The Importance of Free Immigration

Judge Andrew Napolitano has incensed critics of immigration with his defence of the idea of immigration as a natural right:

Since the freedom of speech, the development of personality, the right to worship or not to worship, the right to use technologically contemporary means for self-defense, the right to be left alone, and the right to own and use property all stem from our humanity, the government simply is without authority to regulate human behavior in these areas, no matter what powers it purports to give to itself and no matter what crises may occur. Among the rights in this category is the freedom of movement, which today is called the right to travel.

The right to travel is an individual personal human right, long recognized under the natural law as immune from governmental interference. Of course, governments have been interfering with this right for millennia. The Romans restricted the travel of Jews; Parliament restricted the travel of serfs; Congress restricted the travel of slaves; and starting in the late 19th century, the federal government has restricted the travel of non-Americans who want to come here and even the travel of those already here. All of these abominable restrictions of the right to travel are based not on any culpability of individuals, but rather on membership in the groups to which persons have belonged from birth.

Americans are not possessed of more natural rights than non-Americans; rather, we enjoy more opportunities to exercise those rights because the government is theoretically restrained by the Constitution, which explicitly recognizes the natural law. That recognition is articulated in the Ninth Amendment, which declares that the enumeration of certain rights in the Constitution shall not be used by the government as an excuse to deny or disparage other unnamed and unnamable rights retained by the people.

So, if I want to invite my cousins from Florence, Italy, to come here and live in my house and work on my farm in New Jersey, or if a multinational corporation wants the best engineers from India to work in its labs in Texas, or if my neighbor wants a friend of a friend from Mexico City to come here to work in his shop, we have the natural right to ask, they have the natural right to come here, and the government has no moral right to interfere with any of these freely made decisions.

I agree with Napolitano. Giving the state the power to restrict freedom of movement is a dangerous precedent, and a dangerous concentration of power. Powerful and well-connected groups and industries can use the largesse of the state to protect their own uncompetitive ventures by restricting immigration.

And why should the state have the power to determine who can and who cannot live where? Surely market forces are a better determinant of the need for workers and migration than a central planner setting migration targets based on their own dislocated criteria?

These are by no means the most significant arguments for the freedom of movement. Ludwig von Mises theorised:

vonMisesimmigration

This is a critical dynamic. If a government enacts laws that are undesirable, workers (if they can) will move to another jurisdiction with more desirable laws. Freedom of movement is the status quo today for capital — under the current global regulatory framework, the free flow of capital means that governments have to compete to attract capital from around the globe. Governments do not have to do the same thing for labour, as the flow of immigration is very restricted compared to the flow of capital. This disparity may well have contributed to the extant reality that around the world — but particularly in the United States — capital’s share of output is increasing, while labour’s share is shrinking. Freer immigration could change all that.

There are various misconceptions of immigration. Perhaps most prominent is the idea that immigrants cost natives jobs. But the evidence suggests that this is not true. Eduardo Porter notes:

For years, economists have been poring through job market statistics looking for evidence that immigrants undercut less-educated Americans in the labor market. The most recent empirical studies conclude that the impact is slight: they confirm earlier findings that immigration on the whole has not led to fewer jobs for American workers. More significantly, they suggest that immigrants have had, at most, a small negative impact on the wages of Americans who compete with them most directly, those with a high school degree or less.

Meanwhile, the research has found that immigrants – including the poor, uneducated ones coming from south of the border — have a big positive impact on the economy over the long run, bolstering the profitability of American firms, reducing the prices of some products and services by providing employers with a new labor source and creating more opportunities for investment and jobs. Giovanni Peri, an economist at the University of California at Davis, estimated that the wave of immigrants that entered the United States from 1990 to 2007 increased national income per worker by about $5,400 a year on average, in 2007 dollars. He also concluded that the wave had a small positive impact on the average wage of American workers, by lifting the overall economy. If immigrants hurt anyone, it was the previous cohort of immigrants, with whom they most directly compete in the labor market.

Recent estimates have concluded that a liberalisation of global immigration policies could lift global GDP significantly. More importantly, empirical studies have confirmed the reality that immigration eases the fiscal balance — helpful for developed countries with ageing populations and a shrinking tax base. A 2011 report by Madeleine Zavodny of the American Enterprise Institute found that immigrants on average pay much more tax than they consume in government services:

fiscalimpact

This means that one frequent objection to immigration — that immigrants overstretch government programs and infrastructure — is irrelevant. Working immigrants pay more than enough in taxes to fund their own costs — often many times over.

