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Economic Theory Really Is Pro-Immigration – Article by Luis Pablo de la Horra

Economic Theory Really Is Pro-Immigration – Article by Luis Pablo de la Horra

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The New Renaissance HatLuis Pablo de la Horra
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In his now-classic work The Myth of the Rational Voter, Bryan Caplan identifies four systematic biases about economics held by the average citizen: make-work bias (an inclination to overestimate the disadvantages of temporary job destruction due to productivity increases), anti-market bias (a tendency to overlook the benefits of the market as a coordination mechanism), pessimistic bias (an inclination to underestimate the present and future performance of the economy), and anti-foreign bias (a tendency to underestimate the economic benefits of interaction with foreigners).

Widespread biases on economics are far from being harmless. Wrong ideas held by voters usually lead to catastrophic policies due to the inherent nature of the democratic process. In other words, in most cases, politicians undertake those policies that they deem popular among voters in order to get reelected. If those policies beget pernicious consequences for the economy, harmless beliefs turn into lower living standards for all.

Of those four biases, the most potentially harmful is the anti-foreign bias. This inclination to underestimate the benefits of economic cooperation with foreigners manifests itself politically in two main ways: protectionism and anti-immigration policies. Despite the recent surge of protectionism in some developed countries, free trade is now the rule rather than the exception in most parts of the world. However, when it comes to immigration, only a few steps have been taken worldwide over the last few decades in a direction of liberalization (even though the consensus about the benefits of more open borders in the economics profession is probably as strong as the consensus around free trade).

As I will show in this series of two articles [see the second article here], anti-immigration policies reduce the well-being of both potential immigrants and host societies, as shown by economic theory and empirical evidence. Or, to put it differently: even a partial liberalization of immigration restrictions would, in the long-term, contribute to improving the standards of living globally.

Economic Theory Supports Immigration-Friendly Policies

The economic case against less restrictive immigration policies rests on shaky pillars. The most common anti-immigration arguments are related to the supposedly negative effects that immigration has on the host country’s labor market, and, more specifically, its impact on employment and wages. According to advocates of immigration restrictions, immigrants do not only take natives’ jobs, but also have a depressive effect on wages.

However, economic theory does not support these assertions. First, the economy is not a zero-sum game: the numbers of jobs available is not finite. As pointed out by Alex Tabarrok (here and here), immigrants are not only producers but also consumers, which implies that an increase in demand triggered by the expansion of the immigrant population goes hand in hand with an increase in total employment. Also – and contrary to conventional wisdom – not only highly-qualified immigrants create positive externalities on host economies. Low-skilled immigrants tend to take lower-productivity jobs (as they often either lack higher education or do not speak the language), allowing the native-born to access higher-productivity jobs (assuming free trade and a flexible labor market).

All said above can be also applied to wages. All else equal, the law of supply and demand says that an increase in the supply of labor would inevitably cause lower wages. However, more immigrants also mean a higher demand for goods and services, which in turn results in a higher demand for labor, preventing a generalized decrease in salaries. Even in those cases when wages in a particular sector are temporarily pushed down, lower wages lead to lower costs for companies, which usually results in lower prices for consumers due to the process of competition.

Immigration-friendly policies can also help tackle the demographic problem that many developed countries have been experiencing over the last years. For instance, the progressive demographic ageing of the American population is already having an impact on the US Social Security system. According to the Population Reference Bureau, the number of Americans over 65 years old will have moved from 15% in 2014 to 24% of the population by 2060. As a result,  the worker-to-beneficiary ratio will decrease by 32%, from 3.4 in 1990 to 2.3 in 2030. This problem could be mitigated by adopting a more flexible immigration policy that increases the working population, reversing the trend that will otherwise end up with significant spending cuts in Social Security benefits.

Benefits for the Sending Countries and Immigrants

The discussion so far has focused on the benefits of immigration for receptor countries. How do the sending countries and immigrants benefit from the migratory phenomenon? Immigrants usually transfer part of their income to their countries of origin with the aim of economically supporting their families and friends. These so-called remittances are flows of capital from developed to developing countries which assist in the economic development of sending countries.

The main beneficiaries of eliminating barriers to labor mobility would be, no doubt, immigrants themselves. This is due to the concept of Place Premium. This concept, first introduced by Michael Clemens, Claudio E. Montenegro, and Lant Pritchettin in a 2008 paper, refers to the automatic increase in earnings (PPP adjusted) that a worker experiences by moving from a low-productivity country to a high-productivity country, without increasing the worker’s human capital. The factors behind this phenomenon are multiple: differences in capital accumulation, quality of infrastructures, technology, proximity to high-productive workers, different legal frameworks, etc. The empirical evidence (which will be dealt with in the second and final article of this series) shows that wage differences among countries due to Place Premium are immense. The corollary is simple: more open borders would bring about a substantial reduction in poverty levels across the world.

