On the rather simple question of whether banning low-wage employment would increase overall employment, Paul Krugman has offered an answer that refers to the real money supply, liquidity trap, short-run interest rates, Federal Reserve, monetary base, outside money, among other economic concepts we can barely define, let alone measure.

First and foremost, Krugman’s premise that a decrease in minimum wage results in lower wages assumes his conclusion that a reduction in the minimum wage does not increase employment.  A lower minimum wage results in lower wages only if it does not increase employment.  To the extent it increases employment, many wages w = 0, become positive.  The mistake he makes is clear in one of the introductory paragraphs.

Here’s how the fallacy works: if some subset of the work force accepts lower wages, it can gain jobs. If workers in the widget industry take a pay cut, this will lead to lower prices of widgets relative to other things, so people will buy more widgets, hence more employment.

The first and second sentences are not consistent.  Those arguing the minimum wage will increase employment are, by definition, not referring to workers in the widget industry that take a pay cut.  As I’ve explained in this post,  to the extent the employer has a lot of bargaining power to siphon surplus from labor, it should be able to pay heterogeneous wages.  To the extent the employer operates in a very competitive labor market, it is difficult to imagine many workers taking a pay cut only because the minimum wage was reduced.

There are ways to contrive an effect where the increase in employment is offset by decrease in the wages of those already working.  Typically this assumes the desired conclusion, as above.  Additionally, even if this were to be the case, Krugman’s conclusion is channeled through complicated monetary mechanisms that are not well-defined, hard to measure, and embedded with lots of uncertainty.

(It is true that one day someone will write a paper demonstrating how newly employed workers have a high marginal propensity to save because their employment means the price level of goods will fall increasing expected deflation and the present value of debt, which furthers the liquidity trap, resulting in even greater unemployment.  The paper might conclude with the “paradox of employment”, where banning employment actually increases employment.)

Krugman also relies upon a conflation between general wage levels and the minimum wage.

But if everyone takes a pay cut, that logic no longer applies. The only way a general cut in wages can increase employment is if it leads people to buy more across the board. And why should it do that?

Most people are not employed at the minimum wage, and therefore it seems unlikely that a decrease would somehow trigger a “paradox of toil”, wherein the increase in labor reduces the price level, thereby increasing the real value of debt at any meaningful threshold.  By definition the minimum wage is not a general change in wages.

The minimum wage is a 100% tax on all wages w < k.  Perhaps instead of increasing k we should reduce the tax rate.  Does Krugman believe a decrease in the low-wage tax rate would have contractionary effects in a liquidity trap?

Say there is a rich country without a minimum wage.  Some people rightfully dislike challenging labor.  For example, in a remote college town, some people fold student laundry at $4/hr for 40 hours a week, and work at the local library for $6/hr for another 20 hours a week, yielding a weekly salary of $280.  The federal government determines that $280/week is necessary, and therefore requires a $7/hr minimum wage based on a 40 hour work week.  Some time later an economist uses regression analysis to show that neither employment nor output fell, how could this be?

Though wages at existing jobs probably increased without reducing net employment to some extent, through some third-order mechanism, a simpler and more tangible answer is available.  Suppose individuals in the above example had a target wage of $250, without which they would die.  The available hours for employment doing laundry or working at the library are no longer high enough to meet the target.  Therefore, some such individuals started working as low-end construction workers earning $11/hr part-time, a job which they never wanted given its physical rigor.

Small increases in the minimum wage at non-random times over a long history may not demonstrate this effect.  But there are lots of people who may be working jobs that are mentally, emotionally, or physically strenuous because easier labor has been criminalized. Hence, demonstrating that there is not a significant decline in employment after the minimum wage, by itself, does not show anything.

Lots of people could be truck drivers or natural gas workers in North Dakota, probably earning way more than they do today.  They choose not to because they don’t want to drive around the country all day or leave their families as modern-day migrant workers.  People have the right to make this choice.  If it is offensive for whatever reason that some people are not rich enough, we should give them cash instead of criminalizing their choices.

