From the Comments: Open Borders and Substantial Increases in GDP

Dr Delacroix gives us a great review of the most recent literature on the relationship between open borders and substantial increases in GDP (50%-150%):

A Long Comment on The Big Thing (open borders)

Thank you, Rick, for causing me to read this very good paper (and thanks to Brandon for making it easily available). I did not find the 150% increase in GDP you promised . That’s OK because it helps me point to one weakness of this paper that should be relevant to any discussion of emigration/immigration focused on policies. The author seems to have been unable to extract from the others articles on which his is based any coherent time dimension. A temporal dimension seems to be lacking. When discussing public policy it ‘s always necessary to consider: “In the short run, in the long run.” An increase of world joint GDP of 150% in fifty years thanks to relaxed immigration seems plausible; the same rise by next year is out of the question, of course.

On several issues, the author comes close to confusing “absence of evidence” with “evidence of absence.” This may be fine for a scholarly article in the discipline of economics. Difficulty to measure or to act upon should not constrain blog discussion however. Five things.

1 “Begin with the country of origin. The departure of some people such as the skilled or talented from a poor country might reduce the productivity of others in that country.”

“might”?

Qualitative differences between those who emigrate and the population of origin may be very large: This is “cream of the crop” vs “bottom of the barrel” issue. This should be obvious with respect to easily measured age and health status for example. The young and stalwart go first. It may be as true with respect to difficult to measure but obviously existing qualities such as the propensity to take economic risks, for example. Thus, I would be surprised if current Mexican illegal immigrants to the US where not economically more desirable immigrants than their own siblings of the same sex who stayed put. I mean more desirable from my viewpoint, someone who is already inside a country of destination. The risks the illegals took to move act like a beneficial sift in this respect, it seems to me.

Periodically African immigrants drown off Lampedusa in the Mediterranean just for a chance to set foot in the EU where medial jobs expect them. They all have close relatives living in the same economic circumstance at home who did not join them.*

The author calls these considerations a kind of externalities and mentions that they are difficult to measure. Difficult to measure does not mean non-existent; it does not even mean small, as he implies. Passion is also difficult to measure, and so is the wrath of a woman scorned. Neither is small in any sense of the word. Stuff that you do not enter into the equation does not show up in the results except in an unclear, residual sort of way. Those who should be in charge of measuring them, the government bureaucracies of countries of origin, are often inept, corrupt, uninterested or discouraged from doing so by government that prefer slogans to facts. Yet, that’s no reason to write these thing off from our thinking.

2 Author asks sensibly:

“Is productivity mostly about who you are, or where you are?”

Productivity clearly has a lot to do with where you are. (Take a man’s shovel in Sonora, teach him how to drive a backhoe in Brooklyn….) I don’t know what the proportions are between it and the answer to the “who” question but I think it would be absurd to set the “who” at zero. Even national origin may matter on the average: If you absolutely must choose between an unknown Englishman and an unknown Frenchman for a cook, which would you chose?

3 Author is too quick to dismiss the argument of impoverishment caused by emigrants’ departure in their countries of origin. He even uses a logically flawed argument, I think:

“But if human capital externalities from health workers were a first order determinant of basic health conditions, African countries experiencing the largest outflows of doctors and nurses would have systematically worse health conditions than other parts of Africa. In fact, those countries have systematically better health conditions (Clemens, 2007).”

Or, is it more likely that: African countries possessing quality health personnel training programs enjoy superior health conditions as a result (I am thinking vaccinations) and some of the health personnel they train are employable in rich countries.

By the way, this raises the general problem of losing at – least temporarily – the benefits associated with the cost of rearing labor. When a Filipina arrives in the US at 19, ready to work in a hospital, the fact is that I contributed nothing to the cost of bringing her up to that point. Someone else has, in the Philippines, most likely. It’s possible that on the average, the home remittances of such immigrant workers more than covers the cost of rearing and training them. I don’t know if it’s true, or how often. I would like to find out.

Author’s savant discussion of externalities seems (seems) to conclude that even if there is a loss to the country of origin, not much can be done. Of course, something can be done: Let the country of destination pay fees to someone or something in the country of origin that supported the cost of training the immigrant worker; in other words, re-imburse at low cost the expense incurred in creating an unearned benefit in the country of destination.

