- Movers and stayers (immigration) John Quiggin, Crooked Timber
- Bryan Caplan steps out of his bubble (and away from libertarian philistinism) EconLog
- Edmund Burke and the idea of national conservatism Yuval Levin, Law & Liberty
- “Never give a cunt a chance to be a cunt.” (Labour’s antisemitism) Chris Dillow, Stumbling & Mumbling
Bryan Caplan is an optimist. He thinks that economists do many errors in estimating GDP (overall well-being). He is right in the sense that we are missing many dimensions of welfare improvements in the last half-century (see here, here and here). These errors in measurements lead us to hold incorrectly pessimistic views (such as those of Robert Gordon). However, Prof. Caplan seems to argue (I may be wrong) that all measurements problems and errors are greater than zero. In other words, they all cut in favor of omitting things. There are no reasons to believe this. Many measurement problems with GDP data cut the other way – in favor of adding too much (so that the true figures are lower than the reported ones).
Here are two errors of importance (which are in no way exhaustive): household output and adjustments for household size.
From the 1910s to the 1940s, married women began to enter moderately the workforce. This trickle became a deluge thereafter. National GDP statistics are really good at capturing the extra output they were hired to produce. However, national GDP statistics cannot net out the production that was foregone: household output.
A married woman in 1940 did produce something: child-rearing, house chores, cooking, allowing the husband to specialize in his work. That output had a value. Once offered the chance to work, married women thought the utility generated from producing “home outputs” was inferior to the utility generated from “market work”. However, the output that is measured is only related to market work. Women entered the labor force and everything they produced was considered a net addition to GDP. In reality, any economist worth his salt is aware that the true improvement in well-being is equal to the increased market output minus the forsaken house output. Thus, in a transition from a “male-labor force” to a “mixed labor force”, you are bound to overestimate output increases.
How big of an issue is this? Well, consider this paper from 1996 in Feminist Economics. In that paper, Barnet Wagman and Nancy Folbre calculate output in both the “household” and “market” sectors. They find that even very small changes in the relative size of these sectors alter growth rates by substantial margins. Another example, which I discussed in this blog post based on articles in the Review of Income and Wealth, is that when you make the adjustment over four decades of available Canadian data, you can find that one quarter of the increase in living standards is eliminated by the proper netting out of the value of non-market output. These are sizable measurement errors that cut in the opposite direction as the one hypothesized by prof. Caplan (and in favor of people like prof. Gordon).
Changes in household sizes also create overestimation problems. Larger households have more economies of scale to exploit than smaller households so that an income of $10,000 per capita in a household of six members is superior in purchasing power than an income of $10,000 per capita in a single-person household. If, over time, you move from large households to small households, you will overestimate economic growth. In an article in the Scottish Journal of Political Economy, I showed that making adjustments for household sizes over time yields important changes in growth rates between 1890 and 2000. Notice, in the table below, that GDP per adult equivalent (i.e. GDP per capita adjusted for household size) is massively different than GDP per capita. Indeed, the adjusted growth rates are reduced by close to two-fifths of their original values over the 1945-2000 period and by a third over the 1890 to 2000 period. This is a massive overestimation of actual improvements in well-being.
A large overestimation
If you assemble these two factors together, I hazard a guess that growth rates would be roughly halved (there is some overlap between the two so that we cannot simply sum them up as errors to correct for – hence my “guess”). This is not negligible. True, there are things that we are not counting as Prof. Caplan notes. We ought to find a way to account for them. However, if they simply wash out the overestimation, the sum of errors may equal zero. If so, those who are pessimistic about the future (and recent past) of economic growth have a pretty sound case. Thus, I find myself unable to share Prof. Caplan’s optimism.
Economics is the dismal science, as Thomas Carlyle infamously said, reprising John Stuart Mill for defending the abolishment of slavery in the British Empire. But if being a “dismal science” includes respecting individual rights and standing up for early ideas of subjective, revealed, preferences – sign me up! Indeed, British economist Diane Coyle wisely pointed out that we should probably wear the charge as a badge of honor.
