Power & Market
Economists don't appear very interested in economics nowadays.
Indeed, they mostly seem interested in muscling in on other disciplines.
Consider, for example, this profile on Harvard economist Raj Chetty published in May by Vox. The article acts as is Chetty has done something revolutionary in the social sciences by processing large amounts of data to examine human behavior.
For example, the Vox author breathlessly notes that in Chetty's class:
There’s little discussion of supply and demand curves, of producer or consumer surplus, or other elementary concepts introduced in classes like Ec 10. There is no textbook, only a set of empirical papers.
He [Chetty] used huge amounts of IRS tax data to map inequality of opportunity in the US down to the neighborhood, and to show that black boys in particular enjoy less upward mobility than white boys.
But here's the thing: people have been doing this sort of thing for years. They're called sociologists.
Similarly, we're supposed to be impressed that the new "empirical economists" are using data to examine the psychological roots of human behavior. They call it "behavioral economics," but they haven't developed anything new. They're just doing the work of psychologists, and then calling it "economics."
And then there's the field called "developmental economics." which is just trying to recreate the work that's been done for years by political scientists.
I should note that I don't so much have a problem with overlap in these disciplines. In fact, that's a good thing. What is silly is that every time the economists decided to start doing sociology or psychology, they then tell themselves (and others) that they're doing something "revolutionary."
That, of course, is the whole tone of the Vox piece. Isn't it amazing that people are examining data to look at income!"
No, it's really not.
In fact, some of the most heated debates over household income occur among sociologists, not economists.
Take for example, the debate over Juliet Schor's book The Overworked American: The Unexpected Decline of Leisure from 1992. For years, the debate over whether or not she was right, and whether or not people really are working more than they used to. (She was probably wrong.)
Nonetheless, we can see that the debate over work was largely driven by sociologists in recent decades.
Similarly, for data on trends in family size and living arrangement — something with huge implications for standards of living — we find much of the work being done by Steven Ruggles, a history professor and scholar of "population studies."
And then, of course, there are the criminologists. This topic has important implications for economics, given the supposed connection between crime and income, and the effects crime has on one's standard of living. But the empirical work in this area is rarely done by economists. It's done by political scientists and historians.
This isn't to say that economists are never involved in this sort of thing. Economic historians have looked at similar variables for decades. Claudia Goldin, for example, has looked at issues surrounding family incomes for decades.
But economic history is all these alleged new "empirical economists" are doing. Looking at the upward mobility of black boys, as Chetty is doing, is just economic history. There's nothing wrong with doing economic history. It's a perfectly legit field. But doing that sort of work doesn't make Chetty special. (And the sheer size of the data-sets doesn't make him special either. All these social science fields have been moving more and more in the direction of large-scale data mining.)
But there's also nothing new about it, and nothing that warrants a gushing piece about the new page economics is supposedly turning by doing what sociologists have already been doing for decades.
In fact, the more economists go all-in on trying to copy the work done by other fields, the more they ignore what's actually important about economics, which is theoretical economics devoted to understanding core issues like business cycles, entrepreneurship, and value. By ignoring these issues, economists only make themselves more irrelevant. Were economists to devote themselves to better understanding and spreading good economic theory, they'd be in a position to interpret and and analyze the empirical work done by others. After all, empirical work is only as good as the theory used to understand it.
But it doesn't look like economists are much interested in that sort of thing. They just want to hop on the empirical bandwagon doing what political scientists and other are already doing. Meanwhile, economists seem to think they discovered all this sort of thing the day before yesterday. This is just the sort of obliviousness we should expect from academic departments, and it helps demonstrate much of what's increasingly wrong with economists in the first place.
During my presidential campaigns, well-meaning supporters would sometimes suggest I stop emphasizing opposition to overseas intervention and focus on fiscal issues. I disregarded the advice, not only because adopting a noninterventionist foreign policy is crucial to restoring constitutional government but because it is impossible to be both a budget hawk and a war hawk. This is shown by the constant failure of so-called fiscal conservatives in the Republican leadership to fulfill their promise to cut spending.
