Monday, January 30, 2017

Immigration and trade

Question: What is an easy way to reduce immigration in to the US (if you want to do that)?

Answer: Buy what they have to sell. If they can make good money at home, they are less likely to want to come here.

Question: Won't we lose jobs?

Answer: What do you think people do with the dollars we send them in return for foreign goods? There is only one thing to do with dollars -- buy American goods,  invest in American companies, or buy US government debt, and the government spends it.

Question: But what about those jobs moving overseas?

Answer: Some jobs do move overseas. But those dollars, flowing back, create new jobs in the US. There are losers. It is true. There are also winners. That is also undeniable. Trade restrictions basically transfer jobs from some people in the US -- new jobs in export-oriented industries or industries fueled by foreign investment demand --  to other people in the US -- old jobs. And they do so inefficiently, making Americans buy more expensive goods overall.

Question: What's another way to reduce immigration in to the US (if you want to do that)?

Answer: Help their homes to be peaceful as well as prosperous. The costs of feckless foreign policy are not just lives and countries ruined, refugees washing up on our and europe's shores, but electoral and political responses.

(Economists. Forgive me for using the misleading "create jobs" rhetoric, in the interest of connecting with non economists. You know what I mean -- create wages, opportunities, businesses, etc.)

29 comments:

  1. Short, sweet, and on target. Thank you for not wasting our time with filler.

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  2. Yes, in theory. In the long term. The problem comes with how do you make sure their "homes are "peaceful and prosperous"? If they can't run their own countries, we can't do it for them. This comes back to your first point. Trade with them. Yes, but if you have places like Mexico on your southern border where even though we trade a lot with them, there is simultaneously mass unrest which drives people away? What are we supposed to do about it?

    And then there's a third issue: despite economic improvements in Mexico, the GDP per capita gap in Mexico and the US only keeps widening. So the US still remains a more attractive place for them to come than to stay in a village in Mexico.

    Seems a lot easier to build a wall, then to try and make places which have never been peaceful, into peaceful places. Some things can't be fixed.

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    1. Much of the unrest is a result of simultaneously making drugs illegal, buying large quantities of said drugs, and sending cropdusting aircraft to spread herbicides all over their land.
      Also unrest is a result of "our" corporations that pushed the local people off land in order to grow fruit for international sale.
      It might seem easy to build a wall but that will do nothing, or less, to alleviate the consequences, or mitigate the continuation, of the abovementioned.
      --E5

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    2. Sure, make up whatever makes you feel good. As if Mexico was a paradise of stability and lawfulness for the last century and a half. I recall about a dozen or more revolutions in that country. But I suppose it was all due to drugs and herbicides.

      The issue remains, we can't make these countries stable and peaceful even if we tried. Trade is too simplistic an answer: neither Mexico nor Syria for example were short on trade with the outside world (Syria prior to this civil war was known in the ME as a good place to all sorts of trade, some of it in the black market of course due to lax laws).

      The trade argument may apply in 50 years time when the economies of these places develop enough. IF they ever develop. And they may never develop due to institutional factors on their side, which again we can't solve (and won't. We tried running these countries and it didn't work)

      And yes, a wall will work quite nicely. Ask Israel. A 90% solution today is better than a 100% solution in 100 years. By then it will be too late and we will be a third world country too if this keeps up as it is.

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    3. "The problem comes with how do you make sure their "homes are "peaceful and prosperous"?"

      You start by not bombing the s**t out of them and not sending in the CIA to destabilize governments you don't like (in the false hope that whatever comes after must surely be more to your liking.

      The chaos unleashed in Iraq has spilled over into Syria and the resulting refugees from both threaten the foundations of Europe.

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    4. Hear hear Absalon.
      You state plain facts.
      For sure the Fox News believers and Alternative Fact queens will consider them to be "made up".
      It is also true that Mexico has seen its share of violence ever since Aztec times and presumably before. But so too has USA. There was an appallingly destructive civil war. There was much death and destruction resulting from the banditry fostered by alcohol prohibition. Central America's problems may be endemic but US intervention has surely enhanced the dominance of bandits.
      Try asking all Israelis about the wall. About half of them understand that living cooperatively with their Arab cousins is, ultimately, a necessity. The wall will be no more successful than apartheid was in South Africa.
      Syria prior to this civil war was known as a good place to send people to be tortured for hire. That kind of trade is not what is recommended.
      --E5

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    5. So the last 2 responses demonstrate why Cochrane's suggestions are too simplistic.

      Basically, everything is America's fault for people who have the collective memory of a tadpole, and the understanding of institutions of an internet troll. Tell me "anonymous" from above: how many civil wars did Mexico have in the last 150 years?

      So Dr. Cochrane, the issue as is obvious is a political one. There is a political side in the Western world that is hell bend on importing as many "immigrants" as possible, regardless the reasons, for their own political expediency. Not out of economic benefit, nor out of necessity (what is the economic benefit or necessity of importing Somalia?). But because "America bad" is their motto in every matter.

      Notice how they did not respond at all the realities that trade with Mexico didn't reduce the inflow of immigrants. Nope. No need for addressing reality when you have made up morals to argue.