The study also found that rather than taking up jobs, each immigrant worker generated jobs for the native population. The supply of work is not fixed. Each additional 100 H1-B workers were found to have generated 183 new jobs for the native population, and each 100 additional H2-B workers generated 464 new jobs for the native population.

But what about the countries that immigrants leave behind? Surely the countries left behind by thousands or millions of workers will fall into recession? Well, perhaps to some extent — although not so much in countries with higher birth rates or slack employment — but that’s the point. Countries that suffer a labour drain may have to reform their legal and political structure to attract workers. This alone would significantly boost competitiveness in the long run. And emigrants frequently send money back to their country of origin, and acquire new skills while working abroad that they can bring back home, in turn enriching their home country.

On the other hand, it might be unwise for countries to immediately switch from a restrictive policy to an open-door immigration policy. While freedom of movement is an essential economic freedom, a radical change in policy could prove destabilising, and cause significant cultural and social dislocation, friction or ghettoisation. Such a large change in policy should be undertaken slowly and cautiously — it would be unwise for governments to rush forward with policies that are unwanted and unpopular with the wider population.

But in the long run, though, the benefits of freedom of movement are clear, and will likely become clearer in the coming decades as more countries and blocs experiment with freer migration policies.

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The Mathematicization of Economics

If one thing has changed in the last one hundred years in economics it has been the huge outgrowth in the usage of mathematics:

This is largely a bad development, for a number of reasons.

First of all layers of mathematics acts as a barrier to public understanding. While mathematics is a useful language for communicating complex ideas, those without training in mathematics will struggle to grasp what an author is trying to communicate if a paper consists mostly of equations untranslated into English. This is bad practice; it is easier to baffle with bullshit in an unfamiliar language than it is in plain English.

Second, mathematical models are always simplifications. Human action and economic behaviour is complex and unpredictable. While mathematical models can sometimes approximate a pattern quite well and so have some limited uses as toys, the complexity of human behaviour means that there are always unmodelled variables that can throw off a model’s output. Over-reliance upon or excessive faith in mathematical models can lead to bad forecasting and bad policy decisions. The grand theoretical-mathematical approach to economics is fundamentally flawed.

Third, attempting to smudge the human reality of economics into cold mathematical shackles is degenerative. Economics is a human subject. Human behaviour is not mechanical, it is not mechanistic. Physicists can very accurately model the trajectories of rocks in space. But economists cannot accurately model the trajectories of prices, employment and interest rates down on the rocky ground.

Economics would benefit from self-restraint in regard to the usage of mathematics. Alfred Marshall made some useful suggestions:

  1.  Use mathematics as shorthand language, rather than as an engine of inquiry.
  2.  Keep to them till you have done.
  3. Translate into English.
  4. Then illustrate by examples that are important in real life
  5. Burn the mathematics.
  6. If you can’t succeed in 4, burn 3. This I do often.

I hope the blowout growth in mathematics in economics is a bubble that soon bursts.

The Shape of the Debt Reset

I was asked recently by Max Keiser who benefits in the case of a debt reset, and when we should expect such an event to occur.

I don’t think I answered it as comprehensively as I should have. I talked a little about the fact that events leading up to such an event could be extremely messy and its impact unpredictable, and so it is hard to say who will benefit, although we can expect the powers-that-be  — and particularly the Wall Street TBTF banks — to try and leverage events for political and financial gain. And of course, all three kinds of debt reset — heavy inflation, liquidation or an orderly debt jubilee — would look very different.

Here’s the problem:

The crisis in 2008 was one fuelled by excessive total debt. As society became more and more indebted the costs of servicing debt became proportionally higher, which has made it harder for countries to grow. Instead of individuals and businesses investing their income or growing their business, a higher and higher proportion of income becomes taken up by the costs of paying down debt.

Historically in a free market system, these kinds of credit bubbles have ended in liquidation of the entire bubble and all the bad debt. However the Fed’s money printing since 2008 (much like the Bank of Japan’s money printing in the 90s) has done just enough to keep the debt load serviceable.

The worrying thing is that Japan — which experienced a very similar series of events in the 1990s — remains in a high-debt, low-growth deleveraging trap. While the USA has managed a small decrease in indebtedness since 2008, it could take a very, very long time — Steve Keen estimates up to 15 or 20 years — for the debt level to fall to a level where strong organic GDP and employment growth is possible again. In my view, it is more likely (especially considering the Japanese example) that (with continued central bank assistance) there may be no long-run deleveraging at all, and that we may have entered a zombie cycle of reinflationary QE followed by market decline and deflation, followed by more reinflationary QE, etc. 

