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Food for thought from Let Their People Come (page 79):
Greg Clark in A Farewell to Alms:
“The focus on material conditions in this history will strike some as too narrow, too incidental to vast social changes over the millennia. Surely our material riches reflect but a tiny fraction of what makes industrialized societies modern? On the contrary, there is ample evidence that wealth—and wealth alone—is the crucial determinant of lifestyles, both within and between societies.
Income growth changes consumption and lifestyles in highly predictable ways. The recent demise first of the American farmer and then of the manufacturing worker were already preordained when income began its upward march during the Industrial Revolution. Had we been more clear-sighted, we could have foreseen in 1800 our world of walk-in closets, his-and-her bathrooms, caramel macchiatos, balsamic reductions, boutique wines, liberal arts colleges, personal trainers, and $50 entrees.”
Lant Pritchett in Let Their People Come: Breaking the Gridlock on Global Labor Mobility:
“Hamilton and Whalley (1984) calculate that free migration could as much as double world income—which makes it very hard to stay motivated about the fractions of 1 percent that further trade liberalization can generate. These empirical results make intuitive sense. Goods markets are in fact quite deeply integrated, and though there are still gaps across countries in prices and evidence that the “border” effects inhibiting trade are still quite large, the price differences in goods across countries induced by restrictions on trade are very small relative to the observed wage gaps of as much as 10 to 1. Because, in the standard economic “triangle” calculations, the efficiency losses rise with the square of the distortion, further liberalization of trade (where distortions have been reduced) just cannot.”
Yesterday I wrote about how exponential economic growth has a much larger impact on employee welfare than unions can hope to. Well low wages isn’t the only problem economic growth can solve!
Economist and Judge Richard Posner, influential member of the law and economics movement, thinks that with the debt and obligations the US has piled up, their only real option is to focus on maximising exponential economic growth (HT Robin Hanson):
I conclude that there probably is only one way out of our fiscal dilemma, apart from default, devaluation, or runaway inflation, and that is to increase the rate of economic growth to the point at which a growing public debt falls, or at least does not increase further, in percentage of GDP. But measures to increase economic growth must satisfy four criteria: that they not interfere with the economic recovery; that they not put the government in the futile position of trying to pick tomorrow’s industry winners and investing in them (“industrial policy”); that they not cost too much, as that will contribute to the deficit, because the costs are likely to be incurred before the benefits are obtained; that they be politically feasible.
What is the easiest way to get economic growth? Immigration, says Bill Easterly!
In 2001, I published an obscure paper that concluded “Econometric tests and fiscal solvency accounting confirm the important role of growth in debt crises.” Based on this, I can now say that Haitians can rescue the US from an impending budget crisis. The crisis is already severe, with previously unthinkable warnings that US government bonds might lose their AAA rating.
Here’s the short version. If you are worried about having enough tax revenue to pay interest on the government debt, find more taxpayers! And look, here are some people volunteering to become new taxpayers: Haitian immigrants fleeing quakes and poverty! So let’s open the door to our Haitian fiscal rescuers, who will also lift themselves out of poverty as dramatized by a previous post. It’s a TWOFER!
End poverty and get your bill paid on time! Immigration – is there anything it can’t do?
Added: Posner also mentioned immigration, though only of skilled migrants, in his list: “1. Remove all limits on the immigration of highly skilled workers, or persons of wealth. (This should be done gradually, so as not to increase unemployment while the unemployment rate remains very high.)”
Added: A video about the huge contribution migration has made to ending poverty in the past and how it could do so again today if we let it.
Related to: Don’t help refugees, you bastards
A while back I wrote that to know what you as a whole mind really wants, you should look at what you do, not at what the little conscious voice in your head says you care about. We are very good at making ourselves believe we care about things we never do anything about, so we must watch carefully.
On this measure we can be pretty confident we in the West don’t much actually care about the welfare of the Haitians’ whose plight we claim to be distressed by:
“The contrast between the oh so visible US concern and US planes flying around Haiti with loudspeakers warning locals not to try to boat it to the US is quite striking. Clearly at some level US folks realize they could help Haitians most by letting them immigrate. If we (thought we) cared less and were instead eager to gain migrant farm workers and household servants, we might end up helping Haitians more.”
