Immigration and Jobs – Reprise

A good op-ed in the March 24 issue of the Wall Street Journal by Mark Krikorian forces me to go back to one of my recent postings on immigration: “Immigration and Jobs.”

Krikorian is executive director of the Center for Immigration Studies in Washington D.C. Mr Krikorian accuses everyone in America of “not facing the facts” about current and recent immigration. He insists that some questions must be posed instead of skirted. I agree, of course, but I don’t know that it’s true that people are not facing the facts. I think instead that many busy and fair people are hearing contradictory statements and that they don’t have a good framework to think things through. Krikorian states that he rests his case on an authoritative study by the National Academies of Science, Engineering and Medicine. The academies are a respected source. I take it seriously if Krikorian reports accurately. (Be aware that I have not read the study in question.)

Krikorian’s most troubling assertion is as follows: All Americans benefit from immigrants being in the US. This benefit is entirely extracted from the higher wages Americans competing with immigrants would receive absent wage lowering immigrants’ competition. In other words: Americans who compete with immigrants receive lower wages than they should; everyone else benefits from these lower wages.

I think that’s obviously overstating the case. There must be at least one immigrant generating product (GDP) that would not otherwise exist in the American economy. Maybe, there are two. One is in Silicon Valley, inventing a product – like the personal computer forty years ago – that will eventually cause the employment of thousands, or millions. The second is in Kansas, saving from demolition a beat-down hotel that provides immediate employment for two-to–four minimum wage-earning maids. (Both entrepreneurs are Indians, obviously). In general, immigrants might benefit all by offering additional, or better, services than do the native born. I develop this thesis below.

Krikorian seems to be operating from a standpoint where the work pie to be shared by Americans and by immigrants is of a permanently fixed size. This erroneous perspective, in turn, may well come from a respectable desire to stick close to research findings. Research that also (also) takes into account immigrants’ contribution to increasing the size of the pie is doable but it’s more difficult to perform and to integrate with previous findings than research that relies on a static representation of reality.

Let me admit that I don’t have any numbers at my disposal and that any reasonably credible set of numbers could blow out of the water everything I am going to say below.

First, it’s obvious that there are currently many unfilled jobs in the US. Organized labor and anti-immigration spokespeople will argue that all those jobs would be filled if the wages offered were high enough. I am skeptical of this argument for two reasons. First, Silicon Valley employers affirm vigorously that they just don’t find enough would-be employees with the required skills, at any price. I tend to believe them to some extent because they evidently spend energy and resources raiding each other for expensive existing personnel. This kind of practice suggests true, absolute scarcity. I have mentioned in one of the companion essays the difficulty farmers encounter in recruiting pickers even when they offer wages significantly superior to both the minimum wage and to the going wage in my job-poor area. I would argue that their difficulties are rooted in the same problem facing Silicon Valley employers: a shortage of local competence. Picking strawberries, for example, is not easy at all. And it requires a certain attitude, or fortitude, that is not common anymore among Americans, as I have argued elsewhere.

Second, presented below, a forbidden argument. But I must make a disclosure before I move to it: I am one of the 43 million foreign-born people now living in the US. I studied in the US and I was permanently admitted on a variant of a B1 visa. I had a main career as a university professor. I don’t believe that an extra teaching position was ever added in any university to accommodate me. (It happens for some foreigners, a very few, of star quality, like Einstein; I wasn’t one of them, let’s face it.) Of course, to obtain any university position, I had to possess the same credentials as native-born Americans who also wanted the position. (That’s right, there is no affirmative action track for white Europeans!) Good university positions are surprisingly competitive to obtain; earning tenure is even more competitive. Every position I obtained, I got from winning against similarly situated native-born.

Each time, I won the gold, if you will. This simple fact would seem to suggest that I was at least slightly better in conventional terms than those native-born who did not get the position. This fact implies at minimum that had I not competed for the position my students would have been served at best by a silver medalist. (I choose the Olympics language on purpose, from a surfeit of honesty. It’s not absurd to argue that the quality difference between the gold and the silver winners is insignificant or even accidental: On a different day, with a different wind, perhaps, the silver winner would have won the gold. But there is more.)

