Friday, 14 March 2014

Thoughts on Trichet

This afternoon I had the opportunity to see Jean-Claude Trichet, President of the European Central Bank from 2003 to 2011, give a speech about the Euro crisis at the Oxford Union. I have been known to describe him as 'the man who caused the Euro crisis,' but I was pleasantly surprised by his speech. The speech was everything you might expect – he described the 'extraordinarily accomodative' monetary policy of the ECB, and there was the usual handwringing about competitiveness and imbalances. But much of his speech was interesting nevertheless.


What struck me the most was how much the discussion focused on financial factors. He stressed the importance of the 'swift, bold' reaction of the world's central banks in preventing the collapse of the global financial system and averting a second Great Depression. He downplayed the role of interest rate policies, barely mentioning them in his main speech.


He stressed the importance of the cooperation of global central banks. I was puzzled by the importance he placed on the fact that the world's four major central banks all now agree on a definition of price stability at around 2%. I do not see why this is particularly crucial or relevant.


When asked whether he was concerned by zero interest rate policies, he argued that they were necessitated by the severity of the crisis. He sounded surprisingly market monetarist when he said this.


When asked whether the ECB should have acted more quickly and decisively to cut interest rates, he argued that interest rate policy was always focused on the medium-term inflation target and that all actions he took while president were made in light of this. He was sympathetic to the view that the ECB should at the present time be doing more to prevent inflation expectations from becoming unanchored in the downward direction. He seems to believe that the ECB's inflation target is symmetric. However, I don't know if he would recommend sticking to the status quo if Eurozone inflation were 3.2%, rather than the 0.8% figure he quoted.


His view seemed to be that the ECB had two major roles. Macro policy (interest rates) should be set to ensure price stability. Liquidity mechanisms and political oversight would then be needed as separate policies, to prevent problems in the real economy caused by financial or sovereign debt crises. My prior is that Europe's fiscal and financial problems would be far less systemic and severe if macro policy had been more aggressive. Trichet and the ECB think that, once you ensure price stability, by definition all other problems must be problems in the real economy and not caused by nominal issues.


An interesting side point he made was that, in the USA, 20% of investment is financed by banks and 80% is financed by the market, whereas this ratio is the exact reverse in Europe. This may explain his focus on the importance of financial policy and the disruption of monetary transmission mechanisms.


He mentioned the importance of greater democracy within the European project and in particular how more power should be in the hands of those members of the European Parliament who represent Eurozone countries. One of the most serious problems with the Eurozone is how it must rely on the dysfunctional institutions of the EU, where non-Eurozone countries fight increasing integration at every turn. This makes it much more difficult to respond to crises.


I was surprised that no questions were asked by the normally reliable Union audience about austerity, the flaws of neoliberalism, the evils of structural adjustment or the plight of the Greeks.


Overall I came out of the room with a higher opinion of Trichet than I had entered it with. He seemed thoughtful and less dogmatic than many European policymakers, although this is no doubt partly down to the fact than he no longer holds office.



At no point did he mention the word 'unemployment.'

Sunday, 2 June 2013

Insiders, Political Economy and The Reset

Tyler Cowen has a reminder for us:
It is a common observation that nominal wages are sticky but let’s not forget that real wages are often sticky too (and in fact nominal stickiness tends to matter much more when accompanied by real stickiness, but that is a point for another day.)  That means many labor market changes will be slow to manifest themselves in the real world.  Furthermore you often will see them first for new jobs, for the young, and for new labor market entrants (usually but not always the young)...Fear the reset.  The world will continue to produce much more value, and much more gdp, but who will capture that value is already changing dramatically and will continue to do so.
The consequence of real wage stickiness is that changes in the position of labour might be slow to manifest themselves, leading to a painful ‘reset’ where insiders lose their cushy priviliges.

