Remember all the old Canadian nationalists? The ones who said that the (Canada-US) Free Trade Agreement would destroy Canadian culture? The ones we economists defeated back in the 1988 election? I'm beginning to wish we hadn't defeated them quite so thoroughly.
They were wrong. But they sorta, kinda, did have a point. Social/economic institutions are endogenous. They are not part of the unchanging geological landscape. Social/economic institutions are part of what people do; they are part of how people interact with each other, and expect others to interact with them. And, at least in principle, there is no reason why those social/economic institutions should be exogenous with respect to our imports and exports. And there is, or there used to be, a whole school of Canadian economics that pushed exactly that idea. So if you could make a reasonable case that the FTA and importing or exporting more apples would cause Canadian social/economic institutions to become, well, like North Korea, then OK. All that guff about comparative advantage and economies of scale and the gains from trade wouldn't be very convincing.
"The essence of the economic case for migration is very simple: it is the same as the case for markets in general. If people take decisions on the basis of their own economic self-interest, this will maximise overall welfare. This applies to where people live and work just as much, if not more, than it applies to buying and selling goods and services. Of course markets fail here, as elsewhere, and "more market" is not always better. But the view that, as a general proposition, markets are good at allocating resources – including human resources – is widely shared among economists.
And this analogy holds in a narrower, more technical sense as well. The classic argument for free trade, as advanced by Adam Smith, is not just analogous to, but formally identical to, the argument for free movement. It is easy to see this. In economic terms, allowing somebody to come to your country and trade with you (or work for you, or employ you) is identical to removing trade barriers with their country." [bold added]
Sometimes I am proud of what some people unkindly call economists' "autism". At other times I despair. This is one of those other times.
Importing people is not like importing apples.
It's not just "labour services" and "consumer demand" that crosses the border; it's people. And there's a lot more to people than just bundles of labour services and consumer demands, where tariffs and transport costs make the only difference to whether they are inside or outside the borders.
"Total Factor Productivity" is not some geological feature like the Canadian shield. There has to be a reason why some countries are rich and other countries are basket cases, and unless you are lucky enough to find yourselves sitting on great reservoirs of oil that someone else will pay you to pump out of the ground, that reason seems to have something to do with social/economic institutions, and social/economic institutions seem to have something to do with people.
If you have a model which treats Total Factor Productivity as exogenous, then yes, if "resources" flow from places with low TFP to places with high TFP, as they will if the invisible hand is allowed to operate, that would be a Good Thing. But you need to stop and ask: "Hang on. I wonder why TFP is higher in some places than in others?" Which should lead you to the next question: "I wonder if TFP really would be exogenous to the sort of policy experiment I'm using my model for?". Which should lead you to the next question: "I wonder if social/economic institutions really would be exogenous to the sort of policy experiment I'm using my model for?"
How exactly will social/economic institutions change when we import people? God only knows. They might change for the better; they might change for the worse. It depends on them; it depends on us. But they almost certainly will change. And if you can't even see that question, and wonder about it, then you really are missing something that even the great unwashed uneducated rabble can see. And the great unwashed uneducated rabble are going to put even less credence on what you intellectual elites are telling them they ought to think.
Mrs Thatcher was not wrong, but misunderstood. There is such a thing as society, but society is not something that exists apart from the rules of action and belief of the people who create that society on an ongoing basis. We don't just do it once and leave it cast in concrete; we re-create it every day. And as Hobbes said, Total Factor Productivity wasn't so great in the State of Nature.
Worthwhile Canadian Initiative 
Sorry, wrong link. Here’s the one.
Ryan, are you using xtreg? Random or fixed effects or…?
Thanks, Tom. Farmer is mistaken, though, when he says that “…if an allocation of goods is not Pareto Optimal, it is very bad indeed.”
There is, in fact, an infinite number of “non-Pareto optimal” allocations that would be ethically superior to an infinite number of “Pareto optimal” allocations. So Pareto optimality is an even weaker criterion than Farmer suggests!
