Economic Orthodoxy: Immigration And Trade

Both of my Harvard colleague bloggers, Greg Mankiw and Dani Rodrik, have chimed in with reactions on the NYT article about economists' "growing will to challenge fundamental assumptions". It's interesting that they both quoted exactly the same few beginning lines of the article:

For many economists, questioning free-market orthodoxy is akin to expressing a belief in intelligent design at a Darwin convention: Those who doubt the naturally beneficial workings of the market are considered either deluded or crazy.

And that they both left out this particular bit that appeared just after that:

...“There is much too much ideology,” said Alan S. Blinder, a professor at Princeton and a former vice chairman of the Federal Reserve Board. Economics, he added, is “often a triumph of theory over fact.” Mr. Blinder helped kindle the discussion by publicly warning in speeches and articles this year that as many as 30 million to 40 million Americans could lose their jobs to lower-paid workers abroad. Just by raising doubts about the unmitigated benefits of free trade, he made headlines and had colleagues rubbing their eyes in astonishment.

“What I’ve learned is anyone who says anything even obliquely that sounds hostile to free trade is treated as an apostate,” Mr. Blinder said.

I think Blinder makes a valid point. There are some fields in economics--for example, labor--that are heavily empirical. The voice of the data rules. There are other fields in economics that are much less empirical and have a much stronger tradition of theoretically derived prescriptions. For example, trade.

It is telling that when labor economists decided to study the costs and benefits of immigration, they chose to do so not by deriving ever fancier models, but by looking at data and interpreting the data with the help of economic models. My impression of the debate over trade is very different. It has been mostly guided by the insights gleaned from ever fancier models, and the use of empirical analysis to get some validation on those theories is a much more recent phenomenon.

As an example, my work on immigration interests both labor and trade economists. My general impression--formed by years of seminars and conversations--is that labor economists are much more agnostic about immigration and are willing to let the chips fall where they may, whereas trade economists, who tend to view labor flows through their theoretical prism, are much more wedded to not deviating from their doctrine.

So maybe we need to modify the underlying hypothesis of the ongoing debate slightly. Not all economists are created equal. Some economists are much more willing to let the data speak--and these attitudes, I suspect, vary strongly by field.

Comments

[BRM]

By the way, talking about the contest between facts and prevailing paradigms, Robert Putnam's paper on diversity and social capital is now available online:
http://www.blackwell-synergy.com/doi/full/10.1111/j.1467-9477.2007.00176.x

Prof. Borjas, it would be interesting to get your take on this sometime ...

[Sydney]

You know that I too have felt that our problems with immigration stem from the demand created by businesses. If there were some way to really clamp down on the businesses perhaps this would be one aspect that should be included in any immigration bill. The most important thing is to get these illegal workers documented some way or another so we can keep up with them. Honestly, it would be hard to do this, just think about the farming industry and migrant workers that come for a few months to work, just trying to control that industry would be hard enough.
This question about immigration has intrigued me for some time now, probably simply because there is no quick solution. No matter what we may dangle in the face of the illegals, still may not convince them into turning themselves in to partake the proper process of becoming a citizen or documented. There's definitely going to have to be a lot trust going around...and looking at our present government that's hard to find. Anyways, I would like to share a feed from my site that introduces a different topic with regards to immigration. I call it "language racism"
http://skcvoyager.blogspot.com/2007/07/language-racism.html
I think that with our current problems in immigration, we will see more and more problems like the one I mentioned on my blog. Be sure that in a year or sooner, the notion of "language racism" will be heard around the States.

[AgingITGuy]

I understand your point, but how many labor (or any ilk) economists have spoken out publicly against 'free' trade?

I've heard more climatologists disagree with Al Gore's "settled science" of global warming than economists question 'free' trade.

Lack of an effective dissenting voice on 'free' trade will cost America greatly if Dr. Blinder is correct.

[RP]

I'm a little confused by this comment.

Economists focused on the 'trade' aspect of immigration generally support immigration because they expect it to increase *overall* productivity (see, for example, Lant Pritchett, Alan Winters, & Hamilton & Whalley).

Alternatively, Borjas - at least in his book - takes a more restrictive stand because he focuses on the effect of immigration citizens alone.

If this is correct (and I will be happy for a correction if it is not), the difference has little or nothing to do with 'theory vs. fact' and everything to do with a prior normative commitment (namely: should we value benefits to foreigners on the same level with domestic benefits?).

