Not enough talk about elite hypocrisy; Elite professions like finance or law have a [boat]load of regulatory protectionism but even economists don’t really like to talk about that; but when non-elites want protectionism for their trades they are racists and economically ignorant and what not
One of my fantasies is of a classroom in which a tenured economics professor at an accredited institution of higher learning says, “We must have free trade,” and a few students leap out of their chairs and shout, “You first!”
We are all natural-born hypocrites when it comes to competition. My new book helps to explain why. As producers, we specialize in a few tasks. As consumers, we enjoy products that come from millions of tasks. So if competition emerges in a small set of tasks, it has only a small effect on us–unless it happens to be in the set of tasks that we do to earn a living. Then we get very upset, and make up reasons for that competition to be dangerous and unfair.
The other night, we had several friends over for dessert. All of them were licensed professionals. I can imagine that the social workers would be appalled if suddenly they faced competition from unlicensed social workers. I can imagine that the attorney would be appalled if suddenly he faced competition from uncredentialed lawyers. And so on. So is it surprising that British blue collar workers are appalled at facing competition from a rapid influx of Poles and Hungarians?
Those of us with a lot of educational credentials are happy to speak up for free trade and free movement of people, and I believe that we are right to do so. But it would be better if we were to say, “Me first” when it comes to encouraging competition.
I’ll go a step further and say it may be the only productive “way out” of our predicament. We need a productivity boom in the wildly-unproductive areas of healthcare, housing, education and professional services.
It’s hard to imagine that we could restore the earnings-power of those negatively affected by globalization. What we can do is bring them the benefits of globalization in the areas where they are hurting most. Cheaper healthcare and housing would go a long way…
How do you get cheaper housing though?
The best way to get cheaper housing would be to allow for discrimination. All these major cities have huge tracks of land where the housing is cheap. It’s full of ghetto bangers. If you allowed people to block bust and form communities that discriminate against ghetto bangers you could free up huge swaths of every city. And it wouldn’t have to be done on the basis of price wars. Middle class whites that behave properly could simply decide that only other middle class whites would be allowed to live in the community and use the local schools.
Instead of using price to discriminate you could just discriminate based on behavior. Much more efficient. Real estate is just a proxy for having the right neighbors. Let people pick their neighbors. Including what neighbors they share a country with.
I don’t believe land constraints are an issue. And if they are, simply build up.
Hasn’t Gentrification done a lot of this already? In California and Oakland, the ghettos are nothing like the old NWA Compton days and higher prices has:
1) Increased the value of selling your house.
2) Made the community care more about crime
Could you elaborate on this a bit. Why don’t you think having large parts of a city unusable is relevant to the price of real estate in a city?
Why hasn’t this easy solution of “building up” been implemented? I mean in many states/countries throughout the west we see the same problem. Why hasn’t a single one of them implemented this option.
Even cities that are so called anti-NIMBY successes like Houston have done so by building out, not up. Houston is known as the the epitome of car dependent sprawl, not high rises.
Living in California, my guess is it is awfully hard for local homeowners to vote for lower home prices. (The difference between myself and Steve Sailer is local homeowners have an interest in higher home prices is the primary focus for these versus Steve’s thesis of ‘price’ discrimination.) Simply put they don’t like it and vote against high rises.
In the case of Cali, yes there is a decent amount of open space in NoCal & SoCal but it is fairly limited. In the case of Texas, my guess is families still like their space. (As much as I believe in Matt Yglesias building local urban upwards, I do think it will long term diminish family size and formation which maybe a bigger long term issue.)
Building up isn’t cheap. Space is lost for elevators and stairways. The building materials are more expensive to handle the extra weight that has to be supported. Architecture and engineering costs increase to ensure the building can withstand earthquakes or hurricanes or other natural disasters.
Actually, building up is generally cheaper per square foot. Gains are smaller for the first few stories because of the additional costs you mention, but you still come out ahead because of other efficiency gains (still just one roof, plumbing, electrical, etc). As you go from mid rise to high rise the costs per sq foot falls even more as the price difference in materials isn’t as substantial between mid rise and high rise.
Actually it is reverse, in that per square foot cost is cheaper for two floors than one floor because as you say there is only one foundation and roof needed. But high rises are more expensive because every new floor requires support from previous floors.
http://www.homebuildinginformation.com/cost-of-2-story-house-vs-one-story/
http://www.humphreys.com/wp-content/uploads/2013/02/MFT_FL-04.pdf
https://westnorth.com/2015/04/27/high-rises-land-efficient-but-not-floorspace-efficient/
The closer people live together, the more their rights and interests conflict. This usually increases the amount of regulation and protectionism.
Would it be better?
There are various aspects of the credentialing regime in America I’d like to knock down. Mostly so that other Americans can compete for those roles, or so that particularly inefficient market structures can be broken down. I’d like a domestic reform of the various credential rackets.
