Month: August 2025

Immigration

what is the problem and what should be done?

The United State—a nation of immigrants—is the most prosperous nation in the world because of the freedom of its residents to innovate, work hard, and seek out what the public wants to buy (i.e. to profit). Many of the founders of our most successful companies (e.g., Google, Tesla, Panda Express, Uber, WhatsApp, eBay, Stripe, PayPal) are first generation immigrants. Immigrants are drawn to America because it offers such opportunities, thus we tend to attract the best and brightest. “Immigrants from hell”

Along with the clear benefits of immigration, it poses challenges and some costs as well. The internal migration of people within a country as new jobs or tastes result in people moving into new homes and neighborhoods produces most all the same issues as immigration of foreigners from abroad. We live in communities and have rules (even laws) for our rights and those of our neighbors. What we do effects then and vice versa.

Before moving back to Crystal/Pentagon City in Arlington Virginia, we lived in a 64 home (two acres each) community in Bethesda Maryland with a convenient reflecting very ridged rules for what we could and could not do on our property in order to preserve its natural wooded environment. This is what we were buying. But over some decades more and more families with children moved in with different tastes and desires (e.g., basketball hoops visible from the road). Many community discussions were held, and some rules were adjusted but it required a lot of community discussion.

Our immigration laws are inadequate. We need more immigrant workers and entrepreneurs and better border control, i.e., we need more legal immigration and better control of the illegal sort.  Laws to give immigrants legal status are inadequate and not consistently enforced. “illegal aliens” In 2013 a bipartisan bill to address these problems (The Border Security, Economic Opportunity, and Immigration Modernization Act of 2013) passed the Senate by 68-32 in favor but sadly failed to pass the House. Quoting from Wikipedia:

“If enacted, the bill would have made it possible for many undocumented immigrants to gain legal status and eventually citizenship. It would have increased border security by adding up to 40,000 border patrol agents. It also would have advanced talent-based immigration through a points-based immigration system. New visas were proposed in this legislation, including a visa for entrepreneurs and a W visa for lower skilled workers.[6] It also proposed new restrictions on H1B visa program to prevent its abuse and additional visas/green-cards for students with science, technology, engineering, and mathematics (STEM) degrees from U.S. institutions. The bill also included a $1.5 billion youth jobs program and repealed the Diversity Visa Lottery in favor of prospective legal immigrants who are already in the United States.”

Refugees pose a special challenge (e.g. Afghans who worked for the US or international bodies and are thus suspect to the new Taliban government) as do the “guest” seasonal workers in California’s farmland. If Congress is up for serious work they should get to it.

Miracle of the grape

A few weeks ago I posted a note on Facebook  on the grapes I had for breakfast:

https://www.facebook.com/share/p/1TVFzjuche/

I called it a miracle but failed to mention a very important aspect of the miracle, namely the development of such delicious and resilient grapes in the first place.  Grok provides the missing information

Thompson Seedless grapes, also known as Sultana, were developed through a combination of natural selection, selective breeding, and modern agricultural practices that enhanced their sweetness and resilience. Here’s a breakdown of how they became what they are today:

Origins and Natural Selection

  • Historical Background: Thompson Seedless grapes trace back to an ancient variety called the Sultana, originating in the Mediterranean or Middle East. This grape, scientifically Vitis vinifera, was naturally seedless due to a genetic mutation called stenospermocarpy, where seeds fail to develop fully, resulting in small, seedless berries.
  • Introduction to the U.S.: In 1872, William Thompson, a California nurseryman, introduced this variety to the United States from Europe. He promoted it as a superior grape for table use and raisin production, naming it “Thompson Seedless” after himself. The grape’s natural seedlessness was a key trait that made it appealing, as it improved eating quality.

Selective Breeding and Cultivation

  • Selection for Sweetness: Over generations, farmers and breeders selected vines that produced sweeter, larger, and more uniform berries. This was done through:
    • Clonal Selection: Growers propagated cuttings from vines that exhibited desirable traits, such as higher sugar content (measured in Brix). Thompson Seedless grapes typically have a Brix of 18–22, indicating high sweetness.
    • Crossbreeding: While the original Thompson Seedless was not heavily hybridized, its cultivation alongside other grape varieties in California allowed for natural adaptations and minor genetic improvements over time.
  • Resilience Through Grafting: To enhance resilience, Thompson Seedless vines were often grafted onto rootstocks resistant to pests like phylloxera (a root-destroying aphid) and nematodes, as well as tolerant to various soil conditions. This practice, common in California’s vineyards by the late 19th century, improved the vines’ durability against environmental stresses.

Modern Agricultural Practices

  • Irrigation and Climate: California’s warm, dry climate, particularly in the San Joaquin Valley, is ideal for grape cultivation. Controlled irrigation ensures the vines get just enough water to thrive without diluting sugar concentration in the berries, enhancing sweetness.
  • Pruning and Canopy Management: Growers use precise pruning techniques to limit yield, concentrating sugars in fewer clusters. Canopy management (controlling leaf cover) maximizes sunlight exposure, boosting photosynthesis and sugar accumulation.
  • Soil and Fertilization: Nutrient management, particularly potassium and nitrogen applications, supports vine health and berry quality. Well-drained soils in key growing regions reduce disease risk, contributing to resilience.
  • Gibberellic Acid Application: Since the mid-20th century, growers have used gibberellic acid, a plant hormone, to increase berry size and improve uniformity. This treatment also enhances sweetness by allowing berries to stay on the vine longer, accumulating more sugars.
  • Pest and Disease Management: Integrated pest management and fungicides protect vines from threats like powdery mildew, ensuring healthy, resilient plants that can produce high-quality fruit.

