June 2006 Archives

Read the press release:

Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.

Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.

They say that "inflation expectations remain contained." That's a lot different from being "unhinged." My take on the language of this announcement is that a 50 b.p. increase in the near future is pretty unlikely, but that another one or two quarter point steps are probably in the cards. If economic conditions remain status quo, the default option is to continue rather than pause. There is some evidence that higher energy prices are being passed through to the rest of the economy. Interest rates may have to go a little higher to make sure that this pass through is minimized, even if the relative price of energy stays higher for a long time. Figuring out what the appropriate level is--in real time--is not a trivial matter. The successful "soft landing" of the mid-'90s took place when oil was closer to $20/barrel. The last time we had to fight inflation when oil prices were at these levels in real terms, things did not go quite as well. Fortunately, this time we are not starting out quite so far behind the curve, but if we are behind the curve at all, it means that it will take more effort from the Fed to get real rates where they need to be. That is a risk that cannot be ignored.

UPDATE: A lot of commentary is focused on the potential for a pause. Given that for a year or so now I've been talking about when the Fed might pause in raising rates, I figure I should comment a little more on this aspect of the decision. In the original post above, I did say that I think the default is one more increase if the data is status quo. I'll stick with that. I think that inflation is currently at the top of just about everyone's comfort zone, and it will take a fairly clear indication that the recent rate increases have been successful in turning the tide before they let their foot off the brake. How will we know? Listen for the speeches from Fed officials ("Fedspeak") after the next few data releases. I would expect them to point to clear evidence from recent data given that the official announcements have been emphasizing that we are in a "data dependent" mode. That's the bottom line.

Remember what I said about "necessary but not sufficient"? Here we have another example. This announcement does open the door, but they do not have to walk through it. I think a pause is fairly likely at one of the next two meetings. Which one will it be? I think it is too soon to say.

I would caution against reading this statement in a vacuum (as some in the stock market might have done this afternoon). The context is a long series of data on increasing inflation and concerns about inflation expectations. There are differing views on the FOMC about how far to push the rate hikes. I would imagine that the discussion at this meeting was rather spirited. (Can't wait for the minutes to be released!) I would also imagine that at the next meeting there will be some members (St. Louis's Poole, perhaps) who would advocate pushing a little past "neutral" to ensure that expectations stay contained. All of this together leads me to say that a pause is far from a sure thing in August. But the flexibility of the FOMC to do what it has to do to meet its objectives has increased a bit. I can envision scenarios in which there is a pause in August, and that is something that I could not say about the June meeting.

Hal Varian, writing on the Economic Scene (NY Times), thinks about how to improve the incentives for people to save.

One promising proposal has been to set defaults for enrollment in 401(k) plans so that employees are automatically enrolled in an appropriate plan unless they explicitly choose otherwise. Brigitte C. Madrian, an economist at the University of Pennsylvania, and Dennis F. Shea, from the UnitedHealth Group, have found that this simple policy increases participation rates dramatically.

Another suggestion is to provide matching grants to low-income individuals. Esther Duflo of M.I.T., William G. Gale and Peter Orszag of the Brookings Institution, Jeffrey B. Liebman of Harvard and Emmanuel Saez of the University of California, Berkeley, recently released a working paper examining the design of such a plan. ("Saving Incentives for Low- and Middle-Income Families: Evidence From a Field Experiment With H&R Block"; a nontechnical summary is available at http://www.nber.org/digest/may06/w11680.html.)

In this experiment, about 14,000 low- and middle-income families in the St. Louis area were offered a 20 percent match on their contributions to an I.R.A., a 50 percent match or no match at all. Individuals could make a direct contribution or allocate part of their tax refund to an Express I.R.A. account offered by H&R Block.

Only 3 percent of the individuals who had no match — the control group — contributed to an I.R.A. But 8 percent of those with a 20 percent match rate contributed, and 14 percent of those with a 50 percent match contributed. The amount contributed was four times as much as the control group for the 20 percent match rate and seven times as much for the 50 percent match rate.

The first option is a bit of an admission that people aren't always perfect rational optimizers (see also this post). I have no problem with it as long as people always have the option to change. For one reason or another, a lot of people never move off the default settings, so be sensible about setting the defaults. Good advice for software design and for policy.

The second option is the sort of thing you'd expect an economist to suggest. Are the policymakers listening?

As they say, read the whole thing.