Non-economists, quite wrongly, attack economics for considering itself the “Queen of the Social Science”, firing up slurs, insults and contours: Economism, economic imperialism, heartless money-grabbers. Instead, I posit, one of our great contributions to mankind lies in clarity and, quoting Joseph Persky “an acute sensitivity to budget constraints and opportunity costs.”
An age-old way to see this mismatch is measuring the beliefs held by the vast majority of economists and the general public (Browsing the Chicago IGM surveys gives some examples of this). Bryan Caplan illustrates this very well in his 2006 book The Myth of the Rational Voter:
Noneconomists and economists appear to systematically disagree on an array of topics. The SAEE [“Survey of Americans and Economists on the Economy”] shows that they do. Economists appear to base their beliefs on logic and evidence. The SAEE rules out the competing theories that economists primarily rationalize their self-interest or political ideology. Economists appear to know more about economics than the public. (p. 83)
Harvard Professor Greg Mankiw lists some well-known positions where the beliefs of economists and laymen diverge significantly (rent control, tariffs, agricultural subsidies and minimum wages). The case I, Mankiw, Caplan and pretty much any economist would make is one of appeal to authority: if people who spent their lives studying something overwelmingly agree on the consequences of a certain position within their area of expertise (tariffs, minimum wage, subsidies etc) and in stark opposition to people who at best read a few newspapers now and again, you may wanna go with the learned folk. Just sayin’.
Caplan even humorously compared the ‘appeal to authority’ of other professions to economists:
In principle, experts could be mistaken instead of the public. But if mathematicians, logicians, or statisticians say the public is wrong, who would dream of “blaming the experts”? Economists get a lot less respect. (p. 53)
Money, Wealth, Income
The average public confusingly uses all of these terms interchangeably. A rich person has ‘money’, and being rich is either a reference to income or to wealth, or sometimes both – sometimes even in the same sentence. Economists, being specialists, should naturally have a more precise and clear meaning attached to these words. For us Income refers to a flow of purchasing power over a certain period (=wage, interest payments), whereas Wealth is a stock of assets or “fixed” purchasing power; my monthly salary is income whereas the ownership of my house is wealth (the confusion here may be attributable to the fact that prices of wealth – shares, house prices etc – can and often do change over short periods of time, and that people who specialize in trading assets can thereby create income for themselves).
‘Money’, which to the average public means either wealth or income, is to the economist simply the metric we use, the medium of exchange, the physical/digital object we pass forth and back in order to clear transactions; representing the unit of account, the thing in which we calculate money (=dollars). That little green-ish piece of paper we instantly think of as ‘money’. To illustrate the difference: As a poor student, I may currently have very little income and even negative wealth, but I still possess money with which I pay my rent and groceries. In the same way, Bill Gates with massive amounts of wealth can lack ‘money’, simply meaning that he would need to stop by the ATM.
A lot like money, the practice of calling everything an ‘investment’ is annoying to most economists: the misuse drives us nuts! We’re commonly told that some durable consumption good was an investment, simply because I use it often; I’ve had major disagreements friends over the investment or consumption status of a) cars, b) houses, c) clothes, and d) every other object under the sun. Much like ‘money’, ‘investment’ to the general public seem to mean anything that gives you some form of benefit or pleasure. Or it may more narrowly mean buying financial assets (stocks, shares, derivatives…). For economists, it means something much more specific. Investopedia brilliantly explains it: The definition has two components; first, it generates an income (or is hoped to appreciate in value); secondly, it is not consumed today but used to create wealth:
An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.