Nobody complaining about this hypocrisy wants to flood the country with enough immigrants that both the credentialed and un-credentialed all make slave wages. Any more then people complaining about elites living in gated communities want everyone to live in diverse crime ridden ghettos.
Put simply, people want what you have. The safe neighborhoods, good schools, etc. People don’t want to pull the elite down to their level, they want to pull themselves up to the elite level. Or at least regain what was lost, the Leave it to Beaver world which was real for middle America even though the elite likes to pretend it never existed so they don’t have to answer for their crime of destroying it.
When it comes to immigration and white flight…keep your hypocrisy. Just share it with everyone else. Stop pretending you give a fuck about the welfare of Paco, Jamal, and Muhammad when its obvious you just want cheap landscaping, pliant vote banks for your various credentialing rackets, and a chance to show off at cocktail parties. Everyone can tell you don’t really give a fuck about immigrants except how you can use them. We don’t care about immigrants either. Let’s all just agree to stop pretending.
People form teams and try to get the best deal for themselves. We used to have a team called America, and we tried to get the best deal for Americans. Now we have a team called elites, and they try to get the best deal for themselves at the expense of other Americans.
They have brought in foreign thugs to enforce this new order. No different from how the Tsar would use the Cossaks against his own people, or the Byzantine emperor the Varangian Guard, the Ottoman Sultans would use the Janissaries, or the Romans invited the Goths in to fight in their civil wars and power squabbles. Eventually, the foreigners have the numbers and power they decide they don’t need the enabler anymore.
So yes, I’d like to break down the credentialing racket, but that wouldn’t make immigration great again.
its like elite business schools that never examine their own product. or they do and consciously hide the scam ; )
Dean Baker has written about this extensively over the years. For example:
“The NYT had two articles on occupational licensing requirements today and there was not one mention of the restrictions that lead us to pay twice as much for our doctors as other wealthy countries. It is illegal to practice medicine in the United States unless you completed a U.S. residency program. In other words, under the law, all of those doctors trained in Canada, Germany, the United Kingdom and other wealthy countries can’t be trusted to provide people in the United States with medical care.
This is called “protectionism.” We all know it is stupid, self-defeating, backward looking, etc. when it comes to steelworkers, textile workers, and other workers who tend to be less educated. But somehow all our great proponents of free trade can’t seem to notice the protectionism that benefits doctors. And this is real money. The average pay of doctors in the United States is more than $250,000 a year. If they were paid in line with the average for other wealthy countries the savings would be on the order or $100 billion a year or a bit more than $700 per household. ”
http://cepr.net/blogs/beat-the-press/licensing-requirements-can-we-talk-about-doctors
“We are all natural-born hypocrites when it comes to competition. ”
Perhaps not quite all. I’m in software. There is no occupational licensing nor are there any meaningful trade barriers and they’d be difficult to create (since software isn’t physically ‘imported’). And Silicon Valley is full of immigrants. As far as I’m concerned, this is all as it should be.
I would agree with Slocum, except that there are restrictions to the competition — only a minority of the foreign graduate students in math and science in US schools can obtain H-1B status in order to be employed here in the US.
Since these would be in direct competition with me, I suppose I should be grateful, but that isn’t right. Increasing the number of smart, gifted immigrants who have proven themselves so is a net gain to the US economy, even if we simultaneously reduce the number of unskilled, uneducated immigrants to reduce competition on the lower end of the income spectrum.
I’d say that we should get rid of the H1B program entirely (which amounts to little more than an oddball form of high-tech indentured servitude) and let in more folks with green cards — people who would not be limited to a temporary stint at a single employer.
I’d also add that you don’t even really have to be “here” to work on software projects here.
Agree with Slocum, not all professions are hypocrites. I think most engineers are opposed to H-1B restrictions, certain engineering *organizations* notwithstanding. The engineers I knew preferred no restrictions so that we could more easily recruit the team members that had the skills we needed.
Finance is heavily regulated, but most financial professionals want much *less* regulation. It’s people from *outside* finance that keep imposing more regulations — Elizabeth Warren is not a hedge fund manager. Of course, once the regulations are imposed, they do form barriers to entry from competition.
The professors I know favor world-wide recruitment of faculty for similar reasons to the engineers. They want to surround themselves with the brightest colleagues and collaborators.
I don’t know professional athletes and entertainers personally, but they strike me as people that would also welcome elimination of all immigration and visa requirements so that they can work with whomever they want. I don’t think the Players Association objects to Major League Baseball’s recruitment programs in Latin America.
I think all these professionals have in common that they feel a strong sense of ownership over their own work. They have more of an entrepreneurial outlook than a worker-bee outlook so they view restrictions as impediments to their own efforts to find patterns of sustainable specialization and trade.
