Category Archives: trade and immigration

Supply, Demand, and Immigration

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Don Boudreaux writes,

An increase in the supply of labor lowers wages only if nothing else changes. But when immigrants enter the workforce two very important other things change. First, immigrant workers spend or invest their earnings, both of which activities increase the demand for labor – thus putting upward pressure on wages. By focusing only on immigrants’ effect on the supply of labor, Mr. Burwell overlooks immigrants’ effect on the demand for labor.

A second change is one that was emphasized by Adam Smith: larger supplies of workers, as well as more consumers of the economy’s output, lead to greater specialization. Jobs change. As Smith explained, this greater specialization makes workers more productive. This increased productivity, in turn, causes wages to rise.

Peter Turchin would disagree. In Ages of Discord, he finds a strong historical correlation between periods of high rates of immigration and stagnant wages for ordinary workers. I have read through Turchin’s book once, and I mean to write a review. But I keep procrastinating. I am tempted to say that the book, while it appeared to be very interesting on a first pass, is un-rereadable. The data that lands in Turchin’s charts takes a very circuitous route to get there, and it hard for me to stay on top of the relationship between the underlying data and what Turchin says that they represent.

Does Protectionism Protect the Trade Balance?

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Tyler Cowen writes,

If you tax imports and subsidize exports, the nominal exchange rate adjusts so that those policies don’t end up improving the real exchange rate at all, and thus the trade balance will not improve.

Consider the macroeconomic accounting identity that governs the trade deficit:

Net private saving plus government surplus/deficit = trade surplus/deficit

If you do not change net private saving (household saving plus business saving minus investment) or the government budget, then you cannot change the trade surplus. In order for a tariff on, say, Chinese goods, to reduce the trade deficit, it has to do something to domestic saving. One can come up with channels by which this would happen, but those may or may not operate. If they do not operate, then what you get is a movement in the exchange rate that offsets the effect of the tariff. The design of the tariff might cause the composition of consumption and production, but the overall trade deficit will not be affected.

Which is fine, because there is not much reason to care about the trade deficit in the first place.

Protectionism Equals Charity

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Russ Roberts writes,

the only way to get him his job back was to keep people from buying cars they preferred to buy elsewhere and force up the prices of those cars and have him share in that. It’s a form of charity, you just don’t see it. That’s the problem with protectionism as a way of helping those out of work workers. It’s a form of charity. And it destroys the expansion of opportunities that trade and innovation create.

Pointer from Mark Thoma. Read the entire piece.

The one element that I think that Roberts could have added is what I might call “Protectionism for me but not for thee.” Many white-collar professionals have protection in the form of occupational licensing. That’s a lot of charity for people who think of themselves as elite.

Sentences to Ponder from Mike Konczal

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He writes,

Oil doesn’t experience unemployment as the most traumatic thing that can happen to it. Oil moves magically to new opportunities, unlike people who don’t often move at all. A barrel of oil doesn’t beat their kids, abuse drugs, commit suicide, or experiencing declining life expectancy from being battered around in the global marketplace. But people do, and they have, the consequences persist and last, and now they’ve made their voices heard. It’s the the dark side of Polanyi’s warning against viewing human being as commodities.

Pointer from Tyler Cowen. The entire essay, which looks at Donald Trump’s consistent message, is worth reading.

Larry Summers Rides the Populist Wave

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He writes,

If Italy’s banking system is badly undercapitalised and the country’s democratically elected government wants to use taxpayer money to recapitalise it, why should some international agreement prevent it from doing so? Why should not countries that think that genetically modified crops are dangerous get to shield people from them? Why should the international community seek to prevent countries that wish to limit capital inflows from doing so? The issue in all these cases is not the merits. It is the principle that intrusions into sovereignty exact a high cost.

Pointer from Mark Thoma. My thoughts:

1. If Larry Summers has a natural affinity with ordinary people, then I was born to play in the NBA.

2. Note that he instinctively thinks that decisions should be made by governments. His concession to populism is that these decisions should be made by national governments rather than international bureaucrats.

3. I don’t think that we should sell free trade and increased legal immigration to people as “Take this pill, it will be good for you.” I think we should try to sell free trade by example, which means being willing to give up the protections against competition that we enjoy in our credentialist society.

A Commenter and I Think Along Similar Lines

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He (or she) writes,

Not enough talk about elite hypocrisy; Elite professions like finance or law have a [boat]load of regulatory protectionism but even economists don’t really like to talk about that; but when non-elites want protectionism for their trades they are racists and economically ignorant and what not

One of my fantasies is of a classroom in which a tenured economics professor at an accredited institution of higher learning says, “We must have free trade,” and a few students leap out of their chairs and shout, “You first!”