This definition clearly shows why clothes, yoga mats and cars are not investments; they are clearly consumption goods that, although giving us lots of joy and benefits, generates zero income, won’t appreciate and is gradually worn out (i.e. consumed). Almost as clearly, houses (bought to live in) aren’t investments (newsflash a decade after the financial crisis); they generate no income for the occupants (but lots of costs!) and deteriorates over time as they are consumed. The only confusing element here is the appreciation in value, which is an abnormal feature of the last say four decades: the general trend in history has been that housing prices move with price inflation, i.e. don’t lose value other than through deterioration. In fact, Adam Smith said the very same thing about housing as an investment:
A dwelling-house, as such, contributed nothing to the revenue of its inhabitant; and though it is no doubt extremely useful to him, it is as his cloaths and household furniture are useful to him, which however make a part of his expence, and not his revenue. (AS, Wealth of Nations, II.1.12)
Cars are even worse, depreciating significantly the minute you leave the parking lot of the dealership. Where the Investopedia definition above comes up short is for business investments; when my local bakery purchases a new oven, it passes the first criteria (generates incomes, in terms of bread I can sell), but not the second, since it is generally consumed today. Some other tricky example are cases where political interests attempt to capture the persuasive language of economists for their own purposes: that we need to invest in our future, either meaning non-fossil fuel energy production, health care or some form of publicly-funded education. It is much less clear that these are investments, since they seldom generate an income and are more like extremely durable consumption goods (if they do classify on some kind of societal level, they seem like very bad ones).
In summary, economists think of investments as something yielding monetary returns in one way or another. Either directly like interest paid on bonds or deposits (or dividends on stocks) or like companies transforming inputs into revenue-generating output. It is, however, clear that most things the public refer to as investments (cars, clothes, houses) are very far from the economists’ understanding.
Economists and the general public often don’t see eye-to-eye. But improving the communication between the two should hopefully allow them to – indeed, the clarity with which we do so is our claim to fame in the first place.
Revised version of blog post originally published in Nov 2016 on Life of an Econ Student as a reflection on Establishment-General Public Divide.
I’ve been reading through a great debate of sorts, first encountered in a C4SS anthology. I’m sharing it here, as it’s not everyday that one encounters a semi-live issue getting hashed out by giants in the field.
It starts with Robert Nozick. (Precious little starts with Nozick — we have Randians, Hayekians, Rothbardians, but no Nozickians, and no Nozickian tradition. Although he energized libertarianism as a respectable political philosophy for academics, his narrow scope and silent response to critics seem to have killed his staying power.)
Nozick famously claimed in Anarchy, State and Utopia (1974) that “Individuals have rights, and there are things no person or group may do to them (without violating their rights).” A first reading of Anarchy in the context of institutionalized philosophy makes it seem like a defense of libertarianism from big government, socialistic ideology. But, when Nozick’s connection to the Austro-libertarian anarchists is uncovered, the first part of Anarchy looks much more like a defense of small government from the anarchists.
Nozick tries to deal with the problem of law and police on the marketplace. In Chapter 2 of Anarchy, State and Utopia, he envisions a market model of competing rights-enforcement agencies. Eventually, in the service of their customers, two or more protection agencies will clash. They will fight. This results in the destruction of one (to the immediate monopoly of the other) or the relocation of the customers of each (to the territorial monopoly of each in different jurisdictions). If they choose not to fight because of the high expense, even arbitration can’t prevent a legal monopoly: consolidating to the top through voluntary contracts, government emerges anyway above the agencies. Thus, concludes Nozick, a purely free-market society will evolve into a state through an invisible hand process.
Collected in Free Markets & Capitalism?, published by C4SS, Roderick Long makes an argument against Nozick’s conclusion on the basis of different models of a post-state society (“The Return of Leviathan: Can We Prevent It?” (2013)).
Long points to another argument, this one from Tyler Cowen, that there is no way to save anarchy from collusion leading to monopoly (“Law as a Public Good: The Economics of Anarchy” (1992)).
David Friedman responded to Cowen’s argument the year afterward (“Law as a Private Good: A Response to Tyler Cowen on the Economics of Anarchy“), and Cowen responded back (“Rejoinder to David Friedman on the Economics of Anarchy“). Bryan Caplan, in an unpublished manuscript, critiqued Cowen’s position as well (“Outline of a Critique of Tyler Cowen’s ‘Law as a Public Good’“).