A friend pointed me towards a description of a labor market where a minimum wage would increase employment and output from two economists at the Cleveland Fed.  I’m not sure whether the model they propose is novel, or from the literature.  I wanted to explore this claim in more detail, since I am told that the presence of monopsony employers is an important feature of arguments in favor of the minimum wage.

Consider a local labor market in which a large coal mine is the community’s dominant employer (a monopsony). Because the mine has negligible competition from other firms, it can set a wage that maximizes its profits. Unlike a competitive firm, however, a monopsony cannot hire as many workers as it wants at a constant wage. If the mine wants to add workers, it must offer a higher wage to attract new labor-force entrants. Suppose, for instance, that 10 potential hires have reservation wages below $5 and another candidate has a $6 reservation wage. If the mine wants to hire 11 workers, it must raise its wage from $5 to $6 across the board. Thus the mine’s cost of adding one worker, the marginal cost of labor, has two elements: the $6 hourly wage it pays one person plus a $1 hourly increase for each of the other 10. In this case, the marginal cost of labor is $16 ($6 + $10).

The firm maximizes its profits when the cost of having an additional worker equals the value of that person’s output. Thus, in the right-hand panel of figure 2, the point where the marginal product of labor intersects with the marginal cost of labor is the employment level for a monopsonistic firm. Notice that the employment level is lower than it would be in a competitive labor market. The wage, which can be read on the labor supply curve for the monopsonistic employment level (denoted w^M in figure 2), is lower than the competitive wage. So a monopsonistic firm employs fewer workers and pays them less than their marginal product.

Suppose that Congress sets a federal minimum wage that is higher than the monopsony’s wage but still below the competitive one. In that case, the curve representing the marginal cost of labor (right-hand panel of figure 2) flattens until it intersects with the labor supply curve. This happens because the cost of an additional worker is now simply the minimum wage (as long as the firm does not want to hire more workers than the number willing to work at or below this minimum wage). In this case, a minimum wage increases employment by mitigating the negative effects of a monopsony’s power. All workers gain: More of them have jobs, and those who do receive a higher wage. The employer loses because the minimum wage policy reduces its profits. In fact, the optimal level for the minimum wage is the competitive wage that maximizes employment (right-hand panel of figure 2).

I think this model fails to accurately portray the economics of a monopsony employer.

1. Suppose the firm knows the reservation wage of each worker.  If it were truly a monopsony it would just pay that amount, since it has all the bargaining power it would not be constrained by a constant wage rate.
2. Suppose the firm does not know the reservation wage of each worker.  It would just announce how much it would be willing to pay the nth worker for n = 1 to n = population and accept bids for employment.  Without unionization or collusion this handles heterogeneity in reservation wage.  This obviously would not happen in reality, but nor would total monopsonies, if that’s our metric.  The firm probably also has reasonably good heuristics about reservation wages based on easily observable factors.  (Additionally, in the above case it is almost certainly true that the government in charge of a minimum wage has substantially less information about reservation wages, preventing a reasoned ability to set policy.)
3. Suppose a monopsony initially hires 5 workers at $1 and another 3 workers at $2.  The imposition of a minimum wage at $2, assuming the premise about equal productivity and everything else is correct, would increase wages for low-reservation workers and reduce profits by $5.  This effect remain true even if all workers had a reservation wage of $1.  This suggests the premise is unnecessarily complex and noisy; or relies on odd assumptions about ability to pay heterogenous wages for a supposed monopsony.
4. Furthermore the reduction in profits from the minimum wage is realized as an increase in the cost of capital.  This increases the required rate of return from workers on new projects, which unfairly hurts those whose necessary value to firms falls below the minimum wage as required rate of return increases.  The minimum wage is not statically imposed but affects future periods, cost of capital, etc.
5. The example in (3) provides a distributional effect.  However this could just be accomplished through tax and transfer.  There is the concern that this would let the monopsony underpay the higher reservation wage worker since the government pays some or all of the difference.  To the extent that is the case, the government can just increase the tax rate.  This doesn’t matter as it normally would since the only taxable entity is a monopsony.
6. It seems unrealistic that there is no correlation between reservation wage and quality of labor.  For example, the higher reservation may reflect greater talent in normal economies.  In a monopsony it just reflects a higher labor preference.  However, that means the increase in employment is not welfare increasing per se.  Even in the contrived example of constant wages, imposing a minimum wage at the higher reservation only results in surplus for the lower wage employees, as the new entrants sacrifice equally-valuable leisure.
7.  In reality there are probably not monopsonies like the ones described above.  Congress should not set a federal minimum wage on that basis.