Military spending is the second largest category of spending in the federal budget, behind Social Security spending. The US military budget equals the combined budgets of the next seven biggest-spending countries. Yet, many Republicans who claim to want to reduce federal spending want to increase the military budget.
Many Republicans also prioritize protecting the military-industrial complex over reducing spending on welfare and entitlement programs. This makes them eager to agree to a deal giving Democrats almost all of their welfare wish list as long as Republicans get almost all of their warfare wish list. Many Republicans do not have a principled objection to the welfare state; they just think Democrats want to spend too much on welfare and not enough in warfare. Many Democrats find increasing warfare spending acceptable; they just think Republicans want to overspend on warfare and underspend on welfare.
We saw the process at work again last week when the House passed a two-year budget deal that increases spending by approximately 320 billion dollars per year and suspends the debt ceiling for two years. Republican leadership ignored all these problems and claimed victory because the bill increases warfare spending.
A majority of Republicans opposed the spending bill, even though it was supported by President Trump and the Republican leadership. Of course, many more Republicans would have voted for the bill if a “conservative” Republican still held the speaker’s gavel.
Republicans’ love affair with the military-industrial complex is not the only reason they are unwilling to reduce spending, and military contractors are not the only Republican constituency demanding spending increases. Many farmers vote for Republicans who promise to cut most domestic spending except for agricultural subsidies. Also, many Republican Congress members support corporate subsidies and bailouts. Still, anyone who observes the behavior of Republican leaders around budget time can see they have a primary priority of protecting the military-industrial complex.
Republican Congress members’ support for ever-higher levels of military spending is justified by their support for an interventionist foreign policy. Some in Congress claim to favor both an interventionist foreign policy and reductions in military spending, but these so-called cheap hawks cannot resist the demands for an increased budget since they support a hyper-interventionist foreign policy. They are unable to effectively respond when their fellow hawks accuse them of compromising national security by opposing “adequately” funding the Pentagon.
As long as Republican leadership supports an interventionist foreign policy, it will never support reducing warfare or welfare spending. Therefore, fiscal conservatives must join libertarians to restore a foreign policy of peace and free trade. Lobbyists for the big military contractors would find it more difficult to make their case for big spending if Congress limits the defense budget to what is needed to defend America instead of wasting trillions in supposed efforts to police and democratize the world.
Imagine a social system in which those contributing to the welfare of others are rewarded for it, and those contributing more get access to more resources—so that they can serve us better. Such a system would generate ever more welfare, and for more people.
Then imagine an alternative system under which we institute a central force in society with the object to make sure resources are always equally distributed regardless of how they are used and whether they contribute to welfare.
These are the two "ideal" but contradictory systems, the eternal conflict between economic and political means, that have generated our current state of affairs: a mixed system of social meritocracy and utter force.
Today, there are only limited rewards for serving others, often combined with a penalty for gaining access to resources, and a parallel system imposed on this order, in which those with influence but without the intention or track record of serving others can gain and retain access to resources.
This access is provided by the central force instituted to take resources used to serve us from those doing it better--to give to those who have little or poor track record in this service. The outcome is unsatisfactory for proponents of both "ideal" systems, both claiming the influence of the other system corrupts the workings and outcome of our present social order. And they are both correct: general welfare is hampered by the distortions of redistribution and regulation; equality is hampered by both the limited meritocracy and the distorted incentives due to the availability of non-welfare based access to resources.
The solution to the problems in our current state of affairs is to move to one of the ideal systems: markets or state.
The choice depends on what we prefer--general welfare or equality.
Either one offers only limited ability to satisfy also the other ideal, which is why these ideals are in eternal conflict.
Formatted from Twitter @PerBylund
In an earlier post, I noted Robert Nozick’s criticism of the view that the state may tax us because we are in part 'social products'. Much of Nozick’s Anarchy, State, and Utopia reflects Rothbard’s influence, and this topic is no exception. As so often, Rothbard was there first, and Nozick did no more than restate his insights in more complicated fashion. In Power and Market, a work Nozick studied closely, Rothbard says: “It is precisely the process of the market by which the array of free individuals (constituting ‘society’) portions out income in accordance with productivity. It is double-counting to postulate a real entity ‘society’ outside the array of individuals, and possessing or not possessing ‘its' own deserved share. If by “organized society’ he [ the economist Henry M. Oliver] means the State, then the State’s ‘contributions’ were compulsory and hence hardly ‘deserved’ any pay.”
