Month: June 2006

Why open borders won’t work

The first issue is to pin down what we mean by open borders.

Land use restrictions are often a more important ""immigration
policy" than border control per se.  It is not just how many people get
in at what cost, but who can afford to live here.  This includes zoning laws,
restrictions on the number of people allowed to live in an apartment,
policies toward "squatters," and rules for the homesteading of public
property.  So by "open borders" I mean also liberal land use policies;
nominally open borders would matter far less if unskilled laborers
couldn’t also afford to live in the U.S.  (Note to anti-immigration
types: you are focusing too much on the ease of crossing the border
and not enough on the costs of living here.  How much the best
immigration restrictions involve land use policy or border policy is a
curiously underexplored question.)

If both the border and land use were free, markets would be very
powerful in organizing mass migration.  Consider Hyderabad.  Many of
the very poor live either at or right next to garbage dumps.  They live
in tents or ramshackle lean-tos.  Their jobs often involve scavenging
the garbage dump for potentially useful scraps.  Why do they live
there?  Do they like the short commute?  Is it because they love the
Indian culture one finds right next to the garbage dump?  No, no, and
no.  They live there because they will put up with almost anything to
have a chance of survival.

How many of these people would book passage on a slow ship to
Baltimore, with the hope of living in a richer garbage dump?  The ship
would serve cheap rice and lentils, make them sew garments while sailing, and collect further payment five years after
arrival, tagging them with GPS if need be or "monitoring" relatives
back home.  Or perhaps the Indian government would pay their way.

How about the nine or so million Haitians — almost all living in
extreme poverty — who face a much shorter and cheaper boat trip?

I can imagine the U.S. staying a high-quality capitalist democracy
with some percentage of the population living in garbage dumps and
shantytowns.  While I think we are underinvesting in shantytowns, the permissible percentage is not very high and almost certainly falls short of fifteen percent.  (Btw,
there is much complaining about the Mexicans, but in fact we share a
long land border with a relatively wealthy third world country; this is
rarely appreciated.)

That is why I do not favor unlimited immigration.  To the extent
that nominally "open borders" would be tolerable, it is because we already impose
implicit immigration restrictions through land use policies.

That all said, I will reiterate my view that we could take in many
more immigrants than we are doing now, both skilled and unskilled.

Caught my eye

1. Loss of natural teeth by state.  Hey Pete, can you guess which state takes first place?  Connecticut is on the other end of the spectrum.

2. Unplanned attempts to quit smoking may work best.

3. The Monkey Chow Diaries: "Let them eat cake" was most definitely the wrong idea.

4. Jane Galt on Superman.  So far carbon sequestration is the best idea.

5. How to tell a woman’s real age.

6. Here is an excellent essay on Indian reforms and why the outsourcing boom started.

7. Check out this updated link for Why Men Can’t Dance; many other hypotheses are there as well.  Try Why I Don’t Care That Your Mother is Dead, for one, or how about Why Bond Villains Employ Dwarves?

What is new and essential in economics?

By "new," restrict yourselves to 1990 and afterwards.  I see mid-1980s as the end of a great era in economic theorizing.  Take game theory, principal-agent theory, and the economics of information, and apply them to everything, for better or worse.  This was an exciting, indeed intoxicating, time to learn economics.  While applications continue, we have run out of new ideas on those fronts.  Experimental economics is completely Nobel-worthy, but it is now over forty years old.  What are the next breakthroughs or the breakthroughs which have just been made?  Comments are open…

The macroeconomics of Superman

Did you know about the new summer Superman film

Let’s say we had an altruistic and incorruptible Superman, how should he allocate his efforts to improve the macroeconomy?  He is really strong, he can fly very fast, leap tall buildings at a single bound, has incredible vision, and somehow he is immune from Einstein’s theory of relativity and time dilation at near-light speeds (his most impressive achievement, if you ask me).

Yes he should save the world from evil madmen, but fighting ordinary crime hardly appears worth his trouble.  Criminals seek pure transfers, and Superman’s policing doesn’t lower our (inefficient) investments in locks enough to make a difference in the growth rate.  It’s about as silly as having Superman sub in for FedEx when the skies get crowded over Memphis.

And should his alter ego, Clark Kent, really be a photographer for a daily newspaper?  At least that guy is contributing to a reproducible output; he must have read Sherwin Rosen’s paper.

Darfur and the like aside, I have a few nominations for what Superman should do:

1. Become a research scientist.

2. Collect data for the Fed.

3. Fly around and tell people — politely but very pointedly — when they should accept lower nominal wages.

4. Perform amazing stunts on TV, become a big celebrity, and then preach the virtues of economic literacy; this is Dan Klein’s suggestion.

Your thoughts?  Your answer suggests much about where you see leveraged returns in today’s world.  By the way, here is the first edition of the Superman comicbook.

Capitalism and Society — new electronic journal

This is from The Berkeley Electronic Press, here is the link, along with the papers.  Edmund Phelps directs a very prestigious Board.  Here is the description:

We publish scholarly work on topics central to the mission of the Center on Capitalism and Society
whose length, subject matter, approach, etc. would normally preclude
publication in a standard journal. We want to stimulate and provide a
forum for discourse for ideas that may not be proven beyond a
reasonable doubt. Accordingly we will publish papers along with the
commentary of a reviewer, leaving room for “agreement to disagree.”

Here is further description; it should please the Austrians.  Thanks to David Boaz for the pointer.

