Closed Borders Are Incompatible with Liberty

When advocating for open borders, a common argument we hear is something along the lines of this:

[B]ut immigrants suck down welfare, commit more crime, including rape, and are actively engaged in destroying Anglo-Saxon culture, the culture that brought us the economic liberty…

Source

White supremacist overtones aside, this argument represents what I like to call the Pyrrhic Argument for Liberty.  By that I mean, one would destroy liberty in order to protect it.

The reason it is Pyrrhic is because closed borders are inherently illiberal.  Liberty includes, among other things, the right of association and the right of property.  As I wrote about the other day, it is the right to say “no” as well as the right to say “yes.”  Just as government action may take away one’s power of veto to say “no,” and that is inherently illiberal, government action (through immigration restrictions, etc) takes away one’s power of consent to say “yes,” and that is inherently illiberal.  The right of association, held dear to may liberty-lovers (and I dare say is essential to liberty itself), is the right to associate (or not) with whomever one chooses (or not).  Immigration restrictions immediately destroy that right.  They limit who one can do business with, sell to, buy from, marry, even talk to.  Immigration restrictions are no less detrimental to liberty than economic restrictions like tariffs, occupational licensing, or bans.

In short, no one can claim to be a friend of liberty and support immigration restrictions.

Update: Sandy Ikeda’s contribution on this matter is indispensable 

Second Brexit

In the past week since Britain voted to ask the government to negotiate leaving the EU, I’ve been distressed by the number of classical liberals who are treating Brexit in and of itself as a triumph of smaller government.  One of the more oft repeated lines I hear is “They’ve shed EU bureaucracy.  Of course it’s a smaller government!”

The problem with that line of thinking is it deals only in absolute layers of government, not in government power itself.  Yes, they shed one level (Brussels), but if the remaining sector (London) becomes even larger, then what good has it done?  The Brussels layer may have been the one thing holding back a more intrusive British government.  With that layer gone, the British government could become increasingly illiberal.

As a way of Americanizing this, let’s say Texas leaves the United States and becomes its own sovereign country.  Texas, now free of rulings from the US Supreme Court and the Constitution passes legislation that results in massive tariffs on anything made in the United States and halts any and all migration into and from the state.  These things would make Texas inherently less liberal than where they were before leaving the Union and would result in larger, not smaller, government.  This expansion of government in Texas was prevented by the extra layer in the Federal Government of the United States.  Using this simple example of “Texit,” we can see that the breakaway in and of itself didn’t necessarily mean smaller government.

I support Brexit because it gives Britain a chance to become more liberalized.  But there is the possibility that such an outcome doesn’t happen.  Should that come to fruition, then Brexit will be a failure in my eyes.

The Power of “No”

Despite my best efforts, I have increasingly come to enjoy Meghan Trainor’s new song No. 

It has a rather simple message:

My name is “No”
My sign is “No”
My number is “No”
You need to let it go
You need to let it go
Need to let it go

There are other lyrics, but that’s about 90% of the song right there.

And there’s a lot to get out of the song, too.  Jeffery Tucker has an excellent article on just this over at FEE.  The biggest take away is consent.

Consent is vital to any free society.  Without it, peaceful actions are no longer peaceful.  Sex without consent is rape.  Co-habitation without consent is kidnapping.  And trade without consent is robbery.

This leads me into what I want to discuss: market power.  In any voluntary transaction, both parties have the ultimate veto: “no.”  Once that veto is invoked, neither party may legally or morally compel the other to action.  Most conversations about market power discount this veto.  They’ll claim Party A has more market power than Party B because they are richer or because they have what B wants.  But the simple truth is this: Bill Gates, who has orders of magnitude more dollars than I will ever hope to have, has no more power over me than I over him.  Bill Gates cannot compel me to buy Microsoft products because of my simple two-letter veto: “no.”  Likewise, I cannot compel Bill Gates to sell me his home because of his simple two-letter veto: “no.”

Unfortunately, there are some who do not take “no” for an answer.  They do not, as Meghan sings, let it go.  And thus they are happy to resort to force via the government to compel an action.  Eminent domain, protectionist tariffs, immigration restrictions, and occupational licenses are examples of this (although they are hardly the only cases).

One of the reasons I support free markets over socialism (democratic or otherwise) is because I respect the individual’s right to refuse.  I believe in the right to say no.  I believe “no means no.”

Money Can’t Buy Me Love

At Cafe Hayek, Don Boudreaux writes about “the idiocy of mercantilism.”  I agree with the substance of his post, but I think he assumes something which is known to many Cafe Hayek patrons but not to many laymen.  And that is the role of money.