Let me briefly address the idea that minimum wage addresses the problem of market wages being far lower than return to each worker.  Surplus has to be distributed between two parties in some way.  If workers receive less because they have lower bargaining power, it might be a good idea to encourage union formation.

It’s unclear why the minimum wage would increase bargaining power – especially since it prohibits threat of competition for those who have a preference for easier jobs.  Some unskilled workers that like peace and quiet might have worked for $5/hr folding clothes for college students in a remote suburb.  The imposition of a $15/hr minimum wage might force such workers into low-end construction or other harder jobs.  Employment does not fall and wages increase but happiness and freedom does.

In any case, the normative claim should not be “workers should deserve x percent of surplus” but rather “workers should be rich enough to buy y“.  A tax and transfer looks like a better solution here, even in the face of contrived examples.

I also don’t understand the following claim from the article.

If the market wage is too low and workers lack bargaining power, the introduction of a binding minimum wage strengthens labor force participation, even though the duration of unemployment increases. In contrast, if the market wage is high, a minimum wage reduces the supply of vacancies and increases unemployment duration, which discourages workers from entering in the labor force.

1. Market wages may be low relative to productivity if reservation wages are also low for some reason.  Meaningful lack of labor force participation occurs when market < reservation < value.  For one, this is unlikely to occur with heterogenous wages which would be attempted in any number of creative ways were such a situation to ever exist.
2. The existence of low participation could just as easily reflect value < reservation as it does market < reservation.  In normal economies, increasing the minimum wage will result in mandatory productivity that may be greater than some people can reasonably muster, reducing participation.

Finally let’s just observe that we aren’t capable of measuring productivity, marginal revenue product, reservation wage, competitive equilibrium wage, bargaining power in at the conceptual and statistical resolution necessary to advance a policy that can change the lives of many individuals.

Some journalists like to cite stories of farms that would be empty without migrant workers.  Many of the same journalists also refer to academic studies which point out that immigration actually increases the wages of would-be displaced workers.  It’s impossible to believe that both of these narratives are generally true.  We cannot reason about economic decisions without reference to price – there is definitely a wage at which native American workers are more than happy to till the Alabama soil.  It is also implausible that farms would just disappear under the weight of higher wages. Increases in the input cost for goods with inelastic demand, like basic food and shelter, are substantially represented in the market price.  It might be that with existing citizenship laws the efficient market outcome requires more food to be imported, though that may not be worse than relying on low wages guaranteed by the captive supply of illegal workers.

This isn’t to say that an ideal outcome would not tolerate all willing immigrants.  Unfortunately, the liabilities incurred on behalf of foreigners that avail themselves of birthright citizenship creates a “second-best” world where further liberalization of cross-national labor is not always optimal.  Electoral franchise in a country where the government can choose which jobs deserve to be subsidized and which to be taxed – where it can choose who should be richer, and who poorer; where it adjudicates which parents love their children and which are negligent; indeed where it can choose who should live, and who should die – is a sacred institution protecting the essence of freedom.

It ill behooves the proponents of a more cosmopolitan society to belittle the concerns of those whose franchise is diluted on the altar of immigrants chosen not by cultural affinity or economic genius, but sheer geographic happenstance.  That the harbinger of this sentiment may sound angry and crass does not excuse public thinkers from arguing against the most ideal version of their opponent’s argument, instead of its ugly manifestation.  It is not Donald Trump’s fault that flagship American media outlets make scant effort to understand and interpret his followers’ beliefs, with the same benefit of the doubt they frequently afford equally unsophisticated advocates of their own received wisdom.