Economics of the World Cup

Kottke passes along many links, check here and here.  Sort through it yourself.  This is not my cup of tea but some of you will love the material.  I’m still trying to figure out who will win this NBA Finals with massive mismatches.  When in doubt go with the team with the single best player, and that has to be Dwyane.  The betting markets though had Dallas at about 59 percent.

The Apprentice and Group Identity

The final two candidates in Donald Trump’s The Apprentice lead two teams through a task.  Every year Donald asks the respective team members who should win.  If the members answered objectively then each team should split in about the same proportion.  Yet almost invariably the members of each team tell Donald that the candidate that led them in the last task is the best. 

This is an interesting example of how easily our own identity can become tied to that of a group.  We are the Red team, and the Red Team leader is the best.  The Robber’s Cave may be more difficult to exit than Plato’s cave.

The failure of the teams to split in equal proportions also means that information fails to aggregate.  The Donald learns nothing from the people who know the candidate the best, the employees. 

Comments are open especially if you have other examples of the malleability of group identity and how it can distort information aggregation.

In which I am now working for the Brits

I am pleased to announce that I now have a book contract with Dutton/Penguin.  I have a wonderful editor, Jeff Galas, and of course I have already started the work.  A few bits of the book will look familiar to MR readers, but there will be plenty of new material as well.  Of course you haven’t read it, but I am nonetheless keen to take title suggestions, either in the comments or through email.  If I use your title idea or any close derivative thereof, I will send you something valuable (seriously), of my choosing.

If we abolished the penny would prices go up or down?

I should have known you were going to ask.

I will bet on up.  Remember when Western Europe moved to the Euro?  A disproportionate share of retail prices went up, leading to the designation "the Teuro."  ("Teuer" means "expensive" in German.)  It seems that retailers had wanted to increase their prices in the first place, but were afraid of irritating their loyal customers.  The regearing of the monetary unit gave an "excuse" for price increases plus not everyone noticed the higher prices in the new monetary unit.  I predict similar results, albeit smaller ones in absolute terms, from abolishing the penny.

How bad an outcome would this be?  Ironically it was Greg Mankiw who wrote of excessively high prices, by a small degree, leading to large welfare costs for the economy as a whole.   But this model may not apply to abolition of the penny.

Under one scenario, prices go up but they would have gone up sooner or later anyway.  Within a year or two, inflation has caught up with the price increase.  In the long run the whole thing is more or less a wash, although we do suffer from higher prices and higher deadweight loss for just a little while.

Under a second scenario, prices go up and remain at a permanently higher plateau.  Future price decisions are taken from this new reference point.  For this model to work, we must assume that price is a signal of quality and that the frame of reference for interpreting the meaning of a price is based upon an observed status quo.  So the price boost comes, everyone assumes that is just how much food (or whatever) is now worth, and that is our new marker for judging future price movements.  Keep in mind that these assumptions cannot be true globally (there cannot be Walrasian slack at every margin), but only have to be true across relatively small price increases (N.B.: many tricks lie in here, since the price increases will be large in percentage terms for some goods).

I would bet my money on the first scenario, as I assume Greg Mankiw would as well.  If you believe in the second, you probably shouldn’t want to abolish the penny.

You can modify these scenarios in many ways, including through the explicit recognition of option value.  Do you know of any empirical tests on which model of prices is the better guess?

Cleansing in Zimbabwe

The image on the left (click to expand) from June of 2002 shows Porta Farm in Zimbabwe, a settlement of 6,000 to 10,000 people.  The image on the right is the same area today.  Does it help to explain if I say that the residents were opponents of Mugabe’s regime?

The images are from the American Association for the Advancement of ScienceKottke has further links.  Note, once again, that David Brin was correct.


“At least we should enforce the law”

I have heard this claim, or similar versions thereof, many times in the recent immigration debates.  It sounds so uncontroversial.  Who is against enforcing the law?  The law is, after all…the law.  It was passed by lawmakers.  Our country is built upon the law.  We also hear "let us first secure our border" before proceeding with other immigration reforms.

The economist is more likely to think in terms of the margin.  We enforce laws up to some point.  After that point we let transgressions slide, if only probabilistically.  This is true for every law on the books.

Many murders and robberies are committed each year.  No one says "let us first enforce the law" before proceeding with, say, tax reform and other beneficial improvements.  We can’t nail every tax cheat, or even most of them.  To truly enforce the law — in the sense of bringing transgressions to their minimum or zero level — would bankrupt us, turn us into a totalitarian state, or most likely both.  The true question is not one of whether we should enforce the law, but rather of how much.  Whether we admit it or not, we are all willing to allow some amount of illegal immigration. 

Similarly, no rational business firm would vow to stamp out all employee theft before proceeding with a beneficial organizational change.

Most or perhaps all critics of illegal immigration think that open borders would be a bad idea.  I agree.  But their portrait of open borders betrays their other view that we are not enforcing immigration law right now.  Critics paint a picture, perhaps a justified one, of untold millions swarming suddenly into the United States under open borders.  It is evident to me that plenty of the Indians in Hyderabad, my current locale, would love to come.

But think what this implies.  It means that current levels of law enforcement are in fact keeping out most of the people who would like to enter the country.  It means we are enforcing the law, for better or worse, more than not.

Simply repeating the mantra that "we should enforce the law" is not itself a good argument for a tougher immigration policy.