Isn’t this a good thing? We don’t look at the examples of Greece and Italy, wring our hands and say, ‘Oh, if only the labour market was more heavily regulated and there were more insiders who could protect themselves from economic disruption.’* We see rather that labour markets are not flexible enough – and I think we’re right in that observation.

Similarly, the fact that insiders got health insurance and the outsiders didn’t was the exact problem that Obamacare sought to solve. Companies offering less generous plans or leaving their employees to buy coverage on exchanges was the intention of the legislation. The goal was to move healthcare away from the corporate-centric model, because that model doesn’t control costs properly and screws over anyone with a pre-existing condition.

The classical view, therefore, would be to say the reset is great! Move resources to productive activities! Cut unemployment! Increase efficiency! Bryan Caplan wants the reset and he wants it now.

But Cowen offers a reason why real wage flexibility might be a bad thing – the declining labour share of income. There’s a lot of discussion of a future in which the labour share of income is minimal, but maybe the problem of the deteriorating position of labour relative to other factors of production is worse than we think. If change is only taking place gradually, at the expense of a population of outsiders which grows only slowly while a shrinking but substantial fraction of insiders remain insulated, then the rate of change of labour share of income is sticky and there could be lots more negative distributional consequences on the way.

The argument goes thus: maybe the current system isn’t economically efficient, but it’s better at keeping what resources there are in the hands of the workers. Neoliberal wonks don’t like insider-dependent ways of helping the poor, like unions or the minimum wage, because they’re economically inefficient. They tend to argue for dismantling these kinds of protections in favour of better policies like tax credits.

The problem is that insider-centric policies have a political constituency, and the wonks’ policies don’t. Unions lobby for more union power. Big corporations which already pay above minimum wage like to make life harder for the competition. On the other hand, no-one wants to pay extra taxes in order to fund the EITC, or capital endowments. Therefore, it may be that pareto-efficient labour market flexibility is impossible, because once the protections are dismantled there’s no political constituency for helping the poor. With rising inequality, the political clout of the rich can only increase, helping them to entrench themselves as a new class of insiders, while ensuring that the poor are left out in the cold –  they lose the suboptimal redistributive policies that were helping them before, but don’t gain any optimal redistribution in return.

There’s a compelling case that this is exactly what’s been happening in recent years.
Resets show up more quickly in some sectors than others, most of all they come quickly when buyers and sellers have only sporadic and perhaps even anonymous contact with each other.  In other words, the reset comes more slowly for the mistress than for the street prostitute.  And when you see youth losing relative ground in labor markets, that is another signal that you should be worrying about resets.
Cowen’s ‘reset’ argument also casts the problem of labour market bifurcation in a wholly new light. The last few decades of economic growth have been much kinder to academics than they have to burger-flippers. But maybe what we’re really seeing is that there are more insiders at the high-skilled end of the labour market, who are better equipped to forestall their inevitable reset.

This is obviously true in some sectors. Cowen uses the great example of tenured professors, but you can look at public employees like teachers, or credentialist cartels run by doctors and lawyers. Maybe it’s not a coincidence that these have been the sectors most resistant to productivity growth. The ‘Great Stagnation’ hypothesis assumes that the reason developments in technology haven’t made much difference to retail or healthcare or transportation productivity is that we haven’t found ways to make tech work in these industries (yet). But perhaps the real reason is that there are powerful upper-middle-class insiders holding back MOOCs and Watson and Uber and tooth whitening. Part of the reason insiders are able to entrench themselves is low turnover and this is true of firms as well as individuals. A large fraction of productivity growth comes from low-productivity firms going out of business and resources being reallocated to high-productivity firms.

After all, it’s not obvious that there has been a wholesale deterioration of labour’s position in many of the ‘flexible’ sectors, and tech is a great example of this. It still provides lots of upper-middle-class jobs** and if wages aren’t soaring that’s not because the surplus is being appropriated by corporations but because it’s being taken by a) new entrants to that labour market and b) consumers.

