Immigration and Institutions: A Response to Jonny Anomaly

Writing at Quillette, Dr. Jonny Anomaly (yes, that’s his real name) discusses immigration, institutions, and why some immigration restrictions may be necessary.  It’s an interesting article, although I find his rationale for immigration restrictions rather weak.

Dr. Anomaly writes:

For one thing, the social norms and political institutions that promote prosperity are often quite fragile, as evidenced by recent events in Turkey, and the failure of constitutional democracy to take hold in Iraq after American attempts to replace dictatorship and tribalism with a secular liberal order.

I disagree with his interpretation of the evidence here.  The two examples he provides are where a liberal order was forced upon the area, rather than developed naturally.  Institutions, when imposed, do tend to be fragile.  This is seen in the work of many great developmental economists work (for example, see Doing Bad by Doing Good by Chris Coyne or The Tyranny of Experts by William Easterly).  However, where liberal institutions develop naturally, they tend to be highly robust.  The United States is an excellent example where despite many shocks to the system over the approximately 250 years of our existence, we remain a highly liberal country.  Shocks have included invasion, mass immigration (by both intelligent and less intelligent people), famine, drought, civil war, terrorism, etc.  The US is not ideally liberal, and there have been missteps, but the whole thing hasn’t collapsed the way it would have if institutions were inherently fragile.

He goes on to say:

Many supporters of open borders fail to distinguish between different qualities of immigrants. They assume that if a high level of immigration has benefitted some countries in particular eras, such as the United States, Canada, and Australia in the 19^th and 20^th centuries, then it is simply the quantity of migrants, rather than the composition of migrants, that caused prosperity in these nations. But this is a fallacious inference that depends on the assumption that all people are just as likely to promote the welfare of a country regardless of their values, skills, or traits.

In his recent book, Garrett Jones argues that a nation’s wealth and welfare depend crucially on the qualities of its citizens, including IQ, conscientiousness, and the ability to delay gratification. These personality traits are heritable, are (according to Jones) positively correlated with prosperity, and (according to criminologists) negatively correlated with crime.

The problem with this argument is that it doesn’t appear, at least prima facie, to be correct.  The mass immigration of the 19th and 20th Centuries was not of high-skilled immigrants.  Rather the opposite, really: they tended to be the dregs of European society.  And yet, America prospered.  Those who attempted to turn America toward Socialist institutions were not uneducated immigrants, but rather highly educated native WASPs.

This is not to discount the importance of intelligence in economic activity; quite the opposite.  But rather, an economy is made up of all kinds of goods: high quality, low quality and everything in between.  A dynamic economy allows all resources to find a niche, including labor.

There’s more I could say on this article, and maybe I will down the line, but I want to finish off with this: the evidence on immigration’s impact on the economy is far from crystal clear.  There are copious amounts of evidence pointing in both directions.  Given this ambiguity, I argue a liberal society demands that freedom is preserved and that the action which would restrict freedom (in this case, restricting freedom of commerce of the citizens of the society) must be shunned until evidence beyond a reasonable doubt is presented.

 

Taxation Is Not Necessarily Theft: A Rejoinder to Libertarians and Anarchists

Taxation, by its nature, is not necessarily theft.  Likewise, taking something and not giving something in return is not necessarily theft, either.  The circumstances are what matter.

By way of example: two men meet on the street.  One is selling apples.  The other man has money.  They agree to an exchange: one man gets $5, the other gets a bushel of apples.  The two go on their merry way, happy as can be.  No theft here.

A similar circumstance: two men meet on the street.  One is selling apples.  The other man has money.  While the apple seller is distracted, the other man takes an apple and leaves no money.  Now, a theft has occurred.

What is the difference between the two stories above?  In the first, there is consent between the two parties.  In the second, there is no consent.  Consent is what makes an action theft or voluntary.  There would be no argument whatsoever on this point.  So, the question becomes, can one never consent to taxation?  Is taxation inherently non-consensual?