Like many but not all immigrants, I grew up in a language different from English, French in my case. So. I had to achieve the same credentials as my competitors in what was for me a second language. Forgive me for seeming to brag but doesn’t this indicate an intellectual competence over and above what the formal credentials express? If you doubt this shameless assertion, ask yourself how many native-born Americans are able to teach anything – besides the English language – in any francophone university anywhere. And I am not an extreme case of talent among immigrants to the US. I know a man, a distinguished biological scientist, who grew up in the African language Wolof, went to secondary school in French, to college and graduate school in English. Would you guess he possesses a certain mental nimbleness uncommon among determined monolinguals?

I will reluctantly take another step. I do it reluctantly because it is sure to lose me some friends. I will use my own case as an immigrant for an example because it’s the case I know best. It’s about the cultural endowment we carry around over and above, or aside from mastery of a foreign language.

Let me say right away that I don’t contend that I enjoy a 100% understanding of American culture, even after fifty years. I don’t understand the rules of baseball, for example. I never bothered to learn because the game seems boring. Yet, I must be conversant with a lot of national culture, just for having acquired my professional credentials and, even more so, for navigating everyday life in my society of adoption. The point is that the acquisition of another culture does not entail a one-for-one exchange, like changing clothes, for example. Much, most of what the immigrant brings with him, he retains, as one might easily assume. When I was learning American culture, I was not leaving French culture behind with the hat-check girl.

The first thing that immigrants, those who immigrate as adults, keep is mastery of their native language. This may sound mysterious to a monolingual person. It’s true that one can become “rusty” in a language one does not use. The quality of self-expression, for example, may deteriorate over time spent abroad. Yet, it’s very unlikely that an immigrant will lose the ability to watch the news in his native language, or to read a newspaper. So, I follow the news in English, of course, but also in French, some of the time. The reporting of the same events do not overlap perfectly, far from it. So, I am learning things I probably would not learn if I knew no French. (That’s in addition to carrying in my head much disorderly information from my society of origin. More below.) In my job as a teacher and as a scholar, I was routinely able to draw on broader information than did my native-born colleagues. I wouldn’t say (although I am tempted) that I had twice as large a store of information at my fingertips as they did but that I had definitely more than they.

So, in fact, I am arguing – with little embarrassment – that I must have been a better teacher and scholar than most (not all) of my native-born colleagues with similar credentials by virtue of being an immigrant.* There may be no metrics allowing an assessment of this outrageous claim. That’s because what college professors actually do is so mysterious. (Another story.)

It’s also true that to measure accurately the added work value of immigrants you have to find a way to factor in laziness, which varies much among individuals. In my case, I suspect strongly that if I had been native born, I could not have had the normal academic career I enjoyed, given my above-average level of laziness. In other words, the informational advantage associated with being a bilingual immigrant may have paid the fare for my laziness. Had I been the same person, with the same formal credentials, except less lazy, however, my presence would have much benefited American society. This detour supports my main argument of course: It does not make much sense to deny that competent bilingualism adds to normally credentialed efficacy. This is true in an occupation such as university teaching. It’s true though possibly to a lesser extent, for a plumber who will, at least, be a better citizen than a comparably situated monolingual. This is all common sense. No hard data are needed to give this scenario credence although hard figures might destroy it.

It should be fairly clear that a second language is like another tool in one’s personal toolbox. Immigrants have yet more, other additional tools that may be more elusive, more difficult to describe. I am giving it a try. All of us approach new situations through a filter that is made up partly of our past experiences, through the colander of past experiences if you will. Many of the experiences that compose the sifting device are repetitive, partly superfluous: The tenth car accident you witness does not have the same power to influence your driving as the first. There is often an excess of material in the sifter. This means that whatever the sifting process accomplishes would be accomplished as well, or nearly as well, on the basis of fewer past experiences.

