Bryan Caplan  

Roderick Long and the Tiny Gnomes from Neptune

When You're in a Hole, Keep Di... Different Forms of Government...
When I was flying to Singapore I kept thinking about Roderick Long's Cato Unbound piece on "Corporations versus the Market."  Now that I've returned, I see there's been a ridiculously lively followup discussion.  I'm sorry to have missed it, but this passage in Rod's last post gives me a great entry point:

So if there is "nothing special or different about government privileges for corporations," they ask, why have I chosen to "single them out" (especially since I have not chosen to challenge the legitimacy of the corporate form itself)? My answer is that the primary and disproportionate beneficiaries of government privilege tend to be corporations, particularly large corporations. If the primary and disproportionate beneficiaries of government privilege were tiny gnomes from Neptune I'd be complaining about pro-Neptunian-gnome favoritism instead.
Well-put.  But I'm afraid Rod overlooks much more important beneficiaries of government privilege than corporations: Lower-skilled workers in the First World.  Lower-skilled workers in places like the U.S. earn several times as much as equally-qualified people in the Third World.  The reason is clearly immigration restrictions - with modern transportation and credit markets, there's no way that price differentials of that size could long persist.  In fact, as a recent paper by Clemens, Montenegro, and Pritchett points out, the "price wedge" between the First World and the poorest Third World countries is the largest that has ever been measured.  When you recall that labor earns about 70% of GDP, it should be clear that we're talking about a massive distortion in a massive market.

Now of course I'm the first person to point out that immigration hurts lower-skilled Americans less than most people think.  But there are literally billions of lower-skilled workers who would love to move to the First World.  That is more than enough to sharply reduce the wages of lower-skilled workers lucky enough to be born in a more-developed country. 

Back in 1993, I spent a joyful summer conversing with Rod.  I'm confident in his support for free immigration.  My point is that compared to immigration restrictions, government privileges to corporations are barely worth mentioning - and yes, that includes the unprecedented bailouts of 2008.*

This has awkward implications for thinkers like Rod who want to build bridges between libertarians and the left.  To put it mildly.  Sure, an ultra-philosophical leftist might say, "Free migration would vastly help the world's poorest, so let's do it."  But almost no leftist outside a philosophy department will see it that way.  Alas.

* Consider: If the only effect of immigration restrictions were to double the earnings of 70,000,000 Americans from $10,000 per year to $20,000 per year, the annual effect of immigration restrictions would equal the cost of the notorious $700 billion bailout!

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COMMENTS (24 to date)
bob boyd writes:

What if we reframed the migration question from 1st world barriers to entry by 3rd worlders? What about the other direction? I wonder how much of an increase in average income, for the native population, migration from 1st world to 3rd world might create? What are the barriers? Is there any good research on this topic?

megapolisomancy writes:

Bryan writes:

"Sure, an ultra-philosophical leftist might say, "Free migration would vastly help the world's poorest, so let's do it." But almost no leftist outside a philosophy department will see it that way. Alas."

An almost identical point was made here in the context of international income redistribution:

"An international application of the redistributionist interpretation of Rawls’ work would mandate massive wealth redistribution from wealthy Western countries to third world countries, a policy that some liberal philosophers may support, but that is unlikely to find much favor among most voters for liberal (and socialist) political parties."

The Legacy of John Rawls

greenish writes:

Must there be a winner? Could it not be that the amount of economic growth resulting from the cessation of all of the government's myriad schemes would offset even the benefits of being in the government's favor?

Especially for the poor, since their level of well-being is greatly improved by economic growth. The best pragmatic argument against redistribution is that it is negative on balance once the feedback kicks in.

Greg Ransom writes:

The benefits of immigration restriction are massive -- a democracy for one depends on a citizenry that is fit for citizenship. It's hard to image that our democracy or free economy would service "libertarian" open borders. And note well -- a good number of free marketers and libertarians have well constructed arguments against "libertarian" or "free market" open borders.

The "case" for open borders is usually unargued by "libertarians" -- i.e. it's typically a mindless ideology, not thought through in the least.

Economics without sound _political economics_ is rather worthless as public policy.

You must have in the first instance a sustainable political economy before one can perfect one's "economy." Look to California for some idea of what unrestricted immigration is producing in the current political economic environment. In many ways, it isn't pretty, and it isn't sustainable.

Greg Ransom writes:

Sorry, make that "survive" in the following:

"It's hard to image that our democracy or free economy would service "libertarian" open borders.

