Paul Romer on mass migration

In a conversation with Tyler Cowen, Romer says,

I think we should talk about a trilemma for migration, which is three things, and we can only have two out of the three. You think of the liberal democracies — what would we like as a response for large numbers of people who need to go someplace? If it was some political jurisdictions, one of the things we want is local democratic accountability for the officials in the government. The second would be equal treatment under the law. And the third is, in this jurisdiction, the ability to absorb large numbers of migrants, potentially numbers that are bigger than the existing population.

Picture one of these places when there’s a million people there, but you’d like it to be able to accept another 9 million. All three of those things are things that most people would support, and you can’t have all three. So, the two we pick in most existing jurisdictions — we just don’t allow large-scale migration, and you can see some logic to that.

His preferred solution is to suspend local democracy for a while, until the immigrants are absorbed. I think of this as adding Syrian refugees to Germany but, instead of letting the Syrian refugees vote in a different set of rules, letting the EU run things there.

It’s a very unfamiliar approach, and it has features that are unattractive. But the thing to realize is, we just don’t have an answer at all if we’re facing this kind of very large-scale crisis of migration.

Commenters push back on immigration

First,

As a property owner, your share of public goods is not yours to dispense as you please, permanently and in perpetuity to their birthright-citizen posterity, to non-citizens.

As a property owner, you pay property taxes and income taxes on the rent that you charge. Your illegal immigrant tenant pays gasoline taxes, sales taxes, and (perhaps) payroll taxes. It is not clear that the immigrant is less morally entitled than anyone else to whatever public goods that immigrant receives.

Second,

If a student illegally admitted himself to Harvard, enrolled in classes, followed all the normal rules, completed assignments, took tests, and paid his tuition like expected, would it be immoral to kick him out? Is it immoral for Harvard to block the student from getting legal admission by rejecting his application?

In fact, you don’t even have to pay tuition to tresspass on classes, and my guess is that if you submit a test it will be graded. But you won’t get the Harvard degree without coming in through the front door via the admissions process. Bryan Caplan uses this example to show that the value of college must be mostly signaling; if it were the education itself that had value, then we would see more people would obtain the education by trespassing.

As for Harvard blocking the student from getting admission, that is because Harvard sees its slots as a scarce resource. In theory, these could be rationed entirely on the basis of price, with slots going to the highest bidders. In practice, Harvard rations these slots through the admissions process. It is free to do so.

Illegal immigrants who occupy housing are using scarce land resources. But those resources are being rationed on the basis of price.

Arguing against allowing illegal immigrants means arguing in favor of some non-price rationing of land resources. Moreover, you are not giving the landlord the right to choose whether and how to ration by non-price criteria. Instead, you are having the government set the criteria.

I am not trying to refute the case for enforcing immigration laws. I am just trying to say that the analogy between kicking out an immigrant and throwing someone off of your personal private property is not really appropriate.

Love them out of their cult?

Here is a recent conversation between Dave Rubin and Eric Weinstein. You will find yourself agreeing with some of what they say and disagreeing with some of it.

I did not find Eric persuasive when he compared opening a border to immigrants to allowing a dinner guest to stay in your house forever. I don’t own the land where immigrants reside. They are not my guests to throw out.

I think that we lack the will to enforce immigration law because from an individualistic perspective it feels wrong to do so. When they work for what they get and obey other laws, it’s hard to feel good about throwing them out of the country.

Suppose that we do not think of land in this country as something that we as citizens own collectively. Instead, land is owned by individuals. An immigrant is going to pay rent to an individual landlord. Throwing out that immigrant means that the state breaks a voluntary contract between two individuals, the landlord and the tenant. There may be justifications for doing that, but I don’t think you arrive at those justifications through a metaphor of a guest over-staying.

Eric also said something that was counterintuitive when he said “We need to love them out of their cult.” He supported Bernie Sanders, but he thinks that Sanders has some bad economic ideas. Weinstein says that in general progressives have adopted some bad ideas, but they have good intentions. If we can love their intentions, then perhaps we can coax them away from their bad ideas.

This approach appeals to me. One of my favorite children’s fables is the one about the sun and the wind competing to get a man to take off his coat. The wind blows hard and cold, but that only makes the man pull his coat tighter. The sun bathes the man in warmth, and he removes his coat. I think there is a lesson there for those involved in political conflicts.