4 Policy makers in Europe are much exercised over the “lifeboat effect.” Even if immigrants’ arrival results in superior economic growth, even if it solves long term problems, as in Social Security, a sudden influx of large numbers may quickly overwhelm destination societies. It may markedly lower their standards of living. (Think of elementary school classes suddenly crowded with children who don’t know the teachers’ language.) I did not find that this article deals with this matter except between the lines, in an implied manner.

[Wholly theoretical Figure 1 does not help me with this although I am attracted to its curves.]

5 Author does his job as an economist well. He writes about the economics of emigration/immigration and he reports on solid research within the constraints of the discipline of economics discourse. But here are also political consequences of immigration we are free to discuss on this blog. (That’s what blogs are for, I think.) This is especially true for a libertarian blog because it poses squarely the problem of national boundaries, of the respect they are owed or not, of their convenience or inconvenience vis-a-vis libertarian aspirations.

Political consequences of immigration loom large in the imaginations of many people in the countries of destination. The manifestations of their concern are not all vacuous or ignorant, or hysterical. The 8 million Swiss -including many immigrants – may have good reason to wonder how many people they can absorb who think that separation of church and state is not only a bad idea but a major sin. Many French people of old French origin are openly racist. Among those responsible French people who are not racist at all, it’s common to worry about the short-term consequences of the legitimate burden high fertility immigrants place on their already sinking welfare system. (The high fertility is documented; it’s not a rumor.) Many American conservatives are worried about Mexican immigrants’ high propensity to vote Democratic. In the end, it’s possible to imagine a scenario where, in combination with other factors,** Mexican immigration helps turn the United States become a one-party state for all intents and purposes. Incidentally, I like Mexicans and I think they make first-rate immigrants. See my co-author articled with Nikiforov on my – Facts Matter – blog.

Sometimes, author handles humor a little too lightly: “Mayda (2006) finds that it is the wealthier, better educated, and less nationalist individuals in rich destination countries who have more favorable attitudes toward immigration.” Sure thing, I am thinking! They want a steady supply of maids and gardeners.

* As some readers already know ad nauseam, I am an immigrant myself. I had four siblings brought up in pretty much the same micro and macro environments as I. They all shared my mediocre level of educational attainment (high school or less). Three of my siblings never tried to move to a richer country as I did; another tried and failed. The difficulties inherent in emigration must select in favor of the desperate, the brave, and of the sociopathic. (Ask me for a good recent book on the latter.)

** The Republican Party’s current striking political incompetence (small p) looms large on my mind as I write this

10 thoughts on “From the Comments: Open Borders and Substantial Increases in GDP”

  1. I’m (finally) going through the article… I’ll cut this comment short (ha!) and finish the article while my computer updates.

    RE: temporal dimension.
    Static models aren’t giving us a time dimension, they’re just showing how far from a sensible equilibrium we are; so they should be interpreted as being very-long-run estimates of gains without necessarily including the costs of transition (migration costs, Fox News polemics, etc.). A dynamic growth model will have a time dimension but we’d have to read the cited paper(s) to figure out what it is.

    RE: point 1.

    I don’t think Clemens implies that externalities are small (specifically the externalities within the country of origin). At least in terms of the relative impacts within those countries. But I think he (correctly) assumes that the impact is small relative to the overall impact. In Bangladesh where the majority of people live on less than $2/day, we could have a 100% drop in local income with a 50,000% increase in income for emigrants. 100% is big, but it’s utterly swamped because the potential upside is far bigger than the especially constrained downside.

    That raises the issue of remittances. There may be a brain drain, but that doesn’t mean there’s a lack of income. It might come to be that low productivity places turn into Ft. Lauderdale’s. If you’re from Bangladesh it’s probably pretty sensible to take care of your elderly relatives by earning an income in Australia and sending back money to pay for their (cheap) rent, (cheap) maid service, and allow them to live in familiar surroundings.

    Your objection to the example of African medical workers in interesting (there’s a paper there!). And if it’s true it lends something to what Clemens brings up a couple paragraphs earlier: the effect of competition and the increased expected return to human capital investment, and the fact that some of *those* people won’t emigrate after all. It’s still an empirical question what the net effect is, but it’s theoretically possible that the number of doctors leaving Senegal increases at the same time that the number of doctors per capita in Senegal increases. I don’t know if Clemens (2007) puts forward that possible interpretation, but in any case this is an opportunity for further research.

    RE: point 2.
    Right on!

