23 September 2011

Logical Conclusions

Sometimes economists can be complete idiots:

What is the biggest single drag on the beleaguered global economy? Opponents of globalisation might point to the current crisis, which shrank the world economy by about 5%. Proponents of globalisation might point to the remaining barriers to international flows of goods and capital, which also serve to shrink the world economy by approximately 5%. That sounds like a lot.
But the truly big fish are swimming elsewhere. The world impoverishes itself much more through blocking international migration than any other single class of international policy. A modest relaxation of barriers to human mobility between countries would bring more global economic prosperity than the total elimination of all remaining policy barriers to goods trade - every tariff, every quota - plus the elimination of every last restriction on the free movement of capital. [Emphasis added.]

Now, this conclusion is necessitated by a belief in free trade.  If goods and services can move about freely then it stands to reason that labor must also be allowed to move about freely.  If the free trade of goods and services increases wealth by virtue of lower prices then the same must be true of free labor.

I’ve addressed the stupidity of the “free trade” advocates before, so I won’t do it again here.  However, I will address the problems with the concept of free labor.

First, the economic models used to demonstrate the wisdom of free labor often ignore the simple fact that the conditions facilitating trade in the first place are predicated on culture, and that allowing people from one culture to interact with the trade-oriented culture will diminish the support for the very conditions that allow for trade in the first place.  In other words, all cultures are different.  Some are pro-trade, others are not, and some are only pro-trade when the benefits are staggeringly obvious.  Expecting radically different cultures to interact with one another without also expecting a change in the cultural institutions that harbored that interaction in the first place is astonishingly stupid, and, indeed, ignorant of basic human nature.

This mindset, that the free market will be enough to ensure that all people from all cultures will behave rationally and interact peacefully with one another, is predicated on the wholly fallacious assumptions that people are inherently rational, that all cultures are equivalent, and that cultural biases and prejudices are easily overcome.  Of course, the real world differs significantly from this model.  People are not rational creatures; they are rationalizing creatures.  And, shockingly, people still hate people from other countries simply because they’re from other countries!

Economic growth is rarely (perfectly) linear and never guaranteed.  Furthermore, the conditions for growth are vast and complex, and so it is the height of arrogance to think that models that inaccurately measure a few irrelevant variables are going to make for a compelling argument.  Yet, this is precisely what economists are doing when they argue for free labor.

Second, free labor (and, come to think of it, free trade) advocates tend to ignore the very simple fact that wealth is not based on being able to buy things at lower prices.  Lower prices are the effect, not the cause.  Quite simply, economists ignore fundamental microeconomic principles, leading to this wacky macroeconomic theory.

Wealth, fundamentally, comes from producing something of value, whether for yourself or someone else.  As long as you value that which you’ve created in the quantity in which you’ve supplied it, you have created wealth.  If you create something that someone else values in the quantity in which they value it, you have created wealth.

The standard macroeconomic theory posits that people are effectively wealthier when they can consume more products at identical or lower prices.  Of course, this thinking extends to labor, with the argument being that cheaper labor enables one to produce more with less (in essence, the decreased cost of inputs means that cheaper labor translates to greater economic activity).

This argument is technically true, but irrelevant.  Lower prices as a result of cheap labor does not make consumers wealthier because consumption is, by definition, destructive since one is using up a resource.  What makes consumers wealthier is their own personal production, not lower prices.  Lower prices, in a sense, give the illusion of wealth because they make it easier for poor people to have the things that rich people once exclusively enjoyed.  Note that this is not to condemn lower prices in and of themselves, but rather to clarify that lower prices are no substitute for production.

And so, the argument made by free trade and free labor apologists is largely irrelevant.  Lower prices do not make people inherently wealthier.  Instead, they reveal how other people have become wealthier by improving their means and methods of production.  Confusing cause and effect is a fundamental error, and one that is often overlooked in this debate.

In sum, the argument for free movement of labor completely ignores human nature, as well as basic economic principles.  As such, it does not merit any further discussion, nor should it be taken seriously.

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