But I think that there are complicating factors. Most important, I worry that political anger is fueled by emotional needs, not good intentions. The anger comes from internal demons, a sort of bitterness (self-hatred?) that the individual projects outward.

Suppose that there is a spectrum of personal contentment. At one end of that spectrum there are people who are happy with their lives and comfortable in their skins. They feel gratitude. Many of the conservative and libertarian intellectuals that I regularly follow fit in this category. The folks I know at Reason, at National Review, or in the GMU economics department. At the other end of the spectrum are young men who are so frustrated and angry that they become serial killers.

The politics of anger falls somewhere in between. At the extremes, it might be close to the serial-killer end of the spectrum.

How does anger on the left compare with anger on the right? The following is very speculative.

Think of life contentment as normally distributed, with an upper tail of people who are very grateful and a lower tail of people who are very bitter. Now imagine graphing two distributions of life contentment, one for well-educated, articulate people on the political left and one for well-educated articulate people on the political right. My sense is that while the two distributions would overlap, the distribution of the people on the left would be shifted to the bitter side relative to the people on the right. Again, I am limiting this to the well-educated and articulate.

Getting back to Eric’s idea, my worry is that by the time someone has become bitter and has translated that bitterness into political activism, it is too late to love them out of it. Ideally, one could find a way to prevent or overcome such bitterness in the first place. Failing that, it is important to find a way to channel that bitterness toward areas where it is least destructive. Video games or something.

A China bull

Peter Diamandis sounds like one.

these homegrown Chinese tech giants are driving China’s AI revolution at an unprecedented pace, building out everything from autonomous vehicles and smart cities to facial recognition capabilities and AI-driven healthcare platforms.

He is referring to Baidu, Alibaba, and Tencent. The quote is from his “blog,” Abundance Insider, which currently is available by email subscription (free) but not on the web.

Immigration laws and others not enforced

Look at what I wrote more than 15 years ago.

many laws are the legal equivalent of oxymorons – legamorons, if you will. A legamoron is any law that could not stand up under widespread enforcement. Laws against marijuana use are a prime example. Rigorous enforcement of these laws on middle-class college campuses would cause a furor.

There are many other legamorons, where we have become accustomed to low levels of enforcement.

immigration laws
laws against sexual harassment
laws against betting on sports
speed limits
software licenses
laws against music sharing
laws requiring people to pay social security taxes for household workers

A couple of things have changed. Sexual harassment is not being overlooked any more, but that change is a cultural phenomenon more than a legal one. And iTunes, Pandora, and Spotify have created legal substitutes for Napster. It still seems like illegal music sharing happens on YouTube, but I guess Google makes enough of an effort to curb it that the music labels are not going as beserk as they did about Napster. Back in 2002, the consumer market for shrink-wrapped software was still a big deal. Now, not so much, I don’t hear much complaining about people using unlicensed software.

Read the whole essay. It makes a number of interesting points.

A question on the President’s tariffs

From a reader:

What’s the best case you can make for Trump’s tariffs?

This is one of the harder questions that I have been asked.

First of all, the phrase “Trump’s tariffs” hits me the wrong way. It should be the job of Congress to set tariffs. They should never have passed whatever legislation it is that gives the President the authority to set tariffs.

But trying to be charitable:

1. Maybe he is really using them as economic sanctions. Think of them as a way to reward friends (by giving exemptions) and punish enemies (by not doing so). The problem with trying to justify the tariffs this way is that the victims of the sanctions are people in both the U.S. and other countries, not the leaders of other countries. If you are going to give the President any points for this, you have to believe that economic sanctions have great symbolic meaning and that this symbolism will affect other governments’ behavior. Not easy to buy that.

2. Maybe tariffs are an example of the “least-harm principle,” which is that if somebody is committed to doing something bad, you hope that they pick the tactic that does the least harm.

I first formulated the principle my senior year at Swarthmore Colleg, which was when the Lettuce Boycott became the cause du jour on campus. Some of my fellow econ majors wanted to raise objections to the left’s insistence that the dining hall only serve union-picked lettuce. I suggested that we should not bother, since there were so many bigger issues around. “It’s the least significant issue they could have chosen. We should be happy that this is what they are focused on. Call it the least-harm principle of knee-jerk liberalism.”

So, maybe the tariffs are the least-harm way for Mr. Trump to satisfy the trade-nationalists in his coalition.

