Policy Challenges to US Economic Prosperity | Challenges Facing the US Economy

>> Stephen Haber: Welcome to the last session of the day. I'm delighted to be chairing this final panel. The panel is titled Policy Challenges for the US Economy. During the morning or the first three sessions today we talked about issues challenges that are generated by sort of big structural forces like the technological changes wrought by AI or the federal deficit or the big structural forces that have generated inequality.

There are other challenges that are not necessarily generated by big sort of structural forces, but that are challenges nonetheless. That is, there are questions or issues about which there's widespread public concern. They go to the heart of our welfare function as a society and they need to be thought about carefully.

And when thought about carefully, I mean it in the sense in which we explored it this morning as to take a topic, turn it into a tractable question, ask what set of facts are relevant to answering that question? What are the facts that are established? What facts do we need to know?

And then formulate responses to the questions and think about the trade offs of different avenues to dealing with the challenge in light of those facts. So in order to address the sort of what we think of as the policy challenges, we invited three of our most distinguished and thoughtful colleagues from Hoover and Stanford, two political scientists and one economist who also happens to work at the intersection of a bunch of really interesting fields including sort of culture and politics, to explore this.

So to my immediate left is Paola Sapienza. She is the JP Conte Family Chair Senior Fellow at the Hoover Institution, where she also leads the Hoover's JP Conte Initiative on Immigration and is on the Leadership Board of the Hoover Prosperity Program. Paola's research focuses on the impact of cultural norms on economic decisions and outcomes, with an emphasis on financial development, political economy, and education.

Jonathan Rodden, to Paola's left, is professor of Political Science at Stanford University, Senior Fellow at the Hoover Institution, and a recent Guggenheim Fellow. He has written extensively on federalism, fiscal decentralization and fiscal policy, including policy oriented work at the World bank, the IMF and usaid. Brandice Canes-Wrone is Professor of Political Science at Stanford University and the Maurice R Greenberg Senior Fellow at the Hoover Institution.

Where she has also serves as the Faculty Director of Hoover's Center for Revitalizing American Institutions. Brandice has published extensively in the areas of political institutions, mass political behavior, and political economy. She's also a member of the American Academy of Arts and Sciences. So let me put out to the three of you and ask you to go in the order of Paola, Jonathan, and Brandice, sort of the following open ended sort of question.

If you were to identify one policy challenge that you think that we as a nation face, what would it be, what would that challenge be and what are the relevant facts and what are the trade offs implied by those facts? So Paola.
>> Paola Sapienza: Thank you, Steve. So I'm going to choose immigration policy, which is obviously a very polarized issue with false choices between open and closed border dominating the conversation.

As an economist, I think that the only way to make progress is exactly what you suggested, to analyze the facts with an open mind. So consider first this remarkable fact. Over 95% of the cumulative growth of the prime age labor force since the mid-90s came from immigration. This means that without immigrants, the prime age labor force in the US would have not experienced any growth in the past quarter century.

So for an economy to grow, we've learned this over and over today, we need to increase the labor force or increase productivity, hopefully both. So what I want to lay down is some facts about what are the cost and benefits of immigration and especially how complex this issue is and what are the issues that we need to face.

So the first thing is we need to recognize that the impact of immigration is dramatically different by skill level, industry location, and the ecosystem that we build around the immigrants. Also, large flows of immigrants will have different impacts on different types of American workers. That's the first thing to recognize in order to make any progress.

Let me start with the data that are or the focus that is currently in the news, which is the high skilled immigrants. This is quite important because the connection is really between immigrants and innovation. And we talked about innovation recently. Here are some important data, 23% of STEM workers in 2023 were immigrants, up to 16% in 2000.

When we think about STEM workers, we think about the part of the economy that is growing faster and has higher productivity. Immigrants are twice as likely as American workers to patent and commercialize innovation. If we think about the so-called unicorn startups that are valued at 1 billion or more, 55% of them have at least one immigrant founders.

Here is another one which very popular in university. The US prides itself to be the largest producer of Nobel Prize winners. But historically 30% of those Nobel prize winners were born abroad. In recent years, that number is about 40% or a little bit higher, okay? So from this perspective, if we think about innovation, there is very little evidence that immigrants don't contribute or Actually, there is a lot of evidence that shows that immigrants are greatly contributors to US innovation.

However, what you need to think when you think about immigrants is that this is a very tiny fraction of the group of immigrants that we see year to year. Here is some statistics to put things in perspective. H1BBs are switched. Largely has been connected to high skill immigrant.

On an average year would be new H1B visa would be around 200,000. Last year 2023, the US had an estimated 2.8 to 3.3 million net immigrants. So that's a much larger group of immigrants and of those, only a tiny fraction high skilled workers. So you think about immigrants with less than high school education, work extensively in industries like agriculture, construction, hospitality industries.

And the question that we need to ask is what does that flow of immigrants do to the economy? Well, the IMF predicts that because of this recent large inflow of immigrants, so 2.8 to 3.3 million. This is by the way, four times larger than what we experienced in 2010s, the economy would grow 2% more in the next 10 years.

So there is a huge effect for the economy. But American workers are more interested in GDP per capita, not so much in gdp. They of course they're interested and happy when their country grows, but they want to participate to that. So the question we need to ask is what does a flow of low skilled immigrant do to the average American workers?

