Leon J. Podles :: DIALOGUE

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One-handed Economists

December 1st, 2013 · 5 Comments

I think it was Harry Truman who said that he wanted a one-handed economist. When asked why, he said, economists were always saying in response to a policy question, “On one hand… on the other hand….” In economics, there are always trade-offs.

In the burst of enthusiasm among “progressive” Catholics that Pope Francis’s criticism of the current economic system, what is often forgotten is that good intentions do not produce good results. Extreme poverty has been decreasing throughout the world at an astonish rate, largely because of policies that allow poor nation to develop trade and bring more people into the market economy.

What this means is that workers in developed countries have felt downward pressure on their incomes. The good factory jobs have disappeared in the US. They have gone overseas where they allow millions to escape destitution and starvation. But profits have not declined. Although the American market may have lost comparative income, the incomes less-developed countries have expanded to produce far more customers for international companies. Inequality may be increasing not because poverty is increasing but because the people at the top have so many more customers. A movie star who has only American fans may be wealthy, but one who has fans all over the world is super-wealthy. But is this really unjust?

Unions gain a comparative advantage in wages for their members by restricting the labor market. They usually kept women and blacks out, and tariffs kept out foreign competition. But American workers now have to compete with workers in India, and the internal labor force has expanded with the addition of women and minorities. Some win, some lose, but overall poverty has been reduced.

Immigration also is a difficult issue. Immigrants put some downward pressure on American wages – how much is hotly contested. The fact that the Wall Street Journal supports open immigration should make one suspicious whether the ordinary workers will benefit from it. Companies would, especially tech companies who can bring in foreign tech workers who will work for less than Americans – who still make pretty good six figure incomes. Is it just to raise wages by limiting competition?

Immigration may also hurt poorer countries, as the most ambitious and educated leave for the U.S. Paul Collier raises the question in his NYT article Migration Hurts the Homeland. It is true that immigrants to the US can send home remittances and also bring home ideas about democracy and justice, but open immigration to the US can be harmful to poor countries.

There is migration that helps poor countries:

Migration is good for poor countries, but not in every form, and not in unlimited amounts. The migration that research shows is unambiguously beneficial is the kind in which young people travel to democracies like America for higher education and then go home. Not only do these young people bring back valuable skills directly learned in the classroom; they bring back political and social attitudes that they have assimilated from their classmates. Their skills raise the productivity of the unskilled majority, and their attitudes accelerate democratization.

And there is migration that can hurt poor countries:

But many poor countries have too much emigration. I do not mean that they would be better with none, but they would be better with less. The big winners from the emigration of the educated have been China and India. Because each has over a billion people, proportionately few people leave.

In contrast, small developing countries have high emigration rates, even if their economies are doing well: Ghana, for instance, has a rate of skilled emigration 12 times that of China. If, in addition, their economies are in trouble, they suffer an educational hemorrhage. The top rankings for skilled emigration are a roll call of the bottom billion. Haiti loses around 85 percent of its educated youth, a rate that is debilitating. Emigrants send money back, but it is palliative rather than transformative.

Even allowing refugees to come and stay in the US can hurt a poor country:

Seemingly the most incontestable case for a wider door is to provide a refuge for those fleeing societies in meltdown. The high-income democracies should indeed provide such a refuge, and this means letting more people in. But the right to refuge need not imply the right to residency. The people best equipped to flee from societies in meltdown are their elites: The truly poor cannot get farther than a camp over the border. Post-meltdown, the elites are needed back home. Yet if they have acquired permanent residence they are reluctant to return.

The type of people who come to the US may help us, but their own countries need them more:

Bright, young, enterprising people are catalysts of economic and political progress. They are like fairy godmothers, providing benefits, whether intended or inadvertent, to the rest of a society. Shifting more of the fairy godmothers from the poorest countries to the richest can be cast in various lights. It appeals to business as a cheap supply of talent. It appeals to economists as efficient, since the godmothers are indeed more productive in the rich world than the poor. (Unsurprisingly, our abundance of capital and skills raises their productivity.) It appeals to libertarians as freeing human choice from the deadening weight of bureaucratic control.

If we allowed open immigration, we might be helping individuals

but we might be feeding a vicious circle, in which home gets worse precisely because the fairy godmothers leave. Humanitarians become caught up trying to help individuals, and therefore miss the larger implications: There are poor people, and there are poor societies. An open door for the talented would help Facebook’s bottom line, but not the bottom billion.

Pope Francis and the American bishops seem unaware of the trade-offs in real-world situations. They want one-handed economists, but alas, real-world choices have unintended side effects. Helping “the poor” is not a simple matter, and good intentions do not guarantee good results.

