Incidence Not Insanity

When someone hates all of your work, it is psychologically easy to dismiss their criticism. You can tell yourself, “They have it out for me,” or “They’re impossible to please,” or “They’re dogmatic fools,” or “They hate me because I’m beautiful.” How, though, is one to cope with the critic who gives some of your work glowing reviews, while scoffing at much of the rest?

This is the position in which Emil Kirkegaard puts me. He apparently loves my work on education:

Most higher education is socially wasteful and harmful to other human interests. Education is wildly overrated as a cause of good things. More education does not promote economic growth. Forcing children to stay in school longer does not notably improve their life outcomes. My views are very much with those set out by Bryan Caplan in his excellent book The Case Against Education.

At the same time, Emil refers to my work on immigration as “insanity.” His reaction to my recent Reflections on Italian Migration:

Emil O W Kirkegaard @KirkegaardEmil

Caplan's latest insanity. Look at the highlighted word, benefit to USA, but there's literally no mention of any such benefit. Neither did Italy benefit by losing a lot of its people and talent to the USA. Immigration is a benefit to migrants, that's all. betonit.substack.com/p/reflections-…

Elsewhere, he elaborates:

Immigration is extremely costly to Western countries, the evidence on this matter is very clear. Immigration is beneficial to immigrants, but not to natives (e.g. Mexicans coming illegally to America earn more money, but at the expense of Americans). Indeed, natives have been consistently opposed to immigration for decades in most western countries, but the mainstream political parties, media, and academics keep pushing for this outcome for a variety of reasons (including, ironically, capitalist reasons of cheaper labor).

I probably can’t change Emil’s mind about the facts of the matter. But I would like to change his mind about my sanity on this issue. Even if I can’t, I think walking through my reasoning will help other readers who suppose that the only explanation for my enthusiasm for open borders is extreme wishful thinking.

Ready?

Let’s start with a demonstrable fact: When immigrants move from poor countries to rich countries, they routinely multiply their earnings by a factor of five, ten, or more overnight. No matter how negative you are about immigration, I don’t see how this fact can fail to astonish you. A low-skilled, poorly acculturated worker crosses a border, and suddenly, employers want to give him an astronomical raise.

How is this astonishing fact possible? There’s only one credible explanation: Crossing the border vastly increases the migrant’s productivity. While the average American is indeed more skilled than the average Haitian, most of the earnings gap between these two countries is caused by location, not skill.

At this point, Emil could respond, “I know all this, and it doesn’t change a damn thing. Like I said, immigration is a benefit to migrants, that’s all.”

Which is where the economics gets interesting. Assume we agree that immigrants get a large raise because immigration massively raises their productivity. The next question, then, is: When one segment of society massively increases its productivity, what happens to the rest of society?

When agricultural productivity massively increases, should we say, “It’s a benefit to agrobusiness, that’s all”?

When information technology massively improves, should we say, “It’s a benefit to tech workers, that’s all”?

When the construction industry builds a lot more houses, should we say, “It’s a benefit to developers, that’s all”?

Absolutely not. In each of these cases, increased productivity enriches not just producers, but consumers. How could matters be otherwise? Look at the world: Countries that produce lots of stuff are rich. Countries that produce little stuff are poor. As I love to say, the secret of mass consumption is mass production.

This doesn’t mean, of course, that the gains for immigrants are illusory. What it means, rather, is that immigrants’ massive gains are just part of the total gain.

You could object, “When people raise their productivity, why would they share the wealth with total strangers?” Simple: Basic economics forces their hand. If you won’t cut your price, the competition will. Indeed, even if you’re a monopoly, you can’t boost sales without cutting your price.

This is not esoteric wishful thinking. It is the basic economic theory of incidence - the way that shocks partition benefits and burdens via the price system.