Of course, maybe the causality goes in the other direction. Maybe tech is a ‘flexible’ sector because there’s lots of disruptive innovation going on in that industry. Maybe academics still have tenure because MOOCs haven’t really got off the ground yet, rather than the other way around. Maybe doctors can run their cartels because medical productivity growth is so slow.

If that’s the case, though, we should still celebrate the deteriorating position of insiders because it would mean productivity growth. Maybe insiders are dwindling because there is no Great Stagnation and prosperity is just around the corner.

*This might provide a useful window into the sometimes impenetrable thinking of people who use the word neoliberal a lot.

**(and might provide a lot more of them if insiders would let more people live in San Francisco)

Wednesday, 22 May 2013

Lessons from Apple's Tax Avoidance


The scandal of the day is that Apple has been using a hostof tricks and loopholes in order to avoid paying tax on its enormous global profits. Naturally, everyone’s using this as a chance to draw their own preferred policy conclusions. Matt Yglesias is hardly alone in suggesting that it’s the US corporate tax code that’s the problem. But it’s hard to see a future in which the US tax code isn’t a problem – and that’s an important fact to consider when taking a step back and looking at corporation tax more broadly.

The government needs money to pay for roads, police, schools, hospitals and pensions. That money has got to come from somewhere, and as a democratic society we have to make decisions about how much of that money should come from the rich relative to the poor. We also have to make decisions about how to actually collect that money.

Mitt Romney got a lot of stick for his infamous comment that ‘corporations are people’ and yet he and his detractors were actually making much the same point. Apple is not a person, and as such it can’t pay taxes. When the government taxes Apple it doesn’t take money away from Apple the corporation. It takes money away from Apple’s shareholders, who own those profits.*

This makes corporation tax a roundabout way of taxing rich people. Another way to tax rich people would be to take money from them directly. The appeal of corporate taxation as a way of getting at rich people’s money is that, if it’s not too distortionary, it might be easier to do and harder to avoid than if we tried to tax rich people directly. Clearly, though, the Apple fiasco suggests that, in a globalised world, it’s really really hard to squeeze money out of corporations. And Yglesias' followup echoes Derek Thompson in hitting the nail on the head – we’re never going to be able to effectively tax corporations. So what’s the point in doing it if it would be easier just to go straight after the rich people?

Sidenote: There is one side benefit of corporate over individual taxation – individual taxes apply only to people living in your country, whereas corporation tax allows the government to get revenue from rich foreigners’ investments as well. If your aim is to squeeze the most money out of foreign shareholders, though, the best strategy is to set your corporate rate low, Ireland-style, so that lots of foreigners redirect their corporate tax liabilities to your country.

*To make things simpler, I’m going to make the heroically generous assumption that the incidence of corporate taxation falls entirely on shareholders and not on workers etc.

Monday, 20 May 2013

Immigration Tariffs vs. Auctions, or Becker vs. Peri


Ashok Rao has a new post laying out a proposal for an immigration permit auction, as suggested by prominent immigration economist Geovanni Peri. This is a great idea, and it would definitely be a major improvement for public policy, especially if the number of visas auctioned was substantially higher than current immigration levels.

That said, it isn't the only way you could do market-based immigration policy. One alternative would be to have an immigration tariff, as advocated by Gary Becker. Instead of auctioning a fixed number of permits, the government would sell as many permits as demanded at a fixed price. The benefits of this kind of system are broadly the same as the benefits of an auction Ashok describes in his post. However, there are a few subtle differences that for me suggest a tariff might be a better way to go.

The first reason to prefer a tariff is that it means the market is more responsive to shifts in supply and demand. In a boom, more people want to come to the country and the economy ‘wants’ more immigrants. In a recession, the opposite is true. Using the auction system, the same number of people come – all that changes is the price. Under a tariff regime, on the other hand, the number of migrants is free to fluctuate according to the needs of the economy. This is true on a micro as well as a macro level.  If a new computing technology creates a sudden need for hordes of Indian programmers, or demand for immigrant builders goes up following a huge natural disaster, then the policy responds by allowing more immigrants. Yes, the government could adjust the number of auctioned permits according to economic circumstances, but it is better that changes in the number of migrants be market-driven, rather than decided by bureaucratic assessments of ‘need.’

