Category Archives: trade and immigration

Trade Facilitation

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Timothy Taylor writes,

reforming the legal and regulatory processes around customs, and reducing delays, means that there is less reason to pay bribes to facilitate the process–and thus reduces corruption.

Read the entire post. It takes some nuggets from one of those reports that only Taylor seems to find, the source in this case being the World Trade Organization. The point is that there are many administrative and legal processes that inhibit cross-border trade, and reform of these processes could generate a lot more trade and economic improvement.

Free Trade and Trade Treaties

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Noah Smith writes,

As for the Trans-Pacific Partnership — the most important trade deal in years — support from the economics profession has been muted. However, some of that might be because of the intellectual-property protections in the treaty, which many consider a trade restriction rather than a liberalization.

Pointer from Mark Thoma.

On the other hand, Greg Mankiw writes,

I would guess that TPP would also poll well among economists. FYI, here is CEA chair Jason Furman singing the praises of TPP, and here is an open letter from a sizeable group of past CEA chairs.

Apart from mood affiliation, economists should not feel compelled to support every trade agreement. In fact, there is no reason to presume that a trade agreement actually promotes free trade. One country can do its part to promote free trade without having to negotiate an agreement with anyone. Just eliminate trade barriers, regardless of what other countries do.

It is likely that every trade agreement includes at least some measures that are protectionist. Maybe you can say something good about an agreement “on net, relative to the status quo.” But in a better world, there would be no trade treaties–just free trade.

UPDATE: Jeff Frankel gives the upbeat view of the TPP.

Dani Rodrik on Trade Across Borders

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He writes,

A libertarian might view much of the regulatory apparatus of the nation-state as superfluous at best and detrimental at worst. For me, the apparatus is what makes capitalism feasible and sustainable at the national level – and problematic at the global level.

Pointer from Tyler Cowen. Read Rodrik’s whole post.

Suppose that A trades voluntarily with B. Then C comes along and says that this trade harms D, so it should be prevented.

The libertarian position is that we know that A and B are better off, or they would not have done the trade in the first place. We doubt that C is such a wise, benevolent individual that we can trust his judgment that the harm to D is larger than the benefit to A and B.

Now it is true that the benefits of specialization and trade require trust, and it is possible that trust in general is higher when people believe that their government is wise and benevolent. However, I would bet that where you find people trusting their government to interfere with cross-border trade you find less overall trust and worse economic outcomes. It will take some demonstration on Rodrik’s part to convince me otherwise. It is one thing to conjure up “models” in which trade restrictions improve outcomes. I want to see examples of broad improvements in well-being arising from real-world trade restrictions.

Not surprisingly, Don Boudreaux has views on this.

Tyler Cowen on China’s Plans for New Silk Road

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He writes,

China’s economic growth has been dominated by the coasts, and the Great Canal, for approximately one thousand years; today Xi’an is a backwater for instance, although in the Tang dynasty it was possibly the most advanced city in the world. Can this now-deeply entrenched pattern — water transport beats land transport — be reversed by a lot of government spending?

The advantages of water transport are difficult to over-estimate. Consider that well after the Golden Spike completed the transcontinental railroad, the Panama Canal was still a big deal.

Another Thiel Theme: Short Globalization

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In his conversation with Tyler Cowen, this theme was not as pervasive as contrarianism, but I found it more interesting and more provocative. Thiel’s view is that globalization has peaked. Therefore, companies and cities that are tied closely to globalization will decline relative to companies and cities that are less outward looking. So Texas will do better than Virginia, because Texas is focused on its own domestic production, while Virginia’s strength (I would say this only about Northern Virginia, by the way) is its military and diplomatic connections overseas.

Think about the notion “globalization has peaked” from a PSST perspective. Economic activity consists of patterns of sustainable specialization and trade. Globalization means that new patterns are being created across countries more rapidly than within countries. What would drive that differential, and what would slow it down?

Think of the benefit of a new pattern coming from comparative advantage and specialization. The cost is the fixed cost of setting up the pattern. Compared with setting up a local pattern, setting up an international pattern will tend to have higher fixed cost but with a larger subsequent benefit.

One possibility is that the cost of setting international patterns fell as China and India allowed their economic institutions to conform more readily to U.S. standards. However, over time, as China and India climb their way into the middle class, international comparative advantage is being reduced. There was an infamous paper by Samuelson that envisioned such a scenario. (It was perhaps his last academic publication, and it was not well received, because he seemed to disparage free trade.)

Another possibility is that the “low-hanging fruit” of reasonably low fixed cost international setups has been picked. Manufacturing and call centers can be moved offshore at moderate cost. With the New Commanding Heights industries of education and health care, it is much more difficult.

Another possibility is that globalization has not peaked.

Conservatarian Dilemmas 1: Immigration

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This is the first of a series of three posts, inspired by several things, but primarily by a dialogue between Nick Gillespie and Charles C.W. Cooke. I will be referring to the three-axis model, as described in my e-book The Three Languages of Politics.

The libertarian argument against immigration restrictions is that they restrict personal choice in a very fundamental way. Along the freedom-vs-coercion axis, immigration restrictions are prima facie coercive.

The conservative counter is that immigrants bring a culture of dependency and support for populist demagogues. Thus, unrestricted immigration, or even loose immigration, will end up undermining America’s commitment to liberty.

