Bryan Caplan  

The Efficient, Egalitarian, Libertarian, Utilitarian Way to Double World GDP

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How I Fought Envy, Part 3... What Happened to the Mixed Eco...
Two words: open borders.  The noble Michael Clemens tells the full story in his new piece in the Journal of Economic Perspectives - ungated.  I'm tempted to blockquote the whole piece, but I'll limit myself to a few highlights (footnotes and references omitted).

The estimated welfare gains of open borders versus other policy reforms that get vastly more attention:

openborders.jpg

Immigration restrictions "work" - they successfully create price wedges greater than any other:
Typical international trade costs, up to and including the border--not just policy barriers but all barriers, including distance, language, currency, and information -- are the rough equivalent of a 74 percent ad valorem tariff, according to Anderson and van Wincoop (2004, p. 692)1; price wedges between the same goods in different national markets are also of this magnitude (for example, Bradford and Lawrence, 2004). For identical fifi nancial instruments, Lamont and Thaler (2003) find that the price rarely differs across the globe by more than 15 percent. Both these wedges look small next to the global price wedges for equivalent labor. In Clemens, Montenegro, and Pritchett (2008), we document gaps in real earnings for observably identical, low-skill workers exceeding 1,000 percent between the United States and countries like Haiti, Nigeria, and Egypt. Our analysis suggests that no plausible degree of unobservable differences between those who migrate and those who do not migrate comes close to explaining wage gaps that large.
Labor mobility and economists' double standard:
Further, even if emigrants modestly depress wages when they arrive at the destination, this does not justify restricting movement by the standard welfare economics analysis. Such effects represent "pecuniary" externalities rather than "technical" externalities...

For example, research on domestic labor movements has found--to the surprise of few--that movement of labor from one city to another tends to modestly lower wages at the destination, and that the entry of women into the labor force can modestly lower men's wages. However, no economist would argue that these facts alone signify negative externalities that reduce social welfare and should be adjusted with a Pigovian tax on those who move between cities or on women entering the workforce, because these externalities seem to be almost purely pecuniary. Similarly, economists would be virtually unanimous against imposing a tax on new domestic competitors on the grounds that they imposed costs on existing firms, because again such externalities are pecuniary.
Bottom line: If research energy were proportional to the inefficiency of the status quo, virtually every economist would study immigration.  And if outrage were proportional to harm, virtually every protest on earth would be in favor of open borders.  Mr. Median Voter, tear down these walls!


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COMMENTS (25 to date)
Frank writes:

I don't see the double standard. Economists oppose all the market restrictions in those quotes.

Don Lloyd writes:

I find it highly unlikely that in the extreme cases of wage inequality that there do not also exist wide variances in the supply of and the demand for minimally skilled labor.

In addition, wage comparisons by themselves are all but meaningless without considering the relative per capita supply of money (and likely its detailed distribution) in the two countries being compared. It seems likely that goods prices themselves cannot reliably serve this purpose if large portions of the population buy highly variable subsets of goods and services.

Regards, Don

rapscallion writes:

I'm all for more open borders and immigration, but arguments for policy changes based on economic efficiency are fallacious and eventually the profession is going to have to realize this.

Generally speaking, if you assume rational, utility-maximizing agents, then the observed outcome must be efficient, period. In the case of immigration, this means that if it were possible or worth it for immigrants to pay countries for the right to immigrate, then they'd do it and we'd see more immigration. Since they don't, it must be impossible or not worth it for them. If it's impossible, then it's impossible and nothing can be done to improve things. If it's possible, but immigrants don't do it, then it's not an efficiency-improving move to relax immigration laws. Either way, what's observed is efficient and there is no pareto-improving policy change.

http://www.jstor.org/pss/1182717

Don Lloyd writes:

Of course, the relatively low variation of goods prices from country to country are primarily the result of competitive global arbitrage for many goods, and this will tend to override all other factors, including relative per capita money supply.

Regards, Don

E. Barandiaran writes:

Bryan,

I agree with you that if all the walls were torn down, the world's welfare would increase. It could take, however, too long for the benefits to exceed the total cost of tearing the walls down. This total cost has to include the many resources that would be wasted to reverse the policy or to mitigate the short-term losses that many people --particularly in the advanced economies-- would suffer.

There is a lot of evidence about that waste of resources. Since the 1980s, we have been living the greatest shock to the world economy --one big step to a Global Market Economy, still with many walls but much fewer than the previous one. I have been arguing that this shock --the liberation of over 3 billion people that have been partially integrated into the world economy-- underlies the performance of the advanced economies in the past 25 years: quite good at the beginning (the 1990s), but increasingly deteriorating.