Pareto’s objectives were irreconcilable. He wanted to transcend value judgments — interpersonal comparisons of utility — while basing the assessment of collective utility on the aggregation of individual utilities. HELLO? That second objective is a value judgment. I’m not saying it’s a “bad” value judgment. People are entitled to their opinions. But it is inconsistent with the proclaimed “scientific” intention. I am of the view that it is better to acknowledge one’s priors rather than to pretend that they are self-evident, unquestionable and objective. To do otherwise is either foolish or dishonest (or both). That’s MY value judgment.
xtreg. Punt Stata. Use R!
And so concludes another episode of why you can never win arguments on the internet. Tune in tomorrow for “Scientific socialism: how scientific is it?”
Sandwichman
Quick! Look here! Someone on the Internet is wrong! Oh the humanity!
Avon, looks like David Glasner was interested in some of your comments in a prior post.
Avon, check out David Glasner’s latest post: “There Is No Intertemporal Budget Constraint.” You’re quoted there several places.
Frances, the regression I mentioned used long differences. The long differences are really the core of the paper. We later had a two period panel with fixed effects. This is getting sufficiently wonkish that maybe we should switch to email….?
I do understand that London is no longer England but the question is, is London worse than England? Being a small country relative to US/Canada etc, its institutions/society have been affected significantly by the immigrants. Has the institution/society become weaker? Canada and US also provide good examples of measuring such impact. US has cities that have a large immigrant (read non-white) population as someone mentioned Miami and cities where the native population is dominant. And we can use it as a proxy for controlled experiment to how the immigration has affected society/institutions.
Jonathan Portes’s claim that immigration necessarily maximises “overall welfare” is very questionable. For example given the small proportion of Muslims who go out to work in the UK, and given their lack of skills, the idea that they improve the economic welfare of the UK is plainly absurd, though obviously they improve their OWN welfare when moving from the average (relatively poor) Muslim country to Europe. That explains (revelation of the century this) the migration people from Muslim countries to Europe (and the US).
For the proportion of different religious groups who go out to work, see here:
https://twitter.com/RalphMus/status/677354863022444546
.
This is a good article, not because it asked the right question but because it is leading to the right question.
If you are concerned about the effects upon social economic cultural institutions, the very first question you should ask is,”What are their current states and what do we perceive their optimal states to be”.
You have to know where you are where you want to be before you can assess change rates.
Next you should fully recognize the importance of the above institutions. Culture is pretty much all that separates the civilized from the barbaric and it is very malleable.
Do we currently clearly promote values such as honesty, ethics, civility, adherence to rule of law, nonviolence, conflict resolution that is nonviolent and under law, that sort of thing. Or do we quietly allow signals that suggest such things are for fools?
In any case, anything that is widespread, not just immigration, can have an effect and until there is a conscious acceptance of the importance of culture and a recognition of its malleability, we are doomed to be on a drifting entropic ship, hoping we avoid the rocks.
Thank you.
Avraam Jack Dectis
Nick makes a very good point: immigrants are not mere “factors of production,” but full blown people. Avon Barksdale “answers” this by… treating them as mere factors of production!
@Ibrahim Khalil: “I do understand that London is no longer England but the question is, is London worse than England? Being a small country relative to US/Canada etc, its institutions/society have been affected significantly by the immigrants.”
In terms of population (which is what is import here) the UK is much larger than Canada.
“US has cities that have a large immigrant (read non-white) population…”
Here in Brooklyn, we have whole neighborhoods filled with Eastern European… well, until I read the above, I would have called them immigrants, but I can’t, because they are white?!
You have no idea about Pareto. There is no aggregation involved. None whatsoever, that’s the entire point of it.
If a small finite set of people all agree they are better off, and the rest of the larger group are at least no worse off… this must represent overall improvement, regardless of any aggregation.
The problem of Pareto is nothing like what you are saying, it just happens that most actions do have widespread effect and generally someone will be worse off.