The point that I didn’t really emphasise to Max Keiser is just how beneficial a debt reset — so long as society comes out of it in one piece — will be in the long run. As both Friedrich Hayek and Hyman Minsky saw it, with the weight of excessive debt and the costs of deleveraging either reduced or removed, long-depressed-economies would be able to grow organically again. Yet after years of stagnation, a disorderly liquidation or inflation would surely be accompanied by financial, social and political chaos. And the cost of kicking the can and remaining in a deleveraging trap — as Japan has done (and as the US is now doing) — can have serious social consequences, such as elevated long-term unemployment, a deterioration in skills, diminished innovation and decreased entrepreneurialism.

I think this underlines the importance of trying to achieve the effects of a debt reset in an orderly way before nature forces it upon us again, and before we have spent a long time stuck in the deleveraging trap with a huge debt load relative to GDP, elevated unemployment, and very low growth. The least unfair way of doing this would seem to be the modern debt jubilee advocated by Steve Keen — print money, and instead of pumping it into the financial system as per QE, use it to write down a portion (say, $6,000) of each person’s debt load, and send out cheques up to an equal amount to those who are not indebted. Unlike with quantitative easing, because everyone gets the same quantity of new money, nobody receives a disproportionate transfer of purchasing power via the Cantillon effect, as happens not only with quantitative easing but also with more traditional monetary policy operations such as interest rate cuts, which are strongly correlated with disproportionately strong growth in the financial sector and bank assets. And the inflationary impact of the new money would be shared equally by everyone — rather than screwing pensioners or savers — because everyone would receive the same amount.

This is obviously not ideal, but it is surely better than remaining in a Japanese-style deleveraging trap.

Yet while most of the economic establishment remain convinced that the real problem is one of aggregate demand, and not excessive total debt, such a prospect still remains distant. The most likely pathway continues to be one of stagnation, with central banks printing just enough money to keep the debt serviceable (and handing it to the financial sector, which will surely continue to enrich itself at the expense of everyone else). This is a painful and unsustainable status quo and the debt reset — and without an economic miracle, it will eventually arrive — will in the long run likely prove a welcome development for the vast majority of people and businesses.

The Face of Genocidal Eco-Fascism

I am not exaggerating.

This is Finnish writer Pentti Linkola — a man who demands that the human population reduce its size to around 500 million and abandon modern technology and the pursuit of economic growth — in his own words.

He likens Earth today to an overflowing lifeboat:

What to do, when a ship carrying a hundred passengers suddenly capsizes and there is only one lifeboat? When the lifeboat is full, those who hate life will try to load it with more people and sink the lot. Those who love and respect life will take the ship’s axe and sever the extra hands that cling to the sides.

He sees America as the root of the problem:

The United States symbolises the worst ideologies in the world: growth and freedom.

He unapologetically advocates bloodthirsty dictatorship:

Any dictatorship would be better than modern democracy. There cannot be so incompetent a dictator that he would show more stupidity than a majority of the people. The best dictatorship would be one where lots of heads would roll and where government would prevent any economical growth.

We will have to learn from the history of revolutionary movements — the national socialists, the Finnish Stalinists, from the many stages of the Russian revolution, from the methods of the Red Brigades — and forget our narcissistic selves.

A fundamental, devastating error is to set up a political system based on desire. Society and life have been organized on the basis of what an individual wants, not on what is good for him or her.

As is often the way with extremist central planners Linkola believes he knows what is best for each and every individual, as well as society as a whole:

Just as only one out of 100,000 has the talent to be an engineer or an acrobat, only a few are those truly capable of managing the matters of a nation or mankind as a whole. In this time and this part of the World we are headlessly hanging on democracy and the parliamentary system, even though these are the most mindless and desperate experiments of mankind. In democratic coutries the destruction of nature and sum of ecological disasters has accumulated most. Our only hope lies in strong central government and uncompromising control of the individual citizen.

In that sense, Linkola’s agenda is really nothing new; it is as old as humans. And I am barely scratching the surface; Linkola has called for “some trans-national body like the UN” to reduce the population “via nuclear weapons” or with “bacteriological and chemical attacks”.

But really he is just another freedom-hating authoritarian — like the Nazis and Stalinists he so admires — who desires control over his fellow humans. Ecology, I think, is window-dressing. Certainly, he seems to have no real admiration or even concept of nature as a self-sustaining, self-organising mechanism, or faith that nature will be able to overcome whatever humanity throws at it. Nor does he seem to have any appreciation for the concept that humans are a product of and part of nature; if nature did not want us doing what we do nature would never have produced us. Nature is greater and smarter than we will probably ever be. I trust nature; Linkola seems to think he knows better. As George Carlin noted:

We’re so self-important. Everybody’s gonna save something now. Save the trees. Save the bees. Save the whales. Save those snails. And the greatest arrogance of all, save the planet. What? Are these fucking people kidding me? Save the planet? We don’t even know how to take care of ourselves yet. We haven’t learned how to care for one another and we’re gonna save the fucking planet?