My experiences in my society of origin do not perfectly duplicate those of a similarly situated native-born American. For example, I lived through a school system that was much more authoritarian than he experienced. I take from this the strong impression that my experiences in my society of origin adds to my experiences in my society of choice to give me a better sifter than what exists among the native-born population. It does this in a non-repetitive way (unlike, say, the 9th car accident.) I don’t mean that I have twice as large a sifter as they do but perhaps that I have 125% of what they carry in their heads.

This second extra tool in my tool box is factually associated with the first, bilingualism, but it’s not the same thing. An Australian, with a perfect command of English and perfectly innocent of knowledge of another language would carry the same extra tool as I do. The advantage gained through this second tool is difficult to express. It’s tacit. (I have never read anything about the topic.) I believe that my experience of another society – again, independently of bilingualism – acts like a second pair of glasses. I think I am able to watch events and people from one perspective, and then, to some extent, from a second perspective. I suspect it does not give me extra-depth but an edge in exercising common criticality. Possibly, it acts like a few IQ points that would be added to my measured IQ. Again, this thesis is very exploratory, supported by no real numbers. I must add that this second tool associated with being an immigrant is free from the effects of education. I think I have observed the expected extra resourcefulness among Mexican immigrants I knew to be semi-literate (in Spanish) performing ordinary manual jobs, in construction and in repair work, for example.

In conclusion: I and hundreds of other immigrants I have observed contribute to the society in which we live over and above the contributions of the native-born. Thus, we add to the general well-being even if we are paid exactly the same as the native-born.

The above is a short string of arguments in favor of immigration. None of it is a call for open borders. I subscribe to the lifeboat view of immigration. Too numerous immigrants could easily sink the boat that made them swim to developed societies in the first place. (According to retired foreign service officer Dave Seminara’s review of relevant studies – that I have not read – 150 million people world wide would like to move to the US, including 34% of Mexicans.) In addition, there are non-economic arguments against large-scale immigration that I support although they may be even more difficult to describe than what I tried to explain above. My analysis supports instead an active stance to design immigration policies that make rigorously the conceptual distinction between immigrants we need and immigrants in need. This distinction is not inimical to any refugee policy whatsoever; perhaps, the reverse is true.


* Please, don’t try to factor in a putative superior European education brought to the job of being an American academic as an alternative explanation. I am a French high school dropout.

How dairy farmers unions in Canada are distorting the facts about supply management

Under heat recently as President Trump has criticized supply management in Canada and retaliated against it, the different provincial associations representing dairy farmers have moved on the offensive. To promote the virtues of this system meant to reduce production in order to prop up prices through the use of trade tariffs, production quotas and price controls (how can we call those virtues), these unions have produced numerous infographics to make their case. It is even part of what they dub their These-infographics-show-that-diary-prices-are-lower-in-Canada-than-elsewhere, that milk is still a cheap drink relative to other type of drinks and those prices, supposedly, increase more slowly than elsewhere. All of these graphics are dishonest and must be dismantled.

The most egregious of these infographics – present in the “lobby day kit” – shows the price of milk in Australia (1.55 CAD), Canada (1.45 CAD) and New Zealand (1.65 CAD). They are seemingly using 2014 prices. First of all, they use data that conflicts massively with the reports of Statistics Canada that suggest that milk prices hover between 2.33$ to 2.48$ per liter.  Their data is provided by AC Nielsen but no justification is presented as to why they are better than Statistics Canada. The truth is that it is not better. Participants in Nielsen surveys come from a self-selected pool of storeowners who wish to participate and are then selected by Nielsen to be part of the data collection. Then, they can record prices. It should be mentioned that not all regions of Canada are covered in the data. Although the Nielsen data does have some uses (especially with regards to market studies), it hardly measures up Statistics Canada when comes the time to evaluate price levels. This is because the government agency collects information from all regions and tries a broader sweep of retailers in order to create the consumer price index.