Genetic and Environmental Balance

  • Genetic Foundation: The seedless trait is a natural mutation, but sweetness and resilience are enhanced by the grape’s genetic predisposition to high sugar accumulation and the careful selection of robust vines.
  • Environmental Optimization: California’s long growing season, with warm days and cool nights, promotes sugar development while maintaining acidity, creating a balanced, sweet flavor profile.

Cultural and Economic Impact

  • Adaptation for Raisins: Thompson Seedless grapes became the backbone of California’s raisin industry because their high sugar content and thin skins make them ideal for drying. The drying process further concentrates sugars, enhancing perceived sweetness.
  • Market-Driven Selection: Consumer demand for sweet, seedless table grapes drove growers to prioritize traits like flavor and shelf life, further refining cultivation techniques.

In summary, Thompson Seedless grapes became sweet and resilient through a combination of natural genetic traits (seedlessness, sugar accumulation), selective propagation by growers like William Thompson, and advanced viticultural practices like grafting, irrigation, and hormone treatments. These efforts, paired with California’s ideal growing conditions, transformed a humble ancient variety into one of the world’s most popular grapes for table use, raisins, and wine.

Econ 101: Interest Rates –Another Go

A month ago I reviewed the role of the Federal Reserve’s policy interest rate: https://wcoats.blog/2025/07/17/the-feds-policy-interest-rate/   The subject is so important and seemingly misunderstand by many that I am reviewing it again here.

Interest rates balance the supply and demand for financial assets. Households and firms that save some of their incomes demand financial assets. Households and firms that borrow to invest in productive capital or for whatever reason supply those assets (mortgages, bonds, etc.). Rates on longer term assets reflect the expected value of the short-term rates over that period. Thus the interest rate on a ten year bond reflects the expected value of one year bills over the ten year period plus a small risk premium because the string of short term loans are an alternative to the single fixed rate ten year loan.

The policy interest rate of the Federal Reserve is set by the Fed to pursue its objective of stable money (defined by the Fed as 2% inflation) and high employment (the Fed’s dual mandate imposed by Congress).

This note reviews the Fed’s policy rate. Since 2008 the Fed’s policy rate has been the rate it pays banks for the money they keep on deposit with a Federal Reserve Bank (of which there are twelve but that is unimportant for understanding the role of the policy rate), which on Aug 6 amounted to $3,332 billion. This rate is known as the Interest on Reserve Balances (IORB).

If the IORB matches comparable market rates for equally liquid funds (the so-called neutral rate), banks will maintain their existing Fed deposits. If it is set above that level, banks will have a financial incentive to place more money with the Fed, i.e. lend less in the market, thus creating fewer deposits and reducing the money supply. If the IORB is set lower than the neutral rate, banks will draw down their Fed deposits to lend more in the market thus increasing deposits and the money supply.

The IORB is currently (Aug 6) 4.5%, where it has remained since Dec 2024. At this rate broad money (M2=bank demand, time and savings deposits) has grown between 4% and 5% (from a year earlier) over the last three months. Given that inflation remains above the Fed’s target of 2% it would not seem wise to lower the policy rate and increase the rate of monetary growth especially as higher tariffs go into effect.

To repeat from earlier blogs (because it is so important), if markets anticipate higher inflation in the future (next few years), market interest rates on longer term debt will increase to preserve their real (inflation adjusted) value. Lowering the Fed’s policy rate prematurely would increase the market’s anticipation of higher inflation rates in the future. In other word, lowering the IORB now is likely to increase interest rates on longer term debt. Leave the Fed alone to do its job as best it can.

Econ 101: Trade deficits

A trade deficit is the difference between what we buy from the rest of the world and what it buys from us. To that extent rather than buying our goods and services, the rest of the world holds our dollars. These dollars are most often held in the form of US securities (Treasury bonds, etc.). Though trade deficits help finance Uncle Sam’s spending that is not financed with tax revenue, and thus reduce the crowding out of domestic investment by government deficit spending, President Trump doesn’t like them. Our trade deficit in 2024 was $918 billion.

Trade deficits can be reduced by reducing our imports (this is what tariffs tend to do) and/or by increasing our exports. We export many things including food and oil. Tourism and foreign students studying in the US generate about 9% of our export revenue. This has dropped sharply this year as the Trump administration has blocked or discouraged foreign students and badly treated other visitors, denying entry to some. It has suspended entry of new foreign students to Harvard and is threatening to revoke existing student visas at Harvard.

Trump has not only reached into the affairs of Harvard (and those of many other “enemies”), he is also demanding that the US dollar surpluses held by our trading partners be invested as dictated by the Trump administration. This was stated explicitly by US Treasury Secretary Bessent in an interview by Larry Kudlow on Fox Business. https://www.youtube.com/watch?v=IgcmRJpE1pc  

It is hard to see much free market here. Gregg Ip nails it in his recent WSJ article “The U.S. Marches Toward State Capitalism With American Characteristics”  https://x.com/greg_ip?lang=en