This came up in comments to this post, so it’s worth saying explicitly: I think it’s a lot easier to imagine a workable financial regulation scheme if the leaders of major world economies become willing to back off dogmatic insistence on the completely free flow of capital. The case for a free flow of capital is strong, but the case for prudential regulation is also strong and effective regulation without the possibility of restricting the ability to use the existence of multiple countries to execute regulatory arbitrage is difficult to imagine.

Among the major countries what’s needed is cooperation, not capital controls. But it’s bizarre that major economies tolerate “offshore”-type banking activities. Having a place like the Cayman Islands integrated into your financial system isn’t making markets richer or deeper, it’s clearly just an effort to exploit regulatory loopholes. Angela Merkel keeps trying to raise this issue at international conferences, and the US & UK leadership keeps wanting to dodge it. It’s true that this kind of arbitrage didn’t “cause the crisis” but the continuing possibility of doing it is a major impediment to improving regulation.

Over the summer, there was a tendency for rising senior interns to ask me if I had any advice for someone set to be graduating into the face of a horrible recession. Unfortunately, the best advice I can think of is “hope the United States rapidly becomes more committed to equality and social justice” because the empirical evidence is that you’re screwed. Peter Orszag at the OMB Blog reminds us:

The chart below illustrates this effect: a one percentage point increase in the national unemployment rate is associated with a 6 to 7 percent loss in initial wages. The annual wage loss declines over time, but is still statistically significant 15 years later. Comparing the wages earned by the class of 1982 (a peak unemployment year) with the wages of the class of 1988 (a peak employment year) over the first 20 years of a career, the wage difference resulted in a difference of nearly $100,000 in cumulative earnings in net present value.

The long-term effect isn’t just a residual of low first-year wages: the author suggests that poor job match, lower prestige placements, and fewer opportunities for training and promotion also play a role. Other researchers have found similar effects: Oreopolous et al find persistent wage effects for Canadian college graduates; Bowlus and Liu find persistent wage effects for high school graduates moving directly into the work force, and other studies assess how the macroeconomy affects impact newly minted MBAs and economics PhDs.

Fifteen years later! If you’re graduating from college this spring, you’ll be sitting around at the age of thirty-five still suffering from the fact that Susan Collins, Olympia Snowe, Ben Nelson, and Kent Conrad decided to make the stimulus bill stingier in order to better bolster their credentials as preening centrists. When thinking about short-term inflation-unemployment tradeoffs, this sort of thing is crucial to keep in mind. Inflicting a high unemployment rate on the population has incredibly punitive and deleterious long-run consequences for young people.

One feature of the American political media that I’ve oft had occasion to the lament is the lack of influence by the field of political science. It’s generally taken for granted that some familiarity with economists’ research is relevant to writing about economic issues, but people seem very comfortable making broad, sweeping assertions about the American political system that are totally uninformed by research into it. It’s true that political science isn’t really science like physics that’s going to definitively answer every question you might have, but empirical and theoretical inquiry by political scientists can and does shed a lot of light on a lot of important issues. Certainly it seems to me to stand up to economics as a viable body of research, so I don’t know why people are so comfortable ignoring it.

One issue, however, may be that it’s not very accessible. So I’d like to offer a preliminary recommendation to anyone interested in deepening their understanding of American politics to check out Richard Valelly’s edited volume Princeton Readings in American Politics. This is academic work, so it’s a bit slow-going and I certainly haven’t read it cover-to-cover yet (full disclosure: I got sent a free copy by PUP) but what I have read has been interesting. And as you can see from the table of contents it covers a nice broad range of important topics in US politics.

Atrios mentioned this yesterday but you often hear broad generalizations made about places that are actually only applicable to middle class, middle aged people. For example over the course of my life I’ve been informed thousands of times that “everyone” in Los Angeles drives everywhere when in fact 28 percent of LA County workers rely on something other than driving alone as a way of getting to work. That’s 1.23 million people—more than the entire population of many American states.

LA is, in fact, neither the most nor the least transit-oriented city in America:

And since LA is so much larger than, say, Portland the LA mass transit situation is a much bigger deal in national policy terms. The question facing cities like these that aren’t very transit-friendly but nonetheless have lots of transit users is how do they want to go in the future. Should they continue with policies that favor the rich over the poor while being simultaneously deleterious to public health and the environment? That doesn’t sound like a great idea to me. Instead, it makes more sense to build density near existing rail stations, to invest in improved bus service and bicycle infrastructure, and to encourage future development to take on a more compact form.