But an even larger problem is that, in their comparison of prices, they don’t mention that New Zealand taxes milk. In New Zealand, all food items are subjected to sales tax, which is not the case in Canada and Australia. Hence, when they compare retail prices, they are comparing prices that exclude taxes and prices that include taxes. One would like to find if they acknowledge this fact in the methodological mentions, but there are none!

Using prices available at Numbeo.com and Expatisan.com and the exchange rates made available by the Bank of Canada, we can correct for this problem of theirs. Simply changing prices source leads to a massively different result with regards to Australia whose milk prices are lower than in Canada. Secondly, once we adjust for the sales tax in New Zealand, we find that prices in New Zealand are lower than in Canada. In fact they are lower than in one of Canada’s cheapest market, Montreal (let alone Toronto or Vancouver).  So the infographic they show in order to lobby governments is a fabrication.

Table 1: The real price of milk

Using Numbeo.com (regular milk)
Unadjusted Adjusted for taxes
 Australia  $           1.59  $                 1.59
 New Zealand  $           2.26  $                 1.97
 Canada  $           1.99  $                 1.99
 Using Expatisan.com (whole milk)
 Unadjusted  Adjusted for taxes
 Sydney  $           1.82  $                 1.47
 Wellington  $           2.42  $                 2.10
 Montreal  $           2.87  $                 2.87

Source: Numbeo.com and Expatisan.com, consulted May 16th 2014 and the Bank of Canada’s currency converter. Note: using the Statistics Canada price would make Canada’s situation even worse by comparison.

This is part of a pattern of deceit since they also massage data for numerous other graphs that are presented to Canadians in efforts to convince them of the virtues of supply management. One other example is an infographic that presents a figure of nominal milk prices in Australia before and after the abolition of supply management. Given that prices seem more volatile after 2000 and that they increase more steeply, they try to make us believe that liberalization was a failure. This is not the case. Any sensible policy analyst would deflate nominal prices by the general price index to control for inflation. When one does just that using the data from the Australian Bureau of Statistics, one sees that real prices stabilized in the first ten years of deregulation after increasing roughly 15% in the decade prior. And since 2010, real prices have been falling constantly.

Other examples abound. In one instance, the Quebec union of dairy farmers circulated an infographic meant to show that nominal prices for dairy products increased faster in the United States than in Canada. Again, they omit inflation. Since 1990 (their own starting date), prices of dairy products have risen more slowly than inflation – indicating a decline in real prices. In Canada, the opposite occurred – inflation increased more slowly than dairy prices indicating an increase of the real price.

The debate around supply management is complicated. The policy course to adopt in order to improve agricultural productivity and lower prices for Canadians is hard to pinpoint. But whatever position one may hold, no one is well-served by statistical manipulations offered by the unions representing dairy farmers.

Pride and Subsidies

Freakonomics had an episode on the dramatic impact of subsidies on the visual effects (VFX) industry. Long story short: 1) VFX companies operate on razor thin margins, 2) the industry chases subsidies from competing local governments–Canada and London are  currently important locations, 3) Californian politicians want to bring these jobs back to LA, but doing so would probably be a net burden.

(Let’s put aside the issue of the state of California trying to play central planner by effectively creating different tax rates for different industries. That’s a bad idea for reasons we can explore later.)

Putting yourself in the head of a Californian, something about the policy feels right (maybe not for the typical NOL reader, but probably for the median voter). I’m sure you could convince the median voter that these subsidies are a bad idea, economically. But even so, I’d be willing to bet that you’d still get significant support.

I’m confident that if you were to talk this issue over with a representative sample of California voters–or X industry in Y region for similar industry upheavals–you could convince them of the probable negative impact of such policy and still see many voters at least weakly supporting the policy. Why? Because being able to point to a movie and say “that awesome explosion was made in my backyard,” is worth some degree of sacrifice for these people.

Perhaps people want our government to give us something to be proud of (God knows they give us enough things to be ashamed of!). Perhaps people have some latent willingness to pay to be able to say that some high status industry is in their community/city/state/country.