Potential Gains from Reducing Global Migration Barriers

What would happen if migration barriers were partially or totally eliminated on a global scale? In his paper Economics and Immigration: Trillion-Dollar Bills on the Sidewalk, Michael Clemens, senior fellow at the Center for Global Development, reviews the academic literature on the topic. If all barriers to labor mobility were to be removed, world GDP would increase in the range of 50% to 150%.

Even partial liberalizations would bring about considerable gains. For instance, a reform that allowed 7% of the population to emigrate to higher-productivity countries would result in an efficiency gain of 10% of world GDP. To put this into perspective, if all remaining trade barriers were eliminated, world GDP would grow by just 2% or 3%. As shown, the impact of relaxing migration barriers on the world economy would be extremely positive, especially for the poorest segments of population.

The theoretical analysis above clearly supports the adoption of more immigration-friendly policies as a way of increasing economic growth and improving the welfare of millions and millions of people, including those in receptor countries. However, economic theory needs to be supported by facts. In my next article, I will provide empirical evidence in support of eliminating barriers to immigration.

Luis Pablo de la Horra is a Spanish finance graduate from Vlerick Business School.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Platform Adoption Statement #2 of the Nevada Transhumanist Party: Electoral Reforms

Platform Adoption Statement #2 of the Nevada Transhumanist Party: Electoral Reforms

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The New Renaissance HatG. Stolyarov II
November 9, 2016
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NTP-Logo-9-1-2015The following sections are hereby added to the Nevada Transhumanist Party Platform. Pursuant to Article I, Section XXV, these sections are not officially considered part of the Nevada Transhumanist Party Constitution at this time, but shall have equivalent standing to the Platform Sections within that Constitution. It will be possible to officially amend the Nevada Transhumanist Party Constitution to include these statements during periodic biennial filings of Certificates of Continued Existence with the Nevada Secretary of State.

Section XXXI. The Nevada Transhumanist Party advocates Constitutional reform to abolish the Electoral College in the United States Presidential elections and render the plurality of the popular vote the sole criterion for the election of President. While the original intent of the Electoral College as a deliberative body to check the passions of the poorly informed masses and potentially overturn the election of a demagogue may have been noble, the reality has not reflected this intention. Instead, the Electoral College has enabled votes from less cosmopolitan, less tolerant, more culturally ossified and monolithic areas of the country to disproportionately sway the outcome of Presidential elections, to the detriment of individual liberty and progress.

Section XXXII. The Nevada Transhumanist Party advocates greatly shortening the timeframe for electoral campaigns. The current two-year election season, combined with voters’ short memories, renders it possible for both genuine merits and egregious transgressions of candidates to be forgotten by the time of voting. Longer campaign seasons also perpetuate the “horse-race” mentality on the part of the media and result in the search for contrived election drama in order to drive views and campaign contributions. The ensuing acrimony, misinformation, and outright violence are detrimental to the fabric of a civilized society. Election seasons should be as short as possible, to enable all relevant information to be disseminated quickly and be considered by most voters within the same timeframe as their decisions are made.

Section XXXIII. The Nevada Transhumanist Party advocates abolishing all staggered party primaries and for all primary elections to be held on the same day across the entire country. With staggered party primaries, individuals voting later – solely because of the jurisdiction in which they reside – find their choices severely constrained due to the prior elimination of candidates they might have preferred. The staggered primary system tends to elevate the candidates who are least palatable to reasonable voters – but have the support of a vociferous, crass, and often violent fringe – toward frontrunner positions that create the pressure for other members of the political party to follow suit and reluctantly support the worst of the nominees.

Section XXXIV. The Nevada Transhumanist Party supports replacing the current “winner-take-all” electoral system with proportional representation, ranked preference voting, and other devices to minimize the temptations by voters to favor a perceived “lesser evil” rather than the candidates closest to those voters’ own preferences.

Section XXXV. The Nevada Transhumanist Party supports the right of any jurisdiction to secede from the United States specifically in opposition to policies that institutionalize racism, xenophobia, criminalization of dissent, and persecution of peaceful persons. The Nevada Transhumanist Party does not, however, condone any secession for the purposes of oppressing others. Therefore, the secession of the Confederate States in 1860 was illegitimate, but a future secession of a State may be justified in reaction to violent crackdowns by the federal government against individuals based on individuals’ national origin or ancestry.