Has your country announced an increased immigration intake from Haiti? No? I guess it (or at least its median voter) doesn’t actually care.
More posts on immigration.
Australian Prime Minister Kevin Rudd says:
“People smugglers are engaged in the world’s most evil trade and they should all rot in jail because they represent the absolute scum of the earth,” he said. “People smugglers are the vilest form of human life. They trade on the tragedy of others…”
People smugglers help refugees try to get to Australia so that we will consider giving them asylum from whatever poverty or political persecution they are fleeing. While doing so they often offer refugees places in dilapidated and crowded boats: these boats aren’t coming back and the refugees presumably can’t afford good ones for the single brief trip. It is true that people smugglers rely on the presence of human misery for their business, but no more so than doctors or any other group whose work involves helping people with serious problems.
How can Rudd get away with and indeed benefit from, this hyperbole? I think his reaction is accepted by the public because of this peculiar intuition raised by Katja Grace: someone who avoids having anything to do with a suffering group is unlikely to be condemned for ignoring them but someone who interacts with them, even a little bit, is usually condemned if they don’t do a great job at their own expense. Due to their interaction with asylum seekers people smugglers are condemned for failing to provide refugees with boats in good condition free of charge. But because they refuse to have anything to do with these refugees, the Commonwealth of Australia avoids condemnation for failing to do the same, even though it is in a much better position to assist them with their problems than the people smugglers.
Were those who sold Jews an escape route from Nazi Germany the worst scum in the world? If you accept Rudd’s bluster, presumably he believes they were worse than the people who refused to interact with them at all.
Reviewing the literature on the impact of immigrants on the economy, I’ve been impressed by the unanimity on the empirical question of whether immigrants increase unemployment or reduce wages in the receiving country:
“The main findings can be summarised as follows: Most studies suggest that immigration confers small net gains in terms of per capita output … Past immigration has had no obvious impact on native unemployment. It might even have been beneficial for the economy and for native employment to the extent that it acts as a source of flexibility.
Although much attention has been paid to the potential adverse effects of immigration on the labour market, migration may in fact confer a number of economic benefits to the host country. For the economy overall, it is harder still to determine with precision whether immigration induces net benefits or costs. A few studies, however, have attempted to do so and these typically find aggregate net benefits for the native population.” Immigration and Economic Consequences
“Our results indicate no detrimental effect of immigration. We find no support for the hypothesis that the absence of displacement effects is due to a response of native migration patterns.” Employment Effects of Immigration to Germany: An Analysis Based on Local Labor Markets
“Despite the popular belief that immigrants have a large adverse impact on the wages and employment opportunities of the native-born population, the literature on this question does not provide much support for this conclusion. Economic theory is equivocal, and empirical estimates in a variety of settings arid using a variety of approaches have shown that the effect of immigration on the labor market outcomes of natives is small. There is no evidence of economically significant reductions in native employment.” The Impact of Immigrantson Host Country Wages, Employment and Growth
“Using regression analysis, Addison and Worswick found that “there is no evidence that immigration has negatively impacted on the wages of young or low-skilled natives.” Furthermore, Addison’s study found that immigration did not increase unemployment among native workers. Rather, immigration decreased unemployment.” The impact of immigration on the earnings of natives: Evidence from Australian micro data.
These results are interesting only because the myth that immigrants ‘take jobs’ is so widespread. It is a peculiar myth – why would new people reduce the pool of productive jobs available? All countries have doubled their populations many times over due to childbirth and they never run out of productive work to do because there is no limited pool of work to be divided up. In Australia, huge population growth in the post war period corresponded with reliably low unemployment rates. Wherever people are willing to work for income, others are willing to invest and the legal system assists them in finding one another productive activities can be found.
Why then is the belief that immigrants deplete jobs so common that even a pro-immigration party in Australia would reduce its intake during a non-existent recession, despite immigrants actually acting as a free economic stimulus and creating jobs? The only good explanation I can see is anti-foreign bias. Humans are naturally tribal creatures and struggle to believe that economic interaction with foreigners can be beneficial to both parties. How else could people simultaneously believe that foreigners exhaust the pool of jobs but their own children don’t?