UPDATE: Mark Thoma wishes that Varian would identify the specific market failure that necessitates government intervention. Part of it might, in fact, be myopia on the part of savers (a behavioral issue rather than a market failure). Brad DeLong once said as much. Surely this wouldn't be the only example of a government intervention meant to change behavior rather than correct market failure. (Not all such interventions are agreeable to me, but I'd give this the benefit of the doubt.) Furthermore, I would add that government intervention for a good reason to correct a market failure such as moral hazard and provide a social insurance program may have some negative effects on incentives to save. Again, I refer to Brad DeLong's posts (such as this one) where he not only addresses the need to increase savings in the context of the Social Security debate but also recommends making it the default option to put your tax refund into a savings plan (which is similar in spirit to the first option in Varian's article). I really do think that part of the problem of low savings is that we have an imperfect solution to a fundamental market failure and the low personal savings rate, especially among low and middle income Americans is one of the side effects. So while I like the ideas Varian describes and would like to implement them, we probably could do something better than adding epicycles on epicycles.

I've been quiet about the FOMC meeting lately since there really hasn't been anything to shake my opinion of what will happen tomorrow. I think a quarter point is pretty much a given, and "data dependent" is the new "measured pace". I expect that the announcement will retain most of the usual language with maybe a marginally thougher tone towards inflation. Barry Ritholtz has a discussion going about whether they might go with more than a quarter point. While it is entirely possible to form an academic argument as to why 50 b.p. might be needed, it is much, much harder to imagine it actually happening in the current environment with an economy that is good but not great, a nervous stock market, and comments from Fed officials that have not exactly telegraphed a 50 b.p. rise.

That said, I have already indicated my unease with the thought of the nominal funds rate merely keeping up with accelerating inflation. Then the danger is that people will start to think that this is more than just a transient spell of inflation and longer term inflation expectations would be pushed upward. A rise in inflation expectations is both a symptom of troubles that have been brewing and a problem for the Fed going forward. It would be a turning point in seeing things go from good to not-so-good. So you should understand why things like this get my attention:

CHATHAM, Massachusetts (Reuters) - U.S. inflation expectations have "come a little bit unhinged" and if they rise, cutting U.S. inflation could be difficult and costly, Federal Reserve Board Governor Donald Kohn said on Friday [June 16].

"Inflation expectations have come a little bit unhinged -- it's not a lot, it's not a big deal, but it has presented us with some issues," Kohn, the nominee to be vice chairman at the central bank, said during a panel discussion at a Boston Fed conference on global imbalances.

The phrase "a little bit unhinged" sounds like an oxymoron, sort of like being a little bit pregnant. Either you are or you're not. If you want to take a stand that inflation expectations are on their way up and that it is a "big deal", then you have to be willing to put it in the post-meeting announcement. (I'd refrain from using words like "unhinged" or "big deal" in the announcement, of course.) That would be a clear indication that 50 b.p. is on the table.

Until then, "data dependent" and "measured pace" are all the same to me.

Via Phil at Market Power comes this article from the StarTribune.

Thousands of college students and parents are clogging phone lines and rushing to Internet sites in a scramble to refinance college loans before a sharp interest rate increase this weekend.

An almost 2 percentage point interest rate increase for federal student loans kicks in Saturday, and advisers say that not refinancing could cost thousands of additional dollars in interest in the decades after a student enters the work force.

...

"There are very few situations in which it is not advisable for a student who has outstanding loans to consolidate, because they will lock in" relatively low interest rates, said Sandy Baum, an economics professor at Skidmore College in Saratoga Springs, N.Y. Baum is also a financial aid analyst for the College Board education association that produces the SAT college entrance exam.

It is true that students who do not consolodate now will pay more, at least for a while. I'd quibble a little bit with the statement that it will cost "thousands of additional dollars in interest in the decades after a student enters the work force." That's not necessarily precisely true. The rates they will get now are not the lowest in history. If you refinanced last year, you got an even better deal. If interest rates ever get back to where they were about a year ago, then one could wait to refinance until then. It's even possible that sometime in the next "decades" that rates could even go lower, but I admit that would be a gamble.

But the way the student loan system works is that you only get one chance to consolidate. Think of it as if you only get one shot at refinancing your home mortgage. When do you do it? The problem is essentially one of determining when to exercise an option. Whenever the interest rate you get from the consolidation loan is less than the weighted average of your original loans, you are "in the money." But you may not want to exercise the option if you think that rates are going to go down in the near future. So how long do you think it will take for rates to get down to last year's levels again? Your answer will determine whether you think consolidation is a good deal. If you're a recent grad with an average loan balance just starting to make the full payments, you'll probably want to take the deal now. But every situation is different. Your mileage may vary, etc.