We like pride, but it costs us. This puts us squarely in the domain of economics. How do we figure out how to make the trade off between pride, and the price we must pay for it? Some cases seem easy, at least in hindsight–the sacrifice of the civil rights movement was a small price to pay for the pride generated–but cases like the VFX industry, aren’t so obvious, but still high stakes.

I don’t think we’re likely to be able to figure out the bill. We can be proud of NASA, movies, the post office, and whatever else. But how much of the cost can we attribute to engaging in activities that make us proud? We get the same issue in markets. I have more than brand loyalty for Honda (the maker of my motorcycle); I’m also proud to associate with Honda as an innovative company with a history of liberating the world’s poor.

A clever statistician or economist could estimate some important facts about how people tend to make these trade offs. Doing so could help us make better decisions, but can’t ultimately replace our own judgment.

Given the uncertainty we face we really have to make a decision about whether to err on the side of over- or under-provision of pride goods–and this is true in a variety of settings.

I suspect that the “let 1000 flowers bloom” approach is the appropriate one here. We don’t want to have one Secretary of Pride deciding to err on the side of over-provision and the result is that a bunch of children die from preventable causes so that we can all feel proud about how cool the latest domestically produced Fast and Furious movie is going to be. On the other hand, it would be a tragedy of slavery was never ended because it would interrupt business as usual.

Markets, civil society, and government face different sorts of pros and cons with respect to how they might make these trade offs. Arguing about them could create a new academic discipline at the intersection of ethics, economics, and sociology.

In all three spheres, there will be many very bad decisions made. But if you aren’t free to be wrong, you aren’t free. The question to ask is what sort of pride goods will tend to survive, and in which spheres?

What we can say for sure is that private, voluntary exchange and cooperation (free markets and civil society) at least allow us to choose our associations. And they require us to choose, and choose again on a regular basis. Our nation is mostly based on luck. Where we live tends not to change much. Voting with your feet is costly, so we should expect it to be that much harder to dismantle big mistakes. The political process routinely results in outcomes we’re ashamed of (about half of voters are ashamed of the results every presidential election!).

There aren’t markets in pride so it’s hard to know how the benefits compare to the costs. But we can (and do) exhibit pride in markets. We should probably do more of it. And perhaps we should also be more skeptical of government, even though we normally think of them as providing pride goods. On the margin, anyways, I think this is a good direction for most people to move. Be proud of your community because the people have whatever unique traits they do. Be proud of the brands you buy from for their contributions to the state of the art. Be proud of your local sports team.

Illegal Immigration: Pres. Trump’s New Measures

I can’t wait for the raging assaults by the pseudo-cultural elite and by the media against Pres. Trump to stop to begin criticizing some of his decisions, as I would with any other president.

I have heard and read reports that the president intends to launch a policy of accelerated repatriation of illegal aliens. It will single out criminals for priority deportation (as was the case under Mr Obama). At this point, almost everybody agrees about getting rid of illegal aliens who are real criminals, especially the violent ones. Again, the new policy sounds a lot like Mr Obama’s, with a few details different. The details often matter when it comes to human lives, also when it comes to traditions of government. Here are two such details.

First, I have heard that even traffic tickets qualify an illegal alien for quick deportation. Make a wrong u-turn and your life gets broken up.

Second, I have heard and read that even being merely charged with a crime places you at the head of the line for deportation. Someone who looks like you steals a car. You get charged by mistake. You are gone.

The first detail seems awfully rough to me. I would feel better if the word “recidivist” were included. A person who breaks driving rules repeatedly is a trouble-maker we can do without. A guy who is too distracted to interpret the U-turn sign (could be me – once) is not exactly a criminal in the real sense of the word.