The answer to that question is “no.”  Taxation is not inherently non-consensual.  It can be agreed upon; it can be consented to.  Let’s say a group of people get together and decide to pool their resources for some public good (let’s say, common defense).  Depending on the structure of their arrangement, they all agree to provide some annual contribution to this goal.  This is, in essence, taxation.  Furthermore, it is consensual taxation.

But if taxation can be consensual, doesn’t the use of (or threat of) force for compliance necessarily mean that taxation isn’t consensual?  Isn’t that evidence against my thesis?  Again, not necessarily.  Yes, the thief may use force to get what he wants, but even consensual agreements may carry a threat of force.  Contracts contain provisions in case one person reneges on his deal.  These are voluntary agreements that contain elements of force if certain conditions are not upheld.  So, the existence of force is not in and of itself a sign that the agreement is involuntary.

The real question, the one we should be discussing and thinking on, is “what constitutes consent?”  If governments “derive their just powers from the consent of the governed,” what constitutes consent?  At what point does government “become destructive to these ends”?*  Yes, this is the interesting question and one I will not be discussing in this post.

*A quick aside on this point: using the same logic as above, it can be shown that merely being in a minority, losing an election, or not having things go your way in politics is not necessarily a sign of oppression or malfunctioning government.

Reexamining the Case for Trade

My latest working paper reexamines the case for international trade.  Here is the abstract:

Since the time of Adam Smith, high tariffs have been decried by economists as counterproductive to a country’s economic growth. However, in recent years, this consensus has come under scrutiny, not just from the political sector but also the academic sector. Using GDP per Capita as a measure of economic well-being and the Economic Freedom of the World Index to measure freedom to trade, I find a distinct positive effect lower mean tariff rates have on GDP per capita. The size of the effect varies on the income of the country, with the strongest effect on the poorest nations and the weakest effect on the wealthiest nations.

As this is a working paper, any and all constructive comments are welcome!

Everyday Economics: Bioshock Edition

On my recent trek between Virginia and Massachusetts (and back), I listened to an audio version of the book Bioshock: Rapture by John Shirley (If you’re looking for something light to take your mind off of things, this is a good book).  The book details the rise and fall of Rapture, a massive underwater city built by Andrew Ryan (a not so subtle jab at Ayn Rand) to escape the “parasitic” governments of the world and build a society dedicated to freedom and free markets.  While the initial goal of Rapture may have been freedom and free markets, as the novel (and the video game that the novel is based on) details, Rapture becomes a totalitarian police state with an extremely wealthy (and often sadistic) upper class, and extremely poor low class, and no one in between.  Some see Bioshock as a refutation of Randian philosophy, however, I will not address that here as I am no expert in Ayn Rand (for an excellent discussion, see The Value of Art in Bioshock: Ayn Rand, Emotion, and Choice by Jason Rose).  I’ll leave that to people far smarter than I.  Rather, I want to address the economic situation of Rapture and discuss, briefly, how that contributed to the downfall.

A few quick disclaimers before I begin:

1. As far as I know, Bioshock: Rapture is not canonical.  However, it is the only detailed source I can find thus far on the days of Rapture that take place before the video game (which is canon) so I will operate on the assumption that my source material is canonical knowing full well everything I write here could become completely worthless insofar as discussing canonical information (the lessons gleaned from this book are still important, however).
2. Nothing in this essay should be taken as implying the rise or fall of Rapture is purely economic.  There are many other factors involved (social, political, medical, psychological, etc).  I skip or gloss over these not because I think they are unimportant (quite the opposite, really), but because I simply lack the expertise to discuss them with any confidence.
3. I will be avoiding using direct quotes in this version of this essay.  The reason for this is simple: I have the audio book, not the book itself.  I can’t easily do verbatim quotes and attribute them to proper pages for citations.  Therefore, the reader should be aware that I am doing this partly out of memory (although I did scribble some notes) and further the reader should assume that whenever I describe what’s happening in Rapture, that is a reference to the work of Mr. Shirley.  The only original material will be my analysis.  Any inaccuracies, either to details or analysis, belong to me and me alone.