I don't have any more loans to consolidate. However, my story is instructive. I figured out early on that consolidation is like an option, so I figured out a way to hedge my bets. I had a number of loans from 4 years of college and some occasional smaller loans during grad school. I consolidated in stages over the years, finishing last year when rates were really low. Knowing that last year's rates were the best I would see in the life of the loan, I went "all in" and gave up any option of consolidating again. I ended up with a weighted average that is a bit higher than if I had timed things perfectly, but better than if I had gone all in right away. (Think of it as getting only one chance to refinance your house, and so doing it one room at a time to keep your options open.) Trust me, its still a better deal than I ever thought I'd get when I graduated from college. Plus, it was an interesting real-world exercise... a chance to practice what I preach.

So my take on this whole consolidation rush is a bit different from the media's. With the exception of those people who just took out loans this year and thus could not have consolidated last year, all of these folks could have done it last year. Either they thought the Fed would stop raising rates sometime in the last 12 months and that lower rates were on the horizon or they missed a really easy call. I think it was the latter.

And that's some real-world macro that has a chance of connecting with college students.

The 500GHz chip has arrived, but there is still one obstacle to getting it on your desktop--it operates at a few degrees above absolute zero.

Room temperature performance isn't that bad either...

Instead of relying on pure silicon, the foundation material of modern semiconductors, the chips in the demonstration were made of silicon and germanium, using an increasingly popular combination of elements to improve speed. Even at room temperature, the chips can run as fast as 350 billion cycles, or gigahertz. In contrast, silicon-germanium chips in the current generation of cellphones run at about two gigahertz.

Full story at the WSJ.

Wired calls it a "quantum leap".

The inflation news wasn't good, but it is probably safe to say that most of us would have been more surprised if the news came in lower than the forecasts. Right?

Barry Ritholtz says it best,

Everybody seems to be all abuzz about today's CPI number. Its no big whoop.

Why? At this point, I think we can all agree that a 1/4 point increase at the June FOMC meeting is a foregone conclusion. So that makes today's data more or less irrelevant to that meeting. Even if the inflation data comes in extremely benign, its but one point in a data series. Its doubtful it will impact the Fed's thinking about the next tightening in any meaningful way.

True. If this is an aberration (at what point do repeat performances stop being aberrations?), then you could argue to let-bygones-be-bygones and call off the dogs in August. But that is looking a little less likely with every data point.

Shifting the discussion only slightly, I note that Chris Dillow reads Mark Thoma and has this question among others...

Is there a danger that higher rates might actually validate high inflation expectations? The private sector might regard a rate rise not as a sign that the Fed is willing to reduce inflation, but rather as confirmation that inflation is indeed a big risk. If higher interest rates lead to higher inflation expectations, they lose much of their power to reduce actual inflation.

Not a pleasant thought. This is just another way of asking if the Fed is doing enough to raise real interest rates. Raising nominal rate just enough to keep up with inflation isn't going to cut it. But failing to keep up damages their credibility.

And so we come to the punch line. We have said for more than a year that the Fed has to get the funds rate to "neutral"--whatever people thing neutral happens to be at the time. Recall that this tightening campaign is about to reach its two year anniversary. Let's go back to the July 2004 issue of National Economic Trends (St. Louis Fed) to see what was being written then.

One simple rule of thumb for a neutral rate adds trend productivity growth, trend labor force growth, and a longrun target inflation rate together to yield a target federal funds rate consistent with the economy’s long-run growth potential and the FOMC’s inflation goal. Many analysts assign 1.0 percent for long-run labor force growth. In 1994, 3.0 percent might have been a reasonable assumption for an inflation target, whereas today 2.0 percent might be a better guess. Trends in productivity growth are harder to discern.

During the early 1990s, trend growth in nonfarm business sector productivity was often assumed to be about 1.5 percent. The three figures (1.0 + 3.0 + 1.5) then sum to 5.5 percent, and the 1994 tightening episode indeed ended with the federal funds rate just over that level, at 6.0 percent, in early 1995. But since 1994, trend productivity growth has increased. In fact, recent nonfarm business sector productivity growth has been shockingly robust: 4.9 percent in 2002 and 4.4 percent in 2003. Even if the underlying long-run trend is only 2.5 percent, that still suggests a sum (1.0 + 2.0 + 2.5) yielding a neutral federal funds rate of 5.5 percent, just as in 1994.