It’s true that such extreme severity would improve the driving of all illegal aliens. The claim is probably also correct however that it would interfere with aliens’ (legal and not) willingness to cooperate with the local police. Aside from this, I would bet it would involve significant law enforcement costs just to process traffic tickets through to the Immigration Service. I am a conservative, I am against big government, even against big government at the local level. I don’t want tax money, federal, state, or local, to be wasted processing a U-turn violator. It seems irrational to me.

The second, detail concerns the treatment of people only charged with a crime. It’s simple. I just don’t want any of them to be included in the priority list. Having any branch of government treating the accused as guilty simply goes too strongly against everything I believe. It’s un-American.

Yes, I have not forgotten that the subjects have no right to be in the country in the first place. I don’t care. It’s not about illegal aliens’ rights. Immigrants, legal or not, have no rights as a category as far as I am concerned. They only possess the ordinary human rights of anyone under American jurisdiction.

It’s about a slippery slope for all. If we begin officially thinning out the traditional wall between “charged” and “guilty,” where are we going to stop?

I understand that a lawyer would argue that the person is technically not being deported for the imaginary crime of being charged but because he has no right to be in the country, period. Do you know the one about the lawyer….

We can’t engineer our way out of this

Folks on the left have been getting more interested in science lately (though history tells us that might be something to worry about). They’re right to celebrate the incredible results of scientific progress–but scientific victory isn’t uniform across disciplines.

In some areas (including just about all areas on the cutting edge), scientists disagree with one another.It’s a big, complex world we live in, and we don’t understand it fully. That disagreement doesn’t mean we should discount science entirely, but it does mean we should be careful with it.

Imagine a world where engineers disagreed about the capabilities of their techniques and the strength of the materials they use. Some might be beholden to special interests (which gives me an idea for a public choice version of the Three Little Pigs), others might be dogmatic/superstitious. But even without concerns of systemic issues, we should be hesitant to try to get to the moon. That disagreement should tell us that we aren’t certain enough in our knowledge to make anyone but volunteers put their lives in the hands of those engineers.

Social scientist in particular frequently disagree with each other. Most are trying earnestly to apply the scientific way of thinking to understanding the social world, and it’s worth considering their view points. But applying that knowledge should only be done in a decentralized way. Applying the incredible insights of behavioral economics from the top down is appealing, but it’s probably best to do it piecemeal.

Social engineering and social science are harder than physical engineering and the physical sciences. Part of the problem Western governments face is that they’re trying to engage in social engineering. And politicians are promising them greater degrees of social engineering to improve the well-being of their constituents.

The trouble is two-fold: 1) those social engineering techniques aren’t good enough, even if they’re sometimes appealing. 2) The cost to decision makers of buying snake oil is too low in voting booths.

To my friends who are looking to the government to make things better: whether your hope is for government to help people be better versions of themselves, or to stop bad guys, we should push as much of that policy to the local level as possible. It might be nice if the whole country were more like Berkeley or Salt Lake City, but trying to make it happen at the national level is a recipe for conflict, disorder, and doing more harm than good. Keep policy local.

The Great Blessings of Cash

Paper money offers the benefits of anonymity, immediate payment, no identity theft, and no transaction charges. Government also benefits by printing notes with much greater value than the cost of the paper. However, some economists argue that cash has social costs that outweigh these blessings, and advocate the reduction and eventual elimination of paper cash. Several countries are planning to discontinue their largest currency notes. The European Central Bank is phasing out its 500-euro note; it will stop issuing new ones in 2018. The Scandinavian countries are reducing their paper cash.

Kenneth Rogoff, professor at Harvard University, has written a book, The Curse of Cash, in which he argues that the elimination of large-denominations of paper money would be good for society. Cash is a curse, he says, because criminals use the large bills, and because it limits the ability of central banks to have negative interest rates.

The use of cash by the underground economy is a symptom of bad policy, and the elimination of cash treats the effects rather than the causes. The reason economic activity goes underground is that governments have prohibited economic transactions.