Here the evidence is slightly mixed. Certainly when you have this big large inflow of immigrants, GDP per capita goes down. There is a standard mechanical effect as these low skilled immigrants are willing to accept lower wages. Of course the earnings are going to be lower than the rest of the population.

And so therefore this is just going to be mechanical. The question is what happened to workers in the same area that experienced this flow of immigrants? Here the evidence is pretty mixed. Many academics have shown that the American workers generally find a path to jobs that are higher paying than the one that the immigrants take.

In other words, the economy diversify when immigrants come in sometime because of a selection effect of where the immigrants go. But there are some industries and sectors, specifically agriculture and construction, where there is a pressure for lower wages and some sort of displacement. So the effect are going to be very different depending on the industry and the the amount of immigration.

So what does this take us? I think I'm not gonna be able to give you a recipe, but there are three at least of consideration that I want to do. First, immigration will be essential in future years to Maintain the US Innovation leaders. We need to seriously think about how to make sure that we design immigration policies that will facilitate that.

Second, given our demographic challenges present and future. We need to think about a reasonable immigration policy which target general population and especially a population that is being aging. Third, whatever we observe in the current data is not a destiny. It depends very much on the choices that we make in terms of immigration, especially type of immigration, numbers of immigration.

And especially mitigating factors that could to some extent alleviate some of the cost and reap the benefits of the immigration of new group of people coming to this country. Thank you.
>> Stephen Haber: Thank you, Paula. Jonathan
>> Jonathan Rodden: Thank you. I've had the good fortune of being present for I think all of the meetings that Steve and Amit and others have put together in this prosperity group.

And in spite of what Steve said earlier this morning about there not being any silver bullets, I guess I came away from those meetings listening to historians, classicists. Economists, is thinking that when it comes to prosperity there is one thing that we keep coming back to and that is innovation.

That societies that are able to produce innovations are the societies that are able to achieve long term prosperity. And the US is one of those countries. And so it's remarkable to try to understand what are the roots of innovativeness in the United States. And what I'd like to focus my comments on are kind of the distinctive path to innovation in the United States has generated a very extreme level of inter regional inequality.

And it's something that we talked earlier today about interpersonal inequality. I'd like to talk a little bit about inter regional inequality in first in innovation and then the prosperity that goes along with it. Not so much because I see it as a problem in its own right, but because important factions of both political parties are quite motivated by efforts to try to resolve this problem.

And we need to think about some of the kinds of policies that they've been proposing and we need a much better evidence base for what works and what doesn't in this, in this area. First, just some data to give you a sense of what I'm talking about. In the early post war period, patents were relatively evenly dispersed across the counties where manufacturing was taking place.

And that was relatively dispersed itself. But as we made this transition from manufacturing to the knowledge economy, we started seeing a concentration of innovativeness of patents. In the mid-1990s, 20% of all US patents were filed in the top 10 most innovative counties. Now keep in mind, there are over 3,000 counties.

Last year this was up to 35% of patents that are filed in the top 10 counties and we're up to one quarter of all patents are filed in the top five. That's San Diego, Los Angeles, Santa Clara, Middlesex, Massachusetts, where Boston is and King county, where Seattle is.

We had the same number of patents filed last year in Santa Clara with a population of 1.8 million as the number of patents filed in Missouri, Michigan, Minnesota, Indiana and Ohio combined. Which have populations of over 40 million. And so this has real implications for the distribution of prosperity.

The GDP of Santa Clara is roughly similar to that of Indiana or Minnesota, which have populations of 7 million, 6 million. And when you look at when you get into the federal tax data, you see the Santa Clara pays more to the federal government in taxes than any of the states I just mentioned.

And it's about the same as the entire state of Michigan, which has 10 million population. So. So clearly we have extreme concentration of innovation and of prosperity. And this is something that's been growing over time. There was a time when inter regional convergence was happening, and then we've reversed this and we've now seen rather extreme inter regional divergence.

How did this happen? Well, I think part of it has to do with the nature of the US path to prosperity, which itself started and we've heard bits and pieces of this throughout the day today with, with military competition. So the US invested tremendous amounts of resources in efforts to try to win wars and did so in ways that created concentration of innovativeness.

Exactly. In the five counties that I just mentioned, you might recognize those are places that really received a lot of DoD funding. And then there's been a lot of innovative activity then surrounds this, a lot of private sector activity that then happens surrounding this defense investment. And we've seen lots of crossover investment.

These become the tech hubs of the future. And this is where a lot of the innovation then happens. Economists have done a lot of work on agglomeration economies. So understanding some of the benefits of co-location of this type of economic activity. You all, probably anyone who lives around here is aware of the difficult situation with housing.

Then that there emerges, it becomes very difficult for people to move to these places because of NIMBYism and the lack of new housing. And so we end up with increasing concentration of prosperity in places that are hard for others to reach. But as Pablo described, a lot of the innovation in this model has come from openness.

So openness to immigration, openness to international trade. And we have this sort of policy, kind of policy equilibrium that has created a lot of innovation, but has created it in a very small number of places. Why do I think this is a challenge of first order importance? Well, in part because I think we are in a moment where there is a very, very serious backlash to the pattern that I just described.