There is nothing wrong with the planet. The planet is fine. The people are fucked. Difference. The planet is fine.

Linkola and similar thinkers seem to have no real interest in meeting the challenges of life on Earth. Their platform seems less about the environment and more about exerting control over the rest of humanity. Linkola glories in brutality, suffering and mass-murder.

Now Linkola is just one fringe voice. But he embodies the key characteristic of the environmental movement today: the belief that human beings are a threat to their environment, and in order for that threat to be neutralised, governments must take away our rights to make our own decisions and implement some form of central planning. Linkola, of course, advocates an extreme and vile form of Malthusianism including genocide, forced abortion and eugenics.

But all forms of central planning are a dead end and lead inexorably toward breakdown; as Hayek demonstrated conclusively in the 1930s central planners have always had a horrible track record in decision making, because their decisions lack the dynamic feedback mechanism present in the market.  This means that capital and labour are misallocated, and anyone who has studied even a cursory history of the USSR or Maoist China knows the kinds of outcomes that this has lead to: at best the rotting ghost cities of China today, and at worst the mass starvation of the Great Leap Forward resulting in millions of deaths and untold misery.

Environmentalists should instead pursue ideas that respect individual liberty and markets. There is more potential in developing technical solutions to environmental challenges than there is in implementing central planning.

If we are emitting excessive quantities of CO2 we don’t have to resort to authoritarian solutions. It’s far easier to develop and market technologies (that already exist today) like carbon scrubbing trees that can literally strip CO2 out of the air than it is to try and develop and enforce top-down controlling rules and regulations on individual carbon output. Or (even more simply), plant lots of trees and other such foliage (e.g. algae).

If the dangers of non-biodegradable plastic threaten our oceans, then develop and market processes (that already exist today) to clean up these plastics.

Worried about resource depletion? Asteroid mining can give us access to thousands of tonnes of metals, water, and even hydrocarbons (methane, etc). For more bountiful energy, synthetic oil technology exists today. And of course, more capturable solar energy hits the Earth in sunlight in a single day than we use in a year.

The real problem with centrally-planned Malthusian population reduction programs is that they greatly underestimate the value of human beings.

More people means more potential output — both in economic terms, as well as in terms of ideas. Simply, the more people on the planet, the more hours and brainpower we have to create technical solutions to these challenges. After all, the expansion of human capacity through technical development was precisely how humanity overcame the short-sighted and foolish apocalypticism of Thomas Malthus who wrongly predicted an imminent population crash in the 19th century.

My suggestion for all such thinkers is that if they want to reduce the global population they should measure up to their words and go first.

Paul vs Paul: Round #2

Bloomberg viewers estimate that Ron Paul was the winner of the clash of the Pauls (Ron Paul fans, of course, are very studious at phoning in their support him for). But that is very much beside the point. This wasn’t really a debate. Other than the fascinating moment where Krugman denied defending the economic policies of Diocletian, very little new was said, and the two combatants mainly talked past each other.

The first debate happened early last decade.

To wit:

And so, round two. Krugman wants more inflation; Paul is scared of the prospect. From Paul’s FT editorial yesterday:

Control of the world’s economy has been placed in the hands of a banking cartel, which holds great danger for all of us. True prosperity requires sound money, increased productivity, and increased savings and investment. The world is awash in US dollars, and a currency crisis involving the world’s reserve currency would be an unprecedented catastrophe. No amount of monetary expansion can solve our current financial problems, but it can make those problems much worse.

Or, as Professor Krugman sees it:

Would a rise in inflation to 3 percent or even 4 percent be a terrible thing? On the contrary, it would almost surely help the economy.

How so? For one thing, large parts of the private sector continue to be crippled by the overhang of debt accumulated during the bubble years; this debt burden is arguably the main thing holding private spending back and perpetuating the slump. Modest inflation would, however, reduce that overhang — by eroding the real value of that debt — and help promote the private-sector recovery we need. Meanwhile, other parts of the private sector (like much of corporate America) are sitting on large hoards of cash; the prospect of moderate inflation would make letting the cash just sit there less attractive, acting as a spur to investment — again, helping to promote overall recover.

Ron Paul believes that inflationary interventions into the dollar economy will have unpredictable and dangerous ramifications. Paul Krugman believes that a little more inflation will spur economic activity and decrease residual debt overhang. Krugman gives no credence to the prospect of inflation spiralling out of hand, or of such policies triggering other deleterious side-effects, like a currency crisis.