We are all natural-born hypocrites when it comes to competition. My new book helps to explain why. As producers, we specialize in a few tasks. As consumers, we enjoy products that come from millions of tasks. So if competition emerges in a small set of tasks, it has only a small effect on us–unless it happens to be in the set of tasks that we do to earn a living. Then we get very upset, and make up reasons for that competition to be dangerous and unfair.

The other night, we had several friends over for dessert. All of them were licensed professionals. I can imagine that the social workers would be appalled if suddenly they faced competition from unlicensed social workers. I can imagine that the attorney would be appalled if suddenly he faced competition from uncredentialed lawyers. And so on. So is it surprising that British blue collar workers are appalled at facing competition from a rapid influx of Poles and Hungarians?

Those of us with a lot of educational credentials are happy to speak up for free trade and free movement of people, and I believe that we are right to do so. But it would be better if we were to say, “Me first” when it comes to encouraging competition.

Current Thoughts on Neo-reaction

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As a characterization of neo-reaction (not as his own point of view), Tyler Cowen writes,

If you are analyzing political discourse, ask the simple question: is this person puking on the West, the history of the West, and those groups — productive white males — who did so much to make the West successful?

My thoughts.

1. Various sources credit me with popularizing the term “neo-reactionary.” However, the links go back to this post from 2010, which today strikes me as quite confused. I wrote,

Other writing in this vein ranges from the best-selling (Jonah Goldberg’s Liberal Fascism) to the obscure (Mencius Moldbug’s old blog posts) to somewhere in between (Arthur Brooks’ The Battle, which I still have not read.)

To which, the current me says “Hunh?” I do not know what I meant, and reading the rest of the post does not help.

2. Let us follow Tyler and say that a major role of political ideology is to attempt to adjust the relative status of various groups. The extreme ideological combatants are the post-modernists and the neo-reactionaries.

The post-modernists seek to elevate the status of women, minorities, and nationalities they view as oppressed. They want to knock down the status of American white males. Neo-reaction can be thought of as expressing the feeling that the status re-alignment has gone too far and needs to be rolled back. A middle ground might be that the status re-alignment to date is fine but that further denigration of white males would be going too far.

3. I would like to elevate the status of people who work in the for-profit sector and reduce the status of people who work in the non-profit sector. Instead, we seem to be intent on reversing the status-change that Deirdre McCloskey says helped produce the Great Enrichment.

4. Consider the principle of “welcoming and assimilating outsiders,” which I think of as central to American success. I believe that we are seeing dangerous extremism against that principle. The neo-reactionary does not want to welcome outsiders. The post-modernist does not want to assimilate them.

5. Of course, every adherent to an ideology seeks to elevate the status of those who share that ideology and to downgrade the status of those with different ideologies. That is why it matters that journalists and academics are overwhelmingly on the left. This means that the institutions of the mass media and higher education are inevitably and relentlessly going to seek to lower the status of conservatives.

Why Have a Dynamic Economy?

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David Glasner writes,

I find it hard to believe that what makes people happy or unhappy with their lives depends in a really significant way on how much they consume. It seems to me that what matters to most people is the nature of their relationships with their family and friends and the people they work with, and whether they get satisfaction from their jobs or from a sense that they are accomplishing or are on their way to accomplish some important life goals. Compared to the satisfaction derived from their close personal relationships and from a sense of personal accomplishment, levels of consumption don’t seem to matter all that much.

Pointer from Mark Thoma.

If this were true, then the ideal economic arrangement would be the caste system. There would be no economic progress, but everyone would have their place and be secure about that.

I think that it is fair to say that on the margin more consumption would have little effect on our lives. But the cumulative effects of a better consumption opportunities are quite large. The thing is, in order to get those opportunities, you need a dynamic economy. And in a dynamic economy, business models become obsolete and the corresponding jobs go away.

Glasner brings up this issue in the context of the argument about protectionism (he is not protectionist–read the whole thing). But I think that trade with people from other countries is just one aspect of a dynamic economy.

Also, read Scott Sumner’s comments.

A Simple Explanation for Falling International Trade

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The WSJ reports,

Overall, the Group of 20 leading economies, whose leaders meet Sunday, have resorted to so-called “trade distortions” 40% more frequently in the first 10 months of 2015 than they did last year, economists Simon Evenett and Johannes Fritz wrote in a Global Trade Alert report published by the Center for Economic Policy Research in London.

And I wonder if a lengthy “free trade agreement” doesn’t actually add to the distortions, rather than subtract from them.