The set of policies, this openness to high skill immigration, free movement of goods, services and people, investments in R and D. These are things that have become quite controversial. And this backlash is coming from both, both the left and the right. And there is kind of a search for policies that might combat this growth of interregional inequality of very different kinds of ideas.

And so given the time constraints, I just want to briefly touch on a few of those ideas and we can maybe come back later to what we know about. We're starting to know about what works and what does not. What does the Evidence base say. But you know, one set of, one, one set of ideas I think that is not very likely to go very far.

But economists kind of like is that, is that perhaps it's not really possible to enhance productivity in the left behind places and that what we should do is subsidize moves to the prosperous places and build more housing in those places. So that's one set of policies that is discussed.

Another is a traditional, what is referred to as place based policies. And this is anyone from Canada or Italy knows a lot about or the European Union with its structural grants. There's a long history of efforts to try to use the power of the central government to make investments in left behind places that will lead to, that will spur hopefully further investments in innovation.

There is, this was really one of the, this set of ideas was really behind many of the big ticket policy proposals, policies implemented in the previous Biden administration, the American Rescue plan, the Infrastructure Investment and Jobs act and so forth. These are really based at their core on, on ideas about making big ticket investments in left behind places to try to spur a future economic development.

Now I suspect this is this, this, you know, one of the interesting things that lies ahead is to see how much of these investments are maintained in the future. But the last thing I wanted to touch on is that there is also an important reaction to inter regional inequality that focuses on something that I would best describe as very similar to the import substitution industrialization policies of Latin America from the 1980s.

The idea that building up, trying to move towards a closed economy with higher tariffs and choosing winners and trying to build up industrial sectors to replace imports with domestic production. This is of course an idea that has the attention of a number of policymakers. And this is something that I think we're all kind of waiting to see how much of this agenda ends up implemented in the next year.

Really in the next couple of weeks I think we'll learn a lot about this. But this is, you know, this, this set of debates. I guess one of the big questions I'll end with is is it possible to pursue these kinds of policies of what works and what doesn't?

And is it possible to pursue these policies without undermining the basis of prosperity that generates, the basis of innovation in the United States that is quite geographically concentrated? Is it possible to pursue any of these kinds of policies without undermining the basis of innovation and prosperity?
>> Brandice Canes-Wrone: So throughout the day at the conference and then again at this panel, we've identified a number of policy challenges that the US Is facing in the near future if we're going to have a prosperous society that has human dignity and opportunity, as Steve has put it, there are fiscal challenges, there's challenges related to place based and geographic disparities.

There's immigration, there's AI, there's new technologies. And so alongside that are American institutions where the conventional wisdom is that at least at the federal level, they're dysfunctional. Right, so that's the conventional wisdom in DC. It's the conventional wisdom among many academics. And it's also when you look at trust and government, trust is at an historic low.

So it seems to be widely held by the population. So what I'm going to talk about today is sort of agree in part with this characterization and then disagree in part with this characterization of a dysfunctional government and focus on three related facets. First, to just talk about what the trust, what we know.

Building on Steve's prompt about trust in government, where it's better or worse, how it's changed over time. Second, to say a bit about how this relates to the functionality of American institutions, I'm going to argue they're a bit more functional than is often meets the eye and I'm going to provide some evidence.

But at the same time, all is not perception. One of the big changes that's coincided with the decline in trust in the federal government has been a large shift to the executive over this period. And so we've moved to this kind of, you could say, winner take all system, right?

So as the previous comments have just highlighted, well, we'll find out what's going to happen. And it's really not because of Congress, it's not because of the Senate shifting. It's because, well, we have a new administration and that's where almost all policy is gonna emanate from. Well, some political scientists would say we know for sure that that's a cause of the decline in trust.

It's very hard to prove in an economist type of way. But more historically oriented ones would argue we know that and certainly we know it's coincided. So I want to say a bit about that and then hopefully end on an optimistic note. So trust, so trust has declined across administrations.

This isn't a Biden phenomenon. I watched the inauguration yesterday. Hey, it's not only due to Biden. It's not only due to Trump. It didn't start in Trump's administration. It's not a Democrat, Republican phenomena. It's been declining. In 1960, trust was above 70% for the government doing things most of the time in the correct direction.

By 1970, it was 54%. 2000, 44%. That was considered a real low, you know, at the time. And then last year it was 22%. This has been a pretty steady decline with some little blips. It's also not just one branch of government. All three major branches have experienced a decline and other non governmental institutions such as the media as well.

And one argument would be, well, this doesn't matter. People say things in surveys. I'm going to argue it does matter somewhat. So we know that, for instance, vaccine uptake on the COVID vaccine is related to trust in government. We know that your likelihood of voting is related to people who really don't trust the government are less likely to vote.

And that's not just in the US that's around democracies around the world. So there are costly actions that get taken because when people really don't trust the government and they tell you, hey, this is a great idea, trust us, go take this vaccine. Well, if you don't trust them, why would you take it?

I mean, it's not a really deep theory as to why this might matter. So there are some costly actions. Of course, when trust is too low, it really facilitates the possibility this is outside the US borders of leaders emerging who say, well, the system is just completely illegitimate and the only way to solve the system is to tear it down and for me to come in.