In Anarchy, State, and Utopia, Robert Nozick argues that If people benefit you by their activities, you have no obligation to pay them for what you have gained. Nozick provides a well-known example to illustrate this point: “Suppose some of the people in your neighborhood (there are 364 other adults) have found a public address system and decide to institute a system of public entertainment. They post a list of names, one for each day, yours among them. On his assigned day. . .a person is to run the public address system, play records over it, give news bulletins, tell amusing stories he has heard, and so on. After 138 days on which each person has done his part, your day arrives. Are you obligated to take your turn? You have benefited from it, occasionally opening your window to listen, enjoying some music or chuckling at someone’s funny story. The other people have put themselves out. But must you answer the call when it is your turn to do so? As it stands surely not.”
Why not? In brief, you may not think that the benefits are worth the costs to you, and even if they are, you may prefer to spend your time and money on something else. Further, “You may not decide to give me something, for example a book, and then grab money from me to pay for it, even if I have nothing better to spend the money on.” You must secure my consent in advance and cannot present me with a fait accompli and demand that I pay my fair share.
So much is well known, but Nozick extends the point in a way that has not gotten the attention it deserves: “Nor can a group of persons do this. If you may not charge and collect for benefits you bestow without prior agreement, you certainly may not do so for benefits which yet others provided them, So the fact that we partially are ‘social products’ in that we benefit from current patterns and forms created by the multitudinous actions of a long string of long-forgotten people, forms which include institutions, ways of doing things, and language. . .does not create in us a general floating debt which the current society can collect and use as it will.”
In this seldom-cited passage, Nozick has demolished a principal justification for the contemporary welfare state.
Although many conservative and libertarian commentators have vehemently criticized the various user bans imposed by Facebook, Twitter, and YouTube, many have also expressed at least guarded support on this controversial action by the social media giants.
Often, even those who criticize social media giants for "censorship" stop short of calling for government regulation because of a regard for private property rights.
In his 1970 book Power and Market, Murray N. Rothbard wrote, “Property rights are indissolubly also human rights.” He argued that free speech, as a human right, was constrained, not by responsible usage, but by property considerations.
Freedom of speech is supposed to mean the right of everyone to say whatever he likes. But the neglected question is: where? Where does a man have this right? He certainly does not have it on property on which he is trespassing. In short, he has this right only either on his own property or on the property of someone who has agreed, as a gift or in a rental contract, to allow him on the premises. In fact, there is no such thing as a separate ‘right to free speech’; there is only a man’s property rights: the right to do as he wills with his own or to make voluntary agreements with other property owners.
On this basis, Rothbard rejected the standard argument that free speech did not extend to shouting “Fire!” in a crowded theater because that right was constrained by responsibility or the possibility of dire consequences. Instead, Rothbard argued that, if the owner of the theater shouts “Fire!” he has defaulted on his contract with the patrons and so violated their property rights. If a patron shouts “Fire!”, by the same token, he has violated the property rights of the owner and the other patrons. “There is no need, therefore, of placing limits upon … the absolute nature of rights,” Rothbard wrote.
Applying this perspective to social media platforms brings a clarity that is not found is purely philosophical arguments about rights. When an individual uses Facebook, Twitter, or YouTube, they are using someone else’s property. This means that the owners can dictate what content is allowable and can ban anyone they like, because their “rental contract” explicitly says so. The argument that these social media giants constitute the modern public square does not fly, either logically or legally, because the public square is by definition not private property.
At the same time, morally speaking, a social media firm retains a large amount of flexibility over just how much it ought to protect others from the effects of words used in social media forums. For example, a social media firm would not be morally obligated to manage or control public discourse by deleting or censoring “libelous” or “slanderous” content.
