Why doesn’t Mexico’s economy grow more quickly?

That is the topic of my latest Bloomberg column, here is one bit:

Instead, it is education that is arguably Mexico’s most fundamental problem. In most emerging economies, if you are ambitious and seek higher wages, you will invest in more education. Mexicans have traditionally had another choice — crossing the border to work in the U.S. Mexicans who make this choice can move from earning a dollar or two a day to 10 or 15 dollars an hour, though with higher living costs. It is hard to beat that boost simply by finishing high school or even college in Mexico.

And:

Admittedly, this [informal, grey or black market] labor can be and often is absorbed into the more formal, more productive sectors of the economy, including exports. But the rate of absorption is quite slow, which in turn helps to set the slow growth rate of the economy. And in any case neither the high-productivity nor the low-productivity firms have that much room to grow within their respective categories, a major difference from many other emerging economies.

The odds are that Mexico will have to opt for the slow but steady long game, as Denmark once did.

Comments

Just a few years ago, wasn't the Mexican economy growing by 10% in the middle of a devastating civil war in the north?

True. Look at the long-term chart for Mexico Fund (MEX) and note from 2009-13 the economy recovered but then from 2014 until now it's been in decline (says forward expectations). What happened?

Bonus trivia: I own MXF in my portfolio, I'm still up on my position but just barely. At least it's not a completely dead dog like Japan Equity Fund was, which died a twenty year death (now going on thirty years!). When Japan implodes what will the world do? Stay tuned...

My theory, which I expanded from some hints in former Foreign Minister Castaneda's book "Manana Forever" is that a culture of anti-Gringoism has helped Mexico resist inundation by the United States. Mexico is, for better or worse, not a Banana Republic controlled by American politicians and businessmen, not has it it been inundated with Americans buying beach houses and retirement homes.

Mexico is still Mexico. That's an impressive achievement.

The cost, however, is in also rejecting the good aspects of American culture, like being careful to avoid horrific transportation and industrial accidents. Mexico keeps Americans from flooding the place by having a pretty shoddy, kind of scary place -- scary not just from the gunmen but also from the lack of traffic signals, guard rails, etc etc. A culture of shoddiness keeps Mexico Mexico, but it comes with costs.

Shoddiness isn't a problem if Mexico had strong enforcement. Strong enforcement isn't a problem if Mexico had no corruption.

Scary electrical wiring too. Rats nests of alligator clips and extension wires. More generally, non-adherence to building codes. (Admittedly this is not in the nicer parts).

Doesn't the Mexican economy grow when illegal immigrants send money back home to their families? They have to spend it locally.

Also, are you excluding the illegal Mexican economy (drugs) or off the books income from your growth numbers.

What Mexico needs is a good Trump hotel.

Um you do know dollars have to be converted to Pesos or used to buy American goods right?

Oh yeah Trumpists...

If the local economy was dollarized, would it have to go back to America? (I know in theory it all must...) But like Equador uses the dollar, too.

Nate, If the immigrant dollars are converted to pesos for purchasing goods in Mexico, it is no different than a tourist converting dollars to pesos to purchase a drink in Mexico. Please explain your comment

All of that illegal drug money either goes offshore or is used to hire an army of gangsters to terrorize the population and corrupt government officials. The projections by Cowen are optimistic unless the Drug War violence and resulting corruption stops IMO. We’ve pretty much outsourced our prohibition style violence and corruption to Mexico and select LATAM countries.

Marijuana legalization may have a positive effect on Mexico due to decreased demand. One can hope anyways

Would the Trump hotels in Mexico import workers from the US to do the gardening like Trump hotels import Mexicans to do the gardening?

I thought they were spending it on a wall.

Education is a huge problem in Mexico, and the current government did move the needle a little bit, with its education reform. However, the other thing that hurts business is the absence of a real legal system -- there is no redress in Mexico if a client doesn't pay his bills. Finally, Mexico suffers from a very rudimentary banking system -- which leads to very little capital being available to SMEs. Just look at the venture capital world in Mexico, it's anemic.

This is the correct answer. Lack of functioning institutions like contract enforcement. Weak property rights. Calling it "corruption" is too simplistic. It's not the corruption per se, it's the fact that corruption interferes with the enforcement of property rights and contracts.

Lack of property rights has not hurt Red China, Inc (for now). When the Red Army doesn't pay you, who do you complain to? Nobody. So belief in Fee Simple Absolute seems too simple a faith in absolutes, seems to me...

I think realistically it's like the analogy between Singapore and Hong Kong, polar opposites, either one can in theory work if the people work hard to make it work. But in Mexico, there's a sort of growth impeding Mexican standoff between the poor, the government and the rich; Slim pickings...

One should not confuse formal rights with de facto rights. In practice, China has better property rights and contract enforcement -- at least in the coastal and developed cities -- than the Philippines, which has formal legal rights but such a poorly functioning court system and so many anti-investor policies as to make China seem like a free market paradise. Of course, China is a long way off from (say) Europe, but still, it's easier for local and foreign companies to invest in than large parts of Latin America or the Philippines.

