Protecting Fellow Americans from Immigrants

Those who are against immigration because they want to “protect their fellow Americans” should first figure out which Americans they are talking about, certainly not those Americans who want to employ immigrants, or those Americans that want to use the services of immigrants, or those Americans who want to buy products made by immigrants.

The opponents of immigration often point to the “other side of the coin”. These critics often claim that immigration leads to increases in crime rates, fewer jobs for the home population, and more burden put on services such as schools, health care and public housing. These claims are, for the most part, mistaken.

First, it is important to differentiate between (1) privately arranged immigration and (2) subsidized immigration. The first originates from private arrangements between the home population and immigrants, and the latter is when the government uses tax money to fund immigration programs. Case (2), in fact, may be labeled as forced or haphazard immigration because the government is using the money taken from the home population to invite people into the country even though there are no actual guarantees that any resident of the home country has any intention of cooperating with these new immigrants.

Increases in crime rates, raised as a concern by the critics of immigration, tend to be prevalent in places where immigration is subsidized by governments (i.e., case (2) above). This is often the case with so called political or asylum immigrants. These immigrants gain access to other countries by applying to those countries’ government agencies. Once they get approved as political asylum seekers, they often end up as recipients of government welfare payments because the purpose of their arrival wasn’t economic in the first place.

In this case, immigrants come to places where they may not welcomed by the home population. This may create tensions, even hatred, and conflict. The increases in crime rates are a consequence of the discoordination between the needs of the domestic population and government policies. The government simply lacks the time- and-place specific information on the needs of particular individuals within the home population, and how these needs match the desires and skills of the new immigrants.

Immigration that has its origins in private arrangements between the home population and immigrants (i.e., case (1) above) has far less potential to create conflict. An illustration of this is the reduction in crime rates in areas where Eastern European immigrants settled in Western Europe after the Eastern European countries joined the EU. These immigrants came to Western Europe because they saw new, unused employment opportunities, which were often communicated by family members, friends, or other potential business partners. These private arrangements were made only after all the involved parties have made sure immigration is a good fit for them. All the involved parties have the time- and place-specific personal information needed to find a good match between a new immigrant and the needs of the local community.

The argument  about fewer jobs for the home population is another misconception. Economic logic implies that immigration creates new economic opportunities. People want to move to other places because they expect to find jobs there, except when they expect to be recipients of government welfare programs. People who make private employment arrangements tend to be entreprising individuals who avoid government welfare programs. These individuals generally create new jobs that have never existed before. These new jobs come into being due to the unique sets of skills, preferences, and entrepreneurial abilities that  those particular immigrants posses.

For example, one of my first jobs as an immigrant was construction site clean-up. This was a new business model where a clean-up contractor sends crews of two people to construction sites. All clean-up crews in the Kitchener-Waterloo area were composed of new immigrants, mostly Serbian, Croatian, Bosnian, and Romanian. It is easy for me to understand why this business model would not be attractive to Canadians. The amount of income one could earn in this job was similar to the amount one could receive in welfare payments. None of us, however, wanted to live on welfare. We wanted to start vibrant, productive lives, and one does not start such a life on a welfare program. We wanted to show that we have the will to advance, the energy, persistence, and resilience needed to do any job. You don’t show that by being on a welfare program.

It is true that these new unique jobs sometimes make some old “domestic” jobs obsolete. Our clean-up crews, for example, replaced some of the previous on-site personnel. But the only reason why these old jobs become obsolete is because the new jobs satisfy the needs of the home consumers and employers better. Thus, arguing that new immigrants should be barred from entering the country to work on their new jobs implies barring the domestic consumers and employers from enjoying the benefits of the unique skills that these new immigrants can provide.

There are certainly people who will, in the short run, be hurt by immigration. Those are people whose skills will become irrelevant after immigrants show they are more capable in certain activities. This implies that a portion of the home population will have to innovate and find new opportunities. Some people don’t like to innovate, so they would rather vote for anti immigration laws.

