Reduce a good thing? My response to Wim de Vriend

I’m happy to see an Oregon Catalyst reader submitted a reply to my writing on immigration, and I’d like to extend a warm welcome to any other of my readers to do the same on any topic in which they’d like to engage with me.

I’ve written twice about immigration on these pages. Apparently, de Vriend only read the first one which was intended as both an introduction to what will be a series, and to put my free-market economics cards on the table. 

The second surveyed the key research in the field of labor economics. As is often the case, the published, peer-reviewed literature supports the laissez-faire approach to economic policy. Had de Vriend read that second piece of mine perhaps he would not have had to rely on left-wing arguments when contributing to Oregon’s premier public policy blog that’s devoted to “free-market, federalism, and freedom.”

He strangely makes the claim that because mathematical models hold their independent variables constant, which is what “all other things being equal” means in the context of economic research, equilibriums don’t exist. That’s a tough position to hold given how the price of corn does not deviate in a random fashion from one grocery store to another but instead converges within a narrow range, why bond yields don’t drop below the risk-free rate, and why even if our state and local governments were enamoured with exporting fossil fuels from Coos Bay, no export terminals will be built in Jordan Cove until the price of natural gas rises in Japan to make such exports feasible.

Those are the signs of equilibrium. Indeed we see an equilibrium in migration across the open borders between the State of Mississippi and wealthier US states with more economic opportunity.

There’s some irony here, because de Vriend himself is peddling an economic theory that relies on an “all other things being equal” assumption too. In this case, it’s been proven to be a mistaken assumption, that increasing the supply of labor generally reduces job opportunity. Called the Lump of Labor Fallacy, de Vriend’s approach to economics fails to see how the demand for labor fails to remain constant when labor inputs are increased.

That’s often how folks on the left preface their remarks. They dismiss the deep insight the scientific study of economic policy offers, because empirical rigor rarely finds evidence of a net-benefit from government intervention. Without the constraint of falsifiability, people who believe in government solutions then offer us even worse theories, making the worst assumption of them all: that government bureaucrats can decide better than market participants, what the optimal supply should be.

The folks in Washington D.C. might interpret data as poorly as de Vriend has here. We are surrounded by indicators of a tight labor market where everyone can get a job if he truly wants to work, but de Vriend embraces a data point that tells us little about the demand for labor. By citing a shoddy study advocating we raise the minimum wage by the left-wing think tank, The Economic Policy Institute, de Vriend’s mentioning the fact that among “young college graduates, 9.7 percent are neither enrolled nor employed (compared with 8.4 percent in 2007)” does not tell us how many of that 9.7% are backpacking through Europe.

The most accurate metric for the labor market is the unemployment rate. That’s because people who actually need a job either have one or look for one. People who have dropped out of the labor force tend to value their leisure more than the employment prospects of a healthy economy.

It’s easy for uninformed people to imagine there are vast numbers of potential employees who have given up looking for work and will as de Vriend claims not “refuse work if offered.” Yet they are missing in the data. Most of the drop in labor force participation in the last 15 years is explained by baby-boomer retirement. The rest is explained by greater enrollment in school by young and middle-aged adults.

People on the left who don’t like Capitalism have long tried to pretend the unemployment rate is deceptively low. This canard has become popular among Republicans who are moving away from free-market economics in a populist age that seems to be flirting with national socialism.

This is a non-trivial matter, because turning our back on the dynamism of an American economy that has enjoyed unprecedented wealth since its founding as an open economy will ultimately hurt a lot of people, and with our low labor force participation rates and low fertility rates, less legal immigrants means less job opportunity for native-born Americans. That’s, of course, the opposite effect of the RAISE Act’s eponymous intent, but that’s what government intervention into the economy often brings, unintended effects.

The efficacy of the term “economic man” does not depend on us all being perfectly rational. It’s simply a term to describe the fact that firms are indeed profit maximizers and households are truly utility maximizers. When people behave in this natural way, they are not “scrooges” as progressives claim. They are just people acting in a way that tends to make us better off.

This behavior leads to the long-run trend toward economic efficiency that made the economic theories of John Maynard Keynes ineffective. That’s why he came up with the mistaken excuse that in the long-run we’re all dead. That left-wing refrain has become a worn-out pretext for people who advocate for more government regulation; so it’s fitting that de Vriend would offer us yet another progressive argument as he does the same.

De Vriend also made some passing reference to noneconomic aspects of immigration. I haven’t gotten to them yet, because I’ve been having so much fun writing about TriMet recently. But I will.

Eric Shierman lives in Salem and is the author of A Brief History of Political Cultural Change

  • John Fairplay

    “Most of the drop in labor force participation in the last 15 years is explained by baby-boomer retirement.”

    This probably requires further explanation. First, it seems obvious that a person who has “retired” would no longer be counted as available for work. If they are being counted, that’s a different kind of problem with the statistics.

    More importantly, it implies massive “early” retirement for the Baby Boomer generation, the leading edge of which was only 46 years old in 2002 (15 years ago). Technically, only the first half-dozen years of this 19-year generation have reached what we think of as “retirement age.”

    In recent months there has been a shift in the narrative about the Baby Boomers, from having previously been described as “the richest generation in American history” to “can’t afford to retire.” This shift bears watching.

    • Eric Shierman

      Economists tend not to make that mistake, but politicians and populists do quite frequently. The headline unemployment rate, what the Bureau of Labor Statistics calls “U3” is the number of people in the labor force without a job divided by the size of the labor force.