GOP court appointees tend to argue that the Mexican model of contract enforcement is the best interpretation of the US Constitution.

Ie, workers and customers and bystanders have no right to judicial review or legal protection relative to corporattions.

GOPers are generally happy with eminent domain rulings like Kelo.
This is how libertarians end up being the real defenders of the poor. We're actually serious about the equal enforcement of property rights.

In Cowen's list of possible causes of Mexico's very slow economic growth, there is one glaring omission. What might that be? Ironically, Cowen mentions Denmark. Take a look at this: https://www.worldeconomicsassociation.org/newsletterarticles/inequality-in-mexico/

Why can't a Mexican worker earning $5000 a year buy $50,000 to drive GDP? Why don't banks loan such people $45,000 per year like banks try to do since the deregulation of credit default swaps and eliminating the rules requiring banks verify income and assets during the Bush years?

The correct and obvious answer is rampant government corruption, so I knew there was no possible way you were going to find it.

"rampant government corruption" hasn't seemed to stop economic growth in China. And if'n you think there isn't/hasn't been government corruption in China...

Lets not get ahead of ourselves. Per capita gdp of Mexico is ~ $10,000. While the Chinese estimate of the same is somewhere around $7000 and that is indeed just an estimate since data from China is unreliable and gdp figures have been particularly thought to be inflated for the past several years. So its not at all certain if all the corruption and capital misallocation that seem to be rampant to the point of absurdity in China (see the endless ghost towns, massive excess capacity in broad swathes of industry, large public debt or on a smaller scale even the recent bike-sharing fiasco- none of these being present in Mexico) will halt growth in China in the near future.

Or not...in both the Philippines and in Greece, ghost buildings are common since people rather invest in unfinished or unoccupied real estate than put their money into shaky and corrupt banks. I'm not a fan of China BTW and I too anticipate it will fail, but then again Singapore hasn't failed in decades and practices state-sponsored and arguably crony capitalism; same in Malaysia, Indonesia, arguably Korea and Japan too (all successes, for now).

I think the difference there isn't corruption but rather lawlessness. Government institutions might be corrupt in China but they still function in that they're able to exert an influence on the population. Mexican institutions can't even do that. So it's not corrupt vs non-corrupt, it's order vs chaos.

That is a better take.

That older link is not much of an article. It's just a statement of a thesis without any hint of articulation of why it would be true. And Denmark, at the technology frontier, is basically a totally irrelevant example to Mexico. If you have the east asian tigers, India and China all experiencing catch-up growth, that's actually a huge portion of the world's developing country population. Hardly a minor exception to slow growth. You really need reasons why a country won't experience catch up growth, several of which you do layout in your recent article on Mexico.

Common features of high GDP growth: low birth rates, birth control, family planning, abortion readily available

Mexico is more like parts of the US where birth rates for the poor are high, birth control, family planning, and abortion are hard or impossible to access if poor.

Actually birth rates in Mexico are about the same as in the U.S.

Don't get in the way of Mulp's Blame Everything On the GOP narrative.

indeed. Mulp's claim is vague enough to be pretty worthless. Low birth rates are also common features of decadent and low growth western countries, such as Italy, or declining former soviet countries, such as Russia.

2% per year means doubling every 35 years, so call that 8x in 100 years. I guess there is no way that can LEGITIMATELY be considered desperately poor, even if the first world industrialized countries continue growing at 2% per year, however, it still would be considered seriously lacking (and lagging).

One factor that seems very serious to this non-economist is the inability to make money from a monopoly cash cow like Petromex. If there is any example more akin to killing the golden goose, I have never seen it.

On the other hand, Mexico is pretty good in getting private police to look great:

https://www.aljazeera.com/indepth/features/2016/08/mexico-drug-war-fuels-private-security-boom-160818091244131.html

https://www.economist.com/the-americas/2013/06/15/the-new-face-of-mexican-policing

Makes the libertarians happy, to have examples beyond Somalia.

Tyler, I took a course on this topic with a friend of your (Robin Grier). The vacillation of credit markets from extremely lax in decades past to extremely strict in recent years has been a major drag on economic growth. Many lower-middle class Mexicans who might be able to enter the firm middle class are unable to meet the stringent requirements to be approved for even modest loans to start a business or buy a car or home, so productivity proliferates into the informal economy.

You want your savings to be loaned to people who lack income and assets?

The ability tho borrow money in the US from 1935 to 1975/1985 was highly restricted. The easy credit was store credit that got shutoff as soon as you stopped paying, and large loans, $200 occurred only when buying assets that were quickly repossessed by the store.

That was a period of government providing easy credit compared to prior banking practice of lending only 50% of asset value for mortgages of five year term. The foreclosures from 1930 to 35 were from refusal to refi loans that came due after asset prices had fallen, making loans 60-70% of market asset price. The FHA refinanced into 30 year fixed rate mortgages at up to 80% of market asset price, but no cash out.