So there are reasons to worry about it. I don't think that all the US is at that level. I disagree with some colleagues around political science that were at that extreme. But we have seen very costly actions. I'm limited in time, so I won't say them the past few years.

But that relates to the decline in trust and work. That relates to trust in elections, that Justin Grimmer, who was on the previous panel, is doing a lot of work here at Hoover with Ben Ginsburg and trying to rebuild that trust in elections. One thing that's worth noting in the US case is there are exceptions to this decline in trust.

So trust is higher for state and local government. It's above 50% for state government and even higher for local government. It's high for small businesses, it's fairly high for the military. So it's also not the case that sort of there's no trust in any American institutions anymore or even any level of government.

So, I think that's worth thinking about. And that relates to this issue that at the federal level in particular, there's been this massive shift over time from the legislature and Congress being the main center of energy, or at least a main center of energy, to increasing authority by the executive.

Some of this has been through assertive behavior by the president and agencies, but some of this has been an explicit delegation by Congress. So, one of the interesting questions, there are many reasons for this. There's asymmetries of information, and on some policies like nuclear energy, you certainly want a lot of that technical expertise from agencies.

But until recently, the courts had, as I'm sure many of you know, incentivized delegation through the Chevron doctrine, which in 1984 stated that the courts would give substantial deference to agency interpretations of statutes. So Congress's incentives to carefully construct these statutes arguably went down because they knew that the agencies would be deferred to regardless.

So last year in the Loper decision, the Supreme Court overturned Chevron deference. So if you read the political commentary, you're well familiar with this. What we don't know is how much that will affect congressional behavior. I think many believe it's certainly given Congress an opportunity and indeed a great incentive.

To be more precise, Congress arguably should invest more in policymaking, which it has consistently shrunk its investment in since the 1980s. It should reinvest. It could also delegate more to the states, which I personally think wouldn't be a bad thing, but that's a little bit normative. But that would be another outcome that could come.

The other possibility, of course, is that Congress does neither of those things, in which case agencies still won't be deferred to as much, and the courts will simply substitute their judgment for that of agencies because it gives the courts the ability to do so. So, in responding to Steve's query about trade-offs, there's arguably some level of trade-off here, which is that I realize some people would say, including some of my colleagues like Terry Moe, who's emeritus here at Hoover, would say it's much better to have policy enacted by the agencies.

They just have much better information, you know, the counter to that. And there is a trade-off that even there are going to be policies where you don't quite need as much information. But even if Congress reinvigorates and invests more in its information gathering abilities. There probably is an asymmetry.

I mean the trade off though is that agencies are not apolitical. Again, the President heads them and the President's putting their people in office to head these agencies. So, we have this system where there are a hundred executive orders on the first day in office and the Democrats do it too.

This isn't just Republican phenomena and we're flip flopping between two big extremes. In Congress, a lot of those types of policies would be negotiated, they'd be more moderate and they'd be more representative. And again, I think across different areas. So, for instance, on nuclear energy, very comfortable leafing it in the hands which is politicized.

But on some of these other issues they beyond in the hands of the legislature. But there is some trade off. It's not a complete free lunch. Before turning things back to Steve, I want to just say a few words about the third point I mentioned initially, which is that things are not quite as bad.

This is the optimism. Contrary to perceptions, Congress and the President have in recent years put together major legislation in a bipartisan way. We don't hear a lot about that since, you know, if there's not a lot of controversy, it's not that interesting to report on. So for instance, in the first Trump administration, the first Step act on sentencing reform, it's not something you necessarily expected from Republican administration.

And you've got Rand Paul and Cory Booker working together. You just don't read a lot about it. Right. I mean, some of you probably know didn't get a lot of attention. You had to want to find it. Other examples, such as Jonathan mentioned the 2021 Infrastructure act, but a little more attention.

But there are a lot of issues, for instance immigration, on which Congress has basically agreed upon a set of reforms across the parties. And in each recent administration, the first Trump administration and the Biden administration, neither wanted to give that president a win. And so it collapses due to these presidential issues and then a whole other set of reforms such as Social Security and Medicare, in which there's no action again often because of a dictate from the President.

So, you know, a huge amount of this policy calculus is on the presidential race. So this leaves us in a world where political institutions are going to be expected to take on a major set of challenges that are coming structurally and they're going to have to, even if the, you know, and some of them, like AI, you can leave it to the states, that's a solution.

But you're going to have to do. You're going to be thrust with them. And on the fiscal ones, the federal government's going to have to get involved. But federal government. Trust is low where the systems currently set up to favor action by the executive rather than the legislature, and where this leads to the presidential party having an outsized influence on policy.

Hopefully the recent overturning of Chevron provides an impetus and an opening that moves the needle. And I think it would be a good thing to increase the representativeness of policy and trust in government. Whether that will move in that direction, though, remains to be seen.
>> Stephen Haber: Thank you.

Let me pose a question to you guys and what are the themes that sort of emerged in the morning, sort of about inequality is that, well, innovation is in fact one of the things that drives inequality cuz there's a return to skill. And then the issue of innovation came up again, obviously in the panel on AI and the question was, well, where will AI sort of, you know, what parts of the US Economy will generate the most?