24AheadDotCom writes:

[Comment removed pending confirmation of email address. Email the to request restoring this comment. A valid email address is required to post comments on EconLog.--Econlib Ed.]

Mark Seecof writes:
Caplan overlooks much more important beneficiaries of corporate privilege than self-dealing corporate officers: people who own stock in successful businesses. People who own stock in profitable corporations receive much larger dividends than do stockholders of failing businesses. The reason is clearly ownership restrictions-- in a socialist system, there is no way that dividend differentials of that size could long persist...

Seriously, Prof. Caplan, do you think it right to exclude lower-skilled workers from the benefits of citizenship? You think voters are fools. Well if a lower-skilled worker voted for unlimited-immigration politicians he would indeed be a fool, just as a stockholder who voted for directors who wish to pay dividends to non-stockholders would be a fool.

You seem to think that the people and the country are entirely separate, and that the government could somehow improve the country by impoverishing most of the people in it.

Once again, I invite you to put your views to the test. Move to, say, Namibia. Prove by experiment that a country with a much greater proportion of low-skilled workers is a better place to live. When you report on the success of your experiment,* perhaps I will become persuaded that we should open the border so the United States can become the fourth-world pesthole you seem so ardently to desire. However, if you cannot offer evidence, rather than sophomoric pseudo-moralizing, most people will quite rightly view your proposal to open the border as akin to a scheme to open the roof during a hailstorm.

*Watch out for "necklacing," though, which is not the charming flower-powered ceremony of welcome that you see in Hawaii.

Tristan writes:

Interesting point. I look forward to seeing what Roderick and others make of it.

As for the anti-immigration rhetoric in the comments, I'm sure Brian can offer far more robust criticisms, but a few points:

Firstly, in what way does the Mexican government have control over Mexican immigrants to the US? I think a little bit too much credit is given to governments there. People are individuals, not part of some Borg-like national hive mind.

Secondly, the benefits of immigration restrictions are massive for the state, but not for individuals across the world (and I wish to reduce human suffering, not promote the state). Restricting immigration also does not make citizens somehow more worthy to be ruled over and restricting immigration rather restricts the economy by restricting voluntary interactions (the economy is also not at all free).

Any libertarian worth their salt will agree that to prevent people from freely moving from one place to another which does not affect your equal liberty is an invasion and an invalid use of force. The arguments of Hoppe and friends appear to be based in trying to achieve they believe to be the status quo in a libertarian society in a non-libertarian society and in a non-libertarian manner (initiating the use of force)

manuelg writes:

> ...Lower-skilled workers in the First World. ... When you recall that labor earns about 70% of GDP...

I assume "lower-skilled workers" are non-salaried.
You are conflating two very different groups of labor in the same paragraph.

David writes:

I have to agree with Greg and Mark above. I'm not afraid of the economic harm done by immigrants competing with me, I'm afraid of the violent harm they'd do with the aid of the state.

It's bad enough when the immigrants are from somewhere like California or Chicago, escaping their previous culture but then trying to turn the new place into a copy of the old - I shudder to think of the damage that could be done by those with even less experience with freedom.

After all, isn't the reason those of us in the First world have so much wealth that we have the right attitudes toward private property? Why focus on bringing the people here, rather than bringing the libertarian ideas to the people overseas?

Carter writes:

Professor Jellyby said: "But there are literally billions of lower-skilled workers who would love to move to the First World"

There are hobos who would love to move into your basement.

Mr. Seecof said: "I invite you to put your views to the test. Move to, say, Namibia."

Excellent advice. Once there he might end up feeding hungry people.

bjk writes:

I recently helped a guy trying to use a prepaid cellphone. I dialed the number, put in his minutes, and handed it back to him. He clearly had no idea how to use it or follow the directions, or how to speak the first word of english (or spanish, as far as I could tell). The idea that millions of foreigners are going to come to the US and contribute to the US economy is a fantasy. There are only so many domestic service jobs, and this isn't 1880 either.

Félix writes:

only 700Bn? Well that's ok then, 'coz bailout totals are now several times as much....

Corporations are back in the game as the biggest parasites!

But I'd like to nominate a third player: government employees. I'd bet the farm on them winning the 'stakes.

artocrat writes:

Ignorant in Tampa

It has occurred to me that the next step in the free migration argument is that we are really talking about slavery.

It appears to me that the argument ignores societal costs, health care, housing, policing,education, etc.