The GI Bill and other programs reduced asset requirements for borrowers to 10% for Vets (If white) and others who were considered deserving poor, like small farmers preserving rural community life. Previously, the government gave away land the government had taken for land redistribution. But by the 20s, the land left was nearly worthless for farming, and allocated in too small of blocks to be useful for ranching. Not even increasing the blocks of cheap land to 640 from 40 acres proved successful. But farming was an American ideal, so the FHA farm home program sought to subsidize that continued tradition with 90% loans, and requirements for income, usually requiring work in towns by at least one in the family. But these government programs were burdensome, excluding many.

For the common person, loans were very hard to get. Five years in a job showing steady growing income. Hard assets. Or a cosigner meeting those conditions who would be held liable.

I was shocked when I realized those were not the rules by the late 80s. My first hint was when the banker who questioned my and my partner buying a house with a big down payment and a mortgage each of us individually could service in 1980 was trying to get me to borrow into a jumbo on lower income in 1986, in a bubble, which popped in 1987. I knew it was a bubble because it made no sense prices were so much higher than costs of new construction (cost, not price). The house I bought new in 1986 fell in price 35% by 1989. The cost of constructing it rose.

In the 70s, I was saving 40% of my income which had risen rapidly but could not get a credit card, but unemployed in the 2000s, I was automatically qualified for dozens of new credit cards. I was answering the phone then hoping for a call leading to a job, but not even a quick "I'm unemployed" would stop the pitch for a new credit card or a cash out refi of my mortgage. For a child of the 50s and 60s, bankers were insane after the mid-80s.

And in the 30s, conservatives argued FDR was making credit too easy.

In Mexico a large % of teachers either inherited the position from a relative or bought the position from a retiring teacher.

The reason returns to education are so low in Mexico is due to the complete dysfunction and corruption that permeates all aspects of governance.

I stopped following the news on it, I do remember teachers rioting over an attempted reform law.

Thankfully billionaires have been running a decade long experiment wherein open borders have allowed millions of Mexicans to flock to the US and have quite a few million more children with access to a different school system. The resuts will surprise you and only you.

What

Keep 'em coming. I don't mind educating Mexican children in the U.S. for a fee. (They do pay taxes.) It's really quite similar to the Chinese building computers of us for a free. Free trade always and forever!

No, we can't take every single immigrant who wants to come, or we'd have 3 billion people here. But it's a nice problem to have.

=for us. Board needs an edit function

Chinese workers don't get to choose the government of California.

Illegal immigration to the US has been a disaster. So it is nothing like getting your laptop made in Shanghai.

The lagging growth in LATAM can at least partially be attributed to US interventions. US policy since the Mexican-American war in 1846 has been to interfere with and dominate its LATAM neighbors. It’s been formal policy since 1904 under the Roosevelt Corallary to the Monroe Doctrine. The more notable examples of direct intervention includes Mexico, Guatemala, Panama, Cuba and Nicaragua. The rest we’ve bullied with an economic sword. None of this has ended well and we are now trying to build a $25B wall to contain the fallout. I guess what goes around comes around.

Of course, the cause of all Latin America's problems is The Gringo. Same as the cause of all women's problems are men and US-born blacks' problems' causes are the white man. Likely, that's one reason Latinos, women and US-born blacks never could get together their shit.

I guess you're not actually trying to make sense. I know I shouldn't feed the trolls. Sorry.

And then we have this other group that's all like Latin America? It's because they've got them stupid genes from the Mayans! Totally NOT 100 years of socialist dogma that they imported from Europe. Anyway the socialism genes come from Mayans too - totally not Western European in origin at all!

Latin America was a disaster before socialism.

It remains so.

Argentina was doing quite well in the early 20th century. So was Venezuela actually. So that's simply not true.

And now?

There isn’t a single country in the entire group that has been as successful as ... Greece. I mean how low is the bar here?

Sure, two countries were okay for a few years. And then reverted to their long run equilibrium path of dysfunction and incompetence.

There is a cultural component that does not allow for high functioning institutions or social trust. (Same as Greece)

There are other examples. Latin America wasn't doing that bad until Marxism became a big intellectual trend and the Cold War came along and the Soviets started funding guerilla movements all over the region. Of course US interventions also contributed, but the real killer was (and remains) the enduring intellectual appeal of socialism and the death grip that Marxism has on the intellectual elite all over Latin America. You can't exactly blame the continued fascination with Marxist socialism of Latino intellectuals on "low social trust".
And that "cultural component" basically is inherited from Spain, which more or less has the same issues too.

No, it's because Latin America veered much further in the direction of Marxist Socialism than Europe did. Marxist Socialism is known to have extremely negative effects on economic development, and they have never fully recovered.

It's like some people have this giant blind spot to the effects of Marxism on Latin America's economies. They're super keen to point at US interventions from a hundred years ago, but Marxism in Latin America? That is not even a thing! And even if it was, it wouldn't be a bad thing! Socialism never caused any economic problems to anyone ever!