Unfortunately, economists --especially American macroeconomists that have been recycling old ideas to cope with the ongoing financial and fiscal crises of advanced economies-- have yet to analyze the adjustments of the "national" economies to that shock from the viewpoint of the world economy. Just read the opinions of most of your colleagues at GMU to understand how obsolete their thinking is about what governments of advanced economies should be doing to accelerate the recovery. The unintended consequence of their policy recommendations is to make the remaining walls stronger.

Zippy writes:

Does this analysis take into account the likely effect of having 300 million people from the Third World move to (soon formerly) developed countries?

You are assuming that all institutions remain the same with open borders, but of course that's flawed. If people from, say, Kenya and Mexico cannot maintain decent institutions in Kenya or Mexico, why do with think they will magically be able to do it here?

Evan writes:

@rapscallion

Generally speaking, if you assume rational, utility-maximizing agents, then the observed outcome must be efficient, period.
We don't have that. Closed borders is a political decision, and, as Bryan has written a whole book about, people often make political decisions irrationally. People check their rationality at the ballot office. In this case, the anti-foreign bias causes people to overestimate the downsides (to put it mildly) of interactions with foreigners.

@Zippy

If people from, say, Kenya and Mexico cannot maintain decent institutions in Kenya or Mexico, why do with think they will magically be able to do it here?
Institutions are easier to maintain than they are to create. Immigrants from places like Poland and Italy in the 1800s did not make US institutions as dysfunctional as Polish and Italian ones.

There have been some attempts to claim new immigrants are qualitatively different than old ones by claiming they have genetically lower IQs, and I'm ashamed to say I used to be gullible enough to believe this. However, I now think that such claims are likely exaggerated or entirely wrong. Researchers who don't have a political ax to grind against immigration, affirmative action, and welfare have gotten much less spectacular results on the IQ front than the ones restrictionists claim exist (not that I'm implying all restrictionists hold these beliefs about IQ of course).

And even if 300 million people coming at once turns out to be too much to handle, the country can definitely accept more people than it does. 15-25 million at once would probably be okay. And 300 million over the next 50 years would probably be fine.

Mike writes:

Do you have evidence showing correlations between open borders and economic growth? How does that evidence stand up to the evidence that poor immigrants will tend to vote themselves more government benefits? or that they will bring their criminals, terrorists, rioters, and welfare queens along when they come to our country?

steve writes:

Does the analysis hold if you don't make the immigrants citizens with all the same access to voting rights and government services? I think it does. Of course, that doesn't mean there won't be any discontent.

James writes:

rapscallion:

The point here is that it's not possible for people to pay money (or at least, not any amount of money they're likely to get access to) to immigrate somewhere, but that can be changed, because the reason for it is restrictive immigration policies.

Notice that your argument, applied in exactly the same way to any other area of economic policy, says that all preexisting laws and regulations are perfectly efficient, regardless of their nature. Valid, fully-general counterarguments like that don't actually exist.

Daublin writes:

It's a great point, Bryan. I don't know about economic researchers, but certainly outside of economics, I don't think many people realize just how much of the world's poverty could be alleviated by open borders.

What sacrifice might the median voter make if they had a credible way of helping world poverty? I would wager it's a large one. They just don't know how much help open borders could be.

Zippy writes:

Even, I'd very much like to see specifics on the IQ thing. Which researchers, using what methodology?

I very much do not want Rushton and that crowd to be right, but I very much fear that they are. The world is what it is; it's not amenable to alteration by wishful thinking. Our own recent experience with African-American underachievement does not bode well for hundreds of millions of Third World immigrants.

You're right about Polish and Italian immigrants, of course. And it is true that maintaining good institutions is easier than creating them. But, once broken, institutions and a political culture can be hard to fix.

Nineteenth-century version of a closed-borders argument:

If people from, say, Ireland and Poland cannot maintain decent institutions in Ireland or Poland, why do you think they will magically be able to do it here?

James A Donald writes:

This assumes that the migrants are attracted here by businessmen who want them to work.

Suppose, however, they are attracted here by politicians who want them to vote.

In a fundamentally capitalist economy, open borders would benefit everyone. Trouble is, that they may vote to turn the US into another third world hell hole, thereby harming everyone.

