“NASSCO-General Dynamics , the last major shipbuilder on the West Coast, laid off 290 of its 4,100 workers in San Diego on Monday because of a downturn in business and fluctuations in the repair work it does for the U.S. Navy.

The company, which is among San Diego County’s 20 largest employers, also eliminated the jobs of 270 subcontractors. The overall loss of 560 jobs was about half the number that NASSCO had said earlier it might have to cut.”

These are 570 highly-skilled and specialized people.  Most of them will leave California, because few, if any, other jobs requiring their skills exist in San Diego.  If NASSCO-General Dynamics ever considers expanding its San Diego operations, they’ll consider the lack of skilled workers, and it will make expansion less likely.

Losing highly-specialized, high-skilled, workers is a bit like losing infrastructure.  It reduces California’s ability to rebound, and it is a serious problem.  Domestic migration trends (mostly negative for 20 years now, depending on data source) imply that California has lost a lot of these workers.  California is worse for it now.  It will remain worse for it for years to come.

So it goes. Today’s political debate so often consists of empty slogans and name calling, with little no real discussion of the issues. Minds seem to be made up. Few people want any new information that challenges their views.

We were hired to assess the claims that AB32 would generate net-positive economic growth. The California Air Resources Board has said that AB32, the bill that would require California to reduce carbon emission back to 1990 levels, would create 10,000 jobs by 2020. To do this, we reviewed a few articles that supported the claims. We reviewed the evidence from some countries that are ahead of us in green house gas regulation. Finally, we reviewed the peer-review academic literature. We performed no primary research. We documented our conclusions.

We did not take a political stance as to the desirability of AB32. Assessing the risks of global warming is beyond our expertise. Deciding the appropriate expenses to incur to insure against those risks was beyond the scope of the project. Our research was specific and clear. Given that both advocates and opponents of greenhouse gas regulation claim that the opposing position will costs jobs, it was inevitable that some would be unhappy with our results.

So, what did we find? First, please recognize that the claim that AB32 would create net-positive economic growth is the same as saying something better than-a-free-lunch exists.

If that sounds too good to be true, it is. Evidence and theory indicate that some costs are unavoidable if we are to limit carbon emissions. That is: There is no free lunch, much less a better-than-free lunch. We also found that a refunded carbon tax minimizes costs. This is a tax where the tax is refunded against some other tax that distorts economic incentives. Income taxes are thought to distort incentives, and they would be an excellent candidate for the refund. This type of tax is widely accepted among economists as an efficient method of reducing an activity associated with negative externalities. If you want less of something, tax it.

As you move away from a pure rebated tax, costs tend to go up, particularly with command and control type regulation. In some cases, costs can be quite high, and we provided some examples. We concluded that command and control regulation, a significant component of AB32, could be very costly for California.

The debate over carbon emission regulation is a necessary debate. We should be discussing the risks associated with global warming. We should be discussing the appropriate amount to spend to insure against those risks. We should be discussing the most efficient ways to insure against those risks. Our work helps inform that debate, if anyone is listening.

Since we don’t see the insurance, I assume the reason has to do with asymmetrical information and problems creating a contract with the proper incentives.  The insurance company can’t know about the character of the student and how much effort they will make to get a job that allows repayment of the student loan, and just what would a contract that doesn’t provide a moral hazard problem look like?

Absent insurance, we would expect students to self insure.  How could they do that?  One way would be to major in degrees that are more likely lead to employment.  Higher grades would also be a signal to that all-important first employer.

The United States has chosen the second corner solution.  As best I can tell, there is no way to ever get rid of a student loan, except by paying it or death, regardless of financial and other circumstances.  They cannot be discharged  in bankruptcy.

Corner solutions are rarely optimal, but the current one is truly terrible.  Europe apparently has something like the first corner solution.  So did California at one time.  The original higher education pact assured Californians a tuition-free degree.  This is similar to making a loan and waiving repayment when the student leaves school.

