Institutions Matter

While cruising around Facebook this morning, I came across this argument against immigration by one Jasen Tenney:

Illegal immigration is down over 50% with Trump and now to get legal immigration way down. Glad to see them go. Since these people are so good for an economy they can make their own crappy home country a better place to live.

Jasen’s argument is somewhat typical of many man-in-the-street arguments against illegal immigration (and immigration in general).  If immigration is good for the US, if specifically, these people are really a net benefit to the country) and not, as President Trump said infamously, criminals, rapists, and drug dealers, why don’t they stay in their own country and make it a better place?

The economist’s response to this question is simple: institutions matter.  Institutions like rule of law, secure property rights, impartial judiciary, individual rights, etc (in other words, classically liberal institutions) go a long way in producing economic growth.

A person is more likely to flourish, and help others flourish, in an area with institutions that encourage economic growth than s/he is in an area that discourages or predates upon economic growth.  Why produce in an area where property rights are insecure (eg, roving bandits can just steal your stuff, or government can appropriate anything at will)?  Even the best producer may not produce anything under such circumstances.  But, under a different institutional structure, s/he may thrive.

To return to Jasen’s question that motivated this post: why can’t these immigrants simply return to their “crappy” home country and make it a better place?  Quite possibly, because the institutional arrangements necessary to make the country a better place do not exist (or are sufficiently weaker compared to the country the immigrant was headed to)!

Immigration and Institutions: A Response to Jonny Anomaly

Writing at Quillette, Dr. Jonny Anomaly (yes, that’s his real name) discusses immigration, institutions, and why some immigration restrictions may be necessary.  It’s an interesting article, although I find his rationale for immigration restrictions rather weak.

Dr. Anomaly writes:

For one thing, the social norms and political institutions that promote prosperity are often quite fragile, as evidenced by recent events in Turkey, and the failure of constitutional democracy to take hold in Iraq after American attempts to replace dictatorship and tribalism with a secular liberal order.

I disagree with his interpretation of the evidence here.  The two examples he provides are where a liberal order was forced upon the area, rather than developed naturally.  Institutions, when imposed, do tend to be fragile.  This is seen in the work of many great developmental economists work (for example, see Doing Bad by Doing Good by Chris Coyne or The Tyranny of Experts by William Easterly).  However, where liberal institutions develop naturally, they tend to be highly robust.  The United States is an excellent example where despite many shocks to the system over the approximately 250 years of our existence, we remain a highly liberal country.  Shocks have included invasion, mass immigration (by both intelligent and less intelligent people), famine, drought, civil war, terrorism, etc.  The US is not ideally liberal, and there have been missteps, but the whole thing hasn’t collapsed the way it would have if institutions were inherently fragile.

He goes on to say:

Many supporters of open borders fail to distinguish between different qualities of immigrants. They assume that if a high level of immigration has benefitted some countries in particular eras, such as the United States, Canada, and Australia in the 19th and 20th centuries, then it is simply the quantity of migrants, rather than the composition of migrants, that caused prosperity in these nations. But this is a fallacious inference that depends on the assumption that all people are just as likely to promote the welfare of a country regardless of their values, skills, or traits.

In his recent book, Garrett Jones argues that a nation’s wealth and welfare depend crucially on the qualities of its citizens, including IQ, conscientiousness, and the ability to delay gratification. These personality traits are heritable, are (according to Jones) positively correlated with prosperity, and (according to criminologists) negatively correlated with crime.

The problem with this argument is that it doesn’t appear, at least prima facie, to be correct.  The mass immigration of the 19th and 20th Centuries was not of high-skilled immigrants.  Rather the opposite, really: they tended to be the dregs of European society.  And yet, America prospered.  Those who attempted to turn America toward Socialist institutions were not uneducated immigrants, but rather highly educated native WASPs.

This is not to discount the importance of intelligence in economic activity; quite the opposite.  But rather, an economy is made up of all kinds of goods: high quality, low quality and everything in between.  A dynamic economy allows all resources to find a niche, including labor.

There’s more I could say on this article, and maybe I will down the line, but I want to finish off with this: the evidence on immigration’s impact on the economy is far from crystal clear.  There are copious amounts of evidence pointing in both directions.  Given this ambiguity, I argue a liberal society demands that freedom is preserved and that the action which would restrict freedom (in this case, restricting freedom of commerce of the citizens of the society) must be shunned until evidence beyond a reasonable doubt is presented.