The short version of what follows: Rapture cannot be classified in any meaningful sense as a “free market.” It suffers from several deficiencies that prevent us from labeling Rapture as a free market: lack of property rights, lack of free trade (autarky), lack of labor mobility (autarky in the labor market), rejection of altruism, widespread and institutionalized fraud (this issue is speculative based off of interviews with characters within the book but not substantiated by details), and censorship (indirect at first, but more direct later).  In Andrew Ryan’s Rapture, “free market” and “laissez-faire” were not much more than dishonored buzzwords.  It can best be described, in the words of James Buchanan, as “moral anarchy,” (see Moral Science and Moral Order, especially page 190 and Limits of Liberty, especially Chapter 7).  These factors, coupled with other psychological, social, and other factors, lead to the decline, civil war, and eventual fall of Rapture. 

Cleaned by Capitalism, Mold Edition

In humid climates such as Virginia, mold can be a real problem in homes and other poorly-ventilated areas.  There are lots of health issues associated with household mold, but fortunately, there are many ways provided to us by capitalism to fight mold.  Dehumidifiers, both large and small, can prevent mold from forming.  Should mold form, there are lots of products that make cleaning mold easy and cheap.  So, for less than an hour’s worth of work for the average American laborer, s/he can clean their bathroom from mold and prevent it from growing again.

This is just another small example of how our world is becoming a cleaner and better place.

I Feel Like A Real Scholar Now

If you are interested in my academic work, be sure to check out my SSRN page for my latest research.  It’s sparse right now, but as I write and publish more papers, it will expand.

Savings Is Not A Cost

Don Boudreaux draws my attention to an opinion piece at the Washington Post written by Robert Samuelson.  Don addresses one concern Samuelson has, but I want to address another, more fundamental point.

Samuelson writes (emphasis added):

A simple example shows why the theory works. Consider (hypothetically) widgets. Assume that new technologies cut widget production costs by 20%. These savings must go somewhere, and the chances are that they will be spent, thereby creating new jobs. The major candidates to receive the windfall are: (a) consumers, who could benefit from lower widget prices; (b) widget workers, whose salaries might be boosted; or (c) the shareholders of widget makers, which might raise dividends or build factories.

This logic could be thwarted if the windfall were saved and not spent.

Strictly speaking, this is not true.  If the windfall were saved and not spent, that does not mean that benefits do not occur.  Savings are economically productive, too.  Even if 100% of the windfall were saved, that would mean there are more funds for investment: housing loans, car loans, retirement, business loans, etc.  An increase in savings would help boost the economy, too.

Let’s do some thinking on the margin.  Let’s say that the windfall results in $1m saved.  Taking Samuelson’s argument above at face value, it’d mean that the $1m saved was a loss for the economy.  However, that $1m is loaned out to a new business owner who uses it to build his building, stock his store, and, once up and running hires more workers and produces more wealth for his community and the world.  The economy certainly has benefited.  I would suggest the following edit to Dr. Samuelson’s paragraph (bold and italicized part is my writing):

A simple example shows why the theory works. Consider (hypothetically) widgets. Assume that new technologies cut widget production costs by 20%. These savings must go somewhere, and the chances are that they will be spent, thereby creating new jobs. The major candidates to receive the windfall are: (a) consumers, who could benefit from lower widget prices; (b) widget workers, whose salaries might be boosted; (c) the shareholders of widget makers, which might raise dividends or build factories; or (d) borrowers/investors who now have a larger pool of loanable funds from which to draw, if some of the windfall is saved.

This logic could be thwarted if the windfall were saved and not spent.

 

Mistakes to Avoid When Discussing Health Care

Noah Smith has an interesting piece on health care at Bloomberg.  The piece is worth a read, although there are some head-scratchers in there.  Smith’s big conclusion is this:

In other words, don’t believe the argument that the cost difference between the U.S. and other countries is the inevitable price of a more innovative health-care system. Americans really are being greatly overcharged for their care. For whatever reason, health seems to be one industry where government does things more cheaply than the private sector.