Don says:

 

According to the mercantilist dogma held by nearly all politicians and pundits (and, yes, also by the People), the best possible outcome for any country – call it country A – whose government is negotiating a trade deal is the following: the government of A arranges for the maximum possible number of citizens of A to work the maximum possible number of hours producing goods and services of maximum possible value to be exported to the maximum possible number of foreigners whose governments agree to prevent those foreigners from ever sending in return to the people of country A even as much as a single wooden toothpick.

All this is absolutely correct.  However, many proponents of mercantilism would object and say “Don, you loon!  Of course we get something in return!  We get money.  Our firms get profits!”

This is also true.  However, money is not wealth.

“But Jon, now you are the one being the loon!  How is money not wealth?” those same proponents would ask me.

Money is only good insofar as it can be traded for something else.  Money in and of itself is just little scraps of paper with numbers and pictures printed on them.  You cannot eat dollar bills.  You cannot clothe yourself in Korean won.  You cannot shelter yourself in Euro or live on Reals.  They can be traded for something, yes, but in and of themselves they are not resources.

So, a nation that only exports and gets nothing but money in return is, indeed, made worse off.  They send off their resources and get nothing but paper pictures back.  However, if they send off goods/services and get other goods and services back, then they are made better off!

Exports are a cost; they are what we give up in order to import.  Imports are the real benefits of trade.

In short, the purpose of trade is not to acquire more money but to acquire more wealth.

Update: Responding to a commentor at Cafe Hayek, Scott Drummond makes the same point more succinctly: “[M]oney isn’t wealth unless it can be used to acquire goods.”

Some Brexit Thoughts

I should note that all these bullet points are under the assumption that Britain does indeed leave the EU.  Yesterday’s vote does not guarantee any such thing.

• On the whole, I am pleased.  I always like to see independence achieved.  Of course, I like to see it achieved on a smaller, more individual scale
• Hopefully, Brexit helps Britain expand their markets.  With no need to negotiate everything through Brussels, may help speed up the process
• Today’s “market chaos” not really a big deal.  Correction, not apocalypse

Concerns:

• The return of nationalism to Britain
• Britain uses its new freedom of negotiation to become less open, not more
• Anti-immigration backlash since they no longer need to follow the de facto open border agreements with Europe

What I think is likely:

• In negotiating with Brussels to leave the EU, Britain keeps in place their free trade agreement with the Continent
• Likely tighter immigration but shouldn’t be the massive backlash some are expecting

Lots to think about.  Lots of bad information out there.  To quote British columnist (and friend of the blog) Tim Worstall: “Remember your Douglas Adams: Don’t Panic.”

Does Rent Control Help the Poor?

Here is a comment I left on David Henderson’s Econlog post “Misallocation Under Rent Control”:

RentControl and jon write:

“What critics of rent controls are missing is this: Even if rent control is a bad idea, the market left alone by itself will not provide cheap housing to people who have low or no incomes. Markets only serve people who have income levels that allow them to participate in the market.”

This is incorrect. If I may paraphrase Don Boudreaux’s general response on this at Cafe Hayek, there are no price ceilings on lots of goods, from food to clothing to automobiles, and yet the market provides these for all, both rich and poor. There is no reason to think housing is much different.

Besides, rent control doesn’t guarantee that there will be suddenly affordable housing everywhere. As both David and Don point out, the competition only becomes fiercer for what units are available. If anything, rent control reduces the available units to the poor compared to a period absent price controls. After all, as you say the price of rent must be high enough to encourage building. In order to be effective, the price ceiling must be lower than the equilibrium price. Given that, it is no longer effective for builders to build and renters to rent. Therefore, the quantity supplied drops and housing becomes even more scarce.

Compare this to a period where rents are allowed to signal relative scarcity in a market. If rents are relatively high, this means there is a relative scarcity of housing units in the market and it signals to builders and landlords that more options are needed. Builders come in, build new units, and landlords rent them out. As the supply in the market increases, the rent falls, making it easier for those with lower incomes to rent. Conversely, when the rent is relatively low, that signals to builders and landlords there is a relative abundance in the market and that additional units are not necessary.

In accordance with my last sentence, rent control sends the persistent signal that there is a relative abundance of housing in the market and therefore no (or few) new units are needed. This is the last thing you’d want in a market if you’re trying to help the poor.

If the goal is to help the poor, the worst possible thing one can do is limit supply.