Once you start making arbitrary distinctions like that, you might as well admit to doing an end run around the entire Pareto concept. Anyone who thinks they are worse off, by definition IS worse off, from their own subjective perspective. Thus, since all possible perspectives must necessarily be subjective, there’s no way forward without some sub-group just slamming the fist down and declaring their own opinion to be final.
In practice, that’s what happens. That’s what politics is all about… but nothing to do with Pareto improvement.
Tel: “There is no aggregation involved. None whatsoever… If a small finite set of people all agree they are better off, and the rest of the larger group are at least no worse off.”
Um. Perhaps, Tel, you should look up the word “aggregation” in a dictionary. While you’re browsing through the A’s have a look at “all.” That leaves “the rest” as yet another term denoting an aggregate, along with “set” and “group.” Whether or not I have any “idea about Pareto,” at least I have a clue about what words mean.
If Canadians are allowed to import foreign goods, including such obviously cultural goods as reading material, music and art, won’t that change Canadian culture in unpredictable ways? Why isn’t free trade in goods just as big a threat to Canadian TFP as open immigration?
And, granting (for the sake of argument) enormous uncertainty about cultural consequences, we still have little reason to privilege the status quo (of almost free trade plus serious restrictions on immigration)–why would our uncertainty make us favor that, when very different restrictions might be much better?
Finally, some policy of forcibly exporting people might well improve Canadian productivity, even in the long run (in the short run it’s a no-brainer).
Generally, if our uncertainty is as great as you make out, so that we are just blindly worrying about what might possibly happen, we (at least, the consequentialists among us) will not be able strongly to support any particular policy.
James: “Finally, some policy of forcibly exporting people might well improve Canadian productivity, even in the long run (in the short run it’s a no-brainer).”
See what you make of my extremely short post on the subject of open borders vs forced emigration
Sandwichman: Mastery of English will do you no good here; this is cconomics. ‘Aggregation’ is being used in a narrow sense here: Pareto was trying to finesse the problem of adding ‘utility’ across individuals – how could I know that my pleasure/pain is commensurate with yours? But notice that he does this by eliminating measurement entirely. Essentially, it gives a veto to every individual; neither the number of vetoes, nor the intensity of any individual’s rejection, matters. This is why Farmer erred to say that a non-Pareto state is ‘very bad indeed’, why it is grossly misleading to use the terms ‘optimal’ or ‘improvement’ with ‘Pareto’ – they apply only as a degenerate case. I think the term ‘Pareto stalemate’ is the best description of a state from which any change is a loss: stalemate in chess describes a situation in which no further move is permitted by the rules of the game. That is all a Pareto state amounts to.
Sandwichman > Um. Perhaps, Tel, you should look up the word “aggregation” in a dictionary. While you’re browsing through the A’s have a look at “all.” That leaves “the rest” as yet another term denoting an aggregate, along with “set” and “group.” Whether or not I have any “idea about Pareto,” at least I have a clue about what words mean.
In economics, aggregate utility (or whatever) means that we’ll take a net positive as an overall improvement. Someone’s large positive will more than cancel out someone else’s smaller negative, and we can accept that as an aggregate improvement.
As Tel explains, this concept of aggregation does not apply to Pareto improvements, where no one is allowed any negative.
Subjective evaluation makes summation of utility into a single quantity impossible.
Obviously interpersonal utility comparison is not necessary, nor even a consideration, if all you want to do is group people into a set. People can be grouped into a set based on anything you like… hair colour, length of toenails, quantity of naval lint.
I’m going to ignore your legalistic nitpicking attempting to reinterpret what Pareto is about, since all you are demonstrating is that you have no idea what Pareto is about… but I might have already mentioned that.
Ken, Rick and Tel
I would be much obliged if you would DOCUMENT your claims that in economics — or more narrowly in Paretian economics –“aggregate” ONLY refers to quantitative sums and cannot refer to mere groups, such as “all.” If you can’t document it with credible sources, I’ll have to interpret it as simply a pseudo-science cult practice qua Malinowski’s description of magic, “magic is surrounded by strict conditions: exact remembrance of a spell, unimpeachable performance of the rite, unswerving adhesion to the taboos and observances which shackle the magician. If any one of these is neglected, failure of magic follows.”
