Arnold Kling  

Economic Fallacies

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Two painfully bad op-eds in the Washington Post today. First, Robert J. Samuelson writes,


What we have now -- and would with guest workers -- is a conscious policy of creating poverty in the United States while relieving it in Mexico. By and large, this is a bad bargain for the United States. It stresses local schools, hospitals and housing; it feeds social tensions (witness the Minutemen). To be sure, some Americans get cheap housecleaning or landscaping services. But if more mowed their own lawns or did their own laundry, it wouldn't be a tragedy.

Worse still, Harold Meyerson writes

Every other advanced economy -- certainly, those of the Europeans and the Japanese -- has a conscious strategy to keep its most highly skilled jobs at home. We have none

...We need to unionize and upgrade the skills of the nearly 50 million private-sector workers in health care, transportation, construction, retail, restaurants and the like whose jobs can't be shipped abroad.


My co-blogger has documented how "anti-foreign bias" and "make-work" bias lead to fear of foreign trade.

Meanwhile, more economic nonsense from Meyerson here.


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TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/478
The author at A Stitch in Haste in a related article titled Kip's Law Sighting: Robert Samuelson writes:
    Robert J. Samuelson on keeping unskilled immigrant labor out of the country:
    To be sure, some Americans get cheap housecleaning or landscaping...
    [Tracked on March 22, 2006 9:57 PM]
COMMENTS (32 to date)
Jason Briggeman writes:

"We need to...upgrade the skills of the nearly 50 million private-sector workers..."

How pretentious is that... and who is this "we" he speaks of? We the ever-competent Bush administration? We the amazing shrinking Congress? What a joke.

Bud1 writes:

If anyone has bothered to take a glimpse at the raw total national debt, it's awfully hard to make the case for reduced immigration. We should legalize the illegals and encourage more(many more) to come on in. We need the tax revenue, and we need it bad.

ThaddeusMcMonster writes:

"very other advanced economy -- certainly, those of the Europeans and the Japanese..."

these are the countries we want to emulate?

Vincent Clement writes:
We need to unionize and upgrade the skills of the nearly 50 million private-sector workers in health care, transportation, construction, retail, restaurants and the like whose jobs can't be shipped abroad.

If you upgrade the skills of, say, people who are working in restaurants, many of them would likely leave their low-skill and low-paying jobs for better job. But I guess that is where the "unionize" thing comes in. Upgrade peoples skills, keep them in their low-skill jobs and pay them more than their positions are worth. Yup, that will do wonders for the economy. How are students going to find part-time work to earn some spending money or save money for school?

JohnDewey writes:

I couldn't believe this was one of Meyerson's solutions:

"If America is to survive American capitalism in the age of globalization, we need to alter the composition of our corporate boards so that employee and public representatives can limit the offshoring of our economy."

That's how United Airline ended up in bankruptcy. The employees controlled the company and implemented the highest cost labor structure in the world. Even if all U.S. airlines were forced to turn over control to employees, United would still have to compete globally.

The only sensible place for employee representatives is on the other side of the bargaining table.

T.R. Elliott writes:

Profoundly insightful post Mr Kling. Just call something "painfully bad." No analysis. Just a little mud slinging. You must be angry today.

John Pertz writes:

Meyerson is one of the more dangerous left wingers that has a public voice. He is not dangerous due to his left wing politics but because he is horendously religous and simplistic in tone and message. We bash Krugman all day long but he is Von Misses compared to Meyerson. At least Krugman has some restraint and nuance to his thinking and was at one time a highly regaurded economist. If we have any hope of winning the debate in the court of public opinion then Paleoconservatives and ignorant leftists such as Meyerson must be engaged and exposed often for the absolute frauds that they are.

Zac writes:

I think the painful badness of these op-eds is pretty self explanatory.

I actually expected more than this sort of nonsense from Samuelson. I am naive, I guess.