Platform Adoption Statement #1 of the Nevada Transhumanist Party: Religious and Non-Religious Doctrines, Beneficial and Detrimental Technologies, and Voting in Accordance with Individual Conscience

Platform Adoption Statement #1 of the Nevada Transhumanist Party: Religious and Non-Religious Doctrines, Beneficial and Detrimental Technologies, and Voting in Accordance with Individual Conscience

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The New Renaissance HatG. Stolyarov II
October 4, 2015
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NTP-Logo-9-1-2015

The following sections are hereby added to the Nevada Transhumanist Party Platform. Pursuant to Article I, Section XXV, these sections are not officially considered part of the Nevada Transhumanist Party Constitution at this time, but shall have equivalent standing to the Platform Sections within that Constitution. It will be possible to officially amend the Nevada Transhumanist Party Constitution to include these statements during periodic biennial filings of Certificates of Continued Existence with the Nevada Secretary of State.

Section XXVI: The Nevada Transhumanist Party welcomes both religious and non-religious individuals who support life extension and emerging technologies. The Nevada Transhumanist Party recognizes that some religious individuals and interpretations may be receptive to technological progress and, if so, are valuable allies to the transhumanist movement. On the other hand, the Nevada Transhumanist Party is also opposed to any interpretation of a religious doctrine that results in the rejection of reason, censorship, violation of individual rights, suppression of technological advancement, and attempts to impose religious belief by force and/or by legal compulsion.

Section XXVII: The Nevada Transhumanist Party is furthermore opposed to any interpretation of a secular, non-religious doctrine that results in the rejection of reason, censorship, violation of individual rights, suppression of technological advancement, and attempts to impose certain beliefs by force and/or by legal compulsion. Examples of such doctrines opposed by the Nevada Transhumanist Party include Stalinism, Maoism, Neo-Malthusianism, the death-acceptance movement, and the doctrine of censorship, now prevalent on many college campuses in the United States, in the name of “social justice”, combatting “triggers” or “microaggressions”, or avoiding subjectively perceived offense.

Section XXVIII: The Nevada Transhumanist Party holds that the vast majority of technologies are beneficial to human well-being and should be enthusiastically advocated for and developed further. However, a minority of technologies could be detrimental to human well-being and, as such, their application, when it results in detrimental consequences, should be opposed. Examples of such detrimental technologies include nuclear, chemical, and biological weapons, mass-surveillance systems such as those deployed by the National Security Agency in the United States, and backscatter X-ray full-body scanners such as those used by the Transportation Security Administration in the United States. Furthermore, the Nevada Transhumanist Party is opposed to the deliberate engineering of new active pathogens or the resurrection of once-existing pathogens, whose spread might not be able to be contained within laboratory settings. While it is impossible to un-learn the knowledge utilized in the creation of such technologies, the Nevada Transhumanist Party holds that all such knowledge should only be devoted toward peaceful, life-affirming, rights-respecting purposes, going forward.

Section XXIX: The Nevada Transhumanist Party holds that each of its members should vote or abstain from voting in accordance with that member’s own individual conscience and judgment. If an official or candidate of the United States Transhumanist Party or the Nevada Transhumanist Party expresses a preference for any particular non-transhumanist candidate for office, then no national or State-level Transhumanist Party, nor any individual transhumanist, ought to be in any manner bound to support that same non-transhumanist candidate.

Adopted on October 4, 2015:

Mr. Gennady Stolyarov II, ASA, ACAS, MAAA, CPCU, ARe, ARC, API, AIS, AIE, AIAF

Chief Executive, Nevada Transhumanist Party

Fooled by GDP: Economic Activity versus Economic Growth – Article by Steven Horwitz

Fooled by GDP: Economic Activity versus Economic Growth – Article by Steven Horwitz

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The New Renaissance Hat
Steven Horwitz
May 4, 2015
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Even the smartest of economists can make the simplest of mistakes. Two recent books, Violence and Social Orders by Douglass North, John Wallis, and Barry Weingast and Why Nations Fail by Daron Acemoglu and James Robinson both suffer from misunderstanding the concept of economic growth. Both books speak of the high growth rates in the Soviet economy in the mid-20th century. Even if the authors rightly note that such rates could not be sustained, they are still assuming that the aggregate measures they rely on as evidence of growth, such as GDP, really did reflect improvements in the lives of Soviet citizens. It is not clear that such aggregates are good indicators of genuine economic growth.