Having a fixed tariff price, or at least a planned price schedule, also gives a level of certainty to the market. If I live in Mexico and my family is saving up to buy my way into the USA, I want to know how much I’m going to need to squirrel away. With an auction, the price will vary from year to year, perhaps dramatically, and there will be no guarantee that my savings will prove sufficient to get me a permit this year, or even next year. Tariffs solve this problem.

A criticism of immigration tariffs are that it is difficult to know how many people will come. If permits are auctioned, then the government knows what the level of immigration will be. There will be no concerns about a ‘flood’ of immigrants driving up house prices, overwhelming public services and so forth. Under a tariff system, things are much murkier – immigration is very difficult to forecast, as the UK government found to its embarrassment in the mid-noughties. However, that might serve as a feature and not a bug. It’s difficult for a politician to stand up and say that he wants millions upon millions of immigrants to be allowed in every year. It might be easier to sell to the public the policy of letting in anyone who coughs up £20000, even though the two policies might be equivalent. Voters are also reassured that every immigrant who arrives will ‘pay their way,’ whereas under an auction system there is the possibility (however unlikely) that the price will fall very low, creating the fear that people might get in ‘for free.’

A final, practical point is that tariffs would be far easier to administrate. It’s obviously feasible to design a working auction system, but it would be complicated. There’s a lot of room for the government to screw up, and there would almost certainly be teething problems to start with. It might also be simpler to verify the buyer’s identity and administer a background check under a tariff system.

Ultimately, I think the parallel with international trade holds – tariffs are better than quotas. An immigration tariff would be more sensitive to the needs of the market, less bureaucratic, in some ways more predictable, and maybe even more politically palatable than an auction system.

Thursday, 9 May 2013

Why not everyone should pay into the system


There’s an idea going around that it’s a bad thing when poor people don’t pay taxes. This has manifested itself in the infamous Mitt Romney ‘47%’ gaffe and also in the debate here in the UK about contributory benefits, the personal allowance and whether people should be getting benefits out of a system they haven’t paid into. The central argument is that, if you don’t pay taxes, you’re going to want to increase the provision of public services – all public services – because you get a share of whatever scant benefits there might be from the increase, and you don’t have to pay for any of it.

There are a couple of standard objections to this view. One is that poor people do pay a lot of taxes, in the form of social insurance contributions, consumption taxes and so on. Another says that, even if people don’t pay taxes one year, they might pay taxes the next; certainly, many of the 47% has paid income tax recently, and might again soon. There’s also a related life-cycle issue – many people not paying taxes are retirees or students, who have paid or will pay taxes at some other time in their life.

Then there's the argument that social insurance is just that - insurance - and just like with, say, home insurance, if some people get back much more than they paid in, it's a feature rather than a bug.

I’m going to explore a few other objections, though.

Firstly, it confuses average and marginal costs and benefits. If I’m going to vote for more spending, the cost to me of that spending isn’t the taxes I already pay – it’s the extra tax I’d pay to finance that spending. I might not pay any tax now, but if the government increases spending, it might pay for that by lowering tax thresholds so that I will pay tax in the future, or raise one of the kinds of taxes that I do pay, like VAT. Whether or not I pay taxes now has little to do with whether or not I will pay the cost of a rise in spending.