There’s a problem with this conclusion, namely that it uses biased data to support the claim.  Health care is cheaper in other countries because the price system is rigged: universal health care keeps prices down by refusing to let them rise.  So, one cannot compare prices in a system where prices are allowed to fluctuate vs one where prices are determined by government diktat.

Prices are a signal.  They provide us valuable information about the relative scarcity of commodities.  When prices are allowed to adjust, they provide accurate information.  When they are not, they provide poor information, and lead to worse outcomes.

It is also important to note that monetary costs are not the only costs involved.  They are one cost, sure, but there are many other kinds of costs: wait times, quality, quantity supplied in general, that sort of thing.  Monetary prices can/will adjust for these different factors (for example, a luxury higher quality car may sell for more than a lower quality car), but if prices cannot adjust, these other costs will rise; there ain’t no such thing as a free lunch, after all.

Let’s take, for example, Canada.  In the US, monetary costs for doctor visits may be higher, but in Canada, wait times are much longer (in the US, it’s approximately 24 days to see a doctor.  In Canada, it’s 20 weeks).  This is a real cost.  Quality of care is another cost.  In Britain, for example, you’re about 45% more likely to die in a hospital than the US.  This is a real cost.

It’s admirable to want to compare costs and benefits among two systems like Smith does, but he makes two major mistakes when doing so: 1) he compares price signals from a relatively free market to price signals that are artificially low, thus biasing his estimate (this is a point Bob Higgs has made repeatedly when discussing GDP), and 2) does not do a full accounting of the costs.  Smith may be right that health care is an area where government can provide cheaper than the private sector, but the evidence he puts forth for his claim is weak.

A Non-Technical Guide to Econometrics

Chris Auld has an excellent piece on his blog regarding interpreting the “competing” Seattle minimum wage studies from the University of Washington and UC Berkeley.  It’s long, but very much worth the read.  In fact, it’s probably the best short introduction to statistics/econometrics I think I’ve read (another great one is Chapter 1 of Robert Abelson’s Statistics as a Principled Argument.  I’m also a big fan of Angrist & Pischke’s Mastering ‘Metrics).

Allow me to highlight two items in particular from this blog:

There is no statistical magic which can fully overcome these fundamental [causal] problems.  We will never be able to “prove” what the effect of the minimum wage was: that’s not the way statistics work in general, and in a case study like `what was the effect of the 2015 increase in minimum wages on employment in Seattle?’ the best we can hope for is to bring some suggestive evidence to the table. [Emphasis added]

 

In other words, what they Berkeley team means when they report “no effect” on employment is not that there is no effect on employment (yes, that is confusing).  What they mean, again, is that there is no statistically significant effect on employment, whereas the UW team, using different data and somewhat different statistical methods, finds a statistically significant effect.  But the difference between statistically significant and statistically insignificant is often itself not statistically significant.

…

One team found there were no statistically significant effects on employment, but that result should not be misunderstood as a claim that the study “proves” the effect was actually zero… [original emphasis]

Any additional commentary I add here will only detract.  Read Dr. Auld’s post.  It’s excellent stuff.

H/T: Michael Enz

Minimally Critical

Below is a letter to Ben Zipper and John Schmidt of the Economic Policy Institute:

Dear Sirs,

In your June 26th report on the University of Washington’s minimum wage working paper on Seattle, you claim:

One initial indicator of these problems is that the estimated employment losses in the Seattle study lie far outside even those generally suggested by mainstream critics of the minimum wage (see, for example, Neumark and Wascher [2008])—as the authors themselves acknowledge.

With respect, sirs, this is a rather weak criticism.  In fact, it’s logical that the results of the study are outside the norm given that the Seattle wage hike itself is outside the norm; it’s an unusually strong hike.  Given that the wage hike is higher than previous studies, it’d signal to me methodological or empirical issues if the results weren’t outside the typical range.

In short, your criticism amounts to saying “it cannot be true slamming on the breaks causes an abrupt stop because tapping the brakes causes just a slight deceleration!”

Sincerely,

Jon Murphy
George Mason University
Fairfax, VA

Update: an eagle-eyed reader caught a spelling error.  It has been fixed