2016-07-18

Loss Of Status As Anti-Immigrant Backlash

One of the reasons mercantilism was so difficult to defeat among the kings of the western world centuries ago was that it's really difficult to convince somebody that they are wealthy if they're not staring at a huge vault full of gold bars and coins.

You might, for example, own a mortgage. If you spend $1500 in rent every month, and then move into a home and take on a mortgage that costs $1500 per month, you won't feel any richer than you were before, but in fact you are. And the more you pay into your mortgage, the wealthier you'll be. A mortgage payment isn't really an expense in the same sense that your electricity bill is an expense, because as you pay into your mortgage, you retain a part of that payment in the form of equity, i.e. wealth.

In this way, your wealth grows even though your lifestyle hasn't noticeably changed. You won't consider yourself any wealthier than the next-door neighbor from your old apartment complex because you're both spending $1500 a month. Only after decades will you realize how much better off you became.

The Small-Mindedness Of Comparative Wealth

There's a comparison between that situation and the freedom of labor movement across national borders. Our lives improve every day as a result of worldwide economic development, but our incomes are rising much slower than they are in, say, Mumbai. We feel like we're losing something because our way of life seems more common, less exceptional. We look to politicians to do something about it, by managing trade and immigration restrictions, to keep our firms and our salaries "competitive," meaning higher than they are in other countries. It's an understandable desire.

But why do Indians have to suffer in poverty just to make us feel better about our lives? Why can't we simply be happy that we have all the iPhones and craft beer we can get our hands on, and Chinese people are getting more and more access to that lifestyle, too? Why must we define our prosperity in relative terms? In short, if everyone's lives are getting better, why is it particularly important that American lives are getting exceptionally so?

What is it about the poverty of foreign peoples that make us feel better about ourselves?

On Immigration

Tyler Cowen responds to Bryan Caplan on anti-immigrant "backlash" in the United Kingdom. (Caplan makes his main claim a little better in this older post, so start there.)

Caplan's claim is that social opposition to immigration is strongest in the areas where immigration happens least. He cites some specific examples, but I think the conclusion is fairly intuitive: A small community is going to react more harshly to a single unusual newcomer than they will to dozens of them. Consider American attitudes toward divorce: when it was rare, society treated divorcees harshly; as it grew more common, attitudes changed. The same has held true for Chinese restaurants, atheism, taco trucks, K-pop, and alternative sexual identities. The more unusual something is, the more push-back it will face. We see it all the time.

Cowen responds to this idea by saying that "changes often have different effects than levels." What he means is that a community that experiences a 10% increase in immigration will tend to experience more backlash than one that experiences a 1% increase, even if the latter results in more total immigrants (e.g., if it is a larger community). This is a thoughtful, albeit weak, point since, in the case of a small community, the first few immigrants to arrive would represent the largest percentage change in immigration. In other words, it's a story that is fully consistent with Caplan's.

Cowen makes two other points: (1) There is a selection bias in the type of person immigrating, i.e. Cowen believes that pleasant immigrants (intelligent, skilled, highly assimilated) end up in London, while unpleasant immigrants end up in Birmingham. (2) The current "backlash" is a symptom of post-1980s changes to UK immigration policy, so if those changes aren't fast enough to avoid what Caplan's talking about, then nothing will be.

Regarding that first point, it's worth noting that Cowen doesn't actually make this case, he simply asserts that it's true. Even if it is true, it requires more analysis. For example, the only immigrants to Iowa corn fields are people who intend to farm corn. That's a function of the corn field, not on the attributes of the immigrant. Moreover, immigration is low to corn fields, so this hardly weakens Caplan's claims at all.

Cowen's point about backlash is less obviously wrong, but I feel more strongly about it, and it's the one that inspired this post. The "backlash" thesis relies on the assumption that the distress over immigration is directly tied to the specific policies in question. That's a tough claim to prove, and it's likely true that the UK would have experienced a significant increase in immigration even had its policies remained unchanged. The Caplan thesis would predict that backlash against immigration would have been even stronger in that case, and I that may be true. Who knows? (Once again, Cowen doesn't really defeat the argument at all.)

Even if not, though, it's important to consider why, beyond the changing appearance of a neighborhood, people are voicing any backlash at all. Here is where mercantilism comes in.

Back To Mercantilism

What if all this isn't really backlash against immigrants, but rather against stagnant nominal wages dressed up as anti-immigrant backlash? What if the western world is experiencing a large and painful real wage deflation as it faces stiffer competition from non-western labor? The Chinese are already far better than the west at manufacturing. The tech world commonly outsources its coding work to low-priced programmers in India, Pakistan, and the Ukraine. Textiles haven't really been made in the west for a long time now, aside from luxury tailoring. And while agricultural output is still substantial in the United States (thanks largely to immigration, please note), the west could hardly be considered the breadbasket of the world's food supply. The one area of commerce in which the west seems to excel is the least economically meritable: bureaucracy (corporate and public).

In light of this trend, it's important for people to remember that their wages will continue to stagnate whether or not the immigrants come. Look at the tech world: we're being out-competed even over VPN! Should governments make immigration even more difficult than it already is, and the immigrants stop coming, then the backlash we see against immigration will convert itself into an anti-trade backlash as people come to believe that foreign products, rather than foreign people, are to blame for their woes.

Meanwhile, though, we are living better at similar income levels - all of us, western and non-western. We are better-educated than ever before. We have access to technology that has literally revolutionized our way of life for the better. We have better health care, more entertainment, greater access to things previously considered "luxury goods" (like Caribbean cruises, which can sometimes be had for hundreds of dollars, well within middle class reach), a cleaner environment (despite challenges), and pretty much more of everything.

But we don't feel it unless we're able to point to some other country and see, "There! Misery! I have it so much better than they do!" This is lunacy.

Nor is this mainly a macroeconomic problem. When Walmart arrives in town, people weep for the loss of their precious mom-and-pop shops despite the fact that Walmart brings prosperity with it. The fact that the owners of mom-and-pop shops often enjoy their lifestyles at the expense of the community, in the form of high prices, is lost on many people.

And, hey, it's understandable. If you've made a comfortable living for yourself by charging more for products and services than your competitors, simply because your community can't gain access to outside markets, you'll be highly resistant to those outside markets when they finally come knocking. Musicians rue the losses they've suffered at the hands of music broadcast systems. Data-crunchers gnash their teeth in the face of automated cloud-based services that render their Excel sheets obsolete.

The story is always the same: The steady march of economic progress raises wealth by lowering prices, and the price that gets lowered is often an income, often your income. It's pointless wringing our hands over it, but it's particularly ill-advised when our collective lot in life is getting better with every step. That's freedom, for you.

Freedom, however, is not something people are accustomed to anymore, and many of us would simply rather be better-off than Joe, rather than being better-off in relation to ourselves.