Free is always a bad price.  Education is no exception.  If something is free, too much will be demanded.  Europe is looking for new ways to fund higher education, and California used the deception of calling tuition fees to renege on its commitment.

Free may not be the right price, but current policy is worse.  Not allowing student loans to be discharged in bankruptcy under any conditions is simply barbaric, just one step away from debtors prisons.

You want to have the correct incentives for people to pay the loan, but civilized societies long ago recognized the circumstances change, and we are all better off with efficient ways to adapt to those changes.  Bankruptcy is such an efficient process.  It has worked well for a very long time.

Today, many of our recent graduates are suffering because of student loans cannot be discharged, a result of a changing economy and a deep recession.

The Chronicle of Higher Education released a report, just today, that documents the extent of poverty among young graduates.  USA Today has a piece that puts a more personal face to the data.

Financial troubles are disasters for the individuals and families caught up in them.  Marriages are destroyed.  Families are destroyed.  Lives are destroyed.  Some will commit suicide.

We don’t have to make it particularly easy to discharge student loans, but we do have to provide a release.  The current recession is forcing many of our young people to start their adult lives under extraordinarily challenging circumstances.  Research has shown that  the bad economy will limit the  income of many for their entire career.  Why make it harder by imposing a burden from an unsuccessful past?

We need to give the kids a break.

Benjamin Powell has a nice piece on immigration.   In it he addresses the standard arguments against immigration.  I particularly like the following paragraph on the fear that immigrants take jobs away from the native born:

If immigrants really did take jobs, on net, from existing native-born workers without new jobs also being created, the same should be true any time we add more workers to the economy. Is it? Since 1950, there has been massive entry of women, baby boomers, and immigrants into the work force. As Figure 1 shows, the civilian labor force grew from around 60 million workers in 1950 to more than 150 million workers today. Yet there has been no long-term increase in the unemployment rate. In 1950, the unemployment rate was 5.2 percent, and in 2007, the year before the current recession started, the unemployment rate was 4.6 percent. As more people enter the labor force, more people get jobs.

Powell also covers topics such as the effect of immigration on wages, crime, and the impact of immigration on the welfare state.  It’s an easy read, and a worthwhile one.

In equilibrium, nice employers hire the rich, and mean employers hire the poor. It makes sense: Nice employers need rich workers they can trust, and poor workers misbehave unless there’s a mean employer on their backs. Nevertheless, the firms where mean bosses employ poor workers look very different from the firms where nice bosses employ rich workers. An ethnographer who visited the mean boss/poor worker firms would probably tell a vaguely Marxist story about class conflict. An ethnographer who visited the nice boss/rich worker firms would tell a much more pro-market story about cooperation and meritocracy.

It’s worth reading the entire thing.

Going to Peoria was a bit nostalgic and a bit of a culture shock. It was nostalgic because Joyce and I purchased our first home in Glendale Arizona, just next to Peoria, and our first son was born in Phoenix exactly 34 years ago today. It was a culture shock because Arizonans aren’t afraid of change, in contrast to many Californians these days.

I saw so much public infrastructure spending in Maricopa County (home of Phoenix, Peoria, and several other cities) that I wondered if the County had more going on than the entire state of California. They did some checking, and they think so. Imagine that, a county with under 4 million people investing more in public capital than California with its over 36 million people. It’s because they plan on having a future.

In my talk, I was asked about the role of government, and I talked about safety-net issues, but I failed to discuss some of the positive things that government can do. A key is Infrastructure investment, public investment in capital that would make private capital more productive. Freeways, ports, airports, the Central Arizona Project, the Tennessee Valley Authority, the Rural Electrification Program, and the Panama Canal are examples, and the list could go on and on. The problem with the current federal stimulus plan is that so little of it is being used to create productive capital.

Local governments have options. Ventura City has its Jobs Investment Program, where they partnered with a venture capital firm to attempt to bring tech business to Ventura. San Jose has a different type of partnership with a venture capital firm. They are trying to create job opportunities for their lower-wage workers.