Tags: Economics

5 responses so far ↓

  • 1 IllinoisCatholic // Dec 1, 2013 at 4:44 pm

    Wall Street has hollowed out the US economy. Where has the Church been for the past 50 years? Priests like Fr. Coughlin, despite their faults, understood what was going on. Globalization is just a euphemism for the Wall Street/City empire. Wall Street and what became known as the “American System” have been battling each other for centuries. Most American students of economics, unfortunately, are brainwashed into the Wall Street system.

  • 2 Mary // Dec 1, 2013 at 9:00 pm

    Leon ,
    I think your summation is a bit naive.
    The trend for most corporations now is to just keep their profits growing at an unrealistic pace while the middle class consumer has seen their wages stagnate or jobs disappear.
    Keeping profits growing minus any real trickle down economics has created a clique of the unimaginably wealthy. So much so, that the same unbridled greed infected the Vatican itself and was identified in and by members of the curia despite all efforts to keep it away from the press
    for the,” good of the Church.”
    http://www.amazon.com/Ratzinger-afraid-Adagio-Gianluigi-Nuzzi-ebook/dp/B00BMLDG3O
    Regarding outsourcing for competitive profits ,
    The Chinese are upset Chinese manufacturing of US corporations are moving onto Vietnam and leaving China.
    The Mexicans were upset when their US corporations relocated to China or S America.
    Meanwhile, much of Big Pharma has moved to other nations in order to avoid US taxes.

    Am I correct in my read that you believe trade agreements like Nafta and Tafta have helped the poor? It would seem that it has created a new breed of working poor here and elswhere, while austerity measures are pressing down on the middle class too. Homelessness has risen exponentially both here and in other nations. The new trade agreement that is coming looks like it will do little to improve a thing.
    http://www.exposethetpp.org/
    http://www.bloomberg.com/news/2013-10-18/families-with-kids-go-homeless-as-u-s-rents-exceed-pay-economy.html

    When governments seek to promote the interests of corporations over the good of their nation’s middle class it was once called fascism. Corporate banking included.
    “Originally, “fascism” referred to a political movement that was linked with corporatism and existed in a single country (Italy) for less than 30 years and ruled the country from 1922 to 1943 under the leadership of Benito Mussolini.”
    http://en.wikipedia.org/wiki/Definitions_of_fascism
    As far as immigration is concerned , people are just going anywhere they can to find work and feed their families or to escape civil unrest in their nation of origin.

    It would appear that rather than building a better society, corporations are seeking to please their shareholders and politicians are seeking to please their corporate sponsors. Economic think tanks, such as the libertarians, are also funded by corporate grants.
    So who is left to represent the middle class whose numbers are dropping into the poverty margins?

  • 3 Tony de New York // Dec 2, 2013 at 6:04 pm

    In el Salvador a lot of people have become LAZY since they expect money be sent to them from the U.S.A.

    Because of immigration to the States, there is a LOT of divorce and children growing up with only one parent or left alone with friends or extended families.

  • 4 Father Michael K // Dec 4, 2013 at 9:48 am

    Mary is right. The only countries I know of that have had a significant rise in living standard and real income for the majority of their citizens over the last 20 years are those in northern, mainland Europe. These countries have been inaccurately labeled as “socialist” by American commentators. In fact, they have mixed economies that lean much more towards the free market and capitalism. Denmark has seen a 120% increase in real income and Germany’s, though not quite so high, has also seen an impressive increase. Indeed, Germany’s mixed economy (Angela Merkel not withstanding) is the strongest in Europe.

  • 5 Mary // Dec 7, 2013 at 3:26 am

    “Unfettered Capitalism” as a ticket for fraud .

    The Wall St bailout of it’s criminality and complicity with the “creative” investment packages of bad mortgages is just one example of “unfettered” ( lifted restrictions and regulations that kept them in check ) capitalism.

    Since Wall St really went global cities all over the world that placed their assets in these bundled bad creations are in trouble and the bail out trickeled down on the average citizen.
    NOTHING has trickeled down that has been good for Ameican citizen’s , despite the insights of Sirico’s Acton economic think tank’s rhetoric.

    Below Obama also uses and hypocritically cites the Pope’s words.
    http://www.catholicculture.org/news/headlines/index.cfm?storyid=19883
    Truth is…………
    “Now both political parties would like to pin the blame for the decline of the United States economy on the other, but the truth is, both parties were complicit in tearing down the regulatory framework that would have mitigated, if not prevented, the disaster. The truth is, both parties were willing to give “Reaganomics” a try, and it was a huge experiment, designed to answer the question: “Should America’s government restrain itself from interfering in the free market economy, or should it maintain an involvement, acting when necessary to prevent and correct the abuses of corporations?”
    http://www.dailykos.com/story/2010/04/29/861900/-The-repeal-of-Glass-Steagall-who-voted-against-it

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