Annual productivity growth from 2004:Q3 through 2006:Q1 has been quite close to 2.5%, so one of those numbers is spot-on. But if inflation continues to drift upward it's going to take more than a funds rate of 5.5% to crank inflation back down to a target of 2%.

Bernanke speaks: (Full text) In my opinion, this is a major speech, and therefore I quote more extensively today than usual. You really should read it all.

It is reasonably clear that the U.S. economy is entering a period of transition. For the past three years or so, economic growth in the United States has been robust, reflecting both the ongoing re-employment of underutilized resources as well as the expansion of the economy’s underlying productive potential, as determined by factors such as productivity trends and the growth of the labor force. Although we cannot ascertain the precise rates of resource utilization that the economy can sustain, we can have little doubt that, after three years of above-trend growth, slack has been substantially reduced. As a consequence, a sustainable, non-inflationary expansion is likely to involve some moderation in the growth of economic activity to a rate more consistent with the expansion of the nation’s underlying productive capacity. It bears emphasizing that productivity growth seems likely to remain strong, supported by the diffusion of new technologies, capital investment, and the creative energies of businesses and workers. Thus, productive capacity should continue to expand over the next few years at a rate consistent with solid growth of real output.

...A slowing of the real estate market will likely have the effect of restraining other forms of household spending as well, as homeowners no longer experience increases in the equity value of their homes at the rapid pace seen in recent years.

Gains in payroll employment in recent months have been smaller than their average of the past couple of years, and initial claims for unemployment insurance have edged up. These developments are consistent with the softening in the pace of overall economic activity that seems to be under way. That said, going forward, relatively low unemployment and rising disposable incomes may counter to some extent the factors tending to restrain household spending.

...

Consumer price inflation has been elevated so far this year, due in large part to increases in energy prices. Core inflation readings--that is, measures excluding the prices of food and energy--have also been higher in recent months. While monthly inflation data are volatile, core inflation measured over the past three to six months has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth. For example, at annual rates, core inflation as measured by the consumer price index excluding food and energy prices was 3.2 percent over the past three months and 2.8 percent over the past six months. For core inflation based on the price index for personal consumption expenditures, the corresponding three-month and six-month figures are 3.0 percent and 2.3 percent. These are unwelcome developments.

...Finally, some survey-based measures of longer-term inflation expectations have edged up, on net, in recent months, as has the compensation for inflation and inflation risk implied by yields on nominal and inflation-indexed government debt. As yet, these expectations measures have remained within the ranges in which they have fluctuated in recent years, but these developments bear watching.

With the economy now evidently in a period of transition, monetary policy must be conducted with great care and with close attention to the evolution of the economic outlook as implied by incoming information. Given recent developments, the medium-term outlook for inflation will receive particular scrutiny. There is a strong consensus among the members of the Federal Open Market Committee that maintaining low and stable inflation is essential for achieving both parts of the dual mandate assigned to the Federal Reserve by the Congress. In particular, the evidence of recent decades, both from the United States and other countries, supports the conclusion that an environment of price stability promotes maximum sustainable growth in employment and output and a more stable real economy. Therefore, the Committee will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained.

Toward this end, and taking full account of the lags with which monetary policy affects the economy, the Committee will seek a trajectory for the economy that aligns economic activity with underlying productive capacity. Achieving this balance will foster sustainable growth and help to forestall one potential source of inflation pressure. In addition, the Committee must continue to resist any tendency for increases in energy and commodity prices to become permanently embedded in core inflation. The best way to prevent increases in energy and commodity prices from leading to persistently higher rates of inflation is by anchoring the public’s long-term inflation expectations. Achieving this requires, first, a strong commitment of policymakers to maintaining price stability, which my colleagues and I share, and, second, a consistent pattern of policy responses to emerging developments as needed to accomplish that objective.

David Altig updated his probability charts after the employment report last Friday. The fed funds futures market, as I have said before, is getting whiplash. Today's remarks by Bernanke will likely spin the market back in the other direction. The IEM, on the other hand, has remained remarkably calm. As for my take, I think Bernanke's words were appropriate for the situation. I have not wavered from my assertion that another increase this month is more likely than not. The IEM puts the odds at about 60:40. I'd put an increase as even a little bit more likely than that. Not a sure thing, but despite the gyrations that data dependence has caused, I'm staying the course.