Peoria itself is doing some interesting things. It is actually trying to recruit at least one private college. That’s right they are working to help an existing college pack up and change states, and they have colleges considering taking them up on it. They are also looking at their version of a possible partnership with a venture capital firm. Best of all, they asked me out to talk to them.

One of most important things local government can do to help growth is to be really ready for it, to have the infrastructure in place or ready to go, to have the planning and zoning in place. It looks like Peoria does this pretty well too. I think that if you wanted to locate your business there, they could identify possible sites and get you up and running pretty quick, quite a contrast with California cities where you could fight for years before you start construction, if you start construction.

No city is perfect. The economy has hurt Arizona, its cities, and its citizens. But they respond differently. Instead of California’s gridlock and malaise, Arizona is optimistically working its way through the recession. You get a sense of a future that you don’t get in California. Peoria’s peripheral growth has also left the older sections of town looking a bit ragged, but they are working on it. I saw lots of work being done to improve the look of the historical section.

Best of all, Peoria and the rest of Maricopa county are middle-class friendly, another contrast with much of California. Housing is affordable—the daughter of one person I spoke to had an $80,000 offer in for a single family residence—and unemployment, while up, is far less than in California, 9.6 percent versus 12.6 percent. Families can live and work in Central Arizona.

I’m willing to bet that Central Arizona’s recovery will be far stronger than California’s recovery.

Rick’s right. Governments don’t create jobs. They can do their best to create an environment that encourages job growth, but that’s about it. I tend to think that a region has a certain job-growth potential, and governments should try not to kill too much of that potential in the process of providing government services or addressing inequality issues.

Rick is also justifiably proud of Ventura’s somewhat unorthodox, approach. The City has a couple of really creative initiatives. They created what they call a Jobs Investment Fund, to partner with a major venture-capital firm to attract new, high tech, businesses to Ventura. They also have a new City-owned incubator.

This is all good. I’m glad to see my city working to improve opportunity, and I’m glad to see them being creative. I’m afraid though that they may not have much success, and it is not the City’s fault.

To continue Rick’s war analogy, in California, cities and counties are the infantry. The State is the general, the one with the big guns: artillery, air support, tanks, and the like. Unfortunately, the general is withdrawing. Local governments, the infantry, are sitting in the foxhole without support. Odds are the war can’t be won by a few guys in a foxhole.

The WSJ claims that extending unemployment insurance is causing unemployment, and that their opinion is consistent with Summers’ past statements. Unemployment insurance can exacerbate unemployment in times of full employment, but these are not times of full employment. We know that employers have cut millions of jobs. That is why we see unemployment. It is not even disingenuous to argue that the insurance is causing our current unemployment. It is just dumb.

Summers’ response starts out reasonably enough. He gives the argument I gave in the previous paragraph. Then, though, Summers starts claiming that unemployment is stimulus. That’s pretty silly too.

Unemployment insurance has a minor counter-cyclical impact, but that is not why we have it. We have unemployment insurance because we’re compassionate. We want to help people in tough times, and if that creates a little inefficiency, who cares?

Extended unemployment, such as we are seeing now, is catastrophic for families. Unemployment insurance helps a little. We should extend unemployment insurance, but Summers diminishes himself by pushing the party line and claiming it is stimulus.

The idea has merit, and now might be a good time to implement it. Business investment has been extraordinarily weak for a long time now. Businesses may be feeling the lack of investment, but they are unwilling to invest now, because of uncertainty about the recovery. A tax credit might be just what is needed to push some of them into investing. It would also encourage hiring. Capital and labor are compliments. More capital would improve the productivity of labor, reducing the cost of hiring.

Certainly, it would be better to run a deficit to fund investment than continue the existing program of funding current consumption with deficits. This policy would imply a higher steady-state level of future capital stock than with the current policy, with greater future productive capacity. The higher future capital stock means the economy would have more resources available for consumption, further investment, or (heaven forbid) paying down debt.