    RE: point 3.
    The trouble is, what does “the country of destination pays…” mean? If I’m an employer, I’ll pay you enough to make up for the fact that you’ve got an accounting degree, but I’m not willing to pay your tuition (unless we’ve got a contract that allows me to do that in lieu of some of your salary). Wages are still determined by marginal costs and benefits. So paying a fee would have to mean the U.S. government pays… whom? The Philippine government? The girl’s family? I think the idea of paying a fee to compensate human capital investors is fine on the surface but opens up a big can of worms that’s best left alone.

    The whole discussion of Pigouvian taxes to account for emigration externalities feels a bit off to me for the same reason we aren’t terribly concerned about such externalities for inter-state migration. He captures that sentiment well in writing “Presumably, an American doctor’s decision not to provide care in Haiti causes the same loss of positive externality to Haitians as a Haitian doctor’s decision to leave Haiti…”

    RE: point 4
    This is really the big one; it could fill a book. I think the simplest short-run solution is to let people in on workers’ visas and simplify regulation affecting the creation of private schools to cater to their children. Again, my preferred setup is to let anyone who wants to *live* here (or there, or wherever), but keep it separate from citizenship. “But think of the children!” is actually an important “argument”, but my proposal is certainly a pareto improvement that doesn’t put major strains on welfare states. Perhaps someone here can comment on how the Swiss handle this…

    RE: point 5
    As far as I can tell the Republican party is currently in its death throes, but that’s another issue. Again, letting them in as non-citizens is a valid quick-and-dirty solution.

  2. Good answers all, or almost:

    “I think the idea of paying a fee to compensate human capital investors is fine on the surface but opens up a big can of worms that’s best left alone.”

    It’s a can of worms alright. I don’t really have a solution. It does not mean that there is no problem. (I don’t have a solution for several of my old man’s ills; it does not mean they are not a problem.)There is an ethical problem specifically. If I discover that someone cleaned my car in my absence and it’s not my wife, I am quite sure that I owe somebody something. It I don’t discover whom I owe, I still owe.

    Having any government do anything about the problem would rank low on my list. There has to be contractual solutions. I am vaguely thinking about transgenerational solutions. I don’t know what I mean by this but someone else will, it’s almost sure.

    Nikiforov and I look in detail at the open borders without citizenship solution, in connection with Mexicans specifically, in an article originally published in the Independent Review (Brandon: Please, help here:) [But of course: "If Mexicans and Americans Could Cross the Border Freely" - bc]

    1. So is it that the employer owes the parents of the employee for human capital investments? Or that the consumer owes the community the employee grew up in?

      I can see some semblance of someone owing someone else in the very broad and nebulous way that everyone owes everyone else in a way that can only establish a moral imperative to be nice to people around you. I don’t see anything that can be handled contractually that is self enforcing.

  3. Again, Rick: I don’t know either right now how the debt can be paid but it does not mean that there is no debt. Nothing is nebulous about the debt.

    A local American born and reared young woman is working as a practical nurse in the local hospital. A second young woman from the Philippines does exactly the same work in the same hospital. She arrived here one year ago all ready to work. I contributed substantially through my taxes to bringing the first woman to the point where she can work. I contributed nothing to the production of the Filipina as a worker. I got her for free, so to speak. Someone or something must have paid.

    Our discussion has to do, I think, with the fact that the discipline of economics pretends that there are almost no social boundaries of any kind that matter. It helps conceptual clarity to pretend that it is the case but it’s good to remember that it’s a fiction though a useful one. If my memory is correct, until about thirty years ago, the discipline used to put nearly every boundary effect in a well tied bag while calling it a “transaction cost.” The bag was open fairly recently with “transaction economics.” I say “nearly every boundary effect” because national boundaries were recognized early as important, by Ricardo among others. Many economically important things happen within other kinds of boundaries, such as the levying of school taxes.

    Someone or something besides her parents contributed to the rearing and schooling of the Filipina who works in my hospital. It wasn’t me or you.

    I have not forgotten that remittances, money sent to her country of origin, may erase the debt but debt, there is.

    1. I’m still not seeing it.

      I agree that everyone is helped out by broad networks of people in markets, civil society, and government. I agree that this (particularly for civil society) means that an individual getting returns on her human capital has some psychic debt, and this debt is somewhat extended to her customers when they gain consumer surplus. I agree that such networks are more loosely connected across distances, borders, and state lines.