Another worry of the critics is that new immigrants bring more burden on schools, hospitals, and public housing. This view is mistaken too. These services are provided by the government, and thus, people have a tendency to measure only the expense, and not the benefits. Were schools and hospitals private businesses, they would welcome new customers. Would you say that there is more burden on car dealerships because new immigrants want to buy more cars, or that there is more burden on the car repair shops because new immigrants want to fix their cars? Surely, if the owners of car dealerships and repair shops are willing to serve new immigrants, the benefits of serving them must outweigh the additional “burden”.

Thus, we have to conclude that immigration that originates from private arrangements between the home population and new immigrants is beneficial to everyone, except to those who do not like to innovate, learn new skills, and find new opportunities. On the other hand, immigration organized by governments, which do not have the time- and place-specific information about the needs of the domestic population and the new immigrants, creates social discoordination and conflict. Immigration is a good thing if it is a consequence of voluntary exchange between consenting individuals.

When you shouldn’t be mad about mediocre service

Sometimes we feel like there are industries in which all firms do a mediocre job. It is tempting to get annoyed or even mad in those situations and to say something like this: Even I could do a better job, if I only put some time into it! Just recently, I felt like that when I took my car for polishing at a local auto body repair shop. They didn’t do a bad job; they just didn’t put that extra effort that I initially expected. Later, I realized that no body shop would put that extra effort. This indicates that putting that extra effort is not profitable for those businesses.

This is a perfect example for applying our economics theory. I was not happy with the service, but, in retrospect, I know that I would not try to do the polishing myself even if it meant far better quality compared to what I received from any auto body shop. It would just take too much of my time to do the job “right.” What does this mean? This means that my time is more valuable to me if I used if for doing something else, say, writing about economics, than if I used it to polish my car. So, even the mediocre service I received was good enough to keep me from doing the polishing job myself. The auto body shops don’t need to do a better job than I ever could; they just need to do as good of a job as it is sufficient to keep me from becoming self-sufficient in my car polishing needs.

This is what we economists call the law of comparative advantage. Even though I am better than any auto body shop both in writing about economics and in car polishing, I chose to devote all my time to writing, and to let them provide me with the car polishing service. I am better off this way than if I used some of my writing time for car polishing. This is the beauty of specialization, or–letting others do something for you instead of you doing it yourself. Specializing in some activities and letting others do other activities for you makes you better off even if you can do everything better than anyone else. This is why you should not be mad if the best you can receive on the market is mediocre service, as long as the service is not bad enough for you to decide to do the job yourself.

The nice capitalist Joe

How many times have you heard the familiar line that employers are evil and that they exploit their employees? I have heard it may times, but I am yet to find evidence to support this claim as a general rule. On the other hand, during all of my experience as an employee, I have found ample evidence to the contrary–that employers constantly look for ways to improve the work conditions, if for no other reason, then for the sake of keeping their employees from going to some other employer with better work conditions.

Let’s not forget that employers work on two fronts: (1) they are trying to attract consumers to buy their products by making products better than the competitors’ products, and (2) they are trying to attract employees by offering better work conditions than the competitors.

I don’t need to search much to find an antithesis to the myth about evil capitalists that exploit their employees. I find one of the best examples in one of my former employers. He (let’s call him Joe) was running a construction site clean-up business at the time. The work conditions weren’t great, but they were good enough to keep us from looking for work elsewhere. We worked in teams of two. Each team had an old pick up truck that was falling apart, several plastic buckets, two shovels, and a few brooms. We picked up and cleaned all the construction site crap no one wanted to touch.

The work was hard but the guys were fun. We didn’t really care that our truck was falling apart, or that we had rudimentary tools and iffy safety conditions. What we cared about was that no one bosses us around and that we get paid. And that’s what we got. If we did a good job, we would get called to come back tomorrow to the same construction site. If we didn’t do a good job, Joe would have to find some other site. Since we didn’t want to hear Joe’s nagging about how hard it is to find a good site, we tried to do a good job, and we generally did. When we didn’t, it was because we hated the site manager more than Joe’s nagging. However, we knew that Joe’s efforts would not be limitless and that, at some point, he would rather fire an employee than try to keep finding new sites for him.