This is because the mere use of words in this fashion rarely constitutes a violation of property rights. In his magnum opus, Man, Economy and State, Rothbard wrote: “In a free society, as we have stated, every man is a self-owner. No man is allowed to own the body or mind of another, that being the essence of slavery. This condition completely overthrows the basis for a law of defamation…A man has no objective property as ‘reputation’. His reputation is simply what others think of him, i.e., it is purely a function of the subjective thoughts of others. But a man cannot own the minds or thoughts of others. Therefore I cannot invade a man’s property right by criticizing him publicly. Further, since I do not own others’ minds, either, I cannot force anyone to think less of the man because of my criticism.”
So even those who agree that libel, let alone offense, is not sufficient grounds for constraining free speech would still hold that the owners of Facebook, Twitter and YouTube have the right to ban anyone they want from what is their property.
The controversies over social media bans, de-platforming and informal censorship, therefore, all arise from this basic question: which right is more important: property or expression? Philosophically, the libertarian answer is straightforward: since all human rights are rooted in property rights, property is more important. But this question is also an empirical one: will more negative consequences come from allowing free speech by constraining the right to private property, or from supporting property rights by allowing constraints on free speech?
History provides a clear answer. Over time, all states have tried to extend their interventions into citizens’ lives and, by so doing, limited people’s life choices. Over the same period of time, the most powerful of firms have vanished or been downgraded, to be replaced by more efficient entities. Thus, this Facebook, Twitter, and YouTube controversy, too, shall pass. It would be unwise to let their main legacy be the extension of state control over us for our own supposed good.
As an international private currency, Libra will be in competition with publicly issued currencies. It could have large and fruitful repercussions on the global monetary policy, especially with reference to those countries where central banks are still heavily subject to political influence and tend to pursue inflationary monetary policies.
The introduction of the Libra project to the public has generated a lot of fuss over the consequences this cryptocurrency may have for the stability of the global financial system.
At first, we need to clear the ground from the most common mistaken facts about Libra running over the news. As detailed in this white paper, Libra will be a fully backed cryptocurrency, it will be issued solely upon demand, and its value will be given by a basket of reserves whose composition will be diversified, privileging safe assets and stable international currencies (as thoroughly described in the technical part of the white paper dedicated to the functioning of the reserve mechanism).
Thus, despite the rumors, we know as a fact that Libra will not:
- run its own monetary policy, since it will not be in control of its money supply;
- create commercial-banks money, since it will not leverage on its costumers’ deposits to create new units of Libra operating under a fractional-reserve scheme like regular commercial banks do;
- be pegged to any existing currency, since it will not take a specific commitment to fluctuate in a stringent range vis-a-vis any currency or basket of currencies.
Lastly, the fear that a sudden bank-run may cause the collapse of the Libra is either irrational or it confirms early critics have not yet understood the basic functioning of the project. In fact, the fully backed-ness of Libra would make it much safer than commercial-banks deposits we daily accept as means of payment, because Libra would be always redeemable—at least—into legal-tender currency; this redeemability would not be just theoretical (as it occurs with commercial-banks money and fractional-reserve banking) but also practical, because a unit of Libra could be created if, and only if, a unit of monetary base (i.e., legal-tender currency) or a claim on it (i.e., a unit of commercial-banks deposits) were conferred in exchange for that very unit of Libra.
In other words, while commercial-banks money (that is, deposits) can be created out of thin air—simply granting a loan—Libra would be instead created if, and only if, backed by a formerly existing unit of money—either of the central bank or of commercial ones (recall: money of commercial banks are deposits, which entitle the owner to claim a unit of monetary base, i.e., legal-tender currency).
For all these reasons — sticking to what we really know about Libra so far — Libra will have a value which will be stable in time with respect to the main reserve-currencies of the world. The relatively stable value of Libra, together with its worldwide accessibility, is what we believe may have positive and interesting repercussions. Libra may become a safe, accessible, cheaply storable reserve of value for those people living in countries that experience unbearable high levels of inflation to this day.
Moreover, the analogies between Libra and the first steps of the Hayekian proposal of “Denationalization of Money” (1976) are strikingly patent, insofar as Libra:
- is a privately issued medium of exchange;
- is subject to a 1:1 reserve system, in which money-creation out of thin air is not allowed;
- remains fully redeemable in terms of existing legal-tender currencies.
