Would per capita U.S. wellbeing be maximized by unrestricted immigration?

Both Leftists and libertarians sometimes argue to that effect, though I suspect that only libertarians are serious about it. Although I am broadly sympathetic to libertarianism, I think this is one instance where we can see that libertarianism can be as narrow, dogmatic and utopian as Leftism.

Reproduced below is a coda to an article by economic historian Martin Hutchinson. The article is primarily concerned to offer a thoroughly Ricardian analysis of international wage differentials. Rather curiously, Ricardo was a good friend of Malthus and Hutchinson is also vigorously Malthusian. In the present U.S. situation that is perhaps not totally incomprehensible

In a theoretical economic model, welfare might be optimized by eliminating immigration restrictions. But that could not happen by moving the Indian, Chinese and African population to the U.S. and raising their wages to U.S. levels, because they would not be sufficiently more efficient in a U.S. setting to support the higher wages. Instead, while the overall global average wage might be somewhat higher, most of the differential would be eliminated by U.S. wages falling to emerging market levels. U.S. politicians, responsible for the welfare only of the U.S. electorate, would be betraying their voters if they contemplated any such move.

In reality, any such mass migration would incur such huge assimilation costs that the theoretical benefits of leveling the playing field would be largely wiped out. However, that is not a counsel of despair. Free trade is not the same thing as free migration; the case for it is very much stronger. In particular, the “globalization” caused by the Internet and modern telecommunications has hugely increased economic welfare for the citizens of poorer countries, provided those countries are even moderately competently run. (The recent economic histories of India and China, both badly run countries by any Western standards outside Greece, are good examples of this.)

It is now clear however that globalization has also depressed living standards for the less able citizens of rich countries, raising their unemployment rate as wages are to a certain extent “sticky” on the downside. That does not mean that globalization should be rejected by Western politicians; having been an artifact of technology rather than policy, it would almost certainly have been impossible to stop, and any attempt to do so would have left the country attempting it both poorer and more isolated than when it began. In any case, there is every sign that the initial effect of the Internet revolution is approaching completion; the rapid increase in Chinese wage rates and disappearance of the Chinese balance of payments surplus certainly suggests that a new equilibrium is being reached.

To improve the living standards of Western countries’ citizens in this new equilibrium, and reduce their debilitatingly high unemployment, new policies are necessary. Increasing mass immigration increases the pressure on domestic living standards, especially at the bottom; it should thus be avoided. Education, so often touted as the panacea for facing the increase in international competition, is clearly no such thing, because it is of mediocre quality and excessive cost. In any case at all but the most exclusive levels it can easily be copied overseas (as the recent Indian successes in the software business have demonstrated.) Instead, interest rates must be raised to levels that rebuild the capital base in rich countries, rather than decimating it as has been the case with the Greenspan/Bernanke polices. By increasing the incentives to saving, and the returns from it, policymakers can increase the rich countries’ natural advantage in capital availability, and reduce their pension and medical expenses by providing citizens with higher investment returns.

The other need is for policymakers to reduce the level of waste in the public sector, most of which produces “output” that is laughably overvalued in GDP statistics. Especially in Europe, living standards, already under threat, have been reduced further by the exactions of oversized and unproductive public sectors. Cutting this waste will leave more money in citizens’ pockets, and improve their living standards thereby.

Wage differentials between rich and poor countries are natural, caused by differentials in those countries’ capital endowments, infrastructure and institutional effectiveness. Their natural level has been reduced by the Internet, and will doubtless be reduced further by future technological advances. But as far as possible, responsible Western policymakers should work to ensure that this reduction in differentials produces only improvements in emerging markets’ living standards, without allowing it to immiserate their own people.


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