It's an innovation itself, but it will also generate innovation. And one of the themes here, in fact, one of the themes in the fiscal panel is like, well, if we have enough innovation to raise productivity, we'll be able to grow our way out of this mess. And so when here's listening to you guys, innovation is an important sort of sub theme that is sort of the innovation pushed by bringing sort of the best, most innovative people to the United States.

And/or in Jonathan's comments, the innovation that comes from these sort of military regional clusters. Jonathan and I spent a bunch of time actually on Hoover project in Alabama a few years ago and spent a bunch of time around Huntsville, which is an example of the phenomenon. So, and that got me thinking.

There's a long winded way of introducing the question. It's been a long day. So guys, bear with me. Innovations are not just gizmos or gadgets. We tend to think of them innovation as, you know, my, my smartphone or my computer or the fact that I can talk to my car.

But innovations are also organizational, educational, financial. I think of it. Stanford, in fact, is an innovation. So it wasn't original, but if you went back to the 18th century, universities were places to train clergy and lawyers and they were organized around colleges, sort of like Oxford, Cambridge and many sort of the east coast universities like Columbia, where I started my career.

And that gave them a certain flavor that even holds to the present day. Stanford is an innovation in the sense that it borrowed the German 19th century model of the research university, organized around departments in which the purpose wasn't to train clergy and lawyers, the purpose was to train scientists and engineers.

So that was an organizational and educational innovation. Okay, so now, as I think about the kinda policy challenges the three of you have put forward, sort of immigration, regional inequality and creating sort of innovation clusters and sort of trust in government, particularly the federal government. Or the ability actually at the federal level to get anything done without executive orders.

Are there innovations that are of the variety of, at the level of organizations or at the level of education or at the level of finance that would help address these challenges? That is, we can sort of throw up our hands and say, this is all really bad. I don't know what we're going to do.

Are there innovations of a kinda organizational or political dimension that can help sort of resolve these tensions so that we can meet challenges rather than simply say, yeah, we've got a problem?
>> Paola Sapienza: Well, so listening to both Jonathan and Brandis speaking, when I think about immigration policy, I'm thinking about why don't we get the states involved much more than the federal government?

And actually there has been some proposal in Congress to bring immigration decision much closer to the states with the coordination, of course, with the federal government for enforcement and so forth here. The idea being that rather than doing an immigration policy which is mostly an afterthought of fixing what is not working or creating caps that eventually are bypassed by either behavior or undocumented immigrants.

Why don't we give the states the ability to decide the extent to which they need which type of immigration and when, and then in collaboration with the federal government, decide where their needs and how their needs are going to be completed. This is not a super new idea.

There had been some couple of Congress people who have proposed bills of that type who never went farther enough, but I think that would be a serious. And that was also reinforced. But the issues that Jonathan was mentioning about the fact that we have these regional divides, and Brandi's saying there is more trust in local government.

Local government has a better sense of what are the trade offs that the local population is facing, what are the need of the economy, but also what are the costs and potential backlash. And to some extent has, you know, the local politician, even from a pure incentive point of view, have a much higher incentive to keep their ear closer to what their local economy really needs.

And so, you know, that would be one thing that I would throw in as a. It would really seriously, you know, need to be. The details need to be worked out, but it would really need, you know, change some of these narratives that unfortunately are, you know, pretty divisive and not very productive for our state of the economy.

>> Jonathan Rodden: Well, I think when it comes to regional development policy, there's no shortage of innovations. Everyone's always coming up with new ideas for how to, you know, mega projects selected in a certain way, or like trying to mimic something like this Amazon headquarters selection, but have the federal government do it and choose 10 communities and put a lot of resources in.

There are endless ideas for new programs. And this is quite bipartisan, by the way. And it happens also at the state level. Governors, Republican governors, love to find ways of choosing regional development zones and subsidies and tax breaks and things. For favored businesses. So there's lots of ideas out there.

And what we need, I think, is innovation in sorting them out and figuring out what works well and what doesn't. And this is something that, getting back to some other comments from earlier panels, I think there's been innovation happening here at Stanford and beyond in collaborations between academics and practitioners in exactly this.

And so Steve mentioned this work we have done in Alabama. There's something called the Alabama Innovation Commission, which is a group in Alabama that's really trying to figure out how to make Alabama more innovative. And what they want is evidence based analysis of lots of different things. And so Alabama's been doing a lot of things and some of the work that was done by the group was by Josh Rao and some associates just looking at some of the subsidies that Alabama was already providing to private businesses and trying to assess as well as possible whether those, whether the communities in which those businesses were located experienced any kind of long term gains, gains from the subsidies.

And Josh's conclusion was that no, no they did not. And so, but that was a rather observational kind of study. The kind of thing that we'd like to do. More of the thing that Josh is working with this is state and local group here at Hoover are doing is working with governments to try to embed experiments.

When they do get a great idea for new innovation, don't just do it, but design it in a way that allows for careful scientific evaluation. So choose recipients in a way that allow for researchers to try to gauge the long term effect of the program. And that can be through experimental manipulations or having program criteria where we can kind of look at places that are just above and below the threshold or places that are identical that had very similar background conditions but did or did not receive the project.

So I think there's reason for hope that more can be learned through collaboration between universities and governments and the private sector in the various policy proposals that are out there in this space.
>> Stephen Haber: Brandis.
>> Brandice Canes-Wrone: Yeah, so there's at least three types of institutional innovation. So Apollo already mentioned decentralization.