In the coming days there will be much to talk about, I am sure.

UPDATE: Whiplash, indeed. This just in from Reuters.

Short-term interest rate futures markets took the comments to mean the Fed was more likely to lift rates at its policy-making meeting this month, moving prices to imply a 76 percent chance of another hike from less than 50 percent before the speech. U.S. stock and bond markets also declined.

Read on.

The Thai government encouraged everyone to wear a yellow shirt to show loyalty to the king. The results were predictable. CNN reports:

Suppliers say they're running out of shirts, and buyers complain they are being gouged by sellers.

The Commerce Ministry threatened Monday to take legal action against factories and retailers who unfairly raise prices or stockpile the shirts to manipulate the market.

Someone didn't think that plan all the way through.

Thus reports the New York Times:

Last year, the number of new college textbooks sold by American publishers dropped for the second year in a row. But the revenue brought in by such books rose for at least the fifth consecutive year, sustained by continuing price increases.

Increase in price and a resulting increase in revenue = inelastic demand.

The article goes on to state that publishers are raising their prices to compensate for the lost revenues due to the increasing popularity of used books as well as the higher costs of "paper, binding and utilities". No mention of marketing costs.

There is no doubt that textbook prices are rising more quickly than inflation. When I was in college in the early '90s, an intermediate macro text sold for around $50 (I still have the price tag on it). Today, a similar text sells for over $130. The CPI meanwhile has increased from around 125 to about 200.

In some sense you get more from college textbooks today. Most have a website, CD, or both. I've always felt that the CDs were designed to get you to buy the new book (with CD included) or shell out extra money for the CD separately. A website has the same issue. A password is typically included with a new book, but used book purchasers can buy a password separately. In my early days of teaching (as a TA in grad school) when CD supplements were relatively new, I was terribly unimpressed. I think they are better now, but my initial experience has kept me from being overly enthusiastic. I will grant that some types of learners can benefit from the types of review exercises on textbook CD supplements. But aside from these extras, the overall quality hasn't changed much. There are good books and better books, just as there have always been.

I predict that textbook prices will continue to outpace inflation. There are alternatives to the traditional textbooks. Preston McAfee and Roger McCain are two notable examples of freely available on-line texts in economic principles. The change is slow in coming, but it is happening. But there is another side to this development. There will, I think, always be a substantial market for traditional texts. As some professors leave the market for freely available texts, that leaves a more inelastic demand curve facing the publishers. The effect on the revenues of the publishers will necessarily depend on how many customers leave the market and how much they are able to recoup with price increases. But if, as I suspect, those professors most likely to use the free texts are those who are most price sensitive (on their students' behalf), we should see textbook prices continue to rise.

Yes, even in the early '90s when textbooks were a relative bargain, we still complained--probably just as much as students today. There are market realities at work here, and as with gasoline, one can only grin and bear it. However, I would offer a little perspective for students. When you sell back your used books, you generally get back a percentage of the used book sale price. Think of it as a semester-long lease with a security deposit. The average used book only costs you a couple dollars per week if you think of it that way. If you're already paying $20,000 per year for tuition, you'll hardly notice it. (Aside: Concern about textbook prices seems more of an issue at state universities where tuition is lower and books are more costly relative to tuition.)

This group would take my leasing analogy and formalize it with an actual rental program. This might make some sense in the age of the internet. Before Amazon.com, I would not want to force students to rent rather than buy. But since students can easily buy books on the internet if they are majoring in the subject and want to keep the book beyond the end of the semester, this may be a sensible way to reduce costs as well as inefficiencies.

Minnesota Public Radio visited my hometown this week. You can read about it and listen to the audio clips on their website. Here's a link to the first article in the series. Click around for the rest of the articles and the audio.

Pelican Rapids is a small town. The population is about 2300. But when I was growing up the population was about 1900. With small towns dying all around, how did this little burg grow?

One word. Immigration.