The reason many of those countries reverted to Marxism is because of US intervention and exploitation. Our paranoia of Marxism started in the Cold War. That paranoia led to installing abusive dictators and refimes that exploited those populations. The Bay of Pigs fiasco and Cuba’s long-term communist dictatorship could easily have been prevented by normalizing relations after Castro’s rebellion (caused by our exploitation) instead of the embargos (bullying) that drove them into the Soviet camp. Marxism in LATAM is the disastrous effect of our intervention and we are now paying the price.

The US didn't cause Marxism. It was a global movement that included Europe. The USSR was financing communist movements all over the world, including Latin America. None of that was invented by America. American efforts to combat communist did not cause communism. That position is causally backwards. We responded to an existing, global communist movement. A movement, which, as it happened, we were totally right to consider a threat! The leftist history which continues to claim that America was somehow to blame for all the bad stuff caused by communism, because I guess if we didn't intervene it would all have worked out just great, is in serious need of revision.

We agree that communism in all its forms is bad news. The Russians proved it didn't work and it never will. Our problem was that we made the situation worse. All of our military efforts to undermine that failed institution were a disaster (I.e., Vietnam and Cuba anyone?) and could have been prevented. Ho Chi Minh was driven to the Chinese (after he begged for US help) by our Vietnam escapades to support French colonialism and South Vietnamese dictators. Cuba could easily have been prevented. Undermining the Russians with a superior economic model, on the other hand, did work. Beating countries into submission has predictably had the opposite effect of what we intended. The "road to Hell is paved with good intentions" certainly applies to our failed strong-arm efforts against communism and we're still paying the price … as if 57,000 wasted US soldier and millions of Vietnamese lives in Vietnam weren't enough.

"All of our military efforts to undermine that failed institution were a disaster "

You seem to be ignoring South Korea. We fought Communism to a stand still in Korea and the southern portion is a rich and prosperous nation.

"I.e., Vietnam and Cuba anyone?"

The countries in which the US failed to stop Communism are indeed basket cases. But that doesn't help your point. It undermines your point.

This. Many of our efforts were quite successful, thank you very much. Could we have done better? Sure. But our failures are not proof that we caused Latin America to go Marxist in the first place. That argument is causally backwards. We fought socialism. We didn't MAKE them go socialist .

The countries in which the US failed to stop Communism are indeed basket cases. But that doesn't help your point. It undermines your point.

Also, the countries where we did are better off - case in point Chile.
Yes, Pinochet as a BAD MAN. But let's try to imagine what Allende, or his successor would have become had Chile followed the typical path of socialist development. We have examples to point at.

"Great men are almost always bad men." - Lord Acton

I'm not sure a region sporting a raving lunatic with nuclear weapons on South Korea's doorstep can be considered a "success". The question is whether, looking at Korea as a whole (North and South), our intervention and lives lost were worth the effort. Our non-interventions in China and Russia were successful. Neither can be described economically as "communist" today. Vietnam was always independent of China and is now slowly moving towards a market oriented economy since we left them alone. Cuba would have become more market oriented and avoided the torture of its citizens if we had simply left them alone. That's not to mention we almost came to nuclear blows since we forced Cuba into the Soviet sphere with needless embargos. That doesn't even include our latest adventures in Iraq that left the country to metastasize with ISIS. I'll take Saddam any day over those lunatics. It was a lie they had "WMD" and we could have continued to isolate him through non-interventional means.

What I'm saying is that the US economic and political system is a force of attraction in its own right. Killing US servicemen in a misguided cause to be the world's policemen when we should have known our economic system would prevail has been counterproductive. Thomas Jefferson was right, "Peace, commerce, honest friendship with all nations-entangling alliances with none". I would put all those interventions in the "entangling" category. We should have kept our powder dry.

Perhaps leaving them alone would have averted some of the more serious basket cases. But perhaps not. It took Russia 75 years to get over communism. When you see someone about to make a terrible mistake, you may try to stop them, despite knowing that your efforts to stop them may fail, and your efforts to stop them may even, perversely, cause them to revolt and double down on their mistake. But that doesn't mean that your efforts to stop them are misguided, or that you are responsible for their mistakes. Or that you were being "paranoid" about the fact that they were about to make a mistake.

The US wasn’t an adversary of communism until after WWII. We were allies during WWII. Communism imploded 45 years later due to constant economic pressure. The Russians were bound to fail since communism couldn’t compete. We could have ended the Cold War earlier with a more confident enlightened approach of engagement. Instead, we chose to waste resources, servicemen and relations with feeble proxies of the Russians. We could have brought those countries into our sphere with minimal resources, but instead chose to waste blood and capital. I’m hopeful that a less aggressive strategy will prevail. We have enough internal uses for that capital without wasting it on unworthy causes.