These misunderstandings of economic growth take two forms. One form is to assume that the traditional measurements we use to track economic activity also describe economic growth, and the other form is to mistake the production of material things for economic growth.

Often at the core of this confusion is the concept of gross domestic product (GDP). Although it is the most frequently used indicator of economic growth, what it really measures is economic activity. GDP is calculated by attempting to measure the market value of final goods and services produced in a particular geographic area over a specific period. By “final” goods and services, we mean the goods and services purchased by the end consumer, and that means excluding the various exchanges of inputs that went into making them. We count the loaf of bread you buy for sandwiches, but not the purchase of flour by the firm that produced the bread.

What GDP does not distinguish, however, is whether the exchanges that are taking place — even the total quantity of final goods — actually improve human lives.

That improvement is what we should be counting as economic growth. Two quick examples can illustrate this point.

First, nations that devote a great deal of resources to building enormous monuments to their leaders will see their GDP rise as a result. The purchase of the final goods and labor services to make such monuments will add to GDP, but whether they improve human lives and should genuinely constitute “economic growth” is much less obvious. GDP tells us nothing about whether the uses of the final goods and services that it measures are better than their alternative uses.

Second, consider how often people point to the supposed silver lining of natural disasters: all the jobs that will be created in the recovery process. I am writing this column at the airport in New Orleans, where, after Katrina, unemployment was very low and GDP measures were high. All of that cleanup activity counted as part of GDP, but I don’t think we want to say that rebuilding a devastated city is “economic growth” — or even that it’s any kind of silver lining. At best, such activity just returns us to where we were before the disaster, having used up in the process resources that could have been devoted to improving lives.

GDP measures economic activity, which may or may not constitute economic growth. In this way, it is like body weight. We can imagine two men who both weigh 250 pounds. One could be a muscular, fit professional athlete with very low body fat, and the other might be on the all-Cheetos diet. Knowing what someone weighs doesn’t tell us if it’s fat or muscle. GDP tells us that people are producing things but says nothing about whether those things are genuinely improving people’s lives.

The Soviet Union could indeed produce “stuff,” but when you look at the actual lives of the typical citizen, the stuff being produced did not translate into meaningful improvements in those lives.

Improving lives is what we really care about when we talk about economic growth.

The second confusion is a particular version of the first one. Too often, we think that economic growth is all about the production of material goods. We see this in discussions of the US economy, where the (supposed) decline of manufacturing is pointed to as a symptom of a poorly growing economy. But if economic growth is really about the accumulation of wealth — which is, in turn, about people acquiring things they value more — then material goods alone aren’t the issue. More physical stuff doesn’t mean that the stuff is improving lives.

More important, though, is that what really matters is subjective value. The purchase of a service is no less able to improve our lives, and thereby be a source of economic growth, than are the production and purchase of material goods. In fact, what we really care about when we purchase a material good is not the thing itself, but the stream of services it can provide us. The laptop I’m working on is valuable because it provides me with a whole bunch of services (word processing, games, Internet access, etc.) that I value highly. It is the subjective satisfaction of wants that we really care about, and whether that comes from a physical good or from human labor does not matter.

This point is particularly obvious in the digital and sharing economies, where so much value is created not through the production of stuff, but by using the things we have more efficiently and precisely. Uber doesn’t require the production of more cars, and Airbnb doesn’t require the production of more dwellings. But by using existing resources better, we create value — and that is what we mean by economic growth.

So what should we look at instead of GDP as we try to ascertain whether we are experiencing economic growth? Look at living standards: of average people, and especially of poor people. How easily can they obtain the basics of life? How many hours do they have to work to do so? Look at the division of labor. How fine is it? Are people able to specialize in narrow areas and still find demand for their products and services?

Economic growth is not the same as economic activity. It’s not about just making more exchanges or producing more stuff. It’s ultimately about getting people the things they want at progressively lower cost, and thereby improving their well-being. That’s what markets have done for the last two centuries. For those of us who understand this point, it’s important not to assume that higher rates of GDP growth or the increased production of physical stuff automatically means we are seeing growth.

Real economic growth is about improving people’s subjective well-being, and that is sometimes harder to see even as the evidence for it is all around us.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Technological Singularities: An Overview – Video by G. Stolyarov II

Technological Singularities: An Overview – Video by G. Stolyarov II

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Mr. Stolyarov explains the basic concept of a technological Singularity and his understanding that humankind has already experienced three such Singularities in the form of the Agricultural, Industrial, and Information Revolutions. The next Singularity will come about due to a convergence of technologies such as artificial intelligence, nanotechnology, and biotechnology (including indefinite life extension).