One libertarian rejoinder is to argue that, empirically, immigrants value liberty. [UPDATE: For an example, see this Cato paper.] A conservative rejoinder might be to point out that progressives are salivating at the prospect of seeing more immigrant voters, and this is not because progressives expect these voters to value liberty.

Another libertarian counter would be that restricting immigration in order to preserve liberty creates too much dissonance between ends and means. If you are for liberty, then you should be for liberty, period. Fight the battle against dependency and demagoguery by arguing against those phenomena, not by restricting the liberty of people to choose where they live.

I am inclined to go with this latter view. Also, I am not worried so much about how immigrants vote. If a libertarian society is to emerge, it is likely to result from exit rather than voice.

eP*/P

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Those are the symbols for the “real exchange rate,” or the terms of trade, both measured inversely, or “competitiveness,” measured directly. That is, when this expression goes up, the real exchange rate depreciates, the terms of trade worsen, and competitiveness improves. e is the nominal exchange rate. Say that we are Japan, and e is yen/dollar. As e goes up, it means that our exchange rate is depreciating. (I am forever confused by that way of writing e, but that’s how it’s done.) P* is the domestic price index of our trading partners, and P is our domestic price index. Suppose that we (Japan) are relatively deflationary, which means that P*/P is going up. That has the same effect as a currency depreciation.

It appears to me that Japan is experiencing both a nominal currency depreciation (a rise in e) and an increase P*/P. That means that Japan is certainly experiencing a real exchange rate depreciation, or a real deterioration in its terms of trade. It has to give up more Toyotas to import the same amount of beef. In terms of purchasing power in world markets, the Japanese are becoming worse off.

At the same time, Japan has become more competitive. Japanese consumers will be inclined to import less beef. Toyota will find itself able to export more cars.

The question I have is this: when does Japan succeed in inflating away some of its debt? In terms of world purchasing power, it is already doing so. Japanese holders of government bonds are earning negative returns relative to the cost of a consumption basket. But that does not help the government. The government needs an increase in yen-denominated tax revenue.

Possibly related: Brad DeLong writes,

That process–the rise in domestic nominal prices and wages, and the larger fall in the nominal value of the currency–may derange the price system and so disrupt aggregate supply. The new equilibrium may be one in which the real depreciation of the currency is expansionary in the sense that it tends to push real aggregate demand above potential output. But the economy may nevertheless be in depression, if the process of getting to the new equilibrium has entailed nominal price swings large enough to have been sufficiently disruptive to the market-mediated division of labor. Weimar 1923.

Pointer from Mark Thoma.

I see that as the crux of the issue. If investors lose confidence in Japan’s bonds, the Japanese government loses its ability to borrow. When you lose the ability to borrow and you are running large deficits, watch out.

UPDATE: Read Tyler Cowen’s post on this topic.

Reihan Salam on Melting Pot Failure

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He writes,

I’ve gone from being a rah-rah enthusiast for mass immigration to one who is more skeptical of its virtues. That’s because I think the melting and fusing of different ethnic groups is essential to building a more cohesive and humane society, and that slowing down immigration would help this process along.

I am sympathetic to his concern that immigrants may be assimilating too slowly. I am not convinced that his solution of slowing the pace of immigration is aligned with the problem.

Gregory Clark on Immigration and Income Distribution

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Self-recommending, although I could raise many objections to his conclusion. Some excerpts:

There is reason to believe that many recent migrants to both the United States and Europe will have a much more difficult time than their predecessors. Meanwhile, the countries in which they settle are less likely to see the benefits of immigration as they experience heightened social tensions and widening social inequality. Policymakers would be wise to take those risks into account. Rather than focus on policies for integrating new immigrants, they should concentrate on avoiding selection policies that threaten to create near–permanent ethnic or religious underclasses.

…countries that selected elite immigrants to begin with now have high-performing immigrant classes. For example, the United Kingdom selects immigrants based more on education and skills. As a result, African, Chinese, and Indian immigrants outperform their British counterparts; although children of white British parents born between 1963 and 1975 attained on average 12.6 years of education, children of African migrants stayed in school for 15.2 years, those of Indian migrants for 14.2 years, and those of Chinese migrants for 15.1 years.

Pointer from Reihan Salam.

UPDATE: Also self-recommending is this Greg Clark podcast. Pointer from Jason Collins.

A Peevish Thought on Immigration Reform

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Art Carden points to a new Hoover project on immigration reform, a periodical called Peregrine. Tim Kane explains,

Each issue of Peregrine will consider a handful of new ideas for pragmatic, incremental reform.

I also heard Tim on a late-night radio program, and he was very articulate and persuasive in support of more immigration.

My peevish thought is that it is sort of a waste of time for economists to discuss immigration policy. Immigration is first and foremost a national security issue. Why bother talking about costs and benefits of different types of immigrant workers when we don’t actually control who comes in?

I understand the case for open borders. If we had open borders, we could have lots of people coming here, trying to make lives work. Some will be happy, stay, and become citizens, and others will be unhappy and decide to go home.

When lots of people legally come to the country, that is open borders. What we have instead are lots of people illegally coming to the country, and that is something different. It’s not an outcome that anybody explicitly advocates, but it emerges as a sort of weird compromise between open borders and enforcing an immigration policy. A hypocrisy equilibrium, if you will.

Note that this story argues that the current flood of children across the border is due to an increase in criminal violence in Latin American countries that threatens children. Again, I do not think that economists have much to contribute to the discussion.