Therefore, Libra — if not impeded by governmental legislative power — would provide consumers with a medium of exchange whose inflation would be the weighted average of the safest legal-tender currencies of the globe, thus naturally displaying a potential standard deviation of its value — that is, deflation or (more likely) inflation — closer to them than to that of more volatile currencies. After a while, highly inflated legal-tender currencies (especially in those countries with relevant governmental interference and political influence over central bank’s activity) would be gradually less demanded in exchange for goods and services and, were governments not to forbid payments denominated in terms of Libra-units (that is, were they to allow Libra to exist as a full-fledged means of payment), then Libra could (analogously to what is postulated by the Grisham’s Law, but —somehow — in reverse) drive governmental money out of the payment-mechanism and prompt agents to hold to Libra for payment-purposes.
Thus, citizens would be induced to hoard governmental money only in order to pay taxes — since government would not, most likely, forego their privilege of imposing which unit of account taxes are to be paid in, that is, which unit of account is decreed to be legal-tender currency — and would be given the opportunity to access a slightly more competitive money-market.
For example, were Libra allowed to circulate alongside the publicly issued currencies in countries such as Turkey or Argentina, which at present experience high level of inflation, citizens of these countries will soon start to be interested in storing their wealth in Libra-coins, which is what has in part already happened with Bitcoin or major international currencies — like the dollar. The advantage Libra could have over Bitcoin is that it promises to deliver far better in price stability, while the advantage it could have over the dollar is that it has the potential to flow freely over the internet, overcoming the capital control barriers and all sort of government limitations.
Surely, critics point out that the currencies of said countries will not be accepted as a collateral for the issuing of Libra, hence these people will not be the early adopters of the currency. Nevertheless, Libra may eventually get to these countries from the international trade, via inflows of capital or (more likely) goods and services purchasing; and, since money transfers in Libra would be far cheaper and easier to handle, Libra could then start to be adopted as an alternative currency by more and more people inside the country. In such a scenario, people will express their preference for Libra instead of their local currency, and that will represent an incentive to the local central banks not to act inflationary so to restore the confidence in their own currency, displaying the fruits competition could bear also in a traditional public dominated market — as that of currencies currently is.
Alexandria Ocasio-Cortez has suggested eliminating the Department of Homeland Security.
Her motivation seems to be reducing federal immigration enforcement powers, although it doesn't necessarily follow that abolishing the DHS would actually accomplish this.
Nevertheless, the DHS is just yet an other cabinet level agency pushed to facilitate even more government spending, and has never been necessary. Its abolition would be a step in the right direction.
The thing about raising government agencies to cabinet-level status is that the move makes it easier for the bureaucrats in charge of the agencies to politically agitate for more government spending in their favor, and to push bigger government in general. It's no coincidence that as the US government has grown ever larger and more intrusive, so has the number of cabinet-level agencies. So now, we have the EPA, the SBA, and the departments of HUD, Energy, and Education all provided with more direct access to the president and the media. Everything they do is deemed "essential." Everything they do, we're told, is a matter of national importance.
DHS is no different. When the 9/11 attacks occurred, they exposed the sheer incompetence, laziness, and inefficiency of government security and defense organizations. Year after year, hundreds of billions of dollars were poured into these organizations — in addition to the countless billions spent on the Pentagon. But when they were shown to be asleep at the switch, what happened? Rather than have their budgets cut, and senior officials fired in droves — as should have happened — George W. Bush and his cronies decided that what the federal government really needed was a new department into which billions more in taxpayer money could be poured.
The was politically important in the sense that making DHS a department made it easier to call for every more funding for its constituent agencies. But much of what the department does was already done before 9/11 — including immigration regulation.
What was new was the federalization of airport security, and new slush funds for domestic police departments.
In a 2017 article titled "Four Agencies to Abolish along with the Dept. of Education," I put DHS first on the list (followed by the EPA, Interior, and Agriculture):
One: The Department of Homeland Security, $51 Billion
Somehow, the United States managed to get along for more than 225 years before this Department was created by Congress and the Bush Administration in 2002.