When I was in about 4th grade, we started to receive immigrants (in that less politically correct time we called them "refugees")--many of them school age children--from southeast Asia. This was in the early '80s when the fall of Saigon was about as fresh in people's minds as 9/11 is today. Before long, most of our elementary and high school classrooms had at least one student from that war-torn region. And for the most part, we got along just fine. They learned English very quickly (by high school, some of them were my teammates on the speech team, math team, etc.). They did all the things normal small town school kids do. It wasn't until about the time that I graduated high school that I realized that our town was different from other small towns. Something unique had started, and as I left for college, it kicked into overdrive.

As the Vietnam era faded into memory, new conflicts arose in the world, and that meant new enthicities in Pelican Rapids. Bosnians, Somalis, and Sudanese began to arrive--just to name a few. Of course there were bound to be some rough spots. With so many languages, cultures, and customs, misunderstandings are inevitable. But by all accounts, it has been a success story. This June, the town will celebrate its 9th annual International Friendship Festival--complete with a citizenship ceremony.

I should point out that one of the things that makes Pelican Rapids (and other towns in Minnesota like it) attractive to immigrants is the turkey processing plant. They can get jobs there. Along with people who have been displaced by war from far flung corners of the globe, there are likely a few who rode up from Mexico hidden in the back of a van. That's what makes the immigration issue difficult. A boy who lost his parents in Sudan has our sympathy, but a man sending money back to his family in Mexico doesn't. At least that is how it comes out in the national debate. But from an economist's point of view, stripping away some of the legal issues that decide arbitrarily how many people get to cross which border, the distinction is harder to see.

When I lived in Pelican Rapids, I didn't hear anyone complain about immigrants--refugees or otherwise--taking jobs from the locals at the turkey plant. I'm not saying it didn't happen, but it's a small town. You'd think I'd have heard something. The people who worked at the turkey plant 30 or more years ago were mostly locals. Many of them were only a couple of generations removed from Scandinavian immigrants themselves. It was an alternative to farming and required little education. Unlike some of the big corporate meat packing plants subject to the NIMBY phenomenon today, this operation was a cooperative built by the local turkey farmers. But as the older generation retired and my generation went to college, they did need to find a new source of labor. That new source arrived just in time. Today, the members of my generation who remain in Pelican Rapids are far more likely to make their living serving a new group of immigrants than working in the turkey plant themselves. One such person was my neighbor back in the '70s. She was interviewed in the Federal Reserve Bank of Minneapolis Fedgazette in 2004.

For her part, Pam Westby of the Multicultural Learning Center in Pelican Rapids takes a multigenerational view of the costs incurred by immigrant patrons. “My great grandfather came here as a Norwegian immigrant,” she said. “He had access to a Norwegian newspaper through the county, just as I'm trying to provide Somali newspapers on the computers for our Somali immigrants. For me it's giving back ... immigration is part of who we are, and this is just another point on the timeline.”

Yes, there are social costs. It costs money to run the library (a.k.a. Multicultural Learning Center). Social services get stretched a little thinner these days. But as the MPR story points out, there are some budding entrepreneurs in this new group of immigrants. They tell the story of a Somali immigrant, Abdi Abdi, who first got a job at the turkey plant, but then opened up a Halal meat shop where the meat is butchered according to Islamic law. Sounds like the same entrepreneurial spirit that has been a hallmark of this country since the beginning. How many little mom-and-pop shops in New York, LA, or San Francisco can trace their history to the entrepreneurialism of an immigrant perhaps a century or more (or less) ago? One can only guess. To suggest that our country isn't capable of reproducing such results in the 21st century is an insult to Mr. Abdi and others like him. And so I believe that in economic language, immigration has brought a Pareto improvement to Pelican Rapids. The immigrants have jobs that are better than they had in their home country. The people of my generation and my parents' generation are providing them with services. And the services they are providing are much more than what my ancestors had at their disposal when they tried to squeeze a living out of a hard new land. My hometown could have died a slow death, but now has a new lease on life thanks to immigration.

For more on the global community of Pelican Rapids, check out the 56572 blog (that's the ZIP code, in case you couldn't guess). The blogger there used to be my school bus driver, and over the years he has been absolutely tireless in his efforts to help new immigrants in town. You can read more about how it all got started here.

And lest anyone get the wrong idea, I'm not trying to generalize too much here. I'm not going to be Pollyanaish and suggest that if only we could all be like Pelican Rapids, we would not have this current furor over immigration. The way they did it worked for them but might not work everywhere. This is, in some ways, a personal story. It's a blog post, not a journal article. I do, however, hope that it gives you some food for thought. Being from that town has shaped who I am and has given me a lot to think about over the years.