Edited to remove accusations that everyone might be a joker and emphasize the more substantive point that there are liberties more deserving of our undivided attention and relentless defense than the right not to live next to a guy with a rifle.

Not long ago, activists protested war and sat-in against racial oppression. Recently they protested consumption of foreign food and today they sat-in for the pyrrhic passage of useless policy. We should be more than a little embarrassed by politicians sitting in for gun control when they could be defending genuine Constitutional liberties. What if we fought for the 1st, 4th, 5th, 6th, or 8th amendments as vigorously as Republicans fight for the 2nd?

Here’s a quick summary of a few of the other original amendments.

• The 4th amendment gives you the right to be secure in your house and against unreasonable searches and seizures and requires probable cause supported by oath or affirmation describing the place to be searched, and the persons or things to be seized. You’d think that’s a pretty important thing to defend when it was only yesterday that the Supreme Court decided to change “the right of the people” to “the right of the people who remembered to pay their parking ticket”.
• The 5th amendment gives you the famous right to remain silent. More importantly it gives you the right not to be deprived of life, liberty, or property, without due process of law; [or  have your] private property be taken for public use, without just compensation. What if we wrote about the many people forced to sit in jail only because they can’t post bail as much as about gun control abroad? What if we spoke as much about the perpetual and tragic expropriation of private property under the auspices of civic forfeiture to fund margarita Fridays at the local precinct?
• The 6th amendment gives everyone a right to a speedy and public trial. Wouldn’t it be a pretty honorable to defend this right to the very end when a 16 year old convicted of stealing a backpack commits suicide after waiting in Rikers Island for 3 years instead of writing again about the gun show loophole?
• The pesky 8th amendment says that excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted. Half a million Americans sit in pretrial detention. The idea that “pretrial detention” can even exist is appalling enough. Apparently protecting this right isn’t as fun as childish shouting matches, lie-downs, or sit-ins.

Joke we may about how founding fathers couldn’t possibly know about how powerful guns would one day become. But why not also acknowledge how immensely foresightful the they were about things that matter ten times more. That gun control might work is not a sufficient or even relevant metric. Getting rid of a right to fair trial might also save lives. What is fair and reasonable may not always be Constitutional, and what is Constitutional may not always be fair and reasonable. Unfortunately the right to life, liberty, and the pursuit of happiness that we ought to cherish is sacrificed on the altar of a political theater that caters more to the unfiltered emotion residual after tragedy than the extreme liberty and freedom that made his country great.

It isn’t enough that many writers acknowledge the ailing judicial defense of constitutional liberty. If an article was written about a “mass seizure of liberty” every time 3 guys get put in jail on bail they can’t afford, every time a guy gets two weeks of solitary for sneaking in a pillow, every time the police raids a random house either without a warrant or without a justified warrant, or every time the government kills and assassinates someone at home or abroad without declaring and waging war we would be a better country.

Today those on the political extremes defended our liberties with more life and animation than the too many others who applauded politicians sitting down and shouting mean things at Paul Ryan.

Indicators that compare the outstanding balance of debt to a measure of repayment capacity are frequently used to estimate debt sustainability. There are many cases in which such ratios elevate the conversation, but it is helpful to highlight the pathological, indeed obvious, cases where they do not.

If the US suspended all tax collection for 3 years, the debt-GDP ratio may roughly double from 100% to 200%. Other things equal, I would guess rates would not move much. At least not without a presumption that individuals will use their rebate to dig holes. Even if we tried this over 30 years, instead of 3 years, future uncertainty in US earning potential might increase rate volatility and risk premia, but it isn’t obvious interest rates would increase much. This seems pretty clear at large magnitudes, but is equally valid for small changes in the ratio governing daily commentary on debt commentary and credit risk. Notably things about distribution over time is not necessarily important. A huge tax cut today means more cash provided in inheritance to future generations. (This doesn’t apply to spending because it doesn’t always in a form that can be sold and saved).

