Immigration is Necessary for Economic Growth

As I was sitting in my Richmond hotel room this morning watching New Hampshire news (ah, the wonders of modern technology), an interesting report on the working age population of New Hampshire came on (watch the whole video.  It’s only about 5 minutes).  New Hampshire, unsurprisingly, is experiencing a falling Labor Force Participation Rate due to an aging population.  One of the interviewees in the video sums up the situation aptly (beginning at the 1:20 mark):

One of the reasons [for the decline] is [New Hampshire] was an excellent place for baby boomers to live in the 60’s, 70’s, 80’s, and 90’s and now they are aging.  As they age, they naturally participate in the labor force less, so the labor force naturally declines.  The other thing…is people are not moving to New Hampshire as they did in the 70s, 80’s, and 90’s so we’re not replenishing the workforce in the way we used to so, absent changes in the way people migrate, we’re looking at reductions in the labor force.

Although this report focuses on New Hampshire, this is a trend we’re also seeing around the US (there is a graph in the above video showing the trend).  The US labor force participation rate is declining, and part of that decline is due to the Baby Boomers (a very large generation) retiring.  In other words, the pool of available workers for businesses is shrinking.  If left untouched, this could lead to 1) worker shortages (which we are already seeing that in some fields), 2) increased costs of labor, 3) increased automation.  Most likely some combination of the three.

Labor is an economic resource and, just like other resources, is necessary for economic growth.  If the domestic supply of labor is shrinking and not being replenished fast enough, then immigration (ie importing workers), becomes an economic necessary in order to maintain and expand the economic pie and grow living standards.

In a later post, I will expand more on this and flesh out my idea that immigration is necessary for an advanced economy to survive.

An Apology

Dear Readers,

I owe you an apology.  Someone has taken advantage of my lack of attention and wormed their way into the comment system.  They were posing as several different people (mostly Greg G and Mesaeconguy) and intentionally posting inflammatory things in the comments.  I allow a great freedom to my commentors in that I do not screen or block comments.  Nevertheless, this kind of behavior cannot be tolerated.  I have blocked that person from commenting on this blog and the offending messages have been removed.

I do apologize for this unpleasantness.

Guest Post: If You Hate Government Enough…

The first guest post comes from commentator here (and elsewhere) Greg G.  Greg and I first crossed paths over at Mark Perry’s blog Carpe Diem.  Greg struck me right away with his unwavering politeness, even in the face of harsh opposition.  He’s long been one of the most fair people I’ve ever had the pleasure to interact with.  Even when we disagree, he gives everyone the benefit of the doubt.  He holds his ground, to be sure, but he doesn’t discount anything.  Without further ado, here is Greg:

If You Hate Government Enough…

If you hate government enough, its successes just might bother you more than its failures.  Social Security is one of the most successful and popular programs in the history of government.  And yet, a lot of self-described libertarians object to it for a lot of different reasons.

Some object to it on the grounds that all mandatory redistribution of income backed up by government force is unethical on its face.  The first thing to note about this argument is that you don’t get to make it unless you are an anarcho-capitalist.  Having even a minarchist government that only taxes citizens to provide a military defense, enforce contracts, and offer a few amenities like trial by jury, violates this principle.  If you justify those on the grounds that everyone benefits, whether they realize it or not, then you are making the same basic argument I would to defend Social Security.  We are both just using personal judgment to draw the line in a different place when arguing about consequences.  In fact, Social Security is relatively far less redistributionist than most other government functions.  It is mostly funded by a dedicated tax that requires the recipients themselves to usually pay the biggest part of what they eventually receive.

Some object that it is a Ponzi Scheme.  This criticism relies entirely on radically redefining the meaning of “Ponzi Scheme.”  Social Security is funded in a way that is transparent and public.  Yes, it relies on future income to work but so does paying off your 30 year mortgage.  There is every reason to believe this future income will be there.  This will likely involve a little tinkering with the retirement age, the inflation adjustment or some other components.  This has done before, could easily be done again, and is public knowledge.

Some object that the Social Security Trust Fund buys government Treasury Bonds.  If I save a percentage of my income in a private retirement account and invest it in Treasury Bonds, I will universally be seen as having made one of the safest and most cautious investments possible.  If I save exactly the same amount through Social Security and they also  invest it in Treasury bonds, some of the same people will freak out about it.

Some object that they could do better investing the money themselves.  Some smaller number are even right about that.  This misses the point.  The purpose of Social Security is not to make our most skilled investors richer.  It is to make sure the majority of citizens (who are not good at saving and investing) don’t become a problem for themselves and others in their old age.  The private investment markets are, and should be, giant machines where money is transferred from those who are bad at investing to those who are good at investing.  That makes them a great way to decide which economic ventures get funded.  It makes them a terrible way for people who are bad at investing to provide for their own retirements.

The Social Security System has been a huge success at reducing poverty among the elderly while requiring most people to pay for most of their own retirement expenses.  Having more of the elderly self-sufficient consumers rather than helpless dependents is good for everybody.  Libertarians should realize that the objections they have to government in general are relatively LESS applicable to Social Security than almost any other government program.  And they usually eventually do.  But often not before they get to retirement age.

New Segment: Opposing Views

I will be on vacation the next few days, so my activity will be severely limited.  As such, I asked some good people to write guest blog posts, the idea being to bring new views onto my blog.  Unfortunately, only one person was able to contribute this time around, but I hope to have this as a recurring segment.  Look for the first post tomorrow.