What kind of society can absorb this influx of workers and their families without considering these costs? The market will provide minimum services. I don't like slums, I don't like beggars,I don't like disease and poverty all of which seem to me to be the result of free migration. Who's gonna pay for all the problems?

Why does the market care about this issue or is it even an issue?

Well treated slave seems a much better answer.

ao writes:

There is no way the barriers to low skilled workers in the U.S. are greater beneficiaries of government privilege than high skilled workers. High skilled immigrants face the same barriers as low skilled immigrants, and several others in addition. Who faces more barriers to entry, a guatamalan man who wants to move to the U.S. to work in a slaughterhouse or a guatamalan man who wants to move to the U.S. and practice medicine?

Andrew writes:

"But I'd like to nominate a third player: government employees. I'd bet the farm on them winning the 'stakes."

Now that you mention it, farmers might be up there as well...

Less Antman writes:

Although my policy position on immigration is the same as that of Professor Caplan, his estimate of the costs of immigration to low-skilled workers seems extraordinary: why would incomes of 70 million workers drop in half because other hard-working people move to the country? What about Say's Law? Wouldn't these workers also be consumers? Are we postulating a limited number of jobs and desires?

At the time of the American revolution, 90% of the labor force were employed as farmers. Technological advances have eliminated nearly all of that employment: today, farmers are only 2% of the labor force. This, of course, is why we have 88% unemployment today. ;)

Certainly, workers in the first world make more money than workers in the third world who are equally skilled, but that is because the economic systems of those third world countries prevent those equally skilled workers from being equally productive. Caplan is taking what is virtually a Marxist position in arguing that immigrants will drive down wages.

Moreover, given the ambition of immigrants, they also have the opportunity to become employers, but being illegal makes that much harder. So one effect of free immigration will be to make the EXISTING illegal immigrants more likely to start businesses and add to employment opportunities of others.

Frankly, the economic effects of free migration should have the same nature as the economic effects of free trade, which are overwhelmingly positive. In any event, I see little basis for arguing that the net benefit to low-skilled Americans of immigration restrictions even exists, let alone is far in excess of the net benefit to recipients of corporate welfare.

Mark Seecof writes:

I suspect most readers will find a cryptic reference to "Say's Law" unhelpful. If you mean the short formula "supply creates its own demand," often referred to as "Say's Law," your question is easy to answer: empirically there is no such dynamic with respect to the supply of low-skilled labor. If there were, countries like Bangladesh would be rich.*

If you mean something more complex (Say himself never penned a pithy "law" like the one above), well, go back to the books. Say's view of the role of production of goods in creating demand for other goods has no clear bearing on the question of whether mass immigration of low-skilled laborers into a rich "welfare state" would benefit the existing citizens of that state overall.

Look, sometimes you have to analyze labor as a factor of production, not as a standalone tradeable for which you assume demand must axiomatically exist. Consider a farmer. He grows a crop to sell (trade for other things he wants). His inputs are land, equipment, seed, fertilizer, fuel, labor... and water. Water is a complement to the other stuff. The farmer wants enough water to make a good crop and has no use for more, no matter how low the price. Indeed, if it rains too much (water for free!) his crop will rot before it can go to market. It is the same with labor. The farmer wants enough labor and no more. An excess of labor is like an excess of rain-- unneeded laborers may steal and eat the farmer's crop before he can take it to market. No version of "Say's Law" can make excess rain on a given crop anything but a curse. No version of Say's Law can turn an excess of laborers, whose labor is not wanted to complement other factors of production, into a blessing for the country in which they find themselves. (It's no answer that excess workers could be put to street sweeping (or whatever). Even bare subsistence wages for such workers might cost more than a fleet of street-sweeping machines (or whatever) with a few high-skilled operators. Low-skilled people who collect welfare or commit crimes rather than work for low wages will destroy value rather than creating it.)

The (comparatively) low wages offered for low-skilled labor in the USA prove that there is not much demand for low-skilled labor here. There is no reason to suppose that suddenly and rapidly increasing the supply of low-skilled labor will have any effect other than to rapidly decrease the wages offered for low-skilled labor (that demand curve only slopes one way, friends). If minimum-wage laws were to prop up wages, then we would see increases in unemployment, crime, and welfare dependency. We would probably see increases in leftist politics as well.