      Notice how they didn't respond to the argument that the West has tried for 150 years to either make sure these countries remain "peaceful" and adopt adequate institutions. Nope, they call that American intrusion and hence bad. There's a moral narrative to work.

      Notice how their collective tadpole memory doesn't go back beyond 2003. I'm pretty sure we (and the rest of the West) tried this game many times before in many other places. Why is Somalia the way it is? Because we didn't try for decades to impose peace and adequate institutions on them? How many Vietnamese refugees were created when the US let the North Vietnamese do what they wanted to do? How many Balkan refugees were created when we let the natives do what the natives wanted? Oh, American imperialism again.

      Ultimately you can't make sure their homes are "peaceful" without bombs. That's the explicit suggestion here: force our institutions on them. But they'll call that "apartheid" because their lexicon is limited to 3 words.

      PS: BTW this does work in some places. The West did exactly this in Kosovo: it took over the role of the government and installed our institutions on them. And it worked there because there was a receptive pro-Western populace. But that's the rare exception that proves the rule: playing nice doesn't work and hence protecting your own border should be the primary goal first. Also, because it is the easiest and cheapest thing you can do.

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    6. Anonymous of 4:32pm,
      Did I not say that Mexico has had its share of violence for many centuries? Do you really need it all itemised?
      Do you know how many Mexico-US border migrants are running away from the drug war in countries further south? No, of course not, they are all illegal so there is no way to gather the data. Do you know how many Mexican migrants have come from impoverished villages and are intending to return as soon as they have collected enough money to live comfortably? Of course not, they are all illegal. Do you know how welcome they are to employers, mainly agricultural, who cannot induce Americans to do the work? Of course not, it's all illegal. Do you have any idea how many more would be crossing the border if there were not maquiladoras to employ them? Neither do I.
      It's not a matter of morals. It's a matter of looking reality in the face. You might not have noticed that this is the thread of Dr Cochrane's little treatise. If you want a certain result do stuff that is likely to get that result.
      The Bush/Rumsfeld/Cheney Iraq war was entered with the intention to establish permanent US bases there (a reasonably practical goal), the concocted WMD smokescreen notwithstanding. Whether or not they chose ventures likely to achieve that goal is debatable.
      There are cases where regions have been "pacified" by force. Tasmania for instance. That entailed killing off the entire indigenous population. This is not a moralisation. It is an observation.
      By the way, your arguments would be more compelling if you left out the ad hominem stuff.
      --E5

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    7. Anonymous 4:32.

      Did you even read my comment?

      In answer to the Professor's question my brief response was, and I paraphrase: "first, do no harm".

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    8. Absalon and John. Support wholeheartedly. Aside from the obvious destruction and death from 'feckless' foreign policy, I see Syrian friends struggle valiantly, pushing forward careers during war. I complemented a good friend on becoming chief of MRI. He said, we only have one left, after mortars from 'moderate rebels' destroyed parts of hospital. And for years, he has been refused visa to attend his beloved radiological conference in Chicago. Informally or formally immigration is restricted by US embassy in Lebanon, and elsewhere

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  3. My command of international economics terms is really weak, but I think this analysis is focused on the current account and traded *consumption* goods and services. It's also worthwhile to look at differences in capital between locations.

    When a worker enters the US, their wage might increase because the US productive infrastructure is so good. On the other hand, a fraction of that increase in productivity will go towards paying for use of expensive American land - whether they rent or buy their accommodations. And by bidding up a fixed factor (land) the immigrant worker imposes a pecuniary externality on current residents.

    We are all probably better off simply by investing more in the local infrastructure where the worker is now. Capital market imperfections impede such foreign investments and increase immigration pressure.

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    1. One factor in labour migration has been concentration of high-tech employment, and the productivity benefit of it being arranged so. An engineer remaining in England, China, India, etc. gets paid less than if s/he moves to Silicon Valley for instance. And substantially because that engineer's talents are used more productively in that new location. Partly so as a result of the concentration of similar folks doing synergistic things. Partly because capital, as I think Anwer intimates, goes looking for talent in those locations.
      The internet, overloaded local transportation, housing prices bid up to absurd levels, etc., are reducing the benefit of this concentration. Thus we may be heading for what Anwer suggests, that tech work at least may go employ people where they are rather than move them to head office. One of my younger coworkers just moved half way across country and is still my coworker doing the same old job. Now he has a nice big house for his family. I'm lucky, I moved here sufficiently long ago to be able to afford to live in a house.
      On the other hand agricultural field work, turkey processing, and so on, have to be done where the stuff is. Hence the widespread employment of folks willing to migrate to those jobs. Not necessarily those folks who live in the nearby cities unfortunately.
      --E5

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    2. Yes I certainly believe that communications technologies will reduce the importance of expensive central hubs like Silicon Valley. In the example you give, the worker chose between two possible homes within the US. Either way, they continued to help pay down the US federal debt, via taxes. But when an immigrant moves to a new country seeking opportunity, they effectively disown their share of the national debt from the place that they left, and this can lead to a terrible downward spiral for public finances in places like Greece. Immigration can be wonderful, but we should really give people the opportunity to enjoy prosperity where they are now.

