondering how to attract new customers.

Lesson #3 – Adapt. How can I profit from it?

Look at these signs seen in front of businesses once the Pokémon Go rage took off. Who do you think is making money off of this new innovation?

One business is turning away customers with a nasty message: “Pokémon are for paying customers only.” That’s another way of saying, “We don’t want your business.”

The other business has adapted and embraced a source of new customers by offering a discount. “This place seems cool, let’s take a break and have a drink.”

Still other businesses have found entirely new opportunities. For less than $2 an hour they can drop a lure at their business and get dozens of potential new customers. That’s pretty cheap marketing. And, yes, a lot of businesses like bars, restaurants, and coffee shops have used the game to lure new customers.

In Oregon, an Uber driver turned to Craigslist advertising $30 for a two hour ride during which he would “drive you around Portland Metro area while you play Pokemon Go.” The fee includes snacks and beverages along with stops along a route that includes “all the PokeStops and Gym Trainers.” This entrepreneur saw an opportunity and jumped on it. (Note: He’s probably not charging enough.)

Everyday, we’re faced with change. With change comes risk and opportunity. Accept, understand, and adapt and you may be able to profit.

Economics On Demand

The world is facing rapid change and increasing uncertainty. Every change presents an opportunity and risks can be managed.

If you need a set of fresh eyes and an open mind to review your business, Dr. Fruits will spend a half day or more learning your business and your markets and make himself available for consultation and research. It’s Economics On Demand.

For a monthly fee, Dr. Fruits will be on-call to answer your questions, dig up research, crunch numbers, run workshops, or give speeches. Discount for up-front annual payment. It’s designed to be flexible, so you can pick anEconomics On Demand plan that’s right for your business. Emailfruits@econinternational.com or call 503-928-6635 and we can discuss your needs.

Britain’s exit from the EU will rattle the U.S. economy

U.K. voters elected to exit from the European Union. This is a major shake up for the U.K. and the rest of Europe and is almost certain to rustle, rattle, and otherwise jolt the U.S. economy.

The first impacts will be seen in foreign exchange markets as skittish investors pull out of U.K. and European markets to put their money in the safety of U.S. assets. Several economists predict the impacts of Brexit on the U.S. will be confined to our financial markets. Nevertheless, the result will be a rising dollar relative to the pound and the euro.

Many economists expect some ripples of Brexit hitting the U.S. economy. In which case, the next round of impacts will be seen in trade as a surging dollar suppresses demand for U.S. exports. In addition, economists are forecasting a slowdown in the EU economy, further depressing demand for U.S. exports. As a result, several researchers have cut their forecast of U.S. economic growth to less than 2 percent over the next year.

On the upside, a stronger dollar will reduce the cost of imports lowering U.S. production costs, boosting consumer buying power, and limiting inflation.

The U.K.’s exit from the EU may stifle cross-border merger activity as London is no longer seen as a gateway to European markets.

Brexit’s biggest unanswered question: What will happen to free trade?

While much of the U.K. vote to exit the EU was driven by concerns over immigration and hatred of the EU’s bloated bureaucracy, the Brexit campaign was suffused with protectionist undertones. Both Hillary Clinton and Donald Trump have clearly stated their opposition to free trade deals. If Brexit boosts protectionism worldwide, expect to see much slower growth—or recession—in the next few years.

The bottom line …

Pros: A strong dollar will reduce the cost of imports and keep inflation in check. U.S. importers and consumers will benefit from lower prices. It’s a good time to take that European vacation.

Cons: A strong dollar and EU economic slowdown will reduce demand for U.S. exports. Increasing protectionism will reduce opportunities of international trade. U.S. exporters will be harmed. Potential slowdown in already slow employment growth.

About that whole power pose thing, it’s BS

Remember when striking a power pose would solve all your problems?

With this “no tech lifehack,” anyone can “embody power and instantly become more powerful.”

Power pose promoters say all you need to do is to get yourself in the Wonder Woman stance, and *BOOM* you’ll get “elevations in testosterone, decreases in cortisol, and increased feelings of power and tolerance for risk.”

There’s a hitch, though … It’s B.S.

According to Tim Harford, the “Undercover Economist,” a later—and bigger—study found that high-power poses were correlated with slightly lower testosterone and slightly higher cortisol.

In other words, the opposite findings from what the Power Posers found. Not only opposite, but tiny and statistically indistinguishable from chance.

The lesson: Bad science leads to crazy conclusions that grab big headlines. Don’t let those headlines drive your decisions.

Should I stay or should I go? Labor market mobility and Millennial stress

 

Economists say too few people are moving away:

Labor market mobility in the United States has declined. Interstate migration is down (graph from Molloy, Smith, Trezzi and Wozniak) and so is in-state-migration, especially for the less well educated. Where once people responded to shocks by moving to opportunity now they are likely to stay put and retire early or take-up disability insurance.

Pop psychologists say too many people are moving away:

But the real change comes in the freedom of movement that has made it easy for people to leave families far behind. Studies have shown that having limited family in close proximity can lead to anxiety and depression. … One recent survey found that about half of millennials live away from their hometown. That’s a significant number.

Newsflash: Trump is wrong about undocumented workers

Donald Trump launched his Presidential campaign in June 2015 with the insult heard ’round the world:

When Mexico sends its people, they’re not sending their best. They’re not sending you. They’re not sending you. They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists. And some, I assume, are good people.

Trump missed the biggest stereotype of all—undocumented workers work and they work a lot.

Research published by the National Bureau of Economic Research finds that undocumented workers tend to work more hours in a year than native born workers. On top of that, undocumented workers work longer hours at every wage level, according the to studies author, George Borjas:

This finding is consistent with a frequent conjecture that is made about undocumented immigration— that “undocumented immigrant men come to the United States to work.” It is clear that the data strongly support this conjecture. Undocumented immigrant men … work regardless of the surrounding economic conditions.

Just look at this graph adapted from the study (I overlayed two graphs, added some color, flipped the axes). It shows native born men (the red) can’t be bothered to work at low wages. At $5 an hour, the average native born man would work less than 20 hours a week. In contrast undocumented men work an average of 30 hours a week at $5 an hour.

To get native born men up to 30 hours a week, the wage needs to be more than $8.00 an hour. Yet, at $8.00 a hour, undocumented men work and average of 30 hours a week.

Looks like Trump is wrong on this one. Research shows that undocumented men come to the U.S. to work.

Labor-Supply-of-Undocumented-Immigrants-Borjas-2016
The scatter diagrams show the relation between the average annual hours worked (including non-workers) and the hourly wage of a particular age-education-year group, using the 1994-2014 CPS-ASEC files.