My understanding of Pareto comes entirely from secondary sources, most of them critical (some of them very, very critical), so you will forgive me if I am unaware of all the eccentric meanings of words that are required to be to have a coherent conversation about Pareto.
I do know, however, for a fact that “potential” Pareto improvement via a Kaldor-Hicks compensation principle is an utterly incoherent and fallacious argument. It seems to me that Kaldor-Hicks fiasco exemplifies the kind of mental masturbation that results from trying to “apply” Pareto’s peculiar achievement to the real world.
Ken, I am aware that Pareto was attempting to finesse the problem of interpersonal comparisons of utility. As I understand it, the attempt must be judged either a failure or a “success” of such extreme abstraction as to have no relevance to real world questions of allocation or distribution. My comment was in response to Avon Barkdale’s question, “But didn’t a Pareto improving trade happen?” So the alleged narrow technical meaning of aggregation you invoke is moot.
As for who is doing the “legalistic nitpicking,” Tel, I was referring to a generic, common usage of the word aggregation. It was you who invoked a supposed “technical” meaning of aggregation that allegedly excludes its common sense non-quantitative senses. SHOW ME THE EVIDENCE: authoritative sources, please. Otherwise it’s just another instance of the routine bullying that pervades economic discourse.
Rick,
“As Tel explains, this concept of aggregation does not apply to Pareto improvements, where no one is allowed any negative.”
As I recall from my readings, someone — perhaps it was Chipman — argued that “potential Pareto improvement” AKA Kaldor Hicks compensation principle was already implicit in Pareto’s exposition of his concept of what would constitute an improvement. I’ll see if I can find that argument.
Yes, it is in a 1976 article by Chipman, “The Paretian Heritage” in which he cites an explicit treatment by Pareto of the “compensation principle” on page 92. The two paragraph citation is from page 60 of Pareto, Vilfredo,” II massimo di utilita dato dalla libera concorrenza,” Giornale degli Economisti [2], 9 (July 1894), 48-66.
Tel,
“all you are demonstrating is that you have no idea what Pareto is about”
I have cited what Pareto wrote, other than that I claim no extra-textual (or extraterrestrial) insight into “what Pareto is about.” I would have copied and pasted the two paragraphs from Pareto except for the symbols. Instead I have sent a sreen capture of the text to a dropbox file https://www.dropbox.com/s/nj866kdsnu0i9f2/pareto.png?dl=0
I’ve showed you mine. Where’s yours?
Sandwichman, I looked at your screen capture, and the first thing I note is that no mention of “aggregate” nor “aggregation” nor anything similar is in there. I’m not entirely sure why you see this as evidence to support your assertion from above:
You have brought forth no evidence of any “aggregation of individual utilities”. There’s only one key phrase that’s relevant here from your material:
The concept of elliptical construction is that the author confers meaning without directly spelling it out, the reader is expected to fill in the gaps based on his/her knowledge of the context. This doesn’t translate to any aggregation in either a technical, nor common usage sense. Later in the same paragraph, Pareto does go right ahead to explicitly say that no such aggregation (in the technical sense) is possible:
An outright warning NOT to do the very thing you are accusing him of. There’s also the following warning on the topic of equality / inequality.
So it was already understood that inequality may happen, but that aspect was simply left for another discussion another day.
I can resist anything except temptation. 🙂
Bullying… HELLO? KNOCK KNOCK? ANYONE IN THERE MCFLY?
There’s plenty of nice plain and easy to read definitions out there (no symbols, no aggregation required):
From Investopedia:
Also a mention that Pareto improvement is a subset of Kaldor-Hicks improvement.
From wictionary:
From BusinessDictionary:
From Wikipedia:
Bullying… HELLO? KNOCK KNOCK? ANYONE IN THERE MCFLY?
Yeah, OK, I see what I’m dealing with here. I would be a fool to argue with someone of your capabilities.
And so concludes another episode of the Dunning-Kruger/Nyhan-Reifler hour. Tune in next week for “All your base are belong to us.”