      The first year of the baby boom generation was 1946, a year delay for the gestation period of post-war conceptions when fertile veterans began immediately making love not war. People born in 1946 were 56 years old in 2002. I’m not sure how you’re a decade off. Today they are 71 and will not be doing either menial jobs nor much STEM field work either, no matter how much we cut legal immigration to this country.

      Labor force participation closely correlates to the average age of a society. When the US population was made up of young parents in the 1950s, that rate was very high, but our labor force participation is now being shaped by the boomers’ lower fertility rates and longevity. This has actually be a rather steady, and observable trend when looking directly at the data.

  • Bob Clark

    Yes, I think the American native indians enjoyed the arrival of Europeans in the 1700 and 1800 hundreds. They assimilated us Europeans into their culture so well.

    This aside:
    We could use a bump up in legal in-migration rather than a reduction as in RAISE. (Domestic population births and deaths are basically going even, as couples tend to have no more than two children on average.)

    But the theory of just throwing open the borders and becoming we-are-the-world isn’t exactly without concern. Balance, baby, Balance. If a bump up gives us the benefits theorized here, then o.k. we can bump it up some more.

    • Eric Shierman

      I think we are more in agreement than not in terms of actual policy. I’ve been arguing against the RAISE Act in my articles. We should not be cutting legal immigration.

      Notice that Wim de Vriend was quoting my discussion down in the comment section about open borders. The context was an interlocutor had asked me what the optimal limit should be. I tend to respond to such questions by saying whatever the natural equilibrium is between our labor market and the supply of immigrants. The market will know what this optimal amount is, not politicians.

      Here’s a way that I might offer a concession to my retired BPA economist friend. A reasonable argument could be made that returning to America’s pre-1924 immigration policy is not unlike removing a dam. Sure there will be an equilibrium between precipitation and the steady flow of the river eventually, but we cannot empty the reservoir all at once.

      Along this metaphor, I think it would be reasonable to assume that we should only increase legal immigration slowly, studying and monitoring the effects as we go. A steady legal immigration growth rate as low as 3% a year would eventually reach the point where our quota is higher than the natural supply.

      • Bob Clark

        Thanks, Eric.

  • Wim de Vriend

    No, I did not read Shierman’s second article, because I didn’t know about it and I never saw it. But neither has he seen my article’s second,
    third and fourth installments, since they have not appeared yet. Reagan Knopp, the Catalyst’s editor, wanted to run them in succession, a week apart. I would rather have seen them appear on consecutive days, but that’s his prerogative. So, because those installments will cover more ground, part of our disagreement may be due to incomplete information.

    But maybe not, since at the very tail of his response Shierman writes that I “… made some passing reference to noneconomic aspects of immigration. I haven’t gotten to them yet …” Actually, anyone who read my article should have realized that noneconomic aspects are the very core of my argument, and I did devote several lines to them, in my second paragraph. The significance of the noneconomic factors is that people do not live according to economics textbooks, even if they do look for bargains at WalMart. Therefore the uncontrolled immigration that Shierman favors could raise havoc leading to serious social conflicts, especially if it brings in masses of incompatible people who are determined not to adopt the mores and customs of their host country but only want to sponge off the taxpayers. Those will be, in part, economic problems for welfare-state governments, but more importantly, the key words are social peace and harmony, which cannot exist between large, incompatible population groups. And as I will show in the other installments, those who promote such disruptions are playing with fire.

    I must say, being classified by Shierman as a left-winger is a brand new experience. And for his part, Shierman ought to consider that calling names is a typical tactic of ‘left-wing’ activists who have trouble answering their critics. He also misrepresents what I wrote about his ‘equilibrium’. My point was that just because you determine
    that by some economic measure we’ve reached an equilibrium, that doesn’t mean our society has achieved general joy and happiness; it may well be the reverse.

    Even more annoying is his use of pompous pedantry, and I quote: “That’s often how folks on the left preface their remarks . They dismiss the deep insight the scientific study of economic policy offers…” Ho-hum – time has certainly shown that the term ‘scientific’ makes a great cover for dubious theories. Climate change activists call their predictions ‘scientific’ too, and consider their results. For the test of anything pretending to be ‘scientific’ is its power to make predictions, which in the case of a ‘hard’ science like physics is fairly straightforward. But in the softer sciences, which include Shierman’s favorite, economics, even former Fed chairman Alan Greenspan has admitted that despite having hundreds of economists at his disposal, the Fed was always lousy at making predictions. Other economists put it stronger yet: during its entire existence the Fed had never even forecasted a recession. Famous economist Ezra Solomon, who served on president Nixon’s Council of Economic Advisers, concluded that the real purpose of economic forecasting must be to make astrology look respectable. Even Friedrich von Hayek, after winning a Nobel Prize in 1974, warned that his prize conferred “… an authority that in economics no man ought to possess.” Worse perhaps, prominent investment guru John Mauldin has compared the practice of economics to religion. His observation may explain why Shierman writes as if he’s a recently converted True Believer who is dazzled by The Light. But that light is not as bright as he thinks.

    For a final look at his pompous pedantry, I quote Shierman: “It’s easy for uninformed people to imagine …” , and also this: “I don’t know how trained you are in economics, but here’s an important concept you should master. Immigrants tend not to be substitutes for American workers. Immigrants tend to be a compliment.” I could reply in a similarly pedantic manner, by pointing out that he doesn’t know the difference between ‘complement’ and ‘compliment’, that ‘less immigrants’ should be ‘fewer immigrants’, and that his use of the expression ‘laisse fair’ has nothing to do with either Lassie or the
    Oregon Country Fair but is written ‘laissez-faire’, which is French for ‘Let happen’, or ‘Leave things alone’. But I won’t stoop that low, since making anything out of such errors would make me pompous and pedantic too.