The fact that a law says, “Sellers pay the whole tax” doesn’t mean that sellers actually pay the whole tax. You have to think about tax incidence. A de jure tax on sellers could become a de facto tax on buyers. Or maybe they’ll end up splitting it 50/50, or 30/70.

Similarly, the fact that a frost destroys half the citrus crop doesn’t mean that sellers lose half their revenue. You have to think about weather incidence. When the wheat crop fails, the price of wheat skyrockets. If demand is inelastic, and the crop failure is global, farmers might even profit from the disaster.

What, then, is the true division between sellers and the rest of humanity? It’s an empirical question. For small changes in productivity, sellers may indeed bear 100%, or nearly so. Though even that is probably too strong: If Tony and Alex’s Italian restaurant closes on Sundays, some of its customers will costlessly switch to a competitor. But not all.

What economic history makes abundantly clear, though, is that large changes in productivity are always widely shared. The mechanization of agriculture massively enriched non-farmers. The Industrial Revolution massively enriched people who never entered or owned a factory. Tech massively enriches people who aren’t in tech. And so on. Large changes in productivity are always widely shared: No economic historian I know has named a single exception.

Since I’m wrapping up a new book on housing regulation, moreover, let me point out that things work the other way, too. When you prevent developers from building homes, you don’t merely slash their profits. You impoverish tenants and would-be home-buyers. Indeed, you could even impoverish home-owners who want to sell out, buy a better home, or live near their adult children.

Imagine radical deregulation of construction in San Francisco. Builders demolish a square mile of historic homes and replace them with sci-fi skyscrapers. Housing prices fall 90%. To look at this situation and say, “Deregulation is a benefit to builders, that’s all” would be a bizarre reaction.

“Immigration is a benefit to migrants, that’s all,” is an equally bizarre reaction to the massive productivity gains of immigration. When immigrants go into agriculture, they give us cheaper food. When they go into manufacturing, they give us cheaper appliances. When they go into services, they give us cheaper convenience.

It’s true, admittedly, that the gains of immigration have been modest of late. The reason is that immigration itself has been modest of late. We needed Poland to show us that Western countries can easily raise their populations by 10% in a month. Where there’s a will, there’s a way.

If you read Emil closely, you’ll see that he focuses on the fiscal effects of immigration rather than these productivity gains. He may be correct about the fiscal burden of migration to Scandinavia and Germany; I don’t know their data well. (Though I also know that slightly tweaking the non-rivalry assumption can dramatically flip the estimates in immigrants’ favor). But the U.S. looks much better, and you can never sensibly dismiss the world’s largest economy as a mere outlier.

Still, what do I say about the countries that Emil knows best?

First, even if the fiscal effects are big and bad, the productivity effects are still big and good. At least genuflect before the latter effects before you draw strong negative conclusions.

Second, if the fiscal effects are big and bad, why do you focus on exclusion and expulsion instead of restricting eligibility for government benefits? If you find that quixotic, note that Emil actually proposes paying migrants to “go home.” I say eligibility restrictions are far more politically palatable and possible.

If, at this point, you still deem me insane, we are at an impasse. Frankly, almost everything I’ve said is pretty obvious, once you think about it. The total benefits of immigration from the Third World to the First have been large and positive for immigrants, the world, and receiving countries. Even sending countries plausibly gain due to remittances, improved business connections, and so on.

The really intellectually thorny question is whether these massive per-migrant gains are scalable. Can we reasonably hope to move billions of people to the First World without killing the goose that lays the golden eggs?

If the move happened overnight, then even I would say, “No.” Over the course of a century, however, I say, “No problem.”

But let’s set that aside. Today, I’m not even going to try to change your mind about scalability. Instead, I limit myself to this humble request: If you started out thinking, “Bryan is right about X, but insane on immigration,” please consider moving to, “Bryan is right about X, quite sane about the economic gains of immigration, but insane about the scalability of those gains.”

And if you really want to make me happy, add, “And I’ve been partly wrong about Bryan’s insanity before.”