Given that immigration from dysfunctional to high functional countries may be the single cheapest way to improve the welfare of the world’s poor, this has to be one of the most pernicious myths about how to economy works.
Australia has recently experienced a small increase in the number of refugees attempting to arrive here by boat from Indonesia. The Government is trying to avoid accepting them into Australia, believing that public opinion does not support receiving ‘potentially dangerous queue jumpers’ into the country. In my view rejecting these refugees is a terrible decision both for them and for Australia. As Andrew Bartlett put it: “history shows the vast majority go on to become very productive and responsible members of our community”. It is only by an act of collective moral blindness that most Australians can feel righteous enforcing rules that prevent people suffering poverty and persecution from enjoying the benefits of living in Australia; benefits which they experience either by an accident of birth or because they themselves were allowed to come here.
Nonetheless, it is unlikely that public fear about accepting large number of asylum seekers into the community will go away any time soon or that the Labor Government will risk an electoral backlash by ignoring it. What then can we do for the tens of millions of desperate refugees in the world who won’t find wealthy and functioning countries to accept them? Paul Romer has an idea:
Charter cities offer a truly global win-win solution. These cities address global poverty by giving people the chance to escape from precarious and harmful subsistence agriculture or dangerous urban slums. Charter cities let people move to a place with rules that provide security, economic opportunity, and improved quality of life. Charter cities also give leaders more options for improving governance and investors more opportunities to finance socially beneficial infrastructure projects.
All it takes to grow a charter city is an unoccupied piece of land and a charter. The human, material, and financial resources needed to build a new city will follow, attracted by the chance to work together under the good rules that the charter specifies.
Action by one or more existing governments can provide the essentials. One government provides land and one or more governments grant the charter and stand ready to enforce it.
Romer suggests such a city would be viable in northern Australia:
Case 2: Australia and Indonesia create a new regional manufacturing hub
In a treaty that Australia could sign with Indonesia, Australia would set aside an uninhabited city-sized piece of its own territory. An official appointed by the Australian prime minister would apply Australian law and administer Australian institutions, with some modifications agreed to in consultation with the government of Indonesia.
The main insight here is that some of what makes high income countries so rich can be franchised. Rich countries are rich largely because they have large quantities of natural, physical and human capital, access to technology and the expertise to use it, as well as governmental, legal and cultural institutions which facilitate wealth production. Refugees moving to Australia from dysfunctional states would suddenly have access to far more of all of these things, but Australians presumably fear they might also reduce the natural, cultural and physical capital available for those, including themselves, who are already here. If Australians aren’t so enthusiastic about sharing their good luck with refugees, a Charter City administered by Australia could at least allow them access to the governmental and legal institutions which have served Australia so well. By credibly providing those rules in this new city Australia would make it a desirable place for investment, thereby also increasing the residents’ access to physical capital and technological expertise. While migrants to the charter city wouldn’t have access to the cultural and human capital that a new resident of Sydney would have, the close proximity to Australian culture and citizens would be sure to provide at some benefits in these areas as well. Romer is even confident that these cities would be able to pay for themselves and eventually turn a profit for the host country through tax revenue, which would essentially be selling their legal institutions to willing buyers.
The primary difficulty of building a city of refugees from scratch would be putting together the social capital and norms necessary for disparate social groups to obey the law and work together effectively and by so doing attract the investment necessary to build such a city. As Arnold Kling has pointed out:
Paul Romer, in presenting his idea for charter cities, makes it sound as though we can take rules “manufactured” in, say, Canada, and export them anywhere in the world. Leoni would say that instead most law is embedded in social customs In fact, my daughter who just spent the summer in Tanzania, says that the custom of seeing law as something that ought to be obeyed is not nearly as natural there as it is here.
Would refugees from a variety of different cultures be able to produce and follow a common set of laws and norms which would allow them to work and life well together? Would refugees, with little hope of returning home, jump at such an opportunity to start a new life in such an experimental city? If the answers are yes, it is possible Australians could help many more refugees than they would be willing to accept as immigrants to their country.
Alternative view: Greg Clark says culture and personality matter more than institutions.