The level of debt-to-GDP is on the first order not much more than a choice about where we store future income, with some distributional effects thrown in at large magnitudes. And while countries are not perpetual entities, large debt-GDP ratios do not obviously change interest rates for credible institutions, even over large periods of time. Sometimes conversations such as these evolve into discussions on the properties of money, which I do not know much about. That said while it is true a large increase in US debt would be associated with certain “money-like” features, this observation is not necessarily limited to rich countries.

Obviously too much debt will increase interest rates and decrease expectation of repayment. Many times “too much debt” is associated with high debt-GDP ratios. But the underlying mechanism emerges from something else entirely. It may be that the increase in the ratio reflected large spending programs that were not expected to generate economic value. Or maybe it reflected the decline in expected future productive capacity of a country. (This isn’t a reflection of only stock and flow concerns as it would apply to flow/flow or stock/stock ratios as well.)

But without that information, understanding what debt ratios mean is hard. For example, it is sometimes claimed that we may not consider a large emerging market deficit to be problematic since we expect repayment from a growing economy. This is true in the same sense that we may not consider a deficit doubly big, other things equal, to be a problem outside of the way it modifies quality of projects funded. Since this ratio is a choice within reasonable bounds, understanding the motivation for this choice, the underlying economic truth it modifies, and the way it will affect and be affected by another country’s choice in the future are important to know.

The housing market started teetering sometime in 2006. The investment banking crisis climaxed in September 2008 after Merrill Lynch was acquired, Lehman Brothers failed, and Goldman Sachs became a bank. Over this week both the incumbent and future presidents would talk about the upcoming financial crisis. The commercial banking crisis became acute toward the end of 2008 through Citigroup’s second bailout in 2009. The unemployment rate starts ticking up in 2007, hits 6.5% in October 2008, and races through a 10% peak in October 2009. It’s not until 2013 that it falls back to where it was a month after Lehman. This was the opposite of overnight.

Yet you might miss that in consumer search activity.

Sometime after September 15 Americans thought the world might burn. And sometime by October 10th they decided everything was fine. Notably most of the peaks in the charts above, typically between September 28 and October 11, were post Lehman. This isn’t a feature of lagged searching, searches about the Lehman bankruptcy peaked in on September 14. This is no coincidence. A little over a week after Lehman failed, Americans watched their Treasury Secretary warn of economic calamity if TARP wasn’t passed. By the end of September a chorus of other luminaries were threatening economic doom. TARP was finally signed into law on October 3.

What’s fascinating is the compression of fear over two weeks that wouldn’t turn out to be very relevant for the American consumer. The stock market was flat or up for at least two weeks after Lehman failed, and Americans were calm and would remain calm after the market decline started in earnest. Nor did concerns about financial stability really return in 2009, even though unemployment soared and the commercial banking system remained weak.

While September 2008 was an important moment for the investment banking crisis, it wasn’t particularly relevant to most Americans. Families didn’t have deposits at Lehman, and didn’t borrow from Goldman to fund their home. Even interest in the housing crisis, which was brewing for at least a year if not longer, surged as the investment banks failed. Nor did search interest in crisis return prominently towards the end of the year when the banking system was in shambles.

Even the moderate increase in interest for “bank bailout” and “banking crisis” in the first quarter of 2009 doesn’t nearly match the same for late September 2008, before the banking crisis really even started. Of course this might be a distinction most searchers ignore, but the spike in “banking crisis” we observe in January-March 2009 that we do not observe in “financial crisis” suggests there is some discrimination. Of course the big difference was that by 2009, America’s wise men stopped warning of economic doom.

I’m not going to pretend I understand this data, what this data means for consumer sentiment, or what consumer sentiment means for the economy. But it strikes me as quite plausible that the incredible fear American political leadership provoked at the end of September 2008 may have had repercussions magnifying the the economic downturn. The official chronicle of the crisis plays so much lip service to “stigma” and “confidence”. It’s peculiar that there were some people who probably tried to force Bill Gates to accept TARP funds to conceal the obvious fact that Citigroup was desperate – but not concerned that this parade increased search interest in terms like “is my money safe”, “is my 401k safe”, or “next depression” by 100-fold.

For some searches we don’t see an immediate return to normal.