The current rule in the US is that illegal immigrants get food stamps, tuition, healthcare, and so on and so forth, but are not allowed to work, revealing that what is wanted is not a working class, but an underclass similar to that of Britain.

And let us consider the fate of the inhabitants of the ivory coast: The native population was Christian, animist, and had absorbed a lot of European culture from the colonialists, so were prosperous compared to most of Africa. Primitive Muslim immigrants, with a propensity for cannibalism, were encouraged to migrate, partly for cheap labor, but mostly for cheap votes. The world bank sent in one of their guys to make the primitives a better offer than the ruling party, and the native blacks were, in large part, physically expelled and ethnically cleansed, and, in some cases, eaten. Hey. I am a highly expert Ivy League technocrat from the world Bank. Vote for me and, wink wink, no one will stop you eating your neighbors, not that I approve of cannibalism of course. Obviously the best rule, by definition, is technocratic rule, and to secure technocratic rule, well if some should eat those pesky members of the other party, no one is going to look too hard.

James A Donald writes:

Joseph Hertzlinger writes:

If people from, say, Ireland and Poland cannot maintain decent institutions in Ireland or Poland, why do you think they will magically be able to do it here?
Inborn genetic inferiority, and/or, politicians who want them here because they do not want them to maintain decent institutions: Observe Britain, where politicians are simultaneously creating a white underclass, and importing a black underclass. Irrespective of whether the British migrants are genetically inferior, their cultural inferiority is being made worse, not better, by the British environment.

Irrespective of whether genes matter, in Britain they are getting cultural leveling downwards. That the IQ difference is cultural is supported by the fact that white IQ is falling in Britain.

Similarly, food stamps, school lunches, and free healthcare are having a detrimental effect on Mexicans in California. Culturally, second generation Mexican Americans are degenerating from their migrant parents.

The proportion of underclass among Mexicans in California appears to be worse, not better, in the second generation.

In the Ivory coast there was economic, cultural and social degeneration,large scale racial replacement, and ethnic cleansing of the more advanced population, even though the differences between natives and migrants were primarily religious and cultural, not genetic.

And back to the genetic issue: There has been no scientific comparison between different races of native Americans, but anecdote and casual observation is that most of them have lower IQ and future orientation than whites and some tribes have substantially lower IQ and future orientation than others, that a lot of southern native Americans have IQ similar to that of blacks. There is large and obvious genetic diversity between different kinds of native Americans. (Insert unmentionable racist epithets distinguishing certain Hispanic migrants of predominantly Indian origin from certain other Hispanic migrants of predominantly Indian origin)

While some Californians complain that whites are being driven out of certain suburbs by racial violence from Hispanics, some Hispanics also make a similar complaint (insert the previously mentioned racist epithets)

James A Donald writes:

Evan writes:

Institutions are easier to maintain than they are to create.

These institutions collapsed in Argentina, even without mass immigration. They are collapsing in Britain, and are showing clear signs of collapse in the USA.

The Ivory Coast is an example of social, cultural, and economic collapse induced by the mass migration of culturally inferior, but genetically similar, people, which economic and cultural collapse was followed by the ethnic cleansing of much of the original population.

And I too have reviewed the scientific evidence. The evidence against substantial genetic differences in IQ and future orientation resembles the evidence for Global Warming, in that politically incorrect results are apt to destroy one's career and prevent publication. The evidence for a difference of near one standard deviation in IQ and a good deal more than one standard deviation in future orientation appears to me overwhelming and compelling, and contrary results appear to me to be piety and political correctness, rather than data. In reviewing the evidence, you need to look for the typical symptoms of politically correct results - that the key data is inaccessible and the published data insufficient to replicate the results. If a paper is immune to replication, it is not a scientific paper, but the ruling class at prayer.

E. Barandiaran writes:

James A. Donald,

You are wrong about Argentina. First, Argentina received a huge number of Italians and other Europeans between 1880 and 1914, including all my grandparents. Second, as a result of that huge immigration, in 1912 the electoral law was changed (Ley Saenz Pena) and many immigrants could vote for the first time in 1916, changing the institutional history of my home country and leading to the first military coup in 1930. Third, the large domestic migration to Buenos Aires in the 1930s created the conditions for the institutional changes of the first Peron government, including a new constitution in 1949. Fourth, the terrible experience of 1970-1983 (the killings started in 1970 not in 1976) was not related to migration and institutional changes and it was largely the result of two fights --one for the control the Peronist party, and the other the emergence of guerrilla groups attempting to control parts of the country. Fifth, since December 1983 the changes to the constitutional order restored in 1957 have been minor and the only important migration was the emigration of 2002 and later the return of most people that emigrated that year.