So the government's going to sort of have to do more of that as the fiscal kind of the mandatory spending takes up more and more of the budget. I mean, I hope that we innovate our way economically out and all fiscal problems are solved. But realistically, although it creates the challenges that Jonathan has mentioned, that at one level it allows people, it's this trade off to move into California if you're willing to pay the taxes, but it's Also, you know, California is going to fare very differently than Missouri.

And so in this world of decentralization as well. So it's just to bear in mind at the federal level, there's no shortage of reforms being proposed. And that actually in my own work, you find members from both parties agreeing with, but getting the political, having the political will and being willing to take the political heat from doing it is a little different.

So, for instance, there's basic agreement that the current fundraising system is broken, and not always in the way that. So I'm sure there are other ways, many ways in which it's broken, but not always in the way that the media emphasizes. So a shock hit the political system, the fundraising system, with the rise of the Internet.

So suddenly challengers could raise much more money much more easily than they could before the Internet, because you could raise from small donors in a much easier way. And so the incumbent members had to try to combat that. They wanted to keep their seats. So during this time period, have spent increasing amounts of their time fundraising.

And into the shock comes the McCain Feingold reform, which starts actually because of the slow way legislation often works for good reasons, usually. But in this case, it starts in the mid-90s when the Internet's just starting and the fundraising implications aren't clear. By the time it gets passed, it's still not fully clear.

But already this is now going to cap the parties who used to be able to be the primary vehicle for fundraising and place much more of the pressure on members and their leadership packs. So when you talk to members, they know this is a problem. They want to get rid of it.

But it's just not popular to say, let's allow parties to raise a lot more money. So you're going to have to have some sort of truce where whoever enacts it, you know, if the Republicans were to enact it now, the Democrats wouldn't then campaign on, they're the party of big money, and vice versa.

That's difficult to arrange. But in some ways, the policy solution to having Congress spend less time fundraising and more time policymaking, it's no. And it's agreed upon behind closed doors by both parties. There are other reforms in terms of the rules of the House. We had a task force here co-led out of the revived RAI, the center that I run with former congressional members, former staffers and academic experts here at Hoover and elsewhere, which produced a list of reforms.

You can see that on the Web, that would reinvigorate Congress. There are other reform proposals we think Ours is the best. But, I mean, we're not alone in thinking this needs to be done. There are others with complementary proposals, and Congress has adopted some of them. So we were heartened.

In some ways, there's a lot of room for innovation, but it is. It does take some political will. And, you know, it occurred to us we didn't know who would win when we put it together is, you know, Trump or then Harrison Biden, since we were working throughout those.

Are they going to want it? Are the members gonna stand up to them? But there's a little like, though a little different than Jonathan, because I think in our case, some of these you think seem to think are not great proposals, and some of them you like more here.

I think there's a large group of innovative proposals that from a policy perspective, there's wide bipartisan agreement on, but the politics of getting them enacted is not straightforward.
>> Stephen Haber: Let me throw things open to the audience, as we've done in the earlier sessions. We'd ask people sort of line up at the mics.

We'll take three questions, give panelists a chance to respond to the questions that they think fall within their area of expertise. So, sir,
>> Speaker 5: Thank you. I think we're all well aware that Trump very effectively used the immigration issue to his benefit. But when I look at data showing some 5 million immigrants from Mexico and Central America holding key jobs in construction, hospitality, food processing, agriculture, and other sectors, and you've commented earlier that many of them are accepting lower pay, but the fact is, in their absence, there are not legal citizens willing to take those jobs.

So the question is, isn't this whole issue of deporting, whatever, a million people highly inflationary? And if so, does the GOP think that voters in this country are stupid enough to go ahead and accept the deportation promise at the same time Trump is promising to reduce food prices and make homes affordable?

To me, they seem completely contradictory, but is that intended? And does the GOP understand that contradiction and just realize that. That, well, they can get the votes just based on these canards.
>> Paola Sapienza: We don't know what, what the administration is gonna do, we know what they said. Certainly there is evidence that when the border were closed, there was higher pressure in the labor market.

And so you're right about thinking that a reduction in immigrants that are working in this type of jobs may have inflationary effect. Well, may have also shortage effect. But the political issues are complicated because the question is how people think the substitution is taking place. There are issues of fairness.

So I don't know what the administration really is going to do. Very likely there are going to be costs. The question is often when you think about policies, you need to think of what is the objective function. And so the question is, is it just to increase prosperity, Is it a fairness issue?

Is it a legal issue? And voters probably respond to all of these, and good information and bad information. I'm sure Steve has something deeper to say, but I don't know what's going to happen.
>> Stephen Haber: So, I mean, my own, this is my own view, expressing only my own intuition.

I think deporting millions and millions of people is both logistically extremely hard but politically impossible because it's one thing to arrest people with criminal records and deport them. It's another issue to rip families apart and have it watched on television. And there is a underlying decency to the fabric of American society that makes me very proud to be part of this society where when people can see in real time injustice or suffering, they don't like it and they will vote against it.