This is a showdown between Nozick and Tyler Cowen on the one hand, and Roderick Long, David Friedman and Bryan Caplan on the other. The whole extended debate is fascinating, but I’m not sure it has a conclusion. Was Nozick correct about the natural emergence of a state? Maybe it will take a NOL writer to finish it off…
Bryan Caplan (arguing the affirmative) and Christopher Wellman recently debated whether immigration is a human right.
Wellman won the debate according to audience votes, but I think his argument was significantly weaker. He made confused arguments that, when given second thought lend credence to Caplan’s position. But through hand waving he transitioned to “and therefore states’ rights!” I am far from convinced that state’s rights are valid, but I do want to explore an interesting issue he raised: the moral weight of collective phenomena.
Markets generate economic information more intelligently than any individual participant. Competition and collaboration in cultural spaces generate more and better art than any individual on their own. Society is the outcome of individual choices, but the collective is something apart from those individuals.
We have various collectives (e.g. cultural regions, markets, local communities, families, national identities, sports fandom, science, etc.), many of which are special. They provide club goods (sometimes club bads), and require the support of their members. These networks exhibit emergent properties–the whole is more than the sum of its parts.
So surely those members should have some say in the management of the collective?
This is where Wellman went off track. Yes, these collectives are important. Yes, they require some form of governance. But that doesn’t unambiguously imply involvement of government.
Consider an excellent example Wellman gives: families. Families are an essential part of the structure of society and one we are each deeply familiar with. If there’s a collective entity with moral weight, surely it’s the family.
Wellman posed the hypothetical around the 32:45 mark: what if he returned home and found that his wife had unilaterally adopted a new child? Clearly this is freedom of association run amok! But the example doesn’t imply the need for state involvement; it implies the need for couples therapy! If he and his wife together decide to adopt, then the question remains, “why should the government have a say in this?” Currently it does, which means that whatever the median voter is cool with is acceptable, even if that means preventing this adoption that clearly doesn’t affect them. That seems untenable unless we have strong evidence that adoptions tend to create large negative spillovers.
The moral weight of a family doesn’t imply either state involvement or democratic decision making. Members can be added to a family through birth or marriage. The decision is made by the one or two individuals most directly involved (perhaps with some role for other family members). And those decisions are made non-coercively. Parents may intervene to prevent teenage Romeos and Juliettes from getting married, but adults are basically allowed to make their own decision.
I’m guessing here, but I’d bet that 90% of people would agree that the way we do freedom of association in families is basically the right way to do things.
The scope of a family does not fit neatly into the boxes drawn on a map, nor do most other collective phenomena. Red Sox Nation isn’t just Boston. Regional cultures overlap. Languages cross borders.
We want the collective decision making institutions to reflect the area of spill-overs. Decisions affecting a family should be made within the family. I shouldn’t be directly involved in decisions about how to provide local public services in San Diego. Global spillovers justify global decision making, but local spillovers don’t.
When it comes to immigration, we have to ask:
- What collectives will they affect? (certain labor markets, local communities)
- Are they likely to create large negative spillovers?
- What is the current form of institutions governing those collectives?
There are high stakes for many potential immigrants (especially those coming from places typical Americans are most afraid of), so we should probably go a step further: if there’s a solution to some potential spillover problem that isn’t significantly more costly than immigration restrictions, we should feel obliged to use that solution. For example, it should be easier to come here to live and work than it is to get welfare benefits (although getting that policy to work raises a host of other questions).
Rights imply action
Let’s agree on this: there are collective phenomena that are special. We want to take care of these phenomena which means figuring out the appropriate form of governance for each case.
Wellman gives another family example that blows his own argument out of the water: what if he was put in an arranged marriage? This would deny him important scope for self-determination. And therefore (he argues) states, being important collective phenomena, have a right to self-determination.