Well, whether the effort was a waste or not has nothing to do with whether we caused Latin America to go hard-core socialist by trying to stop them from going hard-core socialist (or soft-core). My point is there are all sorts of reasons why Latin America went all Marxist in the 20th century that don't come down to American interventions. Marxism has it's own internal logic which is pretty much always going to assign blame to the largest capitalist economy available, no matter what that country does. America was always going to be the big evil to Latin American Marxists, and not even personally installing a communist like Jean Bertrande Aristide in power was ever going to change that.

James McNeill - July 9, 2018 at 6:13 pm 48

I'm not sure a region sporting a raving lunatic with nuclear weapons on South Korea's doorstep can be considered a "success".

And yet you would rather than lunatic put his nuclear weapons in Pusan. As it turns out I don't think the Korean war was worth it, but the South Koreans may disagree.

Our non-interventions in China and Russia were successful. Neither can be described economically as "communist" today.

What "non-intervention"? The US tried to be nice to the Chinese Communists. But they insisted on being Communists. So that did not work out. The intervention there was weak and half hearted. As it was in the USSR. That failed and millions died. The fact that America won the Cold War does not mean the struggle wasn't worth it.

Vietnam was always independent of China and is now slowly moving towards a market oriented economy since we left them alone.

Vietnam was not always independent of China but of course what you mean is that it was not part of the international Communist movement and it was. The Vietnamese Communists were happy to sacrifice their young to the Soviet, not Vietnamese, cause. That was a problem. But then their masters collapsed and they had to go it alone.

Cuba would have become more market oriented and avoided the torture of its citizens if we had simply left them alone.

Nonsense. Castro always was a Communist. He pretended not to be - using the usual Salami slicing tactics the Soviets taught him - so that liberal idiots could blame America. America did not force him to do anything.

That's not to mention we almost came to nuclear blows since we forced Cuba into the Soviet sphere with needless embargos.

We almost came to blows because Castro wanted to use nuclear weapons on America even if it meant that complete destruction of Cuba. Because he did not give a damn about Cuba, but only cared about the World Revolution.

we could have continued to isolate him through non-interventional means.

At the cost of how many lives? Madeline Albright might have been fine with starving a million Iraqi babies to death but are you?

The fact is the Soviet Union declared war on the West in 1919. It then funded every fringe lunatic in the world in order to destroy the West and enslave mankind. Resisting them was the only sane policy.

On the other hand we could have had peace with Germany and Japan. Let the magic attraction of America's economy work its magic. Sure there would be a lot fewer Jews in the world but it seems you do not care about genocide.

+1.

Sometimes I wonder how close you can get the knife to their throat before "non-interventionists" think about restraining your hand.

So Much for Subtlety

Generally, we agree resisting communism is essential. The question is how to resist. I believe that our interventions have been destructive and drained resources to resist more strategically. This delayed the eventual Cold War and Chinese outcomes. We could agree on various actions taken by the US and agree with the motives, but on the whole, we've poorly executed when we did intervene and in other cases only made the situation worse. I believe with a small fraction of the lives lost and resources, we could have proactively deployed our influence to facilitate friendships and democracies where possible that would have undermined Soviet and Chinese intent. Specifically, to your points:
On Korea- I think any nuclear aspirations of Korea would have been obviated by China's nuclear capability. The Chinese don't need or want a proxy to do their bidding any more than we would want Mexico or Canada to do the same for us. The current "truce" with nuclear weapons held by a madman on our door would be gone. Yes, I agree the South Koreans probably enjoy their lives to a greater extent from a western perspective than they would have under China's thumb, but we would have saved the annual troop/ naval deployments of > 20,000/year, lives lost in the Korean War and endless security crises that the situation creates. We would probably have better relations with China today and without the headache of maintaining the current phony "truce".
On Iraq- It's hard to imagine a worse fate for the Iraqis than the war we brought and the subsequent vacuum-filling ISIS occupation of much of the country and Syria. Iraq is a fiction created after WWI after the fall of the Ottoman Empire for British oil interests. The Sunnis and Shiites have been fighting for centuries and adding their hatred of the US doesn't seem to help matters. Speaking of hatred, I doubt the Dulles brothers could have designed a better strategy to have the US become a distrusted pariah by world, Iran and the rest of the Middle East in particular.
On Japan and Germany- Japan bombed Pearl Harbor and Hitler declared war a few days later. Any opinion I have related to our failed interventions does not apply when we are attacked. The only question is why we were so unprepared? We should have been much more proactively involved with allies prior to those invasions with plans to use our full force immediately, if necessary. Hitler was smart enough to keep us out before he declared war. If nothing else, WWI and WWII proved isolationism isn't an option. NATO is a good for those countries who belong and is the type of alliance building process that we should have used elsewhere. Instead, we overthrew governments with hand-picked dictators who were hated by the populations and generally could be bought and sold. Diem and the Shah were good examples.
On Cuba- We could have prevented the Cuba missile crisis through direct negotiations with the Soviets over our own missile deployments in Turkey. That's where it ended up anyway and I agree that missiles in Cuba were unacceptable. It's the embargos (which we are now slowly lifting) that have delayed Cuba's reintegration into the world economy from its communist past. It's the distrust of the US due to its interventionist past there that helped cause the Castro rebellion/ hatred of the US in the first place. It's hard to imagine how we could have ended up with a worse result since 1960. So, whatever we did, it didn't work.