Within two weeks we observe a regime change in concern about a “great recession”. It’s hard to explain such a sharp change from September 15 to October 10 without considering the political theater that was considered necessary to pass TARP. It doesn’t strike me as unreasonable that the anxiety that follows from watching your Treasury Secretary talk about the next depression could have an acute impact on durable good and other luxury purchases, at a time when the economy was already underperforming.

I’m not suggesting that stress in the broker-dealer system was irrelevant to overall financial stability. But they weren’t directly relevant to most Americans. To the extent they were economically relevant, it would be indirectly felt through the commercial banking system. There are many times between 2007 and 2010 when Americans could have been reasonably scared – when house prices started falling, when subprime lenders started failing, when bank failures picked up, or when unemployment exceeded 10%, among others.  That this fear only appeared during September 2008 appears to be the outcome of a deliberate decision to scare people into legislating bailout.

This isn’t a criticism of the fairness or efficacy of TARP. Just the observation that a six sigma spike in “is my money safe” probably doesn’t lend much to credibility and confidence in the banking system.

In a recent post, Paul Krugman notes that there are simpler alternatives to a carbon tax that might get the job done. Though I don’t take too much issue with the principle – that there are other ways to reduce carbon emissions than a tax, the argument itself lacks content.

Krugman:

That said, there are reasons Econ 101 may not be right here. There is some evidence that consumers aren’t hyper rational when it comes to conservation, that they may pass up conservation opportunities even when it would save them money — and in that case rule rather than prices may be the right way to make them change. And to the extent that we’re talking about innovation, the Econ 101 case says nothing at all: the efficiency case for carbon pricing is about making best use of existing technology, not about providing incentives to develop better technology.

[The importance of a carbon tax] depends on the complexity of the required response. If reducing emissions really has to involve moving on many fronts, anything that looks like an administrative solution — telling, say, power companies what to do or not to do — is going to be much more costly than carbon pricing that exploits all the possibilities. But if a large part of the solution is going to involve a fairly limited set of measures — such as putting a quick end to the practice of burning coal to generate electricity — getting to broad-based carbon pricing is much less central.

And what I gather from reading various analyses of our prospects is that we’re closer to case #2 than to case #1: the problem of limiting climate change isn’t all that complex. End coal-burning and you’ve gone a significant way; a few other big things get you another substantial part of the way. Yes, comprehensive carbon pricing would be best, but it’s not the sine qua non of effective action.

There are many problems here. The argument doesn’t examine, or even make any indication of caring about, price. There is a price at which consumers don’t care, and a price at which they do. People aren’t rational about keeping the lights on because it doesn’t cost anything to keep the lights on. And that excludes the possibility that the irrational consumers actually have a rationale behind avoiding conservation opportunities that a researcher thought was cost-effective. Econ 101 also tells us to trust revealed preference.

More importantly, there’s a troubling circularity to the logic:

1. Carbon taxes are better than the alternative because we can’t observe the tastes and preferences that drive the demand for carbon.
2. But coal creates a lot of carbon, so lets ignore our initial premise and get rid of coal.

One might note the nonchalant way in which Krugman talks about “[ending] coal-burning” or “putting a quick end to the practice of burning coal to generate electricity”. If it was so easy we probably would have done it already.

There are problems. Some states are far more coal reliant than others. Some states need far more energy for winter heating. Some states are rich while others are poor. Some states have citizens more concerned about nuclear fallout. The entire point of a tax is to attempt to solve these issues in a more effective way than command and control.

The argument could be that “carbon tax is politically impossible whereas command and control is not” but that’s not the argument Krugman is making. To somehow suggest that we can isolate one important source of carbon and achieve most of what a carbon tax solves begs the entire question. It would be akin to noting suggesting “greenhouse gases seem to drive climate change – we could get bent out of shape over a greenhouse gas tax or just put a quick end to using carbon to move around and heat our houses”.

