This post’s title is a nod to today’s (eventual) subject. I’m going to talk about and mathematically explore the whole ‘society of Einsteins‘ meme.
Whatever you think about them, and for better or worse, the George Mason University Libertarian(ish) Economists (G-Mules, for short) and the Mercatus Center scholars are a subset of what Moldbug calls the “Orange Line Libertarians” and are both major players in the econoblogosphere and opinion-making idea spreaders beyond. The fact that egg-head academics of this sort have the influence they do says a great deal about our era. There’s Cowen and Tabarrok at marginalrevolution, Kling now at his own place, Hanson at OB, Caplan et al at EconLog, Eli Dourado, etc. I like all of these folks, most of the time. You might throw in some of the GMU law professors too, but we’ll defer that until another day.
They have plenty of disagreements amongst themselves, and because Cowen is a Straussian Obscurantist who avoids clear wagers, there’s little hope of resolution.
Sometimes they are both in agreement with each other and in alignment with neoreactionary thought. For example, none of them has very nice things to say about Paul Krugman except that he’s one of the cleverest and best in the world at doing a very bad thing, but for what he imagines to be a good reason. A delusionally-noble Machiavellian super-villain of political word-smithing.
But on other subjects they are all allied against our shared ideas; this is most noticeable (because most frequently expressed as of late – in accordance with the media-politics cycle) on the subject of immigration.
Neoreactionaries (and most countries in the world on a practical, implemented-policy basis, not to mention choosy universities) favor selectionism. The selectionist position is that personnel is policy, and that there is nothing illegitimate about a government, sovereign over a piece of territory, (or, more abstractly, any organization of regulated membership) distinguishing between its citizens and foreigners, and owing only those citizens the professional-to-client suite of duties. These include loyalty, avoidance of conflict of interests, and vigorous and competent advocacy for the client’s benefit as the client would define them.
This doesn’t imply any antagonism towards or predation upon non-members, but it neither, in turn, implies any affirmative duty to restrict one’s conduct to actions which either improve, or are at least neutral, to the welfare of foreigners. Some games are unavoidably zero-sum (e.g. sports, or trials). You remain bound to try as hard as you can to win the case within the rules, even though if your client wins then the other party loses. Sorry, but that’s called reality.
Neoreactionaries are comfortable with a mild, gentlemanly requirement to treat non-members with benign indifference. The presumption is one of respect and agency – non members are responsible for, and perfectly capable of, tending to their own interests. For example, the management of the Apple corporation is expected to try as hard as it can to maximize the value of the shares held by its owners, even if this were to necessarily diminish the value of shares held by owners of the Microsoft and Google corporations. Worrying about Microsoft shareholders is not their concern, nor ought it to be. If an Apple shareholder feels badly for a holder of Microsoft stock, he may alleviate his empathy on his