" It's the embargos (which we are now slowly lifting) that have delayed Cuba's reintegration into the world economy from its communist past."

Suuuuuure. Cuba's failure and poverty is nothing to do with its captive, socialist economy, and internal factors, it's all to do with its lack of high end trade goods due to the US embargo.

This is standard communist apologetics and economically ridiculous (you hear it for Venezuela too, but not, strangely, for Vietnam or China) . The US has all the agency, the communists, none. Of course.

Let me clarify my point. I agree that there is no doubt that the primary cause of Cuba's state of economic destitution lies with Castro and his ongoing communist regime. I view him as a maniacal criminal dictator who should have been deposed by his own people decades before his death. My only point is that our trade embargo has been helpful to his propaganda by maintaining the US as cause of their destitution (i.e. communist apologetics you reference). I believe that the political pressure from Cuban refugees (who lost their entire wealth to the rebellion) to maintain the embargo and any other punitive measures has ironically helped keep Castro's regime in power. It has certainly not helped the average Cuban since 1960. Now that the victims of Castro are slowly passing away, it's likely that the Cuban community in Florida will become less vocal and the embargo will slowly be relaxed. In a swing state like Florida, though, this may continue to be a tough sell.

The Vietnam embargo was lifted in 1994 by Clinton. Vietnam would have been mostly unaffected by an embargo before 1994 anyway due to their destitution from the war. i'm not sure how we could justify lifting an embargo on Vietnam without doing the same in Cuba aside from politics in Florida. China and the US, on the other hand, mutually benefit enormously with open trade. Vietnam in the meantime is slowly recovering from the war, unlike Cuba which is actually harmed to some degree by the US embargo due to its proximity to the US. Aside from the propaganda value to the communist regime inside Cuba and politics in Florida, the actual harm of the embargo against Cuba is hard to measure.

That's a defensible position.

"because I guess if we didn't intervene it would all have worked out just great, is in serious need of revision."

As evidenced by modern day Venezuela, a country with no recent significant American influence that has utterly destroyed it's own economy after a decade of socialism.

Oh, don't worry, there are plenty of people willing to explain how America is responsible for the disaster in Venezuela.

"Mexicans who make this choice can move from earning a dollar or two a day to 10 or 15 dollars an hour, though with higher living costs."

The U.S. GDP per capita is $60,000 and Mexico's is $20,000 which probably presents a clearer picture of how much better off a Mexican can be if he moves to the U.S. compared to saying he can make 40 times as much but has to pay higher living expenses.

Is it actually true that a Mexican arrives in America and then gets a GDP/ capita paying job?

I doubt it. I bet they make $30,000-40,000 per year at most. Maybe less.

Just a reminder, the $20,000 is PPP so it already accounts for the higher living expenses. So a 3-to-1 boost. The Mexican who comes here is below average for Mexico and will be below the 3x as high an average when he comes here, so I'll stick with the 3-to-1 estimate.

Right. I was going to mention that, and it makes the difference with working in Mexico even less.

Site is broken

" Its economy has grown at a rate of about 2 percent per year for about a quarter century, about half the pace of other emerging nations."

Mexico's GDP per capita has increased on average 2.7% or close to 3% since 1992.

($17,500-$10,500)/$10,500= 67%. Divide by 25 to get 2.7% a year.

https://tradingeconomics.com/mexico/gdp-per-capita-ppp

Have you heard about something called "interest on interest"? How about rule of 72 or rule of 70?

If you use actual math, you will find that 67% growth in 25 years means the equivalent annual growth rate is 2.07%. If you have excel, type "=(1.67^(1/25)-1)*100" to get percentage growth per year. Don't put the double quotes in the excel cell.

"Its economy has grown at a rate of about 2 percent per year for about a quarter century, about half the pace of other emerging nations."

Mexico's GDP increased on average 3.5% a year from 1992 to 1999.
Mexico's GDP increased on average 2.2% a year from 2000 to 2009.
Mexico's GDP increased on average 2.9% a year from 2010 to 2018.

How do you get "around 2 percent a year" out of that?

Before, we were talking about GDP (PPP) per capita. Your quotes above are not saying per capita. The population of Mexico increased by nearly 50% from 1992 to 2012. So GDP growth will exceed GDP per capita growth.

I do agree the annualized average of 3 time intervals will never be outside those intervals:)

https://en.wikipedia.org/wiki/Demographics_of_Mexico

Right, but I reread that Cowen wrote "the economy grew" so then looked up GDP annual rates. Those average 2.9% over the past quarter century.

That was supposed to be 50% from 1992 to 2018.