rapscallion writes:

Evan,

i) The logic (or I should say, illogic) of general welfare cost-benefit efficiency analysis assumes rational, utility-maximizing agents; it assumes that observed prices, for instance, represent relevant measures of value. If you really think "we don't have that," then you should agree with me that these efficiency arguments are fallacious.

ii) Bryan doesn't argue that people make irrational decisions. He argues that people make RATIONALLY irrational decisions. That is, they don't like to admit why they do what they do. This doesn't undermine standard economic efficiency assumptions because standard assumptions don't say anything about hypocrisy or self-delusion.

James:

The authors are arguing that things are inefficient AS THEY ARE, which is, when you look at the theoretical underpinnings, self-contradictory nonsense. They are not trying to predict possible future changes that might happen as agents react to changing circumstances, which would require an entirely different and wholly unprecedented kind of theoretical analysis. They are simply adding up the costs as they measure them and weighing them against the benefits as they measure them, while ignoring the basic fact that their underlying theoretical assumptions require observed efficiency, that if they find the benefits>costs of some policy, then they must be doing it wrong.

I urge you both to look at the paper I linked to in my first post.

ziel writes:

Immigrants from places like Poland and Italy in the 1800s did not make US institutions as dysfunctional as Polish and Italian ones.

Poland didn't suffer from dysfunctional institutions, it suffered from being buffeted about by their larger neighbors.

But Italian immigrants, on the other hand, did very real and lasting damage to American institutions, particularly the damage done to American jurisprudence from things like RICO that were necessary to fight the mob. The Irish did similar damage up in Boston to the great institutions of democracy with their rampant corruption. Sure, things are better now - it only took about 150 years to recover.

Most Italian- and Irish-Americans have made positive contributions to American institutions, but let's not pretend there isn't a very serious dark side to the immigration fairy tale.

Zippy writes:

ziel, great point about Italian immigrants. Most were law-abiding, and I certainly like pizza and pasta quite a bit, so I'm happy we have them, on balance. But the Italian and Jewish mobsters who dominated organized crime did this country real damage.

Now imagine doubling our population, with immigrants from Third World countries with no tradition of decent government. That alone is a serious problem, and if the IQ thesis is true . . . .

Open borders would work great if you assume that institutions are durable and self-sustaining. I think that the opposite is true: good institutions are fragile and difficult to maintain. Leftism has already undermined the very concept of the rule of law. We cannot afford to place greater stress on our institutions.

And, well, the IQ thing is probably a sad fact of reality.

David C writes:

I just wanted a point of clarification on this post. Is this strictly about geographical mobility, or do any of the papers cited also consider licensing restrictions?

Evan writes:

@Zippy

Even, I'd very much like to see specifics on the IQ thing. Which researchers, using what methodology?
One very compelling study I read recently was the Levitt and Fryer paper, "Testing for Racial Differences in the Mental Ability of Young Children," which attempted to determine whether IQ differences among races were genetic or cultural by testing extremely young children who had not yet had time to absorb much culture. Since you can't really administer an IQ test to young children they used a test called a Bayley Scale of Infant Development, which has a 30% correlation with IQ later in life. Logically, if African American IQs are genetically one standard deviation below whites, and the BSID has a 30% correlation with IQ later in life, they would have found at least 0.3 standard deviations of difference between black and white BSID scores. Instead they found 0.064 SDs, and adding some controls reduced it to 0. Furthermore Asians did worse than both blacks and whites.

What also impressed me was a sorry response that one IQ fundamentalist type gave this study, the argument he tried to make was that the study was invalid because babies couldn't do IQ tests, so it was like showing there was no genetic difference in marathon running ability because babies can't run marathons. What it's actually like, isn't making babies run marathons, it's like performing a test on them that 30% correlates with marathon-running ability later in life. To his credit the author mentions he hasn't actually read the study yet, but anyone should realize that no one would do a study like that unless they found some way of linking it with IQ.

After reading that I realized that IQ fundamentalists wanted other races to have lower IQs. They love having IQ as a club to beat immigration, welfare, and affirmative action with. Most people find the idea of other people having intrinsically lower IQs horrifying and would be delighted to find out that that's not true. But these people find it comforting because it gives them one more argument against policies they hate.

