Economists and Immigration

Steve Sailer asks why economists are not too interested in immigration or, worse, imagine that it somehow defies the ordinary laws of supply and demand. In this case, immigration restrictionists argue that more immigration, while growing the economy and potentially increasing productivity (setting aside third party costs), definitely reduces wages and that this is a bad thing if taken too far regardless of the increased overall productivity of the economy.

I think one reason economists don’t make a big show of the wage effects of increased numbers of professionals for example is that they think this system is overall wealth-maximizing. It increases the number of PhDs among other things at a lower price and thus allows consumers of their services to buy more at a lower price. Economists on the whole are concerned with aggregate wealth effects more than they are with wealth distribution effects. Prior to the influx, doctorates presumably had some premium based on the artificial scarcity of PhDs and suitable candidates for doctorates. That is, the supply was capped because of the limited number of high IQ people in a given society; those that could get it done received a premium that went above and beyond their marginal productivity in the manner of a cartel. This is not a conspiracy, but is instead a function of the fact that new, high IQ individuals in a society cannot just be minted at will. This goes beyond the usual scarcity attached to everything; for other jobs, one can expect marginal productivity and wages to converge because greater substitutes and fluidity exist in the labor markets, i.e., a cop, can be a copy boy, can be a courier, can be a construction worker. This is not true of medical doctors, physicists, or people that can write a coherent paragraph. Free movement of labor across borders allows scarcity to be relieved in certain markets that can afford to pay high IQ people more by attracting foreign labor.

Of course, as a citizen, I’m not unconcerned with wealth distribution effects. They can easily outweigh aggregate wealth-maximizing effects. To the extent those increases in social wealth are mostly captured by the newcomers themselves, it’s entirely possible they would capture any of the social surplus they create and that this surplus would be outweighed the negative wealth distribution effects on native workers.

In this respect, something can be wealth-maximizing when the whole world is your measuring stick, but it can be wealth-reducing when the relevant community of interest is one’s existing society. This sleight of hand—looking at the whole world as the relevant group with which to maximize wealth—is common among advocates of open borders and economists. But political leaders should be concerned about the interests of one group over another. It’s the difference between being a bird’s-eye economist looking at a given nation or the whole world and a CEO looking out for the interests of a single company. If it helps the market and puts you out of business or loses you money and you’re wearing your CEO/President hat, you deserve to be fired. I illustrated this possibility in a discussion of economics on Radley Balko’s site a while back. I wrote, in part as an illustration:

Free trade immigration. Net positive effect 10. 8 to immigrant. 2 to US consumers.

But, missing from this net analysis is wealth transfer effects, with which economists don’t usually concern themselves. Say it’s five from US to foreign workers (through structural unemployment, wage effects, congestion costs, social services costs, etc.).

Under those circumstances, net US effect is -3.

Under my approach under those circumstances you limit immigration; under [a citizen of the world economist] you allow it. . . . I’m aware that economics is not a “zero sum game,” but I’m also aware that when you look at who benefits and who loses [when wealth transfer effects are taken into account] that the global wealth maximization can lead to net negative effects when viewed from the perspective of one population vis a vis another.

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