Everyday Economics: Bioshock Edition

On my recent trek between Virginia and Massachusetts (and back), I listened to an audio version of the book Bioshock: Rapture by John Shirley (If you’re looking for something light to take your mind off of things, this is a good book).  The book details the rise and fall of Rapture, a massive underwater city built by Andrew Ryan (a not so subtle jab at Ayn Rand) to escape the “parasitic” governments of the world and build a society dedicated to freedom and free markets.  While the initial goal of Rapture may have been freedom and free markets, as the novel (and the video game that the novel is based on) details, Rapture becomes a totalitarian police state with an extremely wealthy (and often sadistic) upper class, and extremely poor low class, and no one in between.  Some see Bioshock as a refutation of Randian philosophy, however, I will not address that here as I am no expert in Ayn Rand (for an excellent discussion, see The Value of Art in Bioshock: Ayn Rand, Emotion, and Choice by Jason Rose).  I’ll leave that to people far smarter than I.  Rather, I want to address the economic situation of Rapture and discuss, briefly, how that contributed to the downfall.

A few quick disclaimers before I begin:

  1. As far as I know, Bioshock: Rapture is not canonical.  However, it is the only detailed source I can find thus far on the days of Rapture that take place before the video game (which is canon) so I will operate on the assumption that my source material is canonical knowing full well everything I write here could become completely worthless insofar as discussing canonical information (the lessons gleaned from this book are still important, however).
  2. Nothing in this essay should be taken as implying the rise or fall of Rapture is purely economic.  There are many other factors involved (social, political, medical, psychological, etc).  I skip or gloss over these not because I think they are unimportant (quite the opposite, really), but because I simply lack the expertise to discuss them with any confidence.
  3. I will be avoiding using direct quotes in this version of this essay.  The reason for this is simple: I have the audio book, not the book itself.  I can’t easily do verbatim quotes and attribute them to proper pages for citations.  Therefore, the reader should be aware that I am doing this partly out of memory (although I did scribble some notes) and further the reader should assume that whenever I describe what’s happening in Rapture, that is a reference to the work of Mr. Shirley.  The only original material will be my analysis.  Any inaccuracies, either to details or analysis, belong to me and me alone.

The short version of what follows: Rapture cannot be classified in any meaningful sense as a “free market.” It suffers from several deficiencies that prevent us from labeling Rapture as a free market: lack of property rights, lack of free trade (autarky), lack of labor mobility (autarky in the labor market), rejection of altruism, widespread and institutionalized fraud (this issue is speculative based off of interviews with characters within the book but not substantiated by details), and censorship (indirect at first, but more direct later).  In Andrew Ryan’s Rapture, “free market” and “laissez-faire” were not much more than dishonored buzzwords.  It can best be described, in the words of James Buchanan, as “moral anarchy,” (see Moral Science and Moral Order, especially page 190 and Limits of Liberty, especially Chapter 7).  These factors, coupled with other psychological, social, and other factors, lead to the decline, civil war, and eventual fall of Rapture.  Continue reading

The Unseen Costs of Taxation and Regulation

On a EconLog post about E-Verify, commentor “Jay” writes:

I’m confused, if [E-Verify] poorly enforced and therefore only sparsely followed by employers, how does it raise hiring costs?

Jay’s question is an excellent one, and one that gets down into one of the main reasons we have deadweight loss (DWL) stemming from taxes and regulation.  Taxes and regulations change behavior (if they didn’t, we’d only have a transfer of wealth from consumers/producers to the government and there would be no DWL).  The obvious way they change behavior is when people adopt less efficient use of resources (in the case of E-Verify, hiring a worker who may be less productive over a worker who would be more productive because the first worker will pass E-Verify and the second worker won’t).

But evasion of those taxes and regulations are also a cost.  For example, if an employer hires someone who would not pass E-Verify, and as such goes to lengths to ensure his hiring is not caught (paying him under-the-table, hiding him of INS come looking, that sort of thing), these are all extra costs being paid.  Costs of time, or money, or effort that would otherwise have been spent doing something productive (and that’s not even counting the government’s cost of enforcement!).

These costs, while unseen, are very real.  Employers face evasion costs just like anyone else, and will make decisions based upon them, even if they never show up explicitly as some budget item or in an official government report.  These costs will change their actions, and we are all worse off for it.

Love Knows No Borders

On 15 April, 2013, during the Boston Marathon, two homemade bombs exploded in the crowd of onlookers, killing three and injuring hundreds more.  A massive, city-wide manhunt lead to the arrest of one of the terrorists, and the death of the other (another police officer was killed in the manhunt).  They were two brothers from former Soviet Republics.

Five days later, the Boston Red Sox took to the field at Fenway Park to play the Kansas City Royals.  The Red Sox organization and the people of Boston turned to David Ortiz, DH for the Red Sox and himself an immigrant from the Dominican Republic, to speak on behalf of the club.  Ortiz took the microphone and said what was on the hearts and minds of every Bostonian:

This uniform.  It doesn’t say “Red Sox.”  It says “Boston.”…This is our fucking city!  And nobody’s going to dictate our freedom.  Stay strong!