And so I think whatever the administration's claimed goals, as a practical matter, when you engage in sort of mass deportation at the scale that's being discussed with the technologies, communication technologies that currently exist, I don't believe it's politically feasible. I believe it will spark a reaction. So my own best guess is that there will be some targeted deportations, there'll be some theatrics around it, but that this is going to occur at a scale that would not just disrupt, in the short run, a lot of economic sectors, but sort of disrupt sort of Americans notions of, of who we are.

I think it'll become politically infeasible. I hope I am right. Karen.
>> Karen: I hope you're right, too. Thank you so much for all your comments. Really interesting panel. My question is for Jonathan. I thought that the proxies for innovation that you mentioned were really interesting and compelling, whether that's taxes or patents.

I'm wondering if you could speak to how we haven't seen more pushback or more change or swing in the other direction given remote work, given the diffusion of innovation from the tech side. Anecdotally we see that a lot of the second tier AI companies are remote first. So are patents really the right proxy and why haven't we seen more impact from that remote first kind of enablement of, of the workforce?

>> Jonathan Rodden: Yeah, for simple answer to the first question about patents is, you know just many of us use patents because we can count them and because it's something we have our data on and it's, it is there is a real need for better indicators of innovation beyond patents.

But a lot of the literature is kind of stuck with that. But I thought that the other kind of question you're raising though is one that would be nice if Steve Davis was up here on the panel. I mean, he talked earlier about remote work. And Nick Bloom here at Stanford has also been trying to measure the impact of this as something I'd like to also work more in the future.

Cuz it does have of course the great potential is that it slowly undermines much of what I was discussing. That remote work has the potential to alleviate some of the pressure toward interregional inequality. And all of this concentration in these, in this small number of metros is something that could start to, could start to dissipate over time.

But it's so early in that process, and I think that the effect of that so far I think is relatively small. But you have want to follow up.
>> Karen: If you don't mind. Well, first we should talk because I would love to find ways to collaborate because we're actually working with Nick Bloom on some of that work.

I'm a fintech company and we have seen this anecdotal like movement of VC backed companies being elsewhere outside of kind of like the hubs. And so I do think there's a lot that maybe there'll be like a lag on that would be really interesting to look at further.

So if you're ever in need of some data.
>> Jonathan Rodden: Yeah, absolutely. A lot of the movement is within commuting zone, you know, within commuting distance of kind of in the exurbs and sort of surrounding towns around these big metros. But, but there's also been these other bigger moves and this is something that in the Alabama case, you know, they were really thinking a lot about how can we attract more of these, more of these remote workers and this is something that state development agencies are really working hard at.

And there is, I think, definitely potential there.
>> Stephen Haber: You know, just to follow on that briefly, you know, one of the. So for 70 years, scholars of innovation have been looking for proxies of innovation. And one of the things they hit on was counting patents. And then they came up with counting the number of citations that a patent got.

And they're imperfect, especially in now in industries where it's actually very hard to patent your innovation. So fintech is, is an example where since a lot of it is software based and it's become hard to patent software, the patent system is not necessarily the right metric. One of the, I'm glad you said that.

You know, you, you're the fintech company you work with is willing to maybe share some data because one of the keys to measuring innovation is quality adjusted relative prices of goods. Ross Levine and I have done some work on this, but it's very hard to get this sort of data from inside companies on what the prices they face are and what the prices they charge are.

Next, please.
>> Speaker 7: One thing I hear a lot is that Americans, it's not that they don't like immigration, it's that they don't like chaos. And that is what we saw during the Biden administration with many migrants being centered. Sent to large cities in chaotic ways. And I'm wondering if there is a path to solving the problems that Paola talked about and the problems that Jonathan talked about in terms of.

Channeling people towards the places where they are most needed in a more centralized way. I know you guys aren't fans of state direction of migration, but what do you think about those kinds of proposals to try to solve two problems at once?
>> Brandice Canes-Wrone: Yeah, I'd say there's kind of two different ways to think about it.

One is a legal immigration system that has employers as part of that and you could see. I think that's not out of the question at all. It is worth noting in response to the earlier question, right? Deportations were higher under Obama than Trump in his first administration. So I think we do have some evidence on what might happen.

And some of these executive orders to me look like they're just for show. Birthright citizenship is in the Constitution. So this isn't trying to kind of the president wresting power from Congress. I think the court will not, a strict interpretationist court, will not agree to that executive order.

So this looks like a way for Trump to say he did it and to not do much, right? Because it's not gonna, Biden had some of these executive orders where it's clear like that's just clearly not legal, like you're never gonna be able to do. Yeah, the courts are gonna clearly smack that down, even in Democratic court, and it gives presidents a way to do that.

I do think, like Steve, I don't disagree. I think there'll be some theatrics, there'll be some targeted raids. There'll be people with criminal records. They may even be single some portion of single people who are here illegally. There'll be some, but the numbers will not be, I think, massive.

But I think that there will be a to your question the claims of asylum will be cut way, way, way, way, way back, right? And the sort of number of people coming over will be cut way, way, way back. And there may be some sort of centralized, I don't know if it's fully at the federal level or at the state, something where there's a trade off to legal immigration.

And that seems to be from Trump's appointments, since the people he's appointed in some of these positions are in favor of legal immigration being robust, where we might go. Paula might disagree.
>> Paola Sapienza: No, I agree. Actually I think this is such a divisive issue because it's really discussed in very superficial ways.