Equally, the myth of the squeezed middle (more on this later) allows many people to argue for ‘free’ benefits – not because the middle class doesn’t pay taxes, but because at the margin any tax rise is going to fall on the rich. This is obvious in the USA, where the Democrats are pushing for higher taxes on the rich and only on the rich, and consequently the alternative of spending cuts looks comparatively unpalatable.*

Secondly, the simple fact of whether or not I’ve paid into the system doesn’t really matter that much. If I paid £1 in income tax last year, it’s not going to make me dramatically more averse to increased spending than if I didn’t pay anything. As a result, even if the tax rate paid by the poor was important, the 47% statistic would still be meaningless. What’s important is the average tax rate paid by the poor. And that becomes an argument against any and all redistribution, which no-one** advocates (even flat-tax advocates think that benefits should be progressive).

Thirdly, while people are self-interested voters at the margin, on average they are actually quite civic-minded. Bryan Caplan's excellent articleThe Myth of the Rational Voter, was widely derided for calling voters idiots, but one of the interesting things it pointed out is that voters don't tend to vote for the things that will be best for them. People vote for farm subsidies not because they benefit them but because they (mistakenly) think that it will be good for society. Equally, even if poor people not paying tax had a marginal effect on how likely they were to vote for extra benefits, it wouldn't be the only or even the most important deciding factor. They might still vote against it if they thought that was what was best for society.

Summary: if anyone ever tries to argue that taxing the poor is vital for preserving democracy, tell them they're an idiot.

*This argument is starting to look a bit politically slanted. Of course, from a Rawlsian/utilitarian perspective, if you can get benefits to the poor and middle class solely by taxing the rich, maybe that’s a great thing.
**Apologies to any anarcho-capitalists I may have offended by this statement. I love you really.

Wednesday, 1 May 2013

The Pope Is Right – Bangladeshis Are Slaves


The new Pope has come out and called the conditions of Bangladeshi workers like the 400 tragically killed in a building collapse last week ‘slave labour,’ and he’s right.*

Let's be clear. He’s not right because ‘not paying a fair wage’ and ‘only looking to make a profit’ are things that ‘go against God.’ Here, I’m firmly on the side of Matt Yglesias’ posts on the subject (which were widely criticised). Essentially, there’s a tradeoff between work safety and employment/wages. As Bangladeshis get more productive, they’re going to work less, and they’re going to be willing to give up some of their rising wages in order to make their workplaces safer. This will happen, just like it happened in the UK in the 19th and early 20th century, and just like it happened in China over the past couple of decades. Until it does, we should be wary of imposing higher labour standards, because poor Bangladeshis probably prefer long hours and unsafe conditions to reduced wages. Once Bangladeshis get richer and more productive, working conditions will improve – and government legislation will likely follow the improvement in conditions rather than lead it.

Rather, the Pope is right because the Bangladeshis are slaves in another way. Or, more accurately, they’re serfs. Back in the days when the Pope had significant lands and armies, Europe was ruled by feudal lords. Peasants working on the land weren’t slaves – the lords didn’t own them – but there were tight legal restrictions on their freedom to move to the next farm over. That meant lords didn’t have to compete for labour – you couldn’t just work for someone else who offered better wages and conditions, which meant there was little incentive for your current lord to offer you better wages and conditions. It hurt the economy, too, as people were unable to work where they would be most productive.
Of course, serfdom is complete anathema today. It’s obvious to everyone that the feudal system was destructive and immoral. Nothing like that could ever happen now. Right?
Imagine that there are a large number of corporations who would love to hire Bangladeshi workers at fair wages and with good conditions. If the Bangladeshi employers wanted to keep their workers, they would have to pay higher wages and provide better working conditions.

This isn't just a hypothetical. These companies do exist. Sadly, however, they’re mostly based in North America and Europe. There are legal restrictions on where Bangladeshis are allowed to live and work which prevent them from working for said companies, stifling competition. That's what makes the Bangladeshi's willing to accept the bad wages and working conditions - they have no alternative. As long as serfdom is allowed to persist, the serfs won’t have much chance of earning a fair wage in a safe environment.

On the other hand, feudalism long ago ceased to exist. So maybe there’s some hope that things will improve.