Everybody Plays, Everybody Wins

At Cafe Hayek, Don Boudreaux has an excellent post on comparing “wins” and “losses” from free trade and minimum wage.  In the comments section, commenter Jermel Purse asks:

“All true but who gets the net wealth and who losses the net wealth.[sic]”

Don responds to his direct question, but there is a larger point I want to make on the difference between net gains and net losses from free trade and minimum wage.

From an economic point of view, one can argue that no one really loses from free trade.  After all, free trade is, by definition, voluntary and mutually beneficial.  In other words, both parties benefit from the exchange. There are no losers directly involved in the exchange.*

However, the same cannot be said with minimum wage.  With minimum wage, an exchange is imposed upon the parties: “you WILL work for at least wage X or you will not work at all!” This means that anyone who is willing to work for less than X but cannot find anyone who can pay him less than X will not be able to work.  Absent minimum wage, he would be able to work.  In other words, a mutually beneficial action that would have normally occurred does not and at least two people who would have benefitted cannot. Therefore we have at least two losers.

These realities get lost in the churn when we begin talking about things on a macroeconomic level and focusing only on this can lead to false conclusions. Ultimately, all economics is microeconomics.

*Some may argue that the losers are those not involved in the exchange, but such an argument doesn’t have any ground to stand on.  It has the implicit assumption that those producers not involved in the exchange have some right to the buyer’s wealth and that those buyers not involved in the exchange have some right to the producer’s wealth.

Model Behavior

Over the last few days, I’ve read a number of objections to economic models (most written by non-economists, but a few by economists). These objections follow some pattern of “models are too static.  The ceteris is never paribus!  Therefore, your objection to Policy X on the basis of Model Y is invalid!  Such and such could occur!”

While true the ceteris is never paribus (in other words, not all other conditions are held the same), that objection doesn’t address the point of economic models.  Certainly anything is possible.  It’s possible that, following a minimum wage hike, there is no negative impact on low-skilled labor. It’s possible that protectionism could lift domestic well-being.  But economic models aren’t designed to capture all that’s possible.  They’re meant to indicate what is probable.  When a price floor (like minimum wage) is enacted, it is possible it has no negative effect, but it is probable it will.

To this end, models provide the good economist with insight into proposed policy solutions.  It’s difficult to predict with absolute certainty the outcome of a given policy given the Hayekian knowledge problem, but being able to make general predictions based upon probable outcomes allows us to advise against bad solutions to problems.

How Government Protects Businesses from Competition

Over at Carpe Diem, Mark Perry quotes Milton Friedman on government licenses for medicine.  Milton makes good points (the case is much broader in his book than the snipped quoted), but I want to talk on another issue regarding licenses: they’re barriers to entry.

Licenses are sold to the public as consumer protection measures.  In theory, they prevent people from bad doctors, hairdressers, casket manufacturers, taxi drivers, etc.  But licenses also have a flip side where they can actually result in the entrenchment of the very bad people they are supposed to protect from.

Markets work most efficiently when there is competition.  Competition forces firms to check their processes to ensure their methods are the most efficient and that they can best induce buyers to purchase from them.  However, when there are barriers to entry, it effectively reduces competition, which in turn reduces the need for a firm to operate efficiently.  There will always be some kind of barrier, but government licenses act as an artificial barrier.  By requiring would-be operators to pass certain classes (funded by the would-be operator, of course), spend time filling out applications, and/or other onerous regulations, the government is effectively reducing competition faced by the current operators.  In short, government protects the entrenched (which may or may not be operating inefficiently or poorly) from any kind of competition that would force them to change.

In essence, regulation acts to help create monopolies (which the government then deems itself competent enough to dismantle through anti-trust legislation).  Given the thought process outlined above, I’d argue that government could greatly reduce/eliminate the need for anti-trust if it simply reduced unneeded regulation.

No, You Move

“Doesn’t matter what the press says. Doesn’t matter what the politicians or the mobs say. Doesn’t matter if the whole country decides that something wrong is something right.

This nation was founded on one principle above all else: The requirement that we stand up for what we believe, no matter the odds or the consequences. When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth, and tell the whole world — “No, YOU move.”

The above quote is by Captain America in the Civil War story arc.  A version of it is used in the movie Captain America: Civil War (although it is not credited to him).

Captain America is one of my heroes.  Yes, I know he’s fictional, but so what?  He stands up for what he believes in and symbolizes the idea of America.  So, why am I writing about him in an economics blog?  Because this post is going to focus more on the second part of the Force4Good mission statement: morality.