Sales of homes to foreign buyers

CNN Money reports,

The National Association of Realtors released a report Tuesday that said foreign buyers and recent immigrants spent an estimated $153 billion on American properties in the year ending March 2017. That was a 49% increase over the previous year and the highest level since record-keeping began in 2009.

The purchases accounted for 10% of the total value of existing home sales in the U.S. The report did not include new homes.

Pointer from Scott Sumner, who writes,

the sale of homes to foreigners does represent a US export, and creates lots of goods jobs for American blue collar workers. (Note that it doesn’t really matter whether they buy new or existing homes; the net effect on the housing market is the same.)

When a house is built, that counts as GDP. But when an existing house is sold, that is not new production, so it does not count as GDP.

Suppose an existing house gets sold by an American family to a someone in China or Canada, who leaves it vacant. Next, a new house gets built to house the American family that still needs to live somewhere. The new house gets counted as GDP. It seems to me that if you counted the sale of the existing house as an export, then that would be double-counting. So I am not with Sumner here.

I am more interested in the statistics in the article. Let us suppose that these foreign owners are not choosing between renting and buying in the U.S. They are buyers only, with no thought of renting. Let me guess that these Chinese and Canadians are just a bit more likely to be buying houses in San Francisco or Manhattan than in rural Ohio. Then this might help to explain why price/rent ratios are so divergent within the U.S.

Note, however, that the foreign owners might still be interested in renting out the properties they buy. In that case, the ratio of price to rent should still matter to them.

Tariffs and Trade Balances

In response to a comment, here is some textbook international economics.

1. A 10 percent tariff has the same effect on the relative cost of imports as a 10 percent depreciation of our currency.

2. The macroeconomic theory of the trade balance is that it is determined by the difference between domestic saving and domestic investment:

(private saving minus private investment) plus (government surplus) = (trade surplus)

3. If a tariff does not change anything on the left-hand side, it cannot change anything on the right-hand side. That requires an offsetting appreciation of the exchange rate.

4. Thus, textbook international economics predicts that a tariff (or a tariff combined with an export subsidy) will have no effect on the trade balance, but instead it will cause the domestic currency to strengthen.

5. The border-adjustment tax is analyzed as if it were an import tariff and an export subsidy. Ergo, its effect is on the exchange rate, not on the trade balance.

Kling on Trade

I wrote,

On the topic of international trade, the views of economists tend to differ from those of the general public. There are three principal differences. First, many noneconomists believe that it is more advantageous to trade with other members of one’s nation or ethnic group than with outsiders. Economists see all forms of trade as equally advantageous. Second, many noneconomists believe that exports are better than imports for the economy. Economists believe that all trade is good for the economy. Third, many noneconomists believe that a country’s balance of trade is governed by the “competitiveness” of its wage rates, tariffs, and other factors. Economists believe that the balance of trade is governed by many factors, including the above, but also including differences in national saving and investment.

The noneconomic views of trade all seem to stem from a common root: the tendency for human beings to emphasize tribal rivalries. For most people, viewing trade as a rivalry is as instinctive as rooting for their national team in Olympic basketball.

To economists, Olympic basketball is not an appropriate analogy for international trade. Instead, we see international trade as analogous to a production technique. Opening up to trade is equivalent to adopting a more efficient technology.

That was for the Concise Encyclopedia of Economics.

Gita Gopinath on Trade and Exchange Rates

She says,

most of trade invoicing is done in dollars. More recent research shows that these dollar prices tend to be sticky—that is, these dollar prices are far more stable than exchange rates. For non-U.S. economies, therefore, a depreciation of their currency relative to the dollar leads to almost a one-to-one increase in the price of imported goods in their own currency and, therefore, the pressures on inflation are high. On the other hand, because dollar prices of traded goods are relatively stable, the inflationary pressures on the U.S. economy are weak.

Pointer from Timothy Taylor.

It is as if there has been a bottom-up decision to stabilize the purchasing power of the dollar. That consensual hallucination makes U.S. monetary policy less effective at wiggling the inflation rate.

Later, she says,

we instead explored the role of value-added taxes and payroll subsidies or, more specifically, raising value-added taxes and cutting payroll taxes. What we found, surprisingly, is that this form of intervention did extremely well in mimicking the outcomes of a currency devaluation, not approximately but exactly.

The point is that a country like Italy or Greece is not trapped by being in the euro. It could increase its competitiveness by raising value-added taxes on consumption and cutting payroll taxes.

I recommend the entire interview. I do not buy everything she says, but it is all interesting.