John Pertz writes:

T.R Elliot

Do we really have to spend any time stating where Meyerson has gone wrong? You should be able to figure that out yourself just by reading the article. Its sort of like when you hear an ingnorant little child spouting off at the mouth. You dont get angry but merely smile and think to yourself "silly child." However, what makes all of us so angry is that this "silly child" writes for a newspaper that is read my millions of Americans and has a suposed reputation of "quality journalism."

The only thing that I can say about his article is that his absolute discription about the future of the global economy is fake.

T.R. Elliott writes:

Ok, I get it. If I put phrases like this into my comments:

"It is painfully obvious that..."

"Only a moron would think that..."

"Only a non-economist would think that..."

I'm doing...well, doing something, though I'm not sure what.

Now, what's interesting, I've come across an embedded assumption in my phrases above:

moron equals non-economist.

Nobody has addressed the issues raised by Alan Blinder or Paul Samuelson. Both economists. Or are they not economists because they don't adhere to the Bryan Caplan/Arnold Kling talking points? Or is it just easier to be angry and call something names like "painfully bad."

Please note, since the original post didn't address any substantive issues, I see no reason why commentary should either.

Silas Barta writes:

The editorials are certainly in error, but they're not much different than others on the same topic, so I don't see where "painfully" bad comes from, unless it's unique to someone who sees this everywhere.

T._R._Elliot: Regarding the fallacies, I see it as obvious, but it's the same thing as with a lot of left wing proposals. Basically, you can't improve wages long-term by creating the mass unionization the authors propose. All that will do is *further* scare away investment. Employers (and in turn, investors) aren't stupid, you know. They will learn to *expect* that unionized areas will shut down production at critical times, and discount any wage offers they make to account for this.

It's easiest to see it this way: imagine that some grocery store, in an effort to make money, jacks up prices right before customers check out, forcing them to either lose out on the time they spent gathering goods, or lose more money. (And assume this is legal for the purpose of argument.) Now, would that make them more money? Obviously not. Sure, you could squeeze a little out of the first frustrated customers, but long term, they learn to predict that and avoid it altogether. The only way to get people to keep coming would be to offer lower prices to begin with.

The exact same scenario happens between unions and investors -- taking an antagonistic relationship toward your customer (employer) isn't a sustainable way to get more money out of them. It's so obvious to anyone, in every instance except within the workplace. Why is that?

Steve Sailer writes:

Lumping Robert Samuelson with Harold Meyerson is highly misleading. Samuelson has been an honorable voice for economic sanity for decades. That Samuelson wants to build a fence all along the Mexican border to cut down sharply on illegal immigration is a proposal you should deal with on its merits, not smear him by bracketing him with Meyerson.

John Pertz writes:

OK T.R Elliot

Here is the long and short of it. The only way that you can increase real income is through capitual accumulation and labor productivity. If you believe that any of Meyer's proposals will increase capital accumulation and at the same time raise labor productivity then so be it. I do not agree and therefore I do not take anything that he has said seriously. You can engineer society through legislation until you are blue in the face but it is not toing to change the fact that capital accumulation and labor productivity are ulimately responsible for our increased standard of living. I read Meyerson's column as a rant coming form a political activist. The fact that he has included excerpts from some very notable economists does not mean that they side with his entire interpretation of the world economy. Remember he took the excerpts from them and not the other way around. If I take an excerpt from Misses does that mean that he is on the same page with everything that I believe?

T.R. Elliott writes:

Pertz: I don't believe Meyerson said anything about increasing income. He's talking about median income. I can easily demonstrate to you how the median of any quanity can be increased through a variety of distribution schemes. And yes, it could be that the redistribution will decrease the absolute quanity through inefficiencies. Therefore your comments about increasing absolute income are fine and dandy, but they don't address the issue of median income.

Steve Sailer: This lumping of people together seems to be a common rhetorical device of Kling's. The other day, he lumped Sean Hannity with Paul Krugman. It's another sign that Kling is another one of those anrgy people that he's complaining about.

