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