The strangest thing about unlimited-immigration advocates is that they seem to think there is infinite demand for low-skilled labor in the USA even though the evidence (low wages) points the other way entirely. The fantasy of boosting wages for (literally) billions of people outside the USA by permitting unlimited immigration is inane. The math works the other way: unlimited immigration would equalize wages (ajusted for travel costs and so-forth) inside and outside the USA at a level barely above current world wages and far below current USA wages. Of course it wouldn't get that far, no one could buy a USA standard of living for $1.50/day. In reality, immigrants would continue to arrive until life in the USA was no better than life in much poorer countries. Note well: life in the USA would then suck for everyone,** not just low-wage workers.

*Don't think to squirm away from the facts by citing "institutions," either. The institutions of Bangladesh are pretty good by world standards, yet the country and its inhabitants are still desperately poor-- even though those poor people are quite willing workers. Despite their willingness to work, their labor is worth so little that most can barely earn enough to feed themselves.

**Except a few haciendados, perhaps.

Steve Sailer writes:

We've just carried out an experiment with letting millions of low-skilled immigrants move to the "sand states" of California, Nevada, Arizona, and Florida.

And guess what, that's where 50% of the foreclosures and 70+% of the defaulted mortgage dollars are found.

But Bryan will never notice that because Julian Simon didn't predict it.

Less Antman writes:

The world class economic institutions of Bangladesh earned them a rank of 108 out of 141 countries in the Economic Freedom of the World report of the Frasier Institute.

I was asking about Say's Law, not teaching it, and I did mean the correct one, not the Keynes' straw man version. I hope Bryan will comment on the issue.

There is no reason to believe everyone in the world will come to America in the absence of violence to stop them. It is simply not true that they will continue arriving until life here is the same as life there: beyond the obvious point that they incur enormous costs and financial uncertainties in making the move, the non-monetary issues that cause people to prefer to remain where they are are extremely strong. Moreover, arguing that wages will drop to subsistence levels is Marxist economics: in a competitive economy, it rises to marginal revenue produced.

I support the abolition of the welfare state (I think we should start with corporate welfare), but the evidence is that migrants go where the jobs are, not where the welfare is. There are no migration restrictions within the US, and there is net outmigration from the states with the highest welfare benefits and net inmigration to the states with the lowest welfare benefits. This long piece by Ken Schoolland has some supporting data on welfare toward the middle, and a solid overall discussion of the topic:

Mark Seecof writes:
Moreover, arguing that wages will drop to subsistence levels is Marxist economics: in a competitive economy, it rises to marginal revenue produced.

Actually, that argument is (honestly) Adam Smith economics, though Marx picked up on it. And on what basis do you suppose that the marginal product of low-skilled labor necessarily exceeds subsistence? (Adam Smith subsistence-- just as 18th Century English subsistence included shoes while French laborers went barefoot, 21st Century American subsistence includes fancy sneakers, cable TV, and beer).

If you look around the world, you will see that empirically, most labor works for subsistence wages at best.

Increasing the supply of just about anything lowers its relative price. This "law" (supply and demand) applies to raw labor as much as other goods and services.

Please, tell us how adding more low-skilled laborers to the USA can increase wages for low-skilled workers in the USA. Their wages are already low (by USA standards). You can't just postulate some highly-productive activity to absorb all those workers-- that activity doesn't exist now and we can't just command it to appear.

(I don't suggest the reductio-ad-absurdum that if we just pushed everyone earning less than a million dollars annually out of the USA, we would end up with a country in which everyone forever more would be filthy rich. Obviously it takes all sorts to make a successful national community. However, as I wrote before, our markets already signal that we have more than enough low-skilled labor-- by offering very low wages (in USA terms) for that labor. Just look at unemployment in California right now!)

Note also that we presently subsidize the employment of low-skilled workers with, for example, the EITC, Medicaid, and a variety of other welfare schemes. I have argued in the past that abolishing those schemes would likely push wages up for many low-skilled laborers (since their employers would have to pay them full subsistence wages). However, such a change would also prod employers to substitute capital improvements (e.g., automation) for low-skilled labor, which would in time reduce demand for low-skilled workers and divert even more of them into unemployment.

One answer to that problem might be encouraging workers back into domestic service jobs. The French are trying that right now (how successfully I cannot say). However, for most people in advanced countries the great achievement of the 20th Century was moving most workers from domestic service and agriculture into industrial jobs, where they commanded more respect as well as higher wages. Very few American potential workers want to go back to yes-ma'am-ing the petty tyrants of domestic employment (much less hoeing the rows of pre-industrial farms), and while a dutiful servant with a mop probably cleans more thoroughly than a busy householder with a Swiffer, it would take mighty low wages to make many jobs for servants economically viable. Even if you did abolish all welfare schemes, many potential workers in the USA would choose crime before domestic service just to maintain their pride.