Posted by: Sandwichman | February 10, 2016 at 05:59 PM
So it’s not hypocrisy when you do it, right Sandy?
Do what, Tel? What’s your beef?
I have yet to see any documentation of the astonishing claim that, contrary to standard usage, the whole does NOT refer to a collection of disparate elements in economics. I am not holding my breath because I’m pretty sure such a weapon of math destruction does not exist.
I’m not interested in playing schoolyard semantic games with a sophist. End of conversation.
Knock it off guys. You are way off-topic anyway.
It’s a fair theoretical point but its application is limited. We know that the economic effects of immigration that we can measure are generally positive in the aggregate, and if you consider the immigrants themselves in your social welfare calculations, they are extremely positive. What this is saying is that there might be some other stuff that will happen, perhaps, maybe, possibly that would mean the effects could be better or worse or who knows. It’s interesting to think about but we should base our conclusions and prescriptions on what we actually know.
And if you want to play the endogeneity game then we can. Fine, institutions are endogenous. Aren’t then the immigrants endogenous? If you have good institutions wouldn’t that attract exactly the kind of immigrants who have a preference for these very institutions? Which would just reinforce them and maybe even create a virtuous cycle?
(as an aside above Nick characterizes the receiving country as a monopolist and asks if it matters whether you set the price or the quantity. Maybe for a monopolist it doesn’t. But Canada does happen to have a big neighbor to the south which is also common destination. So are/should Canada and US be Cournot or Betrand competitors in charging migrants?)
(also there might be an interesting paper to be written about whether or not gulf countries actually compete for migrants from south asia that could shed some light on the above question)
notsneaky: Now we’re back on topic, thank God!
“If you have good institutions wouldn’t that attract exactly the kind of immigrants who have a preference for these very institutions? Which would just reinforce them and maybe even create a virtuous cycle?”
That’s the best-case scenario. Let there be 2 possible institutional systems. We don’t even have to say which one is “better” than the other, just that some like living under A and others like living under B. Then let the people flow both ways, and an initial cluster of 51% A’s/49% B’s in one area, and 51% B’s/49% A’s in some other area becomes 100%/0% in both areas.
But that is not always what we observe. We tend to see one-way flows. A very large percentage of people in poor dysfunctional countries want to move to rich successful countries. And we are forced to ask the question: do all those people who want to move actually subscribe to the institutions that create those good things, or do they just want the good things without subscribing to the institutions that create them? Because if such a large percentage really did subscribe to those institutions, how come those poor dysfunctional countries aren’t rich and successful already?
And multicultural relativism in the rich successful countries only makes the danger worse.
Nick,
So the Jews fleeing Germany in the 30s is because they couldn’t get their home institutions right? They were partly to blame?
“Because if such a large percentage really did subscribe to those institutions, how come those poor dysfunctional countries aren’t rich and successful already?”
I don’t know Nick, I think the fact that you’re asking this very question sort of goes back to whether you want to be proud or despair over economists’ supposed autism. Is it really that hard to think of multiple examples – which don’t have anything at all to do with immigration – of societies in which a large percentage of people would prefer different institutions than the ones they actually had to live under? It’s a bit like asking why there was slavery in the American south even though there was this very very large group of people who would have preferred something else. It’s a bit like worrying that the fugitive slaves who ran away up north were going to bring the system of slavery with them or something. The people who emigrate are not the ones who had chosen the institutions in their home countries (and in fact, that may very well be a big part of reason why they emigrated).
It’s a bit like asking “if so many Cuban-Americans really do believe in democracy and relatively free markets, how come present Cuba has neither?” I think that’d get you weird looks.
My training is as an economist, but I ran my university’s Canadian Studies program for a decade and in teaching in it spent a lot of time thinking and reading about Canadian values and immigration. These things do evolve, and it is realistic to think that our evolving population will affect them. But from my perspective I’d almost be prepared to argue that the values we hold dear in Canada are as much the result of immigration by “others” who we thought might not fit (and this goes back a long ways) and the change they brought as they are the product of the “old stock” Canadians (who among other things were incredibly racist, at least by today’s standards).