The Department quickly became a way for the federal government to spread federal taxpayer dollars to state and local law enforcement agencies , thus gaining greater control at the local level. The DHS administers a number of grant programs that have helped to purchase a variety of new toys for law enforcement groups including new weapons, and new technologies. Also included in this is the infamous military surplus program which is supplies tanks and other military equipment to police forces everywhere from big cities to small rural towns. The crime-free town of Keene, New Hampshire made sure its police received a tank through this program as have many larger cities.
When the Orlando gunman opened fire in the Pulse nightclub in 2016, the police eventually rolled up in a tank — which did nothing to stem the bloodshed inside the club.
Police claim they need these half-million-dollar vehicles from the DHS to deal with civil unrest. Never mind, of course, that every state already has a National Guard force specifically for that purpose.
While the Department was created in response to the 9/11 attacks, the Department does nothing to address anything like a 9/11-style attack, and all the agencies that were supposed to provide intelligence on such attacks — the FBI for instance — already exist in other departments and continue to enjoy huge budgets.
DHS also includes agencies that already existed in other departments before, such as the Federal Emergency Management Agency, and the agencies that handle immigration and customs. Those agencies should either be returned to the departments they came from or be abolished.
And, few would miss the Transportation Security Administration — an agency that has never caught a single terrorist, but has smuggled at least $100 million worth of cocaine.
Alexandria Ocasio-Cortez is usually wrong about pretty much everything. But on this she's accidentally correct: abolishing the DHS would be a net good for America. It was never necessary, and is mostly a channel for violating the rights of Americans through a de facto standing army of federal agencies and local cops pumped up on federal dollars and military equipment. Politicians in Washington DC would hate to see it go. But the taxpayers would likely benefit were it to disappear forever.
Former Secretary of State George Schultz has an idea for dealing with increased immigration from the Northern Triangle region of Central America, which includes of El Salvador, Guatemala and Honduras: he wants to spend more money on foreign aid.
In yesterday's Wall Street Journal, Schultz writes that the countries of the Northern Triangle could "increase the 'supply' of good governance by us[ing] foreign aid to fund better policing, transparency and higher-quality services—and apply international pressure to root out corruption and encourage political reform."
And who could supply this foreign aid? According top Schultz, "the U.S. is the only nation with the economic, technological and political authority to lead," and "[t]he Inter-American Development Bank could do so by redirecting existing funds without new U.S. expenditures, and could get started with a phone call in Washington."
Schultz wisely doesn't mention any dollar amounts. How could he? His proposal is clearly meant to be a sort of trial balloon: demand more government spending now, and work out all the details in the back rooms later.
But we know how this sort of thing works. There is no real expectation that foreign aid would actually remake the economies of the Northern Triangle.
In reality, it will be yet another foreign aid boondoggle: friends of the US regime will receive funds. There will be little follow-up as to how the money is spent. The money may even go to fund despots who will use the funds to murder their enemies. George Schultz's personal friends and colleagues will no doubt get their cut. This is how the US foreign aid game is played.
It is interesting that Schultz doesn't mention something that does have the potential for revolutionizing the region's access to capital and its standard of living. It will do this while greatly lessening the incentive to emigrate from the region to the US: unrestricted trade with the United States.
To accomplish this, the US need not collect any new taxes. It need not impose any new regulations. It need not form any international "coalitions."
Instead, it only has to make the Northern Triangle a true Free Trade Zone with full access to US markets.
At this point, some observers may claims "the US already has a free trade agreement with Central America! In fact, the region is largely duty free!" But this objection helps to illustrate just how much the term "free trade" has been corrupted in the phrase "free trade agreement." In practice, only qualifying goods can be imported to the US from Central America duty free. In order to qualify, goods must meet a variety of bureaucratic requirements stemming from "rule of origin" requirements. These rules exist to prevent "trade diversion" and other types of trade in which a Central American country might import parts from outside the free trade zone, add only small amounts of value, and then export the finished product to the US. Thus, trade between Central America and the US is not really free, and the trade agreements specifically prevent Central American countries from becoming trade and shipping centers where goods and services can be freely imported and exported globally.1
If Central America had a true free trade agreement with the US, however, both US and foreign manufacturers would have an enormous incentive to set up shop in the region and produce goods there for the US market.