Other studies I found interesting were:
-A lot of Turkheimer's work, he's found that socioeconomic status has a strong effect on the hereditability of IQ.
-Roland Fryer has done other work that indicates that anti-intellectualism in black culture is at least partly responsible for the IQ gap.
-James Flynn has done a lot of research showing that the Flynn effect is still working for blacks, even though it stopped for whites. He's recently argued that the black-white IQ gap has already closed by 5 points. He has also refuted some of the commonly cited studies of Asian superiority in IQ.
-Thomas Sowell has studied the history of IQ tests and found that groups that score high on IQ tests today scored poorly in the past. His "black rednecks" theory I think provides a good alternative for underachievement in America. He's also pointed out that black women tend to have higher IQs then black men, which doesn't make sense genetically.
-In general most research shows that hereditable traits like IQ are much more malleable than we thought, 50 Great Myths of Popular Psychology listed "The Fact that a Trait is Hereditable Means we Can't Change It" as a widely held myth.

@rapscallion

i) The logic (or I should say, illogic) of general welfare cost-benefit efficiency analysis assumes rational, utility-maximizing agents; it assumes that observed prices, for instance, represent relevant measures of value. If you really think "we don't have that," then you should agree with me that these efficiency arguments are fallacious.
You're confusing categorical and incremental statements, which is something you should never do in economics. Your basic argument seems to be "either people are rational, in which case the status quo is efficient, or they're not, in which case the argument is fallacious." However there is a third possibility, which is that people are sometimes rational, utility maximizing agents, and sometimes not. Bryan has demonstrated that people tend to be rational in their day to day lives, but go crazy in politics. Immigration restriction is a political decision.

ii) Bryan doesn't argue that people make irrational decisions. He argues that people make RATIONALLY irrational decisions. That is, they don't like to admit why they do what they do. This doesn't undermine standard economic efficiency assumptions because standard assumptions don't say anything about hypocrisy or self-delusion.
Rational irrationality doesn't mean people are hypocrites who don't like to admit why they do what they do. It means people hold wrong, but totally sincere beliefs, but won't change them because the cost of holding wrong beliefs is not terribly high for them.

Your whole argument reminds me of presuppositionalist arguments for Young Earth Creationism, instead of engaging the argument's points it changes the subject to an abstract argument about the nature of knowledge.

Zippy writes:

Evan, thanks for the reasoned response. I promise to look at all your links, and to read them carefully.

I have read the study of infants, but I have to say that it strikes me as a weak reed. When these IQ debates arise, one of the things I notice is that the anti-IQ folks have very high standards of proof. They're very skeptical of the structure of the tests, the concept of IQ, etc.

But then when a study comes along where they LIKE the result, all that skepticism gets tossed out the window, and a study of how much babies twitch in their cribs is definitive.

I do agree that you get the sense that Lynn and Rushton and that whole crowd don't much like black people very much, and that their preferences are driving their interpretation of the science. But at the same time, the hysterical name-calling and demonization suggests that folks who oppose the idea are equally committed emotionally to the opposite view. Consider that poor girl at Harvard Law School a few years ago who got put through the ringer for saying she was open to the idea -- in a private e-mail.

You may be right. Unlike some folks, I hope you are. It would solve a lot of problems. The one thing I am sure of is that my preferences don't affect what the truth is.

And it's worth thinking about the implications, if you are right. It means that culture -- for example, the anti-intellectualism of black culture, the redneck influence, etc. -- is VERY important. Important enough to result in intergenerational disparities with tremendous social consequences.

Now lots of liberals want to say "hey! Great for us! It's just environment! A bit of Head Start and we're good to go!" But if it is environment, it's early, deep, and durable.

The implication of that is that the left's commitment to multiculturalism has got to go. It means some cultures are objectively better than others. And one of those objectively inferior cultures is modern American Black culture. It means that if we want to close the gap, we have to destroy black culture as it now exists.

Oh, and it's also an argument against open borders, because it suggests that cultural assimilation -- the old-style melting pot -- is very important.

James Reade writes:

The double standard here is that libertarians charge any analysis that provides precise numbers like 1.8 and 147.3 with the label "scientism", the false pretence of knowledge via the use of supposedly scientific methods to what can't be thought about in that way.

This may have been addressed in the comments thus far, but I am interested in how you're managing to cope with this apparent contradiction Brian.

Is it just (me being cynical) that libertarians charge findings contrary to their prior beliefs with scientism, but when the findings make sense, they are ok?

Benjamin Caudle writes:

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