How did the audience not notice this?! Immigration restrictions deny me choice over who to voluntarily associate with and so deny me scope for self-determination.
Even if it feels weird from a rational-individualist perspective, there is something special about (e.g.) a country. But that doesn’t mean we should abandon methodological individualism. We know that only individuals make choices, even if they make those choices for the sake of collectives. A collective can have moral weight but still lack the ability to choose. To my mind, this kills the idea of states’ rights (as in “right to do x” or “right to self-determination”) in general.
What we’re left with is the original question: how do we manage the collective? What decisions do we make collectively, and what do we decide piecemeal?
For many (most?) collectives, including the most important ones, we allow freedom of (dis)association and leave the state out of it. Wellman did not answer the question of “why should immigration be different?” I suspect there are strong arguments to be made, but the closest I heard in this debate is that we can think of this as a question of governance, and that government sometimes provides governance.
As Wellman points out (around the 30:00 mark) there is (sometimes) a tension between rules favoring individual freedom and rules requiring collective decision making. There are plenty of examples of scenarios where we uncontroversially prefer to limit some individual rights–we do this automatically with negative rights by denying you the freedom to murder in support of your right to life.
It’s not clear to me that the expected effects of immigrants are widespread enough to justify as sweeping a policy as “only the following people are allowed in these particular thousands of square miles.” For immigration (but not access to the welfare state), the presumption of liberty seems the way to go.
tl;dr: We have various collective goods that are special (e.g. the “character” of a community). This calls for some form of governance to allow the individuals directly involved to manage collective goods. This frequently calls for constraints on individual freedoms for the benefit of the community, but that doesn’t mean that the special collective identity of a country justifies a presumption of closed borders.
The debate over whether the nation state is violating human rights by restricting immigration (with caveats made for “obviously” reasonable restrictions like keeping out known murderers) is not closed by pointing out that there is a collective good associated with the nation state. States can be special without having states’ rights.
One thing that strikes me about libertarians who oppose open borders is that they approach the issue of immigration completely different from how libertarians approach nearly every other issue. Arguments against immigration typically go as follows:
- Bad effect x will happen if we allow open borders.
- Therefore, the government is justified in restricting immigration.
For example, many libertarians claim that because immigrants will increase deficits by using the welfare state, the government is justified in restricting immigration. Of course, this isn’t actually true, but even if it were true this in no way justifies immigration restrictions.
To be clear: immigration restrictions are a form of government intrusion into an individual’s freedom of movement. It is the government using its monopoly on force to restrict someone from doing something they’d otherwise be able to do, that is move across an arbitrary line we call a “border.” As Jason Brennan says:
At first glance, immigration restrictions look like rights violations. When we impose immigration restrictions, we do not simply fail to help would-be immigrants, but rather use violence and threats of violence to prevent them from making life-saving or life-changing trades with willing trading partners. We also harm our own citizens, who would benefit from interacting with those immigrants. We impose ourselves and cut off relationships that otherwise would have formed. We use violence and threats of violence to interfere with people who, if left alone, would work or live or trade together.
So libertarians who make this argument are substantially saying that if it can be shown to reduce deficits, using government force to restrict someone’s freedoms is justified.
If anti-open borders libertarians treated any other issue like they do immigration, it would lead to some pretty absurd, anti-libertarian policy positions. For an example, as long as we have government-provided Medicare programs, allowing people to eat unhealthy foods or smoke will increase the cost of those welfare programs; following the logic of the argument above, the government would be justified in implementing paternalist policies that restrict people’s right to consume what they want to reduce the burden of the welfare state. People with lower incomes are more likely to use welfare programs as well, so the government is justified in reducing their population size by restricting their right to reproduce through forced sterilization.
