Month: June 2006

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.

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…

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.

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?