Silas Barta writes:

T. R. Elliot: I'm sorry for satisfying your question and thereby dismantling your position and shattering your "I'm for the poor, they're for the rich" mentality. Although it would look a lot better for you if you had just quit posting so we could have assumed you just stopped returning. Now we know you read my comment and aren't able to reply. Oops.

Steve Sailer writes:

Here's an excerpt from Robert J. Samuelson's excellent op-ed:

We Don't Need 'Guest Workers'

By Robert J. Samuelson

Economist Philip Martin of the University of California likes to tell a story about the state's tomato industry. In the early 1960s, growers relied on seasonal Mexican laborers, brought in under the government's "bracero" program. The Mexicans picked the tomatoes that were then processed into ketchup and other products. In 1964 Congress killed the program despite growers' warnings that its abolition would doom their industry. What happened? Well, plant scientists developed oblong tomatoes that could be harvested by machine. Since then, California's tomato output has risen fivefold.

It's a story worth remembering, because we're being warned again that we need huge numbers of "guest workers" -- meaning unskilled laborers from Mexico and Central America -- to relieve U.S. "labor shortages." Indeed, the shortages will supposedly worsen as baby boomers retire. President Bush wants an open-ended program. Sens. Edward M. Kennedy (D-Mass.) and John McCain (R-Ariz.) advocate initially admitting 400,000 guest workers annually. The Senate is considering these and other plans.

Gosh, they're all bad ideas.

Guest workers would mainly legalize today's vast inflows of illegal immigrants, with the same consequence: We'd be importing poverty. This isn't because these immigrants aren't hardworking; many are. Nor is it because they don't assimilate; many do. But they generally don't go home, assimilation is slow and the ranks of the poor are constantly replenished. Since 1980 the number of Hispanics with incomes below the government's poverty line (about $19,300 in 2004 for a family of four) has risen 162 percent. Over the same period, the number of non-Hispanic whites in poverty rose 3 percent and the number of blacks, 9.5 percent. What we have now -- and would with guest workers -- is a conscious policy of creating poverty in the United States while relieving it in Mexico. By and large, this is a bad bargain for the United States. It stresses local schools, hospitals and housing; it feeds social tensions (witness the Minutemen). To be sure, some Americans get cheap housecleaning or landscaping services. But if more mowed their own lawns or did their own laundry, it wouldn't be a tragedy.

The most lunatic notion is that admitting more poor Latino workers would ease the labor market strains of retiring baby boomers. The two aren't close substitutes for each other. Among immigrant Mexican and Central American workers in 2004, only 7 percent had a college degree and nearly 60 percent lacked a high school diploma, according to the Congressional Budget Office. Among native-born U.S. workers, 32 percent had a college degree and only 6 percent did not have a high school diploma. Far from softening the social problems of an aging society, more poor immigrants might aggravate them by pitting older retirees against younger Hispanics for limited government benefits.

It's a myth that the U.S. economy "needs" more poor immigrants. The illegal immigrants already here represent only about 4.9 percent of the labor force, the Pew Hispanic Center reports. In no major occupation are they a majority. They're 36 percent of insulation workers, 28 percent of drywall installers and 20 percent of cooks. They're drawn here by wage differences, not labor "shortages." In 2004, the median hourly wage in Mexico was $1.86, compared with $9 for Mexicans working in the United States, said Rakesh Kochhar of Pew. With high labor turnover in the jobs they take, most new illegal immigrants can get work by accepting wages slightly below prevailing levels.

Hardly anyone thinks that most illegal immigrants will leave. But what would happen if new illegal immigration stopped and wasn't replaced by guest workers? Well, some employers would raise wages to attract U.S. workers. Facing greater labor costs, some industries would -- like the tomato growers in the 1960s -- find ways to minimize those costs. As to the rest, what's wrong with higher wages for the poorest workers? From 1994 to 2004, the wages of high school dropouts rose only 2.3 percent (after inflation) compared with 11.9 percent for college graduates.

[More at http://www.washingtonpost.com/wp-dyn/content/article/2006/03/21/AR2006032101146.html ]

Paul Zrimsek writes:
Please note, since the original post didn't address any substantive issues, I see no reason why commentary should either.