To the extent “a few big things get you a substantial part of the way”, each of the “few” things is going to suffer the same initial problem of command or market that it was intended to solve, or is actually going to be so large and complex that it can’t be effectively implemented. That’s not to say that banning coal can’t reduce emissions, but that’s obviously not the bar given that “Do whatever Somalia is doing is also a pretty good way to reduce emissions.” It’s also hard to check that the marginal users of coal increase net carbon impact. It’s hypothetically possible that coal growth is driven by electric cars which are may be net negative. Banning coal doesn’t help here. It’s also very possible that I’m wrong which is a perfect example why Econ 101 is actually fine and this isn’t a uniquely good candidate for control.

Furthermore, while it’s true that the Econ 101 case isn’t as much about innovation as it is about shifting supply and demand, it’s difficult to separate the two since innovation is a necessary component of the argument to begin with. Most people aren’t suggesting that we should become poor to end carbon emissions. Rather that with the right incentives innovation will fill some of the gap. Nor is the line between existing resources and future innovation so clear. It’s probably true that if investors with skin in the game put more money into clean technology, it will improve. The carbon tax just changes the calculus of whether that might be worth it.

There’s absolutely no way to know “whether we’re closer to #2 than to #1” without some sort of market incentive to test the claim. If all carbon was coal, claiming that we should ban coal obviously won’t work and we would need to figure out how to get there. Which would only return the original question.

I’m not saying that Krugman said something particularly offensive – that there may be conditions under which simple control gets the job done – but that this is always the case and not uniquely special in this situation. There needs to be some consideration of price, cost, and distribution – none of which find any attention in the column.

It’s also a moral question. If the government decides that we should reduce carbon emissions, we should be free in our execution of that plan. A vegetarian can choose not to start eating steak instead of buying government mandated lightbulbs and paying too much for heat. A commuter can choose to walk instead of drive instead of turning off the Christmas lights. It would be appallingly immoral to prescribe a set of values that we must use to achieve a certain goal.

Nothing in this column was incorrect per se. Everything was trivially true (“taxes aren’t the only way to reduce carbon output”), required some sort of a magic wand that begs the question (“end coal”), or suggested a false sense of confidence in what we know (“In my post favoring the effectiveness of limited measures I note that I’ve gathered this to be true”) even though the impossibility of knowing such is the premise of a tax to begin with.

Krugman probably knows this and may have been trying to motivate a broader point. Unfortunately the idiot politician that cites a Nobel Prize winning economist in a new “ban lightbulbs initiative” probably won’t call to ask.

Despite the fuss politicians and the media make about immigration policy, they appear to have largely missed important regulatory guidance that is critical for international students pursuing a STEM course of study. I’m writing this on my blog because what is likely one of the most important stories about immigration has been written about in the National Law Review but not the New York Times or Washington Post.

Some background first. International students need a F1 visa to study in America. This typically comes with 12 months of “optional practical training”, or OPT. In the Department of Homeland Security’s wording,

OPT is a form of temporary employment available to F–1 students (except those in English language training programs) that directly relates to a student’s major area of study in the United States. A student can apply to engage in OPT during his or her academic program (‘‘pre-completion OPT’’) or after completing the academic program (‘‘post-completion OPT’’).

OPT is critical for two reasons. Foremost, because the H1B lottery typically occurs in April, before most seniors have graduated and accepted full-time positions, international students usually need 9-12 months of work authorization before their employer can sponsor them in the H1B lottery the year after. Further, students often need to apply their OPT credit to pursue internships in the US, typically a prerequisite for a full-time job.

You might observe the problem here. If you need 10 months of OPT to survive working in the country a year after graduation, you can’t intern. This isn’t always true. Students can try to receive “curricular practical training” from their school, which can be gamed to allow internships that do not count against OPT,

CPT provides a specially-designed program through which students can participate in an internship, alternative study, cooperative education, or similar programs. 52 FR 13223 (Apr. 22, 1987). Defined to also include practicums, CPT allows sponsoring employers to train F–1 students as part of the students’ established curriculum within their schools. 8 CFR 214.2(f)(10)(i). CPT must relate to and be integral to a student’s program of study. Unlike OPT and other training or employment, however, CPT can be full-time even while a student is attending school that is in session. Schools have oversight of CPT through their DSOs, who are responsible for authorizing CPT that is directly related to the student’s major area of study and reporting certain information, including the employer and location, the start and end dates, and whether the training is full-time or part time. 8 CFR 214.2(f)(10)(i)(B).