Obviously, both these positions are absurd from a libertarian perspective. Someone’s freedom from government force in areas of reproduction and what food they consume is more important than the fiscal costs. What makes the freedom of movement any different? Replace “people with lower incomes” with “immigrants” and “sterilization programs” with “immigration restrictions” in the sentence above, and the argument is the same. If the government cannot restrict freedoms in other areas in the name of deficit reduction, what makes freedom of movement in immigration restrictions any different?
Or take another example, many libertarians justify restricting immigration because immigrants are likely to vote for statist policies that will restrict liberty. Of course, this once again isn’t true, but even if it were it by itself is no reason for libertarians to support immigration restrictions. The operating principle here is that government is justified in restricting individual liberty if it increases the likelihood that pro-liberty politicians will be elected.
Again, that principle is not applied to any other issue by libertarians. Let’s say a particular demographic of citizens is more likely to vote for statist policies; by this argument, the government would be justified in reducing their population through sterilization programs in order to increase the likelihood that libertarians would win elections. Citizens who vocally advocate for statist policies through their speech also increase the likelihood that people will vote for those statist policies, so the government would be justified in restricting their freedom of speech. Obviously, both conclusions are absurd.
Further, as Bryan Caplan argues, it must be shown that there are policies that can reduce these ill-effects while violating fewer liberties than an all-out closed border policy. For example, we can eliminate the welfare cost of immigration by allowing for an open borders policy but make it illegal for any immigrant to receive welfare benefits. This allows for freedom of movement but eliminates the alleged ill-effect of open borders. Additionally, there are undisputable benefits from immigration, both in terms of increased liberty of movement and economic growth, and it must be shown that the negative effects outweigh the positive effects. Therefore, premise 2 is also incomplete as stated above.
So, in reality, these types of arguments against immigration are as follows:
1a. The government is justified in restricting someone’s liberties if it can be shown to stop bad effect x.
2a. X will happen if we allow for freedom of movement through immigration and there is no other way to stop x without restricting freedom of movement.
3a. Therefore, the government is justified in restricting immigration.
In reality, very few libertarians accept 1a, particularly if they believe in deontological natural rights. For consequentialists, it would depend on how bad x is. But for most arguments against open borders, they would not say that x is bad enough to allow for restrictions on nearly any other liberty. Further, as pointed out earlier, premise 2a is usually false because the empirical evidence suggests that x will not be a result of open borders, there is some other way to stop x while allowing for free migration, or both.
Another argument is that there is something distinctive about immigrants that justifies the state violating their rights but not citizens. If this is the case then we can replace 1a above with the following argument:
1b. The government is justified in restricting the rights of non-citizens if it can be shown to stop bad effect x, but would not be justified in violating the rights of citizens even if it would stop x.
This isn’t really a premise, but a conclusion; libertarians must justify some argument for why it can restrict the rights of non-citizens but not citizens. On its face, it seems like this principle is pretty absurd. For example, suppose that Greek citizens who use welfare eat unhealthily, and this is harming Germany fiscally because Germany helped bail out the Greek welfare state. The German government, therefore, passes a law restricting what Greek citizens can eat and tried to enforce it on Greek soil. Clearly, nobody, libertarian or otherwise, would call that justified. It is the burden of proof for open borders opponents, then, to prove why citizenship is in any way morally relevant to restricting liberties.
Perhaps there is an argument for why someone’s rights are all of a sudden less valuable because they were born on the wrong side of an arbitrary line that only exists because of state force. However, I doubt that there is such an argument that is in any way consistent with libertarian philosophy.
- Turkey and the Case of the Magical Vanishing Coup
- Is the overthrow of a democratically elected government ever justified?
- John and Abigail Adams educated their son, John Quincy, to become the worthy successor of the Founding generation of the new regime
- An American economist’s observations from Europe
- The Influence of Culture on Science, and the Culture of Science
- Confessions of an Ex-Prosecutor
PS: Did anyone else notice that the Brexit vote was 51%-49%? I mean, there’s a lot to think about there, especially for libertarians who claim that democracy sucks but Brexit/Nexit/Grexit is totally and completely justified if the people demand it…