Geometric average vs arithmetic average. You will find 1.027^25 x $10,500 does not equal $17,500.

Also per capita vs. gross. And some posters have confused market vs. PPP exchange rates. Hard to believe people posting on an economics board don't get this stuff straight before posting. This is basic stuff.

I've noticed Cowen has started to use PPP.

It is always amusing to see the education industry marketing itself as a panacea. As in the US, education in Mexico had been controlled by the teachers union and its leaders for many years so it should be no surprise that Mexico significantly underperforms relative to the rest of the world. Mexico is further hobbled by its adoption of a US-style higher education system. AMLO is in bed with the teacher unions so don't expect any improvement in educational outcomes anytime soon. The real underlying problem in Mexico is that it has a presidential system. Presidential systems around the globe are much more likely to be thoroughly corrupt and immune to reform and anti-corruption efforts. On average, presidential systems underperform economically and on education system outcomes. Of the 10 nations with the best educational outcomes (South Korea, Japan, Singapore, Hong Kong, Finland, UK, Canada, Netherlands, Ireland, and Poland) only South Korea and Poland have presidential systems and of those two, Poland is semi-presidential and South Korea's system of government is ranked in the top 20 of most democratic nations. It is the most democratic in Asia and is ranked as more democratic than the US. https://infographics.economist.com/2018/DemocracyIndex/

"It is the most democratic in Asia and is ranked as more democratic than the US.

In 2017, South Korea was tied with the U.S. (8.00 v. 7.98) and essentially tied with Japan. If you look at 2012 to 2017, all three are the same.

OK - better stated here: " The PISA Reading Skill scores of students will
increase as a nation’s level of democracy, human development, and happiness increase. This result is consistent
with the expectations. Nevertheless, it is thought provoking that such social variables as political participation
and civil liberties, which mostly affect the life experience of adults also seem to have an effect on the success of
15-years-old students. However, when it is considered that social peace, social welfare, and social happiness,
which partly ensure from civil liberties and political participation, have a direct effect on children through their
families. It is the families which provide the first environment for learning and it is they which orient children
and provide the necessary resources for their education (Omoniyi, 2013). " https://files.eric.ed.gov/fulltext/EJ1164504.pdf

"Mexico tends to have recessions that mirror its neighbor to the north, but the overall growth rate is much steadier than it was in the 1980s."

I don't see this. Mexico grew 1.4% in the 1980s with a recession in 1981/82 and in 1986. In the early 1990s, growth shot up followed by a recession then strong growth. There were three years of stagnation from 2000 followed by growth until the Great Recession then growth and another recession in 2015/2016 then growth.

The 1980s was relatively steady compared to the 1990s, 2000s and 2010s.

click "MAX" at the bottom of the graph to see GDP from 1960 to 2017.

https://tradingeconomics.com/mexico/gdp

"the slow but steady long game, as Denmark once did." What, try to conquer the British Isles? That was a while ago.

Didn’t tgey succeed?

Well, Jorvik was a thing. But the Danelaw was incomplete, and did not endure.

That said, one of the things about 500-900 Britain is just how many entirely different kingdoms and peoples run around hitting each other. It's a violent free-for-all that makes the 14th century look calm. But hey, they had (lots) of ethnic "diversity" so it's probably good.

I didn't find Tyler's article to be very persuasive or fact-filled - I was hoping for more.

I can tell you my anecdote: My company purchases complex mission-critical electronic gear from a multinational company that was manufacturing (PC boards, assembly, testing) in Reynosa (across the border from McAllen, TX.

The night we flew into McAllen for a factory visit, the company representative stated "I'm not sure if we can go to to factory tomorrow, there was just a shoot out between drug gangs and the military nearby involving automatic weapons and RPGs. The factory was evacuated."

We did get to see the factory the next day as everything seemed to quiet down by then. I was amazed at how advanced the factory was, set up in a very modern lean-manufacturing fashion in the Japanese style. Meanwhile, a donkey pulled a cart on the road outside, quite a contrast.

But over the next few years, the multinational corporation moved production from Mexico to Thailand.

My personal feeling is that the biggest problem in Central and South America is high levels of labor regulation. I was recently talking with a tour guide in South America (a refugee from Venezuela) who was surprised that in the US there is no required vacation and you can be let go from you job basically at any time.

Also Central & South American countries are complete suckers for fighting the US drug war, which the US is slowly giving up (see state marijuana legalizations).

Mexican teacher unions like the National Coordinator of Education Worker regularly march, blockade roads, and sit-in, causing not only months of lost school time, but also in some cases crushing the tourist-dependent economy of small cities. The teachers unions have near total control of the educational system, from hiring of teachers to deciding on curriculum.

Mexico's economic freedom index is 64.8. It should be in the 70's.

My experience with Mexico's economy was similar and a shame. The Drug War has caused and incredible amount of chaos, corruption and violence. I was wondering if the MNC that moved to Thailand did so because of the labor issues or the violence and chaos caused by the Drug War?