To an outside observer, superficial examination of our work conditions would probably indicate that we were being exploited by our boss or by the construction companies that were using our services. It is only a little step between seeing “injustice” being done to employees and asking the government or the courts to do something about this “injustice.” In our case, we were smart enough not to ask that the “injustice” be fixed. First, we didn’t see any injustice happening, and, second, even if we asked for better work conditions, we probably wouldn’t get them because then the whole business wouldn’t be profitable.

Joe now owns a restaurant. I love to go there once in a while with my family. Besides the great food, friendly staff and the pleasant atmosphere, it is always nice to see Joe. He always stops to talk to me and my wife for a while and to play with our kids. He never misses to ask how things are at the university and never misses to say he is glad when things are going well. Although I never said it to Joe, I think he knows I am glad his business provided the first money and self esteem to jump start all the good things that happened afterwards in my life.

What is excludability?

David Henderson critiques Mankiw’s exposition of excludability. Mankiw uses public roads as an example of non-excludable goods. Henderson argues that the non-excludability of public roads is an artifact of the legal arrangement in which the government makes it illegal to exclude others from using public roads. This implies that non-excludability is not some inherent property of roads. Henderson further argues that the definition of excludability is not a legal one. He uses Samuelson’s definition where a good is non-excludable if “there are no low-cost ways of excluding people”. From this, Henderson concludes that excludability is a technological characteristic of goods. Goods are then non-excludable because some of their technological characteristics that make it too costly to exclude others from using them.

I am sympathetic to Henderson’s aim of pointing out the distinction between technical and legal aspects of excludability. However, if the definition of excludability is that “there are no low-cost ways of excluding people”, I would not limit the definition to being only a technological one. The cost of available technologies depends on the value individuals within society ascribe to them. So, for example, if it is technologically possible to exclude someone, but people choose not to because it is too expensive, that means excludability is not only a technological characteristic, but also a characteristic that depends on preferences. Subjectivists like Ludwig von Mises would probably go even further and claim that it is entirely up to our preferences whether or not something will be a low or a high cost alternative because preferences determine value.

Another issue to consider is that the legal environment and cost can’t be disentangled. Costs of performing various exclusion activities depend on our expectations of what other people consider as an acceptable exclusion technique. My cost of excluding someone from driving my car is different in a society that adheres to the property rights regime compared to a society in which property rights violations are seen as nothing to worry about. In a society that punishes property rights violations, I may not have to invest as much in protecting my car from theft compared to a society in which car theft is something people accept as normal. For an example of a society in which car theft was a normal everyday event, one can just go back to my home country, former Yugoslavia, in the 1990s.

So, we have to conclude then that, to define a benchmark for excludability, we need to assume a specific legal arrangement in which people operate. Then we can look at the technical properties of different goods and how people value those technical properties. Since people are free to form their values as they wish, excludability and non-excludability of different goods will ultimately depend on people’s values, expressed within a given legal framework.

An anti-war mental exercise

Imagine someone you love, say, your child. If you don’t have children, you can imagine someone else you love. For me, this exercise works best with my children. Now, imagine a person you love disfigured by an explosion, bloody and lifeless. The best effects are achieved if you perform this mental exercise while you are looking at the person you love.

If you are terrified by the prospect of your mental exercise becoming reality, then you should also be terrified of wars because this is what wars do to people you love. So, whenever you get carried away by thinking about the strength and glory of “our” army, bring back the image of the disfigured body of the person you love. This is what armies do–they kill people you, or other people, love. If you say–yes, but we do it in self-defense, you are implying that it is justified to kill someone’s child. If you say–yes, but we had no other way of defending ourselves, you are still saying that it is justified to kill someone’s child. Now, imagine I say that to you–sorry, but I had no choice but to kill your child (or someone else you love). What would your response be?

Nothing to hide?

If the fact that you have “nothing to hide” makes it ok for others to spy on you, does that mean that, since you don’t need every room in your house at all times, I can come and use those spaces when you don’t need them?

If the fact that some people don’t want to offer their life on a platter to others implies they have something (bad) to hide, does the fact that you lock your house when you are not in it make you a selfish, exploitative person? After all, I could use your house while you are away, and you wouldn’t even notice someone was there. You have nothing to lose!