*It’s worth noting that the building itself was illegal under existing Bangladeshi law. Like the Pope, I’m going to focus more on wider issues of labour exploitation in Bangladesh.

Sunday, 17 March 2013

Kuehn on Immigration

The always interesting Daniel Kuehn has a thought-provoking post on immigration:
1. It's a really bad idea to give high skill immigrants a leg up in the immigration process. It's market planning that we would balk at if we did it for foreign investment or foreign trade but for some reason it's palatable for foreign flows in labor. We do not have high skill labor shortages and decades of research has shown that. The high skill immigration programs are often exploitative of workers. Science and engineering market failures are principally on the demand side, not the supply side. Plus it simply goes against our values. If we went all-in for an Australian or Canadian style points system program we might as well just remove the "huddled masses yearning to breathe free" plaque from the Statue of Liberty.
There’s something to this argument if you see immigration through the lens of comparative advantage, as this Bryan Caplan post does. We gain from trade when we trade things we are relatively better at making for things that other people are relatively better than making. But of course certain goods and in particular many services are much harder to trade across borders – that’s one reason why the gains of immigration are so high in the first place. So from this perspective, we don’t want to be letting in people who can produce the things we’re just as good at producing – academics and computer scientists. We want to let in the people who are low-skilled, because their opportunity cost of producing low-wage services is much lower than ours, so there can be huge gains from trade.

That’s fine as far as it goes. But there are a bunch of other good reasons why you’d want to promote high-skilled immigration. For one thing, one of the biggest benefits of freer immigration are agglomeration economies. When people cluster together, they all get a lot more productive. There are reasons to think that these effects are more important for high-skilled workers. If you’re a waiter, your productivity is not really affected that much by the number and quality of the other waiters around you. But if you’re a scientist or an entrepreneur, then you do gain a lot from getting to work with and share ideas with a larger population of other scientists and entrepreneurs. I don’t have any hard evidence to hand, but anecdotally the ‘place premium’ is higher for higher skilled workers, for this reason. Moving a physics PhD from Somalia to California raises their productivity more than it would an unskilled worker’s.

From the perspective of American welfare, which Kuehn thinks is what we should focus on, there are also benefits from high-skilled immigration. An influx of very low skilled immigrants would increase local inequality, with its attendant costs – lower civic trust, worse social cohesion and so on. Higher-skilled immigrants are more likely to assimilate more quickly into American society. Obviously the higher immigrants’ incomes, the larger the fiscal benefits, meaning a lower tax burden on current Americans. And given diminishing marginal utility of income, we should be more worried about wage suppression of low-skilled native workers than the high-skilled.

Of course, there are other reasons to accept the low-skilled in. They themselves are likely to experience a bigger improvement in their living standards than a high-skilled person would. And the costs of filtering out the high-skilled from the low-skilled are probably quite high, leading to an expensive and bureaucratic system that ends up deterring all potential immigrants from applying. So a mixed bag of immigrants is probably more desirable.
2. Illegal immigrants are exactly who we want here and occasional amnesty is not that bad of a policy. Most people insist they love immigrants but want them to be here legally and talk about how illegal immigration is unfair to people who wait in line to be legal immigrants. But being an illegal immigrant reveals important information about the immigrant: these people really want to be here. They want to be here so much they will take personal risks to avoid the wait. They also like American society more than they like Congress or the federal bureaucracy. That doesn't seem like that bad of a perspective to have. People will also sometimes talk about how amnesty is bad because it sends mixed signals and it will indicate that our commitment to immigration enforcement isn't credible. But amnesty legitimates the immigrants who have revealed this important information about themselves in the decision to come over illegally. Of course there are a lot of problems with illegal immigration, even for the immigrant themselves. They obviously don't get to live fulfilling lives while their status is in that kind of limbo. So I'm not necessarily advocating restricting immigration flows just to get a crop of dedicated illegals. What I'm saying is that people need to think about the self-selection implied by illegal immigration and realize that those are exactly the sort of people we want as fellow citizens. How many natives would go to such length to get into the United States?