I think our values will survive. Lord knows they survived letting Nick in.
It would be reasonable to exclude both the best-case and the worst-case scenarios. That leaves us with the vast middle in which most immigrants would probably have only the foggiest notions about “institutions” — democratic, capitalistic or otherwise. And maybe that’s even a good thing. Witness the gun-toting, second-amendment spouting fanatics in the U.S.A. who suppose they know how to interpret their pocket constitutions.
If the answer to Nick’s questions about the exogeneity of Total Factor Productivity and social/economic institutions is “No,” which I think is the only credible answer, then the next question has to be “why am I even asking these questions instead of more salient questions about ethics and moral sentiments?” In my view, the answer to that question goes back to the futile — and bad faith — urge to exclude “value judgments” from “economic science.”
“I think our values will survive. Lord knows they survived letting Nick in.”
They also let me in. Our values cancel each other out.
“I think our values will survive. Lord knows they survived letting Nick in.”
They also let me in. Our values cancel each other out.
I’m going to try to keep on good terms with you folks, since I might be requesting you let me in depending on how the election goes down here. Should I start getting acclimated to “poutine” now, or do you think I can transition relatively quickly?
Hi Jim! “I think our values will survive. Lord knows they survived letting Nick in.”
So far. 😉
One case for optimism is that the Protestant/Catholic split, which used to be such a big deal in Canada, has now mostly disappeared. But then religious denominations aren’t the big deal they used to be.
But I worry a lot less about Canada than I do about other countries. EU countries for example, at the moment.
Did you ever get exposed to any of the Innis stuff? Especially with your stint in Canadian Studies. I know Robin Neill was into it. It seems to have pretty much disappeared from economics, AFAIK.
Tom: poutine is easy, provided you only eat it after a few days canoeing. But admitting that 1776 and all that was an unfortunate mistake, and swearing loyalty to Her Majesty, would be the thing.
“But admitting that 1776 and all that was an unfortunate mistake, and swearing loyalty to Her Majesty, would be the thing.”
No problem!! I’m willing to call 1812 in your favor too. Nice going BTW: burning Washington DC down and all… very impressive!
Tom
For all it’s shame and drudgery, bad presidents, and philandering congresses, the United States is still a wonderful country and humanity’s best hope. Just look at the gravity wave discovery this week. There is no way that gets off the ground without American leadership. Early this summer humanity got to see the surface of Pluto, again because of American leadership. Planet Earth is lucky to have enjoyed the American experiment.
Avon, I agree. It just makes me sick to see science-hating Jacobin flim-flam conspiracy theorists offered up as “conservatives.” To me conservative means being careful, measured, “prudent,” even tempered, dispassionate, skeptical, logical, and incrementalist. They’re supposed to be the adults: conservative, not hysterical & reactionary. I wish we had better choices. Sumner calls the “front runner’s” (Trump’s) combination of traits “100% pure unadulterated evil” [a little overboard perhaps] and Cochrane is now linking to “A Libertarian case for Bernie Sanders!” Well, I guess I’ve got to keep a sense of humor. Hopefully none of this is as important as all that. I’d like to see politics fade into the background again… with campaigns reduced to the excitement level of preliminary design reviews (actually, I’d tune in for that). But I gotta wonder about some of my fellow countrymen here…
Sorry Nick, I wondered off topic a bit.
Tom: in my opinion, unless you have a “conservative” (as you have defined it) immigration policy, you run the risk of a Trump coming along, smashing some Overton windows. Same in Europe.
Nick – I’ve actually read a lot of Innis, partly Robin’s fault. His Staples theory stuff still lingers on a bit in economic history, but I always found his communications theory writings a bit more interesting. In some ways following him on that technology seems a more obvious threat to Canadian values than immigration.
Jim: ” In some ways following him on that technology seems a more obvious threat to Canadian values than immigration.”
One of my really wacky ideas is that self-driving cars will be a bad thing for that sort of reason!