      But the way we handle these psychic debts within communities is by being nice to each other, paying it forward, and reciprocating with those who have directly helped us. There’s simply no way to extend these bonds across boundaries and distances. And I think we would do a disservice to the importance of these complex networks of social bonds, and their moral weight, if we were to stretch our social energies thin by extending the same sort of sympathies to distant people as we do to those already in our social circles (who will necessarily be the ones to receive less sympathy because of it).

  4. I cannot handle this psychic debt to someone or something in the Philippines by being nice to someone or something in the Philippines. Being nice to my neighbor in Santa Cruz does not seem to cut it. This is an unresolved problem but a problem nonetheless.

    1. I think the problem is somewhere between the Mises-Hayek Knowledge Problem and Theory of Moral Sentiments. Even within Santa Cruz there’s no clean way to resolve all psychic debt, but perhaps that isn’t a problem at all; perhaps it’s just bonding social capital (comments Brandon?)?

      As for the role of this psychic debt extending to the Philippines, it’s got all the cards stacked against it. We aren’t neighbors, we don’t know who we owe, and that goes both ways. Is it a problem? I’d say it’s a problem the way friction is… Too small and pervasive to get rid of, perhaps sometimes worth addressing, and maybe (maybe?) sometimes a good thing… Though I couldn’t really tell you how (or if) it’s a good thing.

  5. Again Rick, you seem to be arguing that if you don’t know how to fix a hole in the bathtub, there is no hole.

    It wouldn ‘t be that difficult to locate a group, or groups, or organizations that could be compensated – a little imprecisely perhaps – for the gift of an all grown up worker ready to produce for my benefit.

    The fact that I will not do myself in terms of imagining what I propose does not mean that it cannot be done. It means that I am busy elsewhere and kind of old.

    This issue is not a little something to be swept under the Economics Department rug; it’s a global, massive problem of equity. It should be right in the middle of concerns of libertarian-minded people.

    You were right emigration/immigration is the one big thing. It has many facets; all are important, including those that don’t fit nicely inside economic theory as we know it today. (“Today:” Think of economics before Gary Becker.)

    1. What I’m arguing is that maybe this hole in the bathtub is not something that should be fixed… maybe it’s the overflow drain, or maybe this isn’t a bathtub at all… But your point is well taken; I’m not strongly convinced that there isn’t a bad hole in this metaphorical tub.

      I disagree however that it would either be easy to identify the correct group to compensate or to compensate them without violating the tendencies Smith observes in TMS. If this problem can be solved, it will be more easily solved within our communities: You hire Jim, and thanks to his parents’ efforts he’s a good worker. So do you buy his parents a bottle of wine? Do you cut them a check to cover the costs of rearing him? The first only makes sense if you’re being neighborly and particularly so because Jim has made you happy to have them as neighbors. If you hire Jim after he’s been working for me are you obliged to pay me for his training?

      In all those cases I think the reasonable thing is to compensate Jim for his productivity, for Jim to compensate his parents (non-monetarily) for raising him and me (by being productive and giving me a return on my investment). That’s a purely economic series of investments, returns, and exchanges. And all externalities are internalized.

      Is there a moral/social dimension? I’ll buy that there is, but I’m not convinced it’s big enough that the solution to your psychic debt problem is anything bigger than “be a good neighbor, be grateful, and be nice in general.” The hole in the tub is the top of the tub and the “leak” is evaporation. Is that a problem? Kinda-sorta, but the solution is “don’t splash around in the tub,” not “set the faucet to drip to offset evaporation.”

      Quasi-tangent/question to whomever: What would the Ostroms say to our conversation?

  6. The strange thing is that I agree with most of what you say but:

    “You hire Jim, and thanks to his parents’ efforts he’s a good worker. So do you buy his parents a bottle of wine? Do you cut them a check to cover the costs of rearing him?”

    Jim is not only a good worker “thanks to his parents’ efforts” but also because I, his neighbor, paid steeply for his education for fifteen or for 22 years (and counting) As a taxpayer, I also subsidized a large number of other services that contributed to his surviving to become a good worker. That would include drug addiction treatment, for example.

    I contributed no such things to Rosa Concha, from Manila, working in my local hospital right off her charter plane. Note that she is working for the same wage as Jim or Jim’s sister doing the same job.

    Something is missing.

    I have to disengage here for the time being because I have to work on a project that began several years ago. You raised an excellent question and I raised a significant one within it.

    I hope others will join in.

Please keep it civil (unless it relates to Jacques)

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s