In its hour of need, the City of Boston turned to our hero to guide us.  He was not one born in this city, or even this country, but he loved it nonetheless (Ortiz’s nickname is “Big Papi,” a term of endearment in his native DR).  He gave Boston hope when it needed it the most.  His loud, booming voice, amplified by the speakers at Fenway Park, echoed across the entire nation, representing all that is good about America and her immigrant population.

It is true that two immigrants, the Tsarnaev brothers, caused grief and harm.  But it is also true that the immigrant Ortiz relieved that pain.  For every Tsarnaev, there are many more Ortiz.  For every criminal, there are many more good people.

The Ortiz of the world are why I am shamelessly and unapologetically open borders.  The City of Boston would be a much darker place if not for people like Ortiz.

In Defense of the Law

The great French economist and philosopher Frederic Bastiat wrote in The Law:

The mission of law is not to oppress persons and plunder them of their property, even thought the law may be acting in a philanthropic spirit. Its mission is to protect property.

The law is justice — simple and clear, precise and bounded. Every eye can see it, and every mind can grasp it; for justice is measurable, immutable, and unchangeable. Justice is neither more than this nor less than this. If you exceed this proper limit — if you attempt to make the law religious, fraternal, equalizing, philanthropic, industrial, literary, or artistic — you will then be lost in an uncharted territory, in vagueness and uncertainty, in a forced utopia or, even worse, in a multitude of utopias, each striving to seize the law and impose it upon you. This is true because fraternity and philanthropy, unlike justice, do not have precise limits. Once started, where will you stop? And where will the law stop itself?

Bastiat’s point, that the law exists to serve justice and nothing more, is the essence of the rule of law.  The rule of law is the idea that no one is above the law, but also no one is beneath the law.  Many people remember the first part, but conveniently forget the second.

Over the past few years, and especially since the election of Donald Trump, the law has come under attack, both by those on the Left and the Right.  Both want to carve out exceptions to the law, either by eliminating protections under the law for disliked groups (the Left for the alt-right, the Right for immigrants and Muslims) or by giving themselves greater share of “legal plunder” (tariffs, welfare, subsidies, etc etc).  As a classical liberal, it disheartens me to see my country, one founded on (if not always practiced) the ideals of justice, liberty, and the rule of law so willingly and vehemently attack these very ideals for the sake of political virtue-signalling or simple spite.

Justice is blind.  That means she sees not the devils nor the angels of our nature.  She hears only the circumstances, and defends the wronged party.  Whether that party is black, white, Hispanic, Republican, Democrat, Christian, atheist, Muslim, of the “right” mind, of the “wrong” mind, it doesn’t matter.  Justice defends them all.  This must mean that, yes, we must give the Devil himself the benefit of the law for the sake of justice.

A couple of examples.  First, here is a NYT story explaining the jubilation many had after Richard Spencer (the notorious neo-Nazi) was attacked.  Second, this story from Reason responding to the Republican (and sometimes right-libertarian) argument that immigration should be restricted because immigrants tend to vote Democrat.  In both cases, we have an ‘in-group’ trying to carve out exceptions to the law (in the first case freedom of speech, in the second case freedom of migration and protection under the law) for an ‘out-group’ who thinks differently from the in-group.  In both cases, the in-groups are making a mockery of the law.

As a classical liberal, I will defend the rights of both out-groups, indeed all out-groups, because Justice cares not whether one is in or out, and the law shouldn’t either.  I will defend them, not because of any sympathies to neo-nazis (of which I have none) or particular love of immigrants but for my own safety’s sake.  If we weaken the protection of the law for out-groups, what happens when we find ourselves the out-group?  To borrow the language from A Man For All Seasons, if we cut down every law to apprehend the Devil, what will protect us when the Devil turns on us?  Yes, I would give the Devil the benefit of the law for my own safety’s sake!

Tyrants rarely run roughshod over the law, but rather use precedence set by those before them (this precedence, although itself a mockery of the law, gives the illusion that the tyrant’s actions are lawful).  Exceptions to the law, granted by angles to pursue angelic ends, then become the tools of the devil to pursue devilish ends.  Vast presidential powers, handed over by Congress to the Executive Branch, now lay in the hands of Trump.  A vast regulatory government, once in the hands of relatively moderates now exists in the hands of an ignorant, egomaniac populist.  When the moderates were in power and wanted more and more leeway, the classical liberals objected; like More in the clip above, we refused to cut down the law to pursue the Devil for the exact reason that now is in our face: the Devil has turned ’round upon us and many laws have been cut down.

We must defend the rule of law and its protections for all people, including the Devil himself.  Once the door is opened that people who have “wrong” opinions do not deserve the same protections and liberties as people with “right” opinions, then it’s damn near impossible to close that door.