Again, to some extent I agree with this – self-selection is an important part of why immigrants are so great for the country and the economy. But that’s true of any kind of immigration. The kind of people who are desirable enough employees for companies to subject themselves to the H1-B visa process are going to be the ‘best’ immigrants. The kind of people who would scrimp and save in order to pay an immigration tariff would be the ‘best’ immigrants. Even under completely open borders, the kind of people who would be willing to uproot themselves and their families in search of a better life would be the ‘best’ immigrants.

And illegal immigration is obviously horribly inefficient. Mexican ‘coyotes’ could be doing something much more productive. So could document forgers. The immigrants would be able to do their jobs a lot better if they could work on the books.

More than that, though, the strategy of illegal immigration followed by amnesty as a backdoor way of increasing immigration is counterproductive. It marginalises immigrants, makes voters less empathetic towards them – and if the majority of voters don’t think you’re ‘like me’ then the law is not going to treat you well. A sense that the law is being flouted doesn’t endear people to more immigration. If immigrants were permitted to come legally then they would assimilate much better into society, be more likely to speak English and probably people would feel better about letting them in.

Now, I know Daniel isn’t suggesting that this is a first-best policy, and I agree with him that we could do a lot worse than periodic amnesty for large numbers of illegal immigrants. But that’s hardly a ringing endorsement for the policy.

3. The population that should benefit from immigration policy is a moving target. You hear two different things on this issue. First, the Bryan Caplan types think that we should maximize global welfare. I think this is obviously wrong. When we get together to form a government we do it to satisfy our own needs and internalize our own externalities. The world should have no expectation of free riding on our collective action. That doesn't mean we don't care about the world when we make policy - it's only to say that the social welfare of the world should only enter policymaking to the extent that American citizens value the social welfare of the world. So policy should be made to maximize the welfare of Americans. This is fine for most policy, except immigration. When it comes to immigration the very question of which population has standing in these decisions is a moving target because the whole policy debate is about who is and is not an American! Now it's possible there's a stochastically dominant policy that will be preferred no matter what the population of "Americans" that we decide on is, but that's not guaranteed. The question of whose utility we are maximizing and what immigration policy should be is self-referential. What I draw from that is that we shouldn't stake too much on thinking about a specific population that we're trying to help. We should rely on other decision rules and principles. The Bryan Caplan types should stop talking about what's best for the world and the rest of the country besides the Bryan Caplan types should stop talking about what's best for Americans.
As a Bryan Caplan type, I have a good counterargument to this, which is that the world is not free-riding on our collective action. Freedom of movement is not something we graciously allow, it’s something we gratuitously restrict. When we restrict immigration, we are killing, not letting die. We are chaining Julio to the tree. And it’s pretty obvious that we shouldn’t be allowed to do whatever we want to foreign people if it makes the ‘master race’ better off.

I do think it’s a tough question to think about. If we admit that we’re trying to maximise the welfare of Americans, that naturally leads to the question – which Americans? Do the children of potential immigrants, who would be citizens, count? Schools in the USA are a lot better than in Mexico. How much more weight should we assign to low-income Americans’ wages as opposed to high-income?

So Kuehn decides that we shouldn’t assess the policy on utilitarian grounds at all. But then if we don’t think about policy based on whether it would increase welfare, what do we decide based on? If we see freedom of migration as a natural right, then it would be unjust to restrict immigration even if it did substantially decrease global welfare – but it’s clear that Kuehn doesn’t take this view. So what criteria is he using to evaluate immigration policy?

Ultimately, I think the answer to this has to be a Pareto-efficient immigration policy. Because the benefits of immigration are so large, we could easily design the policy in a way that increased everyone’s welfare. Then we wouldn’t have to care so much about which groups’ welfare we should be thinking about.