Here's one reason, T.R.: Everyone loves surprises.

Better headline for Myerson's column: Foreigners Losing Comparative Advantage in Manufacturing.

Tom West writes:

Basically, you can't improve wages long-term by creating the mass unionization the authors propose.

Um, except the evidence has proven you wrong. There are many workplaces that have been unionized for half a century. I haven't noticed plumbers, electricians, firefighters, police, etc. all disappearing. Hundreds of thousands of middle class careers in the auto industry are nothing to sneer at either, even if this is gradually coming to an end. And to be honest, when the boom has fallen due to changing economic circumstances, it's the unionized employees who have usually suffered less than their unprotected brethren.

I understand that unions might be unpalatable from a philosophical point of view (how dare people earn more than the lowest wage the market would voluntarily offer), but they certainly have worked in their members favor in the past and will continue to work in the future. Panacea? Probably not. But neither the boogeyman under the bed.

Silas Barta writes:

Tom West: Incorrect. Unionization is followed by decline in the industry and divestment, with people switching to whatever alternatives they can. Ever heard of the Rust Belt? The unionized middle class jobs quickly evaporated. In contrast, there are lots of car plants outside of the Rust Belt that are un-unionized and whose workers are well into the middle class. Where are the unions for managers? IT professionals? Programmers? Engineers? Salesmen? And you don't even have a theoretical causal argument unless you can explain why "unionization" doesn't work for supermarkets like in the example above.

Mike writes:

Tom West:

Um, except the evidence has proven you wrong. There are many workplaces that have been unionized for half a century. I haven't noticed plumbers, electricians, firefighters, police, etc. all disappearing.

Of course, those people that are fortunate enough to be members of a union will receive higher wages, but the argument against unions has nothing to do with that. It has to do with the things that you do NOT see as a result of unionization. Perhaps that is too nuanced for people critical of angry economists. Also, where is the evidence you speak of? To say that unions have improved standards of living necessarily implies that they have improved the ability of workers to produce more (and / or at lower cost). To say that one group's wages are higher implies nothing about the overall well being of the masses.

In any case, why is it so difficult to understand that standards of living are ONLY a result of a person's ability to produce goods/services that are valued by others? Take a one-man Crusoe economy where Crusoe feeds himself by shaking a tree hoping for coconuts to fall out. How will Crusoe unionizing and being paid a higher wage increase living standards? The only way Crusoe can eat more is to shake the tree longer and/or harder (or come up with some machine that does so). By mandating that he receives more coconuts is going to do nothing for his well being. Without more tree shaking, Crusoe cannot be better off. Just because we are no longer self sufficent and also use money as an exchange medium does not make this concept any less true.

In other words, that thinking is just nuts.

John Pertz writes:

T.R this is actualy a real question. I honestly do not know the answer. In the inegalitarian hell that is the U.S what is the difference between median income and the egalitarian wonderland that is Norway. I honestly do not know the answer and would love to know.

John Pertz writes:

I found some numbers. For 2001 both nations had a median household income of 42,000. So I dont really know if its fair to say that income redistribution is going to be very helpful. In a land of 300 million plus people private capital investment is crucial.

PrestoPundit writes:

Ok. I'll bite. Here is the economic fallacy in Robert Samuelson's remarks?

John S Bolton writes:

Calling a class of foreigners here, workers or taxpayers; suggests that they are net taxpayers and net producers of economic value. Unskilled workers, and especially immigrants, due to their age ranges relative to having children in public school, are net consumers almost invariably. Their immigration causes an increase in aggression on the net taxpayer, which is immoral for them to impose. Samuelson doesn't specify what he means by 'stress' on public services mentioned.
If he means this particular increase in aggression on the net taxpayer through arrival of immigration cohorts, or their transfer into classification which allows them more effective access to net public subsidy, what fault is then to be found?