Over time, capital would flood into the region, greatly increasing the standard of living for Central Americans while providing new sources of goods and services for American entrepreneurs and consumers.
The success of such a plan, of course, is not guaranteed. The regimes of El Salvador, Guatemala, and Honduras could squander the opportunity. They could insist on high domestic taxes or an insecure legal environment in which private business owners would have reason to fear expropriation by the regime.
But when facing the possibility of true free trade with the US, the stakes would become very high indeed, and the regime could choose between guaranteed moderate levels of tax revenue, or the disastrous policies of expropriation.
But no matter how it turns out, the US taxpayer is not on the hook for anything. There is no risk of foreign aid flushed down the toilet. Instead, the upside is substantial: access to low-cost goods and services from American, Asian, and European firms all hungry to take advantage of this new "free trade zone" in the western hemisphere. American entrepreneurs would be able to provides goods and services at lower prices. They could hire more workers. They could invest more of their profits.
Moreover, the geo-political benefits would be substantial. The regimes of the Northern Triangle would become committed to maintaining friendly relations with the US, and the pressures of high levels of migration from the region would be lessened.
In his essay " The Case for Free Trade and Restricted Immigration ," Hans-Hermann Hoppe recognized the benefits of free trade in immigration policy:
The relationship between trade and migration is one of elastic substitutibility (rather than rigid exclusivity): the more (or less) you have of one, the less (or more) you need of the other . [Emphasis added.] Other things being equal, businesses move to low wage areas, and labor moves to high wage areas, thus effecting a tendency toward the equalization of wage rates (for the same kind of labor) as well as the optimal localization of capital. With political borders separating high- from low-wage areas, and with national (nation-wide) trade and immigration policies in effect, these normal tendencies—of immigration and capital export—are weakened with free trade and strengthened with protectionism. As long as Mexican products—the products of a low-wage area—can freely enter a high-wage area such as the U.S., the incentive for Mexican people to move to the U.S. is reduced. In contrast, if Mexican products are prevented from entering the American market, the attraction for Mexican workers to move to the U.S. is increased. Similarly, when U.S. producers are free to buy from and sell to Mexican producers and consumers, capital exports from the U.S. to Mexico will be reduced; however, when U.S. producers are prevented from doing so, the attraction of moving production from the U.S. to Mexico is increased.
Bizarrely, protectionists take the opposite self-defeating approach: they want to cut off trade with other nations, thus reducing the standard of living. This then increases the incentive for foreigners to emigrate to the United States. The protectionists then complain there's too much immigration and the government must intervene even more to control both trade and migration.
Not surprisingly, Ludwig von Mises saw the ridiculouslness of this position. As I noted in my article " If You Don't Like Immigration, You Should Love Free Trade ":
Opponents and proponents of immigration may argue endlessly about the potential downsides and upsides of immigration. (For an especially nuanced and insightful view of the downsides, see Ludwig von Mises's work on nationalism and immigration .)
With free trade, though, there is no downside, which is why Mises, who allowed for a number of caveats on immigration, made no exceptions for free trade.
For many modern protectionists, though, the desire to close off trade stems not just from economic ignorance, but from an emotional desire to actually harm other countries on nationalistic grounds. The economic implications of these policies then become secondary to other ideological agendas. Mises understood this well, and in Human Action concluded :
We may, for the sake of argument, disregard the fact that protectionism also hurts the interests of the nations which resort to it. But there can be no doubt that protectionism aims at damaging the interests of foreign peoples and really does damage them. ... The philosophy of protectionism is a philosophy of war.
George Schultz is correct in the sense that a prosperous Central America is a Central America with less incentive to send its workers and families to North America. But the real solution does not lie in throwing a few extra bucks at the central American regimes in hope they might build a couple of new highways. The real solution lies in expansion of trade, capital investment, and . Only then can a sustainable solution to the region's poverty be found.
- 1. It should also be noted that the burden of gaining "certification" for qualification under the free trade agreements place small companies at a relative disadvantage compared to larger companies. For more on how these rules affect trade flows, see: "Preferential Rules of Origin in Regional Trade Agreements." https://www.wto.org/english/res_e/reser_e/ersd201305_e.pdf