Although some U.S. states have decriminalized medical marijuana, the substance remains illegal in federal law, which prevents the sellers from using the normal banking system. Therefore they use paper money. The prohibition of drugs generally drives the industry towards the use of large denominations, especially “Benjamins,” the US $100 bill depicting Benjamin Franklin. The elimination of Benjamins would make it less convenient to sell illegal drugs. The higher cost would raise the price of illegal drugs, but since the quantity demanded by addicts is not very responsive to a change in price, the drug dealers would find ways to do their transactions.

The legalization of drugs would eliminate the cause of the high demand for paper cash. Just as with alcohol, producers would then use the normal banking system.

The underground economy uses cash also for activities that are legal if taxes are paid on the income and sales. Again, the elimination of cash would make tax evasion less convenient, but not eliminate the incentives to evade having substantial amounts of gains taxed away. Rogoff thinks that if the government prohibits the legal use of Benjamins, the remaining notes would lose value, as they would no longer be legally convertible into small denominations and not be legally payable for goods. But large notes could circulate as a medium of exchange within the underground economy as an alternative currency. Moreover, there are underground currency traders in all countries that impose artificial currency exchange rates.

The problem originates in evadable taxation. The remedy that eliminates the cause is to make taxation unevadable. The main resource that cannot hide is land. The taxation of land value, based on its best possible use regardless of current use, cannot be evaded. The elimination of all other taxes would bring production, trade, and consumption above ground and eliminate the current high demand for paper cash.

Another “curse of cash” argued by Rogoff is that paper money prevents central banks from lowering the transaction rate of “interest” much below zero. Suppose a bank has a negative 5 percent charge on deposits, so that the depositor has to pay $5 per year per $100 deposited. Many people would withdraw the money and hold it in paper cash. Companies would offer to securely store your cash in insured vaults. If all notes above $10 were made illegal, the storage and insurance costs would rise substantially, and the banking system would be better able to have the negative rates.

The alleged benefit of negative rates is that, because the banks also pay negative rates on their deposits with central banks, financial institutions would scramble to loan out the money to investors who would pay a positive rate, or become partners in ventures.

It is bad enough now that savers, especially retired folks, are getting close to a zero return on their retirement savings. Negative returns on, say, large certificates of deposit would further ruin those who depend on income from savings. Again, the artificial device of pushing the nominal rate of interest below zero is an attempt to treat the symptoms rather than cure the causes.

Some blame a glut of global savings for the low rates of interest. But technology is marching forward, to artificial intelligence, robots, medical advances, better batteries, and many other frontiers. There is no shortage of possible investment projects. But governments world-wide stifle investment with taxes and restrictions. The USA, for example, has choked investment since 2008 with tighter banking restrictions and higher costs such as medical mandates.

What is needed is the ultimate supply-side policy, cutting marginal tax rates on labor and investment yields to zero, with a prosperity tax shift, replacing all other taxes with a single tax on land value. The land-value tax would also push land to its most productive use, stimulating productive investment and employment.

As to money, attempts to skew markets almost always fail, so it would be best to eliminate central banks and their manipulations of nominal interest rates. Let markets set the money supply and restore the positive natural rate of interest based on the human-nature tendency to prefer to have goods sooner rather than later.

Controlled market manipulations are failing, and so statist advocates propose even more artificial controls such as eliminating paper money and pushing interest rates below zero. But the further we get from economic freedom, the worse the outcome. Interest rates and money evolved in markets; let them return to their natural base.

Note: this article is also in http://www.progress.org under the title The Blessings of Cash.

Still thinking about the Olympics

Rio Olympics are close to the end, and so far it has been a wonderful time for Brazilian athletes: the country is scoring 15 total in the medal table, quite high in its historical record. Brazil’s first Olympic medal in 2016 was won by Felipe Wu right in the first day of competition: silver in Shooting, 10m Air Pistol Men. Wu was followed by Rafaela Lopes Silva, who won gold in Judo, Women -57 kg, and then by Mayra Aguiar, who won bronze, also in Judo, Women -78 kg. Rafael Silva won another bronze for Brazil in Judo, Men +100 kg, and then Arthur Mariano won still another bronze, this time in Gymnastics Artistic, Men’s Floor Exercise. Diego Hypolito won silver in the same competition. On the tenth day of competition Poliana Okimoto won Bronze in Marathon Swimming, Women’s 10km and Arthur Zanetti won Silver in Gymnastics Artistic, Men’s Rings. The next day, Thiago Braz da Silva surprised everyone by beating favorite French Renaud Lanillenie and winning gold in Athletics, Men’s Pole Vault.