A common problem with CPT is its non-uniformity. Certain schools make it reasonably easy to check the correct boxes, by offering international students a 0.25 credit, pass/fail course that requires a joke essay. Other schools don’t allow this, or require far greater documentation from students that the internship is related to a course of study. (And what major, exactly, does consulting conform to?)

In 2008 DHS made it even easier for students who had the good luck of the State Department deeming their course of study “STEM” (and you’ll see why I joke soon) stay and work in the country. It appears (corroborated by Wikipedia) that this is a result of Bill Gates testimony to Congress, though I can’t find much information about it in major media to confirm. Regardless, in April 2008, STEM graduates were awarded 17 months of post-completion OPT in addition to the 12 they already had.

Unsurprisingly, this was met with nativist fearmongering. The Rob Sanchez, at the Center for Population Stabilization, wrote that “the search for internships just got harder” and is apparently very concerned about the privileged and subsidized group of people that are Americans with STEM degrees.

After some years of silent ado, Judge Ellen Huvelle of the US District Court of Columbia ruled that this extension was invalid as there wasn’t appropriate notice or a comment period, as result of a suit brought by the Washington Alliance of Technology Workers (a high-tech workers union, apparently) because hey, why allow competition when your salary has doubled over the past decade. You really would think that the inability for foreign workers to compete for wages on an H1B, since their entire livelihood is tied to their current employer, would be enough to satisfy nativists, but apparently not.

Huvelle gave DHS until this February to follow procedure correctly, and now enter today’s joyous news.

SUMMARY: The Department of Homeland Security (DHS) is amending its F–1 nonimmigrant student visa regulations on optional practical training (OPT) for certain students with degrees in science, technology, engineering, or mathematics (STEM) from U.S. institutions of higher education. Specifically, the final rule allows such F–1 STEM students who have elected to pursue 12 months of OPT in the United States to extend the OPT period by 24 months (STEM OPT extension). This 24-month extension effectively replaces the 17-month STEM OPT extension previously available to certain STEM students. The rule also improves and increases oversight over STEM OPT extensions by, among other things, requiring the implementation of formal training plans by employers, adding wage and other protections for STEM OPT students and U.S. workers, and allowing extensions only to students with degrees from accredited schools. As with the prior 17-month STEM OPT extension, the rule authorizes STEM OPT extensions only for students employed by employers who participate in E-Verify. The rule also includes the ‘‘Cap-Gap’’ relief first introduced in a 2008 DHS regulation for any F–1 student with a timely filed H–1B petition and request for change of status.

Of course, the “wage and other protections” can’t be any good, but there is now a clear and legal pathway for thousands of international STEM students to work in this country without fear of arbitrary deportation (until the H1B lottery, at least, but let’s not get too greedy). Plus 24 months is more than enough time to marry an American.

But the point of this post is the completely arbitrary nature of critical immigration policy. It’s not being decided or debated in the Senate. Heck, it’s not even being debated by the President’s NEC and top advisors. Rather, a small number of jokers in the Department of Homeland Security (with occasional sanction and argument from jokers at the high-tech workers unions) are setting the policy that directly frames the life of hundreds of thousands of students.

Look no further than the list of “STEM” majors eligible for the extension. Animal or horticultural science qualifies, but economics does not. Animation and special effects counts, but english does not. Digital communication & media counts, but finance and accounting do not.

Some schools are willing to help students get by the system more than others. (And this doesn’t have to do with tier or quality much, Princeton refuses its students CPT whereas Penn and Chicago do not, and so forth).

This leaves students and their employers at the whim of bureaucrats at the universities and, worse, bureaucrats in the government. This is a question of economic import for the country, and emotional consequence for its students and yet is hardly mentioned in the country’s paper of record. (But don’t worry, I’m sure the Times is busy expanding its coverage of single, old men to Long Island and Jersey City).

Maybe CNN can ask Hillary or Bernie what they think about the STEM extension; or if they even know what it is.