Although I don’t view professors as opposed to foreign competition, I do think it’s underappreciated just how much they lobby for subsidies. There is no economic distinction between a subsidy for a student, who then pays that subsidy to a university, and a subsidy given directly to the university. Thus, when professors advocate for student financial aid, they are essentially arguing for bonuses for themselves. The second area is need-based “financial aid” given by universities. That’s just a way for universities to do price-discrimination, which turns consumer surplus into producer surplus: they have somehow managed to convince all their customers to turn over enough financial information to allow the unversity to charge each student the *maximum* possible.
I am actually surprised that private industries have not seemed to pick up on these techniques. Why aren’t there more industries that lobby for “financial assistance for their customers” to help them afford their products rather than lobbying for tax breaks and subsidies that are nominally incident on the firms themselves? Why don’t more firms try to price-discriminate under the guise of providing “need-based discounts” for low-income customers?
I suggest a deeper, more charitable reading. For example, I have some understanding of the tenure issue. So, I know that it is not really entirely protectionism. Also, nobody is ever sold on licensing (or universal daycare) that it is a workfare program. Why can’t we at least believe a little bit of the surface justifications for these things, or at least believe that people believe some of them.
Armen Alchian has claimed that because universities have no owner (as commonly understood) they end up being “owned” by tenured faculty.
On one level this emerges from the university’s corporate, self-government status in Europe, especially on the continent.
An example of competition would be adjuncts and tenured professors competing as rivals for the same students, who could take one class (taught by the tenured prof) or another class (taught by the adjunct) but not both.
alchian here:
http://www.econlib.org/library/Columns/y2009/McchesneyAlchian.html
+1 @Matt (below), academic (and private sector) PhD economists *do* face competition from foreigners, although I believe the number of H1B visas is somewhat limited.
Also, tenure is not the same as occupational licensing. Tenure is not imposed by some professional order, it is a mutually-beneficial contract choice. As Steve Levitt has said before, he’d be happy to give up tenure–but he’d ask for more money. Universities are happy to give tenure and pay less, because 95% of professors remain productive after tenure.
I’d like to see “optional occupational licensing”, so you have competition, but those who want can get licensed. Pay more for someone licensed, or pay less and get what you pay for–which could be fine. As Milton Friedman said, We don’t need all cars to be cadillacs (paraphrasing).
Steve Levitt doesn’t need tenure. So, imagine if we got rid of it. We’d have a thousand kids wanting to take a class from Steve Levitt. So, tenure is protecting the people lower on the totem pole. Maybe we should go in that direction. Who knows?
It occurred to me that this is a little bit of Levitt being hypocritical. Now that he is through the phase where tenure helped him he’ll now take the cash, thank you very much. But I also assume he doesn’t think he’s being hypocritical, which matters a bit.
To be fair, academic economists do essentially face open borders: public and nonprofit private universities are exempt from the H-1B visa cap, and are set up at industrial scale to take in people without a US passport or green card.
I wouldn’t be surprised if at least 50% of academic economics jobs are currently taken by foreigners. Aspiring domestic economists are disproportionately hurt by this competition, more than workers in the vast majority of other jobs.
Given all this, surely economists aren’t total hypocrites when they support immigration.
For a lot of ‘licensed’ professions, there is a lot foreign competition. I remember having several international Professors in my Econ college day. For writers and bankers there is a ton of foreign competition that does not really immigration to do business. (What about Japanese car companies making Toyotas and Nissans in Tennessee?) In the legal profession, can’t firms outsource some of the work? I do give it up that teachers, doctors and dentist are very protected.
While lowering licensing requirements is a good thing, I agree with Matt Yglesias that most impact will be limited on the market.
I woudn’t be surprised at a high foreign professorate, either, considering there is the racist assumption that it is Asians and Indians that do math. They are supposed to be in the human capital and not the signaling business (/sarcasm)
I could quibble with what constitutes protectionism versus naturally occurring business moats. But to look out at the landscape and see everyone protected or protection-seeking and then when you raise on objection to protectionism everyone says “you first” it’s not very satisfying and probably not constructive.
Academics directly compete with foreigners more than most industries. National borders mean less and academia is consistent in that fashion.
Academics do have lots of regulatory licensing and credentials that blocks out most potential competition. This was the point of the OP.
If professional services are being purchased by the person who stands to benefit from them, professional licensure is, indeed, otiose and harmful. But when professional services are being purchased by an *agent* of the beneficiary who cannot well be monitored–such as a government–licensure has a point, since it more or less guarantees at least a minimum level of performance.
Arnold and the commenter should speak only for themselves. I am in a field where 37% are foreign born. Quite happy for the competition/cooperation, foreign born competitors challenge me to do better which benefits everyone.
Hmmm, I am in the same boat, but my parents built an education system they assumed would help their children now being given over to open competition, so I am a little annoyed and it isn’t hypocrisy.