Mark Seecof writes:

Now that I've had a chance to read the Ken Schoolland essay you recommend, I must concur with you: other people should read it, to learn how foolish your notions are. You cited Schoolland for his "supporting data" but those are incorrect! Schoolland is such an ideologue that he's willing to mislead to puff up his argument!

In the key section called "Economic Contribution" Schoolland cites Julian Simon (1995) for a raft of false notions. He writes of immigrants that they "average only one year less in education than [natives]" and that "they have a higher proportion of advanced degrees than [natives]." That is artful misdirection. Simon "averages" PhD immigrant scientists with semi-literate laborers even though the debate is over excluding the latter. There is no reason we should admit both! In fact, while a distinct and valuable fraction of immigrants are highly educated, the rest (especially the illegals) average much less educated than natives (see p.23 esp.). Then Schoolland writes "[immigrants'] children are highly motivated and excel beyond the level of native Americans in school." That is highly misleading. The second, third, and fourth generation descendants of most (Mexican) low-skilled immigrants perform even worse than the lower cohorts of natives. Schoolland also misleads by claiming "immigrants contribute more in taxes than they draw out from government welfare services." There are three flaws in that: first, that claim conflates taxes paid by high- and low-skilled immigrants. Low-skilled immigrants and their families typically draw more social spending than they pay in taxes. Second, even the "averaged" claim can be sustained only by counting Social Security taxes on the tax side while leaving Social Security payments out of the services side-- obviously bogus. Third, low-skilled immigrants demand social spending apart from welfare programs-- the largest is schooling for their children. On the order of 40% of children in California are born to immigrant mothers, most of them low-skilled. Another social cost is spending on police and prisons (as well as insurance, damages, security hardware and guards...)-- low-skilled immigrants and their offspring commit a disproportionate amount of crime.

After blowing that enormous cloud of smoke, Schoolland goes on to a bunch of other claims. I weary of debunking them one by one, but Schoolland does not inspire confidence: for example, he claims that during the 1990's the population of California declined. Actually, it grew by 4+ million, due to immigration and children of immigrants even as natives fled to states less disrupted by immigration.

Finally, Schoolland argues that the crowding, environmental degradation, social disruption, etc. caused or exacerbated by low-skilled immigrants are no problem; the problem, he writes, is bad government policy restricting land use and so-forth-- anyway, writes Schoolland, it's a matter of taste-- some people like living in rabbit warrens. Well, I can't expect you to value the tastes of natives over those of potential immigrants, but the question of government policy is more complex than Schoolland allows. Schoolland offers no plan to correct land-use policy and so-forth before or at the same time as he revises immigration policy. This is a big flaw in his paper-- he blames the bad effects of immigration on other policies, but wants to increase immigration even without changing those other policies. He puts the cart before the horse.

You can make a good case for admitting high-skilled immigrants, and in fact, I think that would be a good idea. Empirically there is no case for admitting low-skilled immigrants. Attempts to make such a case by "averaging" the costs and benefits of high- and low-skilled immigrants are fraudulent, in effect if not intent.

Less Antman writes:

"If you look around the world, you will see that empirically, most labor works for subsistence wages at best."

If you look around the world, you will see that empirically, most countries have lousy economic institutions at best. Only 7 rank as freer than the US and, of those, only Chile fails to fall into the first world category economically.

Subsistence wages in 3rd world countries might well represent marginal revenue product. I'm arguing that it is the economic institutions in those countries that explain why equally qualified persons make so much less, and that the same person will produce a substantially higher MRP in the United States.

It is impossible for me NOT to postulate a hypothetical alternative. There being no evidence for a 50% cut in wages didn't stop Bryan from postulating it.

None of us know all the economic effects of immigration on wages, but it is quite reasonable to believe they will be of the same nature as free trade (you have, quite reasonably, described labor as being another factor of production).

Digital Cabinet writes:

Mark Seecof wrote:

Seriously, Prof. Caplan, do you think it right to exclude lower-skilled workers from the benefits of citizenship? You think voters are fools. Well if a lower-skilled worker voted for unlimited-immigration politicians he would indeed be a fool, just as a stockholder who voted for directors who wish to pay dividends to non-stockholders would be a fool.

Do you think it is right to exclude blacks from the benefit of citizenship? You think whites are fools. Well if a white voted for politicians favouring suffrage for blacks he would indeed be a fool...

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