Missing the Point

The great French philosopher and politician Frederic Bastiat once said:

Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society.  As a result of this, every time we object to a thing being done by government, the socialists conclude we object to its being done at all.  We disapprove of state education.  Then the socialists say that we are opposed to any education.  We object to a state religion.  Then the socialists say that we want no religion at all…It is It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise the grain.

I have seen this very recently in campaign ads regarding Planned Parenthood (the downside to living in a swing state, and the one with first-in-the-nation primaries, is you get bombarded with ads).  “Tell [New Hampshire] Sen. Ayotte to end the war on women!  Stand with Bernie Sanders on Planned Parenthood!” one ad cries.  (The ad is referring to Sen. Ayotte’s effort to defund Planned Parenthood).

We don’t oppose these things because we hate women.  No one is denying anyone their God-given rights.  By defunding Planned Parenthood, no one is denied their right to its services.  The simple matter of fact is just because Jones wants/needs something does not mean Smith is obligated to pay for it, and if Smith objects, s/he is not denying Jones anything.  There is no “war on Jon” because I need to pay for my own car.

Let’s have an honest discussion about these things, but to act like being told you need to pay for your own stuff is somehow a “war on women” is utterly foolish and misses the bigger point of the objections.

A Most Baffling Statement

“Poverty is engineered by capitalism.”  Thus began a post I saw on Facebook today.  In a similar vein, Sen. Bernie Sanders, in Vox, proclaims: “Unfettered free trade has been a disaster for the American people.”  These statements are utterly baffling.

Why are they utterly baffling, you say?  Simply because there is no evidence to support these claims.  In fact, the evidence is overwhelmingly opposite: capitalism and free trade help end poverty and help people, not make them worse off.

This is not a partisan issue.  96% of economists polled agree.  Their opinions are backed up by research, too.  The Peterson Institute found that trade has helped increase American incomes by $1 trillion a year, or about $10,000 per household annually.  President Obama’s Council of Economic Advisers found those benefits accrue primarily to the poorest 10 percent.

And what about global poverty?  Interestingly, countries who are more capitalist, who embrace more the “bourgeois virtues” are considerably wealthier than those who do not.  An NBER working paper found the same thing.  Over the past 25 years, we have seen a monumental drop in global poverty rates, primarily where market liberalization has occurred.  Even Paul Krugman, a well-known left-wing economist, agrees.

Think I’m cherry-picking?  Do a Google Scholar search.  I’m even willing to make a bet.  If anyone can find a minimum of 50 papers published in reputable academic journals within 30 days of taking my bet, I will pay them $100.  If you fail to do so, you will owe me $100.  If you want different terms, contact me.

Capitalism has eradicated poverty in most of the Western world.  it is doing so in the rest of the world now.  Poverty isn’t engineered by capitalism; poverty is engineered by lack thereof.

Cleaned by Capitalism

A few weeks ago, I was at the Haynes Convention Center in Boston attending the Pokemon World Championship (which, apparently, is a real thing).  While there, I noticed this neat bit of plastic in the restroom.  It’s a pouch for holding your bag, jacket, whatever, as you use the stall.  It protects your bag from collecting germs or Lord knows what else from the public bathroom.

This is just one more example of how, despite a common mantra, markets are working to make our lives cleaner, healthier, and safer.

TANSTAAFL

Any time the discussion of free trade comes up, inevitably someone objects on grounds similar to this commentator over at Cafe Hayek:

[L]ibertarians willfully ignor[e] the real pain of those whose lives are badly damaged or even destroyed by economic changes…

I object to the claim we “willfully ignor[e] the real pain of those whose lives are badly damaged or even destroyed by economic changes.”

First off, libertarians are not the only ones who hold the view that free trade is beneficial to society. The overwhelming majority of economists (96%) across both sides of the asile do (http://www.igmchicago.org/igm-economic…/poll-results…). The other 4% don’t disagree; they are just unsure. That alone is very telling.

But, and more importantly, I’ve never met a single economist, libertarian or otherwise, who pretends trade or innovation has no pain associated with it. I know Don has never said so. I know I never said so. I know Krugman and Friedman and Mises and DeLong and Stiglitz never said so. Every change comes with “winners” and “losers.”  Every action has opportunity cost, and trade is no different.  

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Pro-Business vs. Pro-Market

The past four years of my life, I’ve been a business economic consultant and forecaster.  It’s been a very informative experience, and one that helped drive home a very important point: there is a world of difference between being pro-business and being pro-market.

When someone like myself advocates free market policies, a common slur that is tossed around is that we are “big business shills.”  The reality, of course, is very different.  There are extraordinarily few businesses that unconditionally support free markets.  Many seek some kind of protection, either from international competition or from each other.  They lobby for rules, regulations, and protections to keep them safe and harm their competition.  In his famous article, Bruce Yandle explores the relationship of businesses to regulations.  This is not free market behavior.  In this sense, people like Bernie Sanders and Liz Warren are pro-business.

However, this slur is so politically popular that the term “pro-market” and “pro-business” are often used interchangeably.   But it misses a huge point: firms (producers) are only one aspect of an economy, just one aspect of a market.  There are also consumers.  When pro-business policies, such as tariffs or regulations are passed, it is often the consumer that gets hurt.  The free market supporter recognizes this.  The pro-business supporter often (although not absolutely) does not.  For example, if a tariff is passed on Chinese solar panels, then that raises the cost for consumers, which leads to less solar-powered homes and entrenches the power of fossil fuels in the US energy market.  Consumers are directly harmed by higher installation costs, but also indirectly by prolonging the issues caused by greenhouse gas emissions.  To be fair, there are other matters involved here (especially with the Chinese), but that is a matter for another time.

One must be skeptical when a policy is presented as “pro-business.”  The important question to ask is: who is paying the cost?