In the last few days other athletes followed the ones mentioned in this opening paragraph, but I limit the text to them for a reason: one highlight of these first 9 Brazilian medalists is that, with the exception of Hypolito, all of them are in the military, and some of my friends on what is considered “the right” in the Brazilian political spectrum are using this information to poke (in good spirit) my friends on the left. On the other hand, my friends on the left highlight that many of the Brazilian medalists also have in common coming from very poor backgrounds, and finding in government social programs the chance to become professional athletes. I want to be careful to say that both are wrong and I want to explain why (I hope I will still have some friends after this). Basically both ignore the concept of opportunity cost.

The concept of opportunity cost postulates that spending in one direction means not spending in another. In other words, that every choice comes with the cost of forgoing the next best alternative. It was developed in all but name by 19th century French economist Frédéric Bastiat in the parable of the broken window (also known as the broken window fallacy or glazier’s fallacy) that appeared in his 1850 essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Not Seen). The parable goes somewhat like this: a boy breaks a window. The window owner gets upset, but someone tries to comfort him by saying that this will give the window manufacturer the opportunity to work. In the end, the economy wins. Bastiat shows that this is a fallacy: the money spent in a new window could have been spent in another way, say, with new shoes. The world would have new shoes and still have a window, but now the world has a new window and no shoes. Bastiat proceeds to show the law of unintended consequences, or how our actions can affect the economy in ways that are “unseen” or ignored, and also to apply the concept to several areas of public policy. Two of these happen to be military expenditure and “Theatres, Fine Arts.”

Concerning military expenditure, Bastiat argues that spending money in order to defend the country against foreign aggressors can be a good investment, but that any money that goes beyond this necessity would have been better spent in other way. This argument goes against Bastiat’s contemporaries who argued that money spent on the military had the benefit of creating jobs, even if defense was not a real necessity. Bastiat’s conclusion is that if the money was left with the taxpayer, this person would find ways to spend that would create more and better jobs. Applying to current events, if Brazil is spending money in the military in order to protect its borders, this is a good investment. If instead it is spending money in the military in order to get Olympic medals, the money should be spent elsewhere.

Bastiat lived before modern Olympic Games, so he has nothing directly to say public spending in this kind of event, but I guess that what he says about “Theatres, Fine Arts” also applies here. Some of his contemporaries defended that the government should invest in Theatres and Fine Arts, because these things are good in themselves, created jobs, and so on. Bastiat was once more against what he saw as excessive public spending. This time his answer exposed him to the logical fallacy of the straw man, or misrepresenting one’s argument in order to make it easier to attack: his critics accused him of not caring about Theatres and Fine Arts. But if we examine the evidences carefully, that is not the case at all: to say that the government should not invest in Theatres and Fine Arts is not to say that nobody should invest in it. It is just to say who is supposed to make the investment, the government of individuals. I am not equalizing Theatres and Fine Arts with sports, but I believe the lesson applies in this field as well: to say that the government should not invest in sports is totally different from saying that nobody should invest in it.

In conclusion, it seems that public investment in the military and social programs is helping Brazil to win medals in this Olympics. But we can ask ourselves where would that money have gone had this investment not been made. Based on Bastiat, I believe that if the money spending was left for the individuals, Brazil would have better military, more Olympic medals, and less necessity of social programs, not to mention better jobs, and a better overall economy. Perhaps after this Olympic Games my friends both on the left and on the right can feel like investing more in sports. Or maybe they will realize they prefer to spend on something else.