Why everyone should know some economics

Everything you do affects others. More importantly, everything others do, eventually affects you too. For example, if others believes policy x is good, and they support that policy, that policy will more than likely affect you. If other people don’t actually understand the consequences of that policy, they may think it is a good policy when it may actually not be as good as they thought it would be. In fact, the policy may achieve quite the opposite of its intended goals.

People who do not understand a policy may cause unintended consequences by supporting it. This is why you should be interested in understanding at least the basics of economics. And, once you understand these basics, if you want to prevent others from harming you by trying to help you, you will probably want to share your knowledge with them. These are some of the commonly misunderstood (or, not understood at all!) policies that would find their place on my list of policies that everyone should understand:

1.  Minimum wage laws:
– Do minimum wage laws help the poor?

2. Immigration policies:
– Do immigrants take “our” jobs?

3. International trade:
– Does importing mean fewer jobs for “us”?

4. Illegal employment:
– Is illegal employment bad for the economy?

5. Environment:
– Is government legislation the only way to protect the environment?

If your answer to any of these questions is yes, you may be one of those that will hurt others by trying to help them. Why? Because basic economic theory teaches us that minimum wage laws may in fact hurt the poorest members of society; that immigrants create new jobs for everyone; that importing means more of some other jobs for us; that illegal employment is a way of saving resources; and that government legislation is often inferior in protecting the environment compared to market solutions. You don’t believe me? Excellent! I dare you now to do some research (on the internet or wherever) and prove me wrong. Good luck!

You do believe me? Excellent. I now dare you to explain this to someone who doesn’t agree with my claims! If you are not sure you can explain, you don’t understand the economic rationale behind the explanation well enough. In that case, I dare you to do some research and see if you can then explain these concepts to others. If you change your mind in the process, then you can use this knowledge to prove me wrong. Remember, you are doing this for your own good. You want to protect yourself from being harmed by those who think they are helping you when in fact they are hurting you because they don’t understand the consequences of their actions. Good luck!

Socialist Yugoslavia (1945 – 1992) as a Failed Response to Mises and Hayek: A Survivor’s Experience

Socialist Yugoslavia (1945 – 1992) as a Failed Response to Mises and Hayek:
A Survivor’s Experience
Handout for the Mises Meet talk
March 22, 2012
Predrag Rajsic
·         As most Yugoslavians did, I too cried, when the Yugoslavian dictator Tito died in 1980, but I cried for a different reason—I was a baby, and babies cry a lot. Other people cried because they thought “only he could keep the country afloat.” These people apparently knew something that the economists arguing that Yugoslavia proved Mises and Hayek wrong did not.
·         I grew up in a credit bubble fueled by loans from the IMF
·         When the repayment time came, there was nothing to extract from the bankrupted economy
·         Interprovincial accusations of who stole whose money became ever louder
·         And you  probably know the rest from the war news in the 1990’s
This should make a pretty clear case that Yugoslavia was a failed economic project
However, in the 1970’s and 80’s, there were claims that Yugoslavia was a proof that decentralized, worker-managed “market socialism” is a viable alternative to Hayek’s and  Mises’s arguments in favour of private ownership of mans of production.
Mises’s and Hayek’s argument:
·         No single mind has all the time- and place-specific information dispersed among many individuals needed for economically feasible (rational) planning of the whole economy
·         Market prices provide information to individuals that make their individual plans fit into the total pattern of production
·         Private ownership of the means of production gives individuals the incentives to use these means based on the time- and place-specific knowledge they possess
How was the Yugoslavian economy structured?
·         Markets for consumer goods
·         Worker-managed firms
o   Workers vote on decisions
§  elect managers
§  how to divide profits
§  how much to reinvest in the company
o   But the worker “owned” firm capital assets could be sold and bought only at the state-determined prices, and only to the state or to other worker-managed enterprises
§  Structure of production not determined through he use of time- and place-specific dispersed individual knowledge but by a state order
o   When leaving the firm, a worker cannot claim any of the capital assets of the firm
§  No incentives to vote for reinvesting
§  Strong incentives to vote for wage increases
·         which would then be used to invest in private goods: cars, household items (electronics, furniture), farm equipment, home renovations, vacations, etc.
·         stealing the firm equipment or products  in collaboration with the management was not uncommon
·         MALINVESTMENT—unsustainable structure of production
§  Wages determined by the kind of labour performed, not by the market demand for specific kinds of labour (labour theory of value)
·         incentives to advance through the ranks just to get a desired wage
o   decided by voting in worker assemblies
o   incentives to please the “opinion makers”
o   getting a desired job becomes a consequence of political entrepreneurship rather than economic entrepreneurship
o   to advance through the ranks, you need to be a member of the Communist Party—respond to the desires of the communist oligarchy  
§  unskilled and unqualified people often in key positions
·         As a result, by the 1970’s many firms are insolvent—subsidized by the central government by using the profits of the successful firms, taxes, international loans, and by printing money
·         By the mid-1980’s state imposed reinvestment standards (and thus wage cuts) to keep afloat the crumbling industrial complex, trigger rampant worker strikes.
·         By the 1990—double digit daily inflation