Likewise, there is equivocation in the comparison of immigration restriction in a welfare society of means, to a labor union. Labor unions are presented as blocking entry of pure workers; while immigration control can and does block net consumers.

JohnDewey writes:

"Unskilled workers, and especially immigrants, due to their age ranges relative to having children in public school, are net consumers almost invariably."

Mr. Bolton, do you have any evidence to support this claim? Illegal aliens I've met are almost always paying, through their rent, property taxes that support our school systems. They are paying sales taxes on goods and services they purchase in the U.S. Many are paying income and social security taxes, though admittedly through use of false ID's. Very many of these workers are not even accompanied by families.

Research I've read indicate that few illegal immigrants remain in minimum wage jobs for long. They are just too motivated to be satisfied with living at the lowest levels of society. Those here in Texas work very hard, much harder than many of our low-skilled citizens. I've met a dozen or more small businessmen who told me that they tried to employ low-skilled U.S. citizens, but found they were undependable and just not productive.

Based on my experiences and observations, I cannot find a reason to accept the claim that low-skilled illegal immigrants are net consumers. Rather, they continue to help us grow our economy.

expat writes:

JohnDewey asks for evidence from John S Bolton but he (JD)offers nothing but anecdotes. I guess "libertarian" theologians consider their anecdotes to be the equivalent of data.

JohnDewey writes:

expat,

If you wish to see the report I've read about immigrant wage increases, ask for it and I'll find it as soon as I can. You don't need to insult libertarians. Just ask politely.

I do have a right to offer anecdotal evidence that is inconsistent with Mr. Bolton's assertion. I don't think I'm out of line asking him if he has data, just as you aren't if you ask me to validate my statement on immigrant mobility. I didn't demand that Mr. Bolton provide evidence, just asked if he had it.

John S Bolton writes:

The evidence is in the government figures; as for median personal income of foreign born(16k), the cost of public education per student(8k+), health care expenditure per person(~6k) and the percentage of children of foreign born in public school(20+%, as in census: "facts for features: back to school"). If ~10% of the population has over 20% of the public schools' enrollment, as the foreign born do here, this tells you how it happens that the age ranges of immigrants make net consumers of them, with no great percentage of exceptions.

John S Bolton writes:

Searching for 'median income of persons', and finding census.gov 's table 2.16 should turn up the relevant figure on median personal income of foreign born.

JohnDewey writes:

Mr. Bolton,

Thanks for the response.

Is the education cost per pupil the marginal cost or the average cost? It's not clear to me that adding another student to a school system will cost $8,000.

Is there any way in the census data to distinguish students whose parents are legal immigrants from those who are illegal immigrants? My employer, an international airline, hires many foreign born professional employees at our headquarters. Might their children be included in the 20% figure you quoted?

Is the medical cost figure an average for all the population? including the very high costs to care for the elderly? and the costs of elective surgeries by the middle and upper classes?

About the median personal income figure: would that then imply that a two-worker foreign born household earns $32,000 per year?

I guess I'm concerned that applying gross numbers might not reflect the true costs and contributions of illegal immigrant households.

T.R. Elliott writes:

Silar Barta writes:

The exact same scenario happens between unions and investors -- taking an antagonistic relationship toward your customer (employer) isn't a sustainable way to get more money out of them. It's so obvious to anyone, in every instance except within the workplace. Why is that?

I don't think you understand capitalism if that is your only analogy, the customer service relationship.

Capitalism is built on competition, and competition takes many forms, whether it be individual against individual, company against company, or organized labor against companies.

Unionization is one form in which competition can be implemented.

Silas Barta writes:

T. R. Elliot: could you please provide a specific, well-posed argument contradicting my explanation about why unionization does not accomplish the goals it claims to? I can't make much sense of ramblings like "capitalism is about competition, and unions are about comeptition". How specifically do those points apply?

Well, at least this time you were smart enough to wait until everyone had moved on before replying, so fewer people can be aware of the quality of your responses.

Some future advice though: in college, they're going to expect a little more rigor out of your arguments. Well, actually, I take that back, not at the rate they're going!

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