The prospect of a currency crisis is a topic I have covered in depth lately: as more Eurasian nations ditch the dollar as reserve currency, more dollars (there are $5 trillion floating around Asia, in comparison to a domestic monetary base of just $1.8 trillion — the dollar is an absurdly internationalised currency) will be making their way back into the domestic American economy. Will that have an impact?

I don’t really know how much of this is to do with the Fed’s reflationary policies, and how much is to do with the United States’ endangered role as global hegemon. I tend to think that the dollar hegemony has always been backed by American military force, and with the American military overstretched, the dollar’s role comes into question. If America can’t play the global policeman for global trade, why would the dollar be the currency on global trade?

However it must be noted that America’s creditors do believe that their assets are threatened by the Fed’s inflationism.

As the Telegraph noted last year:

There has been a hostile reaction by China, Brazil and Germany, among others, to the Federal Reserve’s decision to resume quantitative easing.

Or as a Xinhua editorial rather bluntly put it:

China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets.

Of course, China may be totally bluffing, or getting it wrong on the danger of inflation to its assets.

If the reflationism is angering the exporter nations perhaps it is a cause for concern. After all, if America’s consumption-based economy is dependent on China’s continued exportation, and Krugman is advocating inflating away their debt-denominated financial assets, then to what extent do Krugman’s suggestions imperil the trans-Pacific consumer-producer relationship?

And this is a crucial matter — there is nothing, I think, more crucial than the free availability of goods and resources through the trade infrastructure. Getting into a fight with China is risky.

As commenter Thomas P. Seager noted yesterday:

[The situation today] is directly analogous to the first Oil Shock in 1973. In the decades prior, the US had been a major oil producer. However, efficiency gains and discoveries overseas resulting in an incrementally increasing dependence of foreign petroleum. Price signals failed to materialize that would caution policy makers and industrialists of the risks.

Then, the disruption of oil supplies from the Middle East caused tremendous economic dislocations.

Manufacturing is undergoing the same process. The supply chain disruption from the Japanese earthquake and Tsunami was merely a warning shot. Imagine if S Korean manufacturing were taken off-line for any length of time (a plausible scenario). The disruption to US industry would be catastrophic.

In the name of increased efficiency, we have introduced brittleness.

Time will tell whether Krugman’s desire for more inflation is wise or not.

Great Success!

From Business Insider:

The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33 percent over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.

Regular readers will know that I believe that the dollar in its present form is extremely unlikely to exist in twenty years, due to the systemic fragilities of a system softened up by forty years of unrestrained credit creation, securitisation, (including over a quadrillion dollars of derivatives), and a free lunch of Arabian oil and Asian goods rolling off the printing press.

But in any case, let’s have a look at just how successful the FOMC has been in debasing the dollar:

Past performance shows the only way is down, down, down.

After all, the FOMC central planners determined long ago that deflation — a natural phenomenon that has occurred repeatedly throughout history, and which actually has a useful function of liquidating bad businesses and debts — was bad, and that they were going to print, print, print ’til it was eradicated.

Does anyone else think that there might be things worse than deflation?

Like — oh, I don’t know — currency collapse?

Where Gold is Going

Many will argue that — more or less — this reflects the U.S. government’s attempts to deal with broad and deep social and financial problems through monetary policy. The higher the price of gold goes, the more the market believes that monetary policy just isn’t working, and that the big problems in American and Western society — oil dependency, deindustrialisation, unemployment, regulatory capture and debt saturation — are just not being effectively addressed.

As I wrote last month:

Getting out of a depression requires debt erasure, and new organic activity, and there is absolutely no guarantee that monetary easing will do the trick on either count. Most often, depressions and liquidity traps are a reflection of underlying structural and sociological problems, and broken economic and trade systems. Easing kicks the can down the road a little, and gives some time and breathing room for those problems to be fixed, but very often that just doesn’t happen. Ultimately, societies only take the steps necessary (e.g. a debt jubilee) when their very existence seems threatened.

The simple expansionary recipe for getting out of depressions is a sad smile, a false promise of an easy route out of complex and multi-dimensional problems.

If these problems are fixed, then the correlation between the debt ceiling and the price of gold will go away. Gold is not necessarily going to the moon, and the gold speculators will be forced to give up the ghost as real broad-based economic growth returns. The trouble is, I don’t see any evidence that these problems are going away. Japan is still — more or less — in the same place it was twenty years ago. Now the whole world may be moving to the Japanese model. Readers are welcome to try and convince me otherwise.