Whose fault was in it the 1830s?

They had a similarly disproportionate amount of “chaos, corruption, and violence” then as well.

I'm not sure about the 1830s, but we did cause some minor issues a decade later with that little misunderstanding over ownership of the southwest. And with slavery, not to mention a civil war on the horizon, we didn't set too many good examples back in the mid-1800s overall. Let's just say that the Drug War has added a little fuel to the fire lately?

It was already a failed state. Northern Mexico (current) was depopulated 20 years prior to the war. Depopulated due to slave and cattle raids by the Apache and Comanche. Lacked monopoly of violence/force, unable to defend its borders from literal slave raids. Not to mention the Caste war that semi dragged on for 40 years. Quintana Roo back in the fold...1880s??

You’re talking about a country that literally paid US veterans (from the war against itself!) to come back into the country armed to the teeth and kill Apache. Paid by the scalp IIRC.

Human beings have agency, including citizens of Latin American nations.

Education is the problem, but not college education.

Low productivity is caused by a seriously deficient technical education. there are good engineers but not the people that does the job in agriculture, industry or health care. a competent and responsible welder or CNC operator is very hard to find and retain. Sadly, blue collars are low status.

I have a question. You mention that other countries are roughly as corrupt as Mexico and yet enjoy high levels of economic growth. China is one such example.

But is all corruption the same? Is the corruption in China really comparable to the corruption in Mexico? I don't know much about either country, so these are genuine questions. But it seems to me that the corruption in Mexico debilitates the government in profound ways that the corruption in China does not. Doesn't the presence of the cartels, and the many corrupt ties that they have with government officials, pose a special set of problems in Mexico that are not found in China? Again, I don't know enough about either country to answer these questions. But I'm curious about the effects of these differences.

You’re correct. They are not the same. China has no Drug War from the US promoting corruption. China has complete control over its internal affairs and most of the corruption is of non-violent kind. China’s corruption is tolerated to the extent it the extent it works within its sanctioned policy. Any corruption that in any way challenges government control is eliminated, brutally if necessary. So corruption there is on the fringe, not like Mexico where cartels and the government struggle for dominance. I’d say the cartels have the upper hand since many government officials are on the take. Just ask the families of the 43 students who disappeared and the government backed away from the investigation. It’s a sorry state of affairs south of the border and the US is a promoter of the chaos with its Drug War.

I clicked on this article only to see if Steve Sailer had yet made fun of Tyler Cowen for EDUCATION cargo-cultism and HBD denialism.

Not yet!

Indeed, the "brain drain" is a serious issue for developing countries but it is seldom discussed today. Migration is good for those who leave but terrible for those who stay, who are deprived of the most productive members of their society creating jobs.

So do you apply that logic within the United States too? That the end of segregation was bad for poor Black Americans because rich and middle class Blacks move the hell out of the Hood and into nice middle class White suburbs?

Also applies to the rural Midwest and South, where the more productive and intelligent people tend to leave for the cities.

On the other hand it may encourage human capital investment when people see other people getting good jobs overseas. Also people sending money back helps the local economy, creates strong business links between developed and developing economies, demonstrates good business practices and spreads technology. Oh and returning expats can bring their skills back. Seems like it is not necessarily bad.

Some cultures value education more than others and there are economic consequences to that. What an extraordinary idea.

Perhaps one reason some cultures value education more than others is because in some cultures, education has a higher average payoff than in other cultures. Higher productivity causes rationally higher investment.

What an extraordinary idea!

So if this American isolationism and renewed dislike for immigrants kept going forever, we'd see slower world GDP growth for a while, but ultimately GDP of places with a lot of immigrants to the US would do far better than otherwise, while the US shoots itself in the foot.

So I guess that, taking the long view, if you are not American this is a great thing?

Is anyone privy to America's aid in fighting their drug cartels? I spoke to a DEA agent who boasted about "kicking doors in", but that was years ago.

I expected all the comments to be about IQ. I'm no Sailer fan, but I, unfortunately, believe Mexico is hindered by a low average IQ.

I may be wrong and hope I am.

A similarity exists in the US. The average IQ in the Boston area is much higher than that of West Virginia or Mississippi.

All of the comments are Straussian comments about national average IQ.

Another, somewhat more serious way to look at it:

The common knowledge problem about the importance of national average IQ has been solved, so now there's no need to talk about it---like we don't have to talk about gravity when discussing why planes crash.

The peso crisis in the 90s had a highly scarring effect on the Mexican financial sector's willingness to lend.

Private credit as a proportion of GDP is in the range of 100 to 135% for most economies. The tightwads in Germany have it at about 80%. For India it is about 50%.

For Mexico, it is 35% which is a ridiculously low number for a non-poor economy.

Seems to me one of the problems that inhibits economic growth in Mexico is the weakness of the federal government.

And government quality depends in large part on human capital quality.

Very interesting discussion. I think it could be a lot of factors.

Comments for this post are closed