Value, Wealth, and Economic Success

Excerpt from: Measuring the Immeasurable

Wealth is a meaningless term without the concept of value. If we know that the purpose of human action is to satisfy one’s needs and wants, then the material wealth of two different individuals (let alone abstract entities such as nations) cannot tell us much about the satisfaction of their needs and wants. Wants and needs are subjective, unknown, and immeasurable by an outside observer.

We should thus be careful when interpreting empirical observations related to the quantity of goods and services produced in an economy. This is not to say that the GDP cannot tell us anything about a region. It simply means that GDP cannot tell us much about some of the most important economic concepts, such as value and economic success.

Most of today’s economists endorse the subjective theory of value. According to this theory, the value of anything exists only in the mind of an individual. Thus, values held by two individuals cannot be compared except by observing an act of exchange. And even then, we can only make somewhat obvious statements — for instance, that in his exchange Jim values good A more than x dollars, while Janis values good A less than x dollars. To take it a step further, stating that Jim values good A more than Janis values good A simply lacks logical meaning.

There is no unit of measurement for value and no apparatus that can compare how much something is worth to two different individuals. This is the principle of the interpersonal incomparability of utility. Individual value scales cannot be superimposed and quantitatively compared. Since subjective value cannot be objectively measured, it cannot be objectively added, divided, or multiplied across individuals. Consequently, GDP is not a measure of “aggregate” value.

For example, if Jim’s income is $4,000 and Janis’s income is $1,000, does this mean that Jim’s wants and needs are satisfied better than Janis’s? We don’t know. Likewise, if Jim tells you that, on a scale from one to five, his level of happiness is three, and Janis tells you that her level of happiness is four, this does not tell you that Jim is less happy than Janis — because Jim’s level three and Janis’s level three are not the same subjective state of mind.

Any comparison of subjective states requires the same frame of reference. Even if we know that one individual can buy more goods with his or her income than another, it does not follow that we may compare the two individuals’ respective satisfaction. Not only do we not know what each person wants to buy, but even if we knew what each wanted to buy, we have no way of measuring how much satisfaction each one enjoyed in doing so. (This is one of the basic postulates of neoclassical economics, formally articulated by Carl Menger in his treatise Principles of Economics.)

The dubious nature of value measurements becomes even clearer when we note that many voluntary exchanges could never be included in the GDP. For example, friendship is a direct exchange of highly specific services that does not involve an exchange of money (and thus cannot be recorded or taxed in terms of money). However, the provision of friendship is a productive activity like any other. The service is provided to other people because they value the service in the same way they value eating apples or watching a movie. Yet who can tell us the aggregate value of friendship produced in Argentina in 1998?

Another, even more obvious example is this article. The exchange between its author and the Ludwig von Mises Institute did not involve any exchange of money, and it will not be recorded as a productive activity in either the Canadian or the US GDP. However, both parties benefited from the production and exchange of the article. (It is my hope that there is a third party that will benefit as well — the readers.)

If one adopts the position that the satisfaction of one’s needs and wants is the ultimate purpose of human action, then the economic success of one’s actions can only be measured by ascertaining the degree to which one’s needs are satisfied. But, since satisfaction cannot be measured outside the frame of reference of the given individual, the success of one’s actions cannot be evaluated by anyone other than the same person whose actions are being evaluated.