[tommy]

"If this is correct (and I will be happy for a correction if it is not), the difference has little or nothing to do with 'theory vs. fact' and everything to do with a prior normative commitment (namely: should we value benefits to foreigners on the same level with domestic benefits?)."

It doesn't take a prior normative commitment to determine what the effects of a given immigration policy will be on native-born citizens. That is strictly within the realm of positive economics. Whether those effects are acceptable or not would be a normative judgment.

The fact is that many libertarians, arguing entirely from theory, tout unrestricted immigration as a boon to citizens economically. Deciding whether or not that is true isn't merely a normative determination.

[RP]

OK, I agree that if the point is supposed to be that libertarians tout immigration as a boon to citizens, the determination is an empirical one.

However, this is not the argument of people like Winters, Pritchett, etc. who argue for loosening restrictions on movement.

[tommy]

"However, this is not the argument of people like Winters, Pritchett, etc. who argue for loosening restrictions on movement."

Well, let us take a look at Pritchett, for example. I think Pritchett's simplistic worldview speaks for itself:
http://www.nytimes.com/2007/06/10/magazine/10global-t.html?pagewanted=5&ei=5090&en=b2344bf2519fb672&ex=1339128000&partner=rssuserland&emc=rss

'Those are migration allies. People who think migration is too high — 12 percent of Americans are foreign-born — say that Pritchett is prescribing cultural suicide. “All guest-worker programs result in permanent settlement,” says Mark Krikorian of the Center for Immigration Studies, a Washington group that seeks less immigration. Some workers will overstay their visas, he warns. Advocates and employers will lobby for extensions. And guest workers will increase illegal immigration by attracting relatives and friends. Krikorian fears that immigrants are already forming parallel societies whose numbers do not even bother to learn English; adding to the 36 million already here, he said, would speed the cultural secession. “You’d have more ‘Press 2 for Swahili,’ no question about that,” he says. “It’d be a complete catastrophe.”

Pritchett responds in character — defiantly. Moral coarsening? “We’re already being morally coarsened by allowing people to live as fourth-class citizens in the rest of the world,” Pritchett says. “We’re just not forced to confront it.” Scale? Yes, his plan would start small (by global terms), but Pritchett argues that it contains the seeds of its own expansion. With lots of old people to support, rich countries will “get hooked on” the migrants’ labor and especially on the taxes they pay into retiree health and pension funds. And if, as critics fear, the migrants stay, then yes, Pritchett does believe the U.S. could eventually swallow 300 million of the global poor. “It’s a big, empty country,” he says.'

300 million? No problem, it's a big empty country, after all!

Let us not even get into the issue of whether or not the First World keeps the Third World down (as Pritchett seems to believe) or whether the Third World keeps itself down; instead let us look at Pritchett's sleight-of-hand:

You'll notice before all of this that Pritchett argues guest worker programs can be developed that lead only to temporary increases in immigration rather than permanent increases. When someone objects, he doesn't even attempt to refute the point. Instead, he shifts his proposal from positive to normative grounds. (Who cares if we really can't keep it temporary?) This is very typical of open borders advocates.

'With more access to global labor markets, Pritchett predicts some poor countries will develop quickly while others, like Zambia, will depopulate into giant ghost towns as the world grows comfortable with higher levels of permanent migration. Eventually — over a century, say — the combination of population adjustments and policy innovation will raise the living standards of most poor countries to that of the West without pulling the West down, just as the rise of the Japanese has not meant the fall of Americans. The labor forces of the West are shrinking, which, he says, should keep wages high despite increased migration. Whether or not his forecasts are correct — the track record of his field is not reassuring — he has pondered the economics.'

Pritchett obviously doesn't take IQ seriously. That's a fatal mistake.

'But the greatest risk posed by the Pritchett plan is cultural conflict, or even conflagration, which Pritchett greets with a shrug. “I don’t think about it a lot because I’m an economist,” he says. “If you say your culture can’t survive an influx of migrants, you have a pretty dim view of your culture.” Cultures change all the time, he figures, and change is not to be feared. A century hence, nations will still exist, but in a more ecumenical way. Germans will accept Turkish mosques, and Turkey will accept Christian spires, and everyone will be free to come and go as long as they obey the law. Here he sounds less like Adam Smith than Rodney King: “Can’t we all just get along?”'

Sheesh. Is this guy for real? Come back to Earth, Mr. Pritchett!

You see, the consequences of immigration that Pritchett would like to dismiss with a wave of the hand are very much within the realm of positive rather than normative debate.

[George Weinbaum]

Looking at economists and immigration, I think of astronomers and epicycles. Eventually the economists fancy models will break down