It's one thing legal immigration and we don't have a lot of data actually surprising how little data the government give us in a disaggregated way. But there is some evidence to point into the direction that legal immigration is too low. In other words, and I'm talking about, not talking about just high skill immigration, but I'm thinking about the overstay for agricultural workers hospitality areas.

There are some states like Wyoming who had tried to attract in the hospitality industry from all over the country people and then they resorted to the temporary visa. But the temporary visa had a cap and then they resorted to the J1 visa. And so some of all these is incredibly inefficient and borderline legal because I don't know whether these companies are abusing all these.

And partly is because we didn't put the thinking and the resources to think about what do we really need as an economy. So that's one part. Then there is all the asylum type of people and that is gonna be a global issue, is gonna be complicated and so on.

And needs to be regulated massively because of course we can have influence of people that are all concentrated with low skills, low education and so on. And so in some way I think the two issues are separate, but we never tackled any one of them. Companies are telling us that they have shortage of certain type of workers.

I don't think they are lying. On the other hand, you have 3.3 million of immigrants and some of them probably cannot be employed by those companies. So the issue is really looking at the data and do serious immigration reforms that looks at what the need of the economy are and be strategic about that.

>> Stephen Haber: So I'm mindful of the time and I'm mindful that we are between people and hors d'oeuvres. Now I would say we were between people and drinks, but I was told actually that there isn't gonna be alcohol reception. Because there might be students who would be under the age of 21 and the, the Palo Alto police will arrest me.

So what I'm gonna ask is the last two people, last two participants ask their questions briefly. I'm gonna ask my colleagues to give brief responses and then I want to thank my colleagues. So Ms. And then you sir?
>> Speaker 8: Yes, I wanted to say thank you. I am one of those students who is under 21.

And I am skipping class to be here today. But I just had a quick question for Brendice, is that correct? I know you spoke a little bit about local governments and I'm from Albuquerque. I work for the city of Albuquerque back home when I'm not here. And I just wanted to ask you referenced that local governments.

A lot of people have higher trust in local governments and yet we see lower turnout in polls for local elections. And so I was wondering if you could speak to maybe does decentralization of certain issues and kind of getting involved more on a local scale. Would that have an impact of maybe increasing voter turnout and what the correlation is there.

>> Stephen Haber: Thank you. Sir, your question?
>> Tipendra Karki: Yes, thank you. Thank you for the last questions having a great attention. Okay, I am Tipendra Karki and thank you for sharing the great insights. Having gone through the panel discussions, I came to know that immigrants have historically played a crucial role in the US economy, contributing to innovation and entrepreneurships.

The NFAP report 2023 also shows that.
>> Stephen Haber: Sir, is there a question? I'm mindful of the time.
>> Tipendra Karki: Yes, immigrants and their children founded over 50% of US based billion-dollar startups. H1B visa is the primary pathway to the high skilled immigrants to enter to the US but it is limited to the STEM faculty and also capped to the 85,000 annually.

In this context, should the US government review the H1B visa system of programs or but that's I seeking the perception. Thank you.
>> Stephen Haber: Thank you colleagues last comments.
>> Brandice Canes-Wrone: So yeah. You characterized my comments correctly. I did say it was a predictor of turnout. It's not other factors such as how competitive is the race and as you may know, I don't know how Albuquerque does it.

But a lot of local governments intentionally schedule their elections so that they'll be at a time when people aren't voting, right. They separate them. So there are a lot of factors that relate to turnout. That's a kind of long discussion and so how to get more people to be.

Be more active. And we've got in local governments, kind of massive differences in scale. Right. Albuquerque's on the larger side, but not as large as, say, LA. And not as small as Palo Alto. Right. So we've got a lot of different factors, so I think we should probably follow up later.

But it is the case that there's this correlation, but there are a lot of other factors predicting turnout as well.
>> Paola Sapienza: Super quickly. There are lots of potential improvement on some of these visas. Certainly, one important thing to keep in mind is that in the last four or five years, a combination of executive orders and a number of policy decisions have discouraged a lot of students from applying.

For example, the H1B that are devoted to master's programs, there are way fewer students interested. The number dropped dramatically in the past two years of applications. And some of that probably is due to the fact that there is a huge discouragement effect. I'm not going to go farther.

>> Stephen Haber: Jonathan.
>> Jonathan Rodden: Just a last positive word about immigration. When you look at public opinion data, if you ask really big slogan type questions, you can get big partisan variation in people's attitudes, like should there be mass deportations or not? You might get some, some big partisan differences.

But then you start asking, well, which you give people examples of which kinds of people should be deported or not. Everybody basically agrees that criminals should be deported. And like no one else, that seems to be the thing that emerges from the on both sides of the aisle.

So there's just a lot of. And when it comes to immigration reform, there's a lot more agreement about the kinds of reforms that would be preferable than you would guess from the rhetoric.
>> Stephen Haber: With that, let me thank my panelists. Let me also thank the governing board of the Hoover Prosperity Program, without whom this would not have been possible.

Here we have Ross Levine, Amit Saroo and Dan Kessler in the audience still. So thank you. And let me also thank the team that supported this prosperity program, Isabel Ismael, Jovan Hammerquist and Sue Thompson.