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  4. "...buy US government debt, and the government spends it..."

    On interest payments on that same debt?

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  5. What happens when the distributional consequences are the formation of persistent aristocracy of giant winners and social desolation for losers? Especially in a democracy, where both groups have votes that count and the aristocratic strategy of demobilizing the peons stops working at some point? What happens then? Care to guess?

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  6. Not a professional economist, but I question how much value you are placing on the money that comes back when we purchase an import. I do understand that trade deficit amounts do necessarily come back. But if there's a trade deficit it is not coming back in the form of purchase of goods, it comes back as an investment or asset purchase. And if you believe there is a savings glut (I do), then there is little value in how the money comes back. Most of it probably comes back in the form or Treasury purchases, but their price are rigged anyway. The way the money comes back is basically by displacing a US owner of a US asset with a foreign owner.

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    1. "The way the money comes back is basically by displacing a US owner of a US asset with a foreign owner."
      This extends to houses in Palo Alto that are now sitting vacant. There is talk of "ghost neighborhoods" in the most expensive sections.
      --E5

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  7. Removing Obama disastrous schemes of supplying weapons to terrorists and leaving security vacuums...will improve things. Whose great idea was it to help kill Qaddafi and leave it to the terrorists? Buying people's stuff doesn't help when they are cutting your head off or mortaring you! Heck we now just bomb various countries we feel like...without declaring any war. The last 8 years have been a disaster removing all improvements from Bush. Turkey and the Philippines, allies for a 100 years....are now turning against us. Obama's JV team of hateful liberals have been a disaster that will take decades to repair! Obama did one good thing...well that is if you are a 1%ers...he rescued the richest and let all the bankers get away with it! He is a stain on American History!

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    1. Anonymous,
      What media outlet do you get those alternative facts from?
      Definitely one that aims to prosper by getting you riled up.
      --E5

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  8. Here's another perennially topical confrontation of the prevalent non-reasoning......
    Question: What is an easy way to reduce the number of abortions (if you want to do that)?
    Answer: Fund Planned Parenthood.

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  9. John, we buy billions from Mexico...why all the violence and illegal immigration? You can buy all you want from a corrupt society...the average person still lives in fear.

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  10. Wow. I agree with everything written. Bravo, Prof. We need sane voices more than ever given the war on expertise and knowledge pursued by our current political elites.

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  11. A very clear statement of what should be obvious, but clearly, and sadly, isn't.

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    1. Its only obvious and clear if one doesn't realize this is what the West has done for 150 year, and it hasn't worked. Boiling down the geopolitics of the entire world into "trade and security" is the opposite of clear.

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  12. I'm not sure if you did this intentionally, but it appears you are saying that when US consumers buy goods in foreign countries, they pay with dollars and that the sellers (who now have dollars) must use those dollars to either buy goods in the US or invest in the US. My argument with that logic would be that typically consumers of foreign goods must purchase those products in the currency of the producer. Which means an American consumer must sell her dollars in exchange for the foreign currency and then buy the foreign product. So the foreign company, its employees, and equity holders now have their home currency as a profit. Whether they decide to invest or buy goods in the US would have nothing to do with how they were paid.

    In addition, making your purchasing decisions based on immigration desires seems like it would contribute to inefficiency.

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    1. "the sellers (who now have dollars) must use those dollars to either buy goods in the US or invest in the US"

      The Professor was trying to get to the essential mechanics of what is going on and not getting bogged down in the detail of intermediate transaction. Your counter example begs the question: "What does the person who receives US dollars in exchange for the local currency then do with the dollars?"

      The dollars might pass through one intermediate or a thousand but ultimate holder has to:
      1) hold literal cash (which is just a zero interest rate loan to the US Treasury)
      2) spend the money on goods or services in the US;
      3) invest in the US.

      There are no other choices that do not reduce to one of those three outcomes (and #1 is just a special case of #3) once you clear away the obscuring intermediate transactions.

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  13. This analysis takes for granted that the number of people involved stays more or less the same, particularly respectively. However, fast growing populations in Asia and Mexico keep the income per capita low, so the gap with the industrialized world, where populations are shrinking, widens. This kills this analysis with a single rock.

    How should they get their population growth under control? That's the main point, restricting 'escapes' will force them to.

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  14. This analysis takes for granted that the number of people involved stays more or less the same, particularly respectively. However, fast growing populations in Asia and Mexico keep the income per capita low, so the gap with the industrialized world, where populations are shrinking, widens. This kills this analysis with a single rock.

    How should they get their population growth under control? That's the main point, restricting 'escapes' will force them to.

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  15. Professor, what you say is true, but I think you are missing a couple more factors. 1st, essentially paying people to not come here sounds like ransom. 2nd, at the logical bound of your idea we could buy all our stuff from other counties and export all our jobs. There are a lot more poor people in the world than we have jobs. 3rd, while dollars may come back to us, part of the dollars are used to buy capital and we will slowly watch the wealth of our nation being transferred to other counties. If you think your strategy through it is not a long term solution. db.

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