June 24, 2013

"How Immigration Can Hurt a Country" in theory, not just in reality

U. of Indiana economics professor Eric Rasmusen offers a theoretical model of "How Immigration Can Hurt a Country." 
Can immigration (or capital inflow) hurt the welfare of a country? Yes, if there are decreasing returns to the factor, as this little paper will explain. The idea is important, and probably is new -- at least, I couldn't fi nd it by a google search -- but an economics journal would say it is obvious, I think, so I probably will not try to publish it in a journal. I will post it on the web instead. I do hope it gets into the academic literature and the policy debates. If it is received favorably, I will tidy it up and put it into journal style, adding cites and superfluous generality, and checking my arithmetic. My target audience is trained economists even now, however. Please let me know if someone has already made the external diseconomy argument. I wouldn't be surprised if someone had done so back in the 1920's.

I've found that economic theory is a useful servant for understanding facts, but many bright people seem to view theory as the master to which their awareness of reality must be enslaved. For them, this paper might be an eye-opener.


Liz said...

I think little Alex Nowrastah at Cato would not open his eyes.

MC said...


"I wouldn't be surprised if someone had done so back in the 1920's."

You know, before willful ignorance was mandatory.

Anonymous said...

I've lived in the city of Toronto all my life, over fifty years. I don't need a professor to tell me immigration, that is to say, non-white, third world, immigration, has very badly hurt me, my community, city and country. When I was a boy, Toronto was white, safe, clean, prosperous, and had little crime. Violent crime was very rare. Now Toronto is none of these things.

Anonymous said...

The older I get, the more I think the 1924 immigration restriction act was the best thing that ever happened to America. And the 1965 immigration open doors act was the worst.

Anonymous said...

I've found that economic theory is a useful servant for understanding facts

You mean basically supply and demand, right?

drunk idiot said...

"U of Indiana" should read "Indiana University."

Unlike the University of Kansas, which, for some reason, goes by "KU," despite being the "U of Kansas," Indiana goes by "IU," and is "Indiana University."

Anonymous said...

The problem is that economics, like all the so-called 'social sciences' is definitely NOT based on replicable fact and observation, but instead it is based on opinion.
Therefore in this particular discipline more than any other discipline, (apart from sociology, perhaps), the central tendency is for unabashed, out-and-out ideologues to capture the subject and to bend theory to fit (or justify) their pre-conceived political prejudices.
In fact the hard-and-fast non-challengeable axioms of economics are few and far between, basicaly they are only variations of the theme of 'supply and demand' ie a thing is valued in proportion to its scarcity and usefulness.
But you even get the bullshitters challenging this, if it doesn't fit their political prejudices. If you attempt to sate the obvious (one would think) that a surfeit of labor reduces the price of labor, an ideoloical bullshitter (for that's what they are) will invoke something called 'lump of labor', lump of labor', and wil continue to screech this out like a parrot, convinced that this squawk proves that he is 'cleverer' than you and that the bullshit slogan actually proves anything (it doesn't).

Hunsdon said...

Anonydroid at 6:38 PM said: The older I get, the more I think the 1924 immigration restriction act was the best thing that ever happened to America. And the 1965 immigration open doors act was the worst.

Hunsdon said: You are not alone.

Luke Lea said...

A great little paper. But keep in mind that perfect competition models are pure mathematics, i.e., apriori in nature, which means their value is heuristic, they help us understand what the fundamental relationships might be given the law of diminishing returns.

In the real world nothing can be measured with much precision, inluding prices themselves, let alone the coefficients in the equations. All we know is that there is a law of diminishing returns -- ie, the curves are convex (to some indeterminable degree) from above. Thus there are no equal signs, no real equations, no functional relationships in the true mathematical sense, let alone continuous ones that can be diffentiated and integrated.

This is why all econometric models using equations and calculus are spurious, and why pretensions that economics is a science like physics is just that, pretensions. Economics is a pseudoscience -- which is born out by the fact that it is unable to make predictions about the real world. That's why predictions about the future of prices or of the macro-economy as a whole are based on polls of "leading" economists. It's like climate science in that regard except worse: at least climate science is potentially a science even if the climate is so poorly understood that it isn't there yet.

Does this mean economics is useless? Not at all. It just means that economics is an art based on logic and experience, including a knowledge of the history of economics and of economic history. Economics is an art, a moral art if you like, for statesmen trying to design policies that will tend to increase the welfare of this and succeeding generations.

Right now there are no such statemen out there, at least none who have power, with the possible exception of Bernanke.

Anyway that's my opinion after 40 years of thinking about these things and looking at the world I live in. Which isn't to say I didn't like this paper. I loved it. I wish policy makers and pundits would take it to heart as an aid to intuition about our current historical situation in so far as the American economy is concerned.

Anonymous said...

But we have lots of ethnic restaurants.

Anonymous said...

Hey Steve, you should check out the Strong Towns blog site.

What I found interesting in the paper was that the author also said that the same model could apply to in-country migration. It reminded me of the idea that a lot of our efforts to stimulate economic growth are a type of ponzi. Here is the relevant post, part 1 of 5 at that blog.


Old Odd Jobs said...

I wouldn't go so far as to call economics a pseudoscience, because there are a lot of economists who do not claim to be doing science!

Is history a science? Is medicine a science? Is coaching a football team a science?

People expect too much. They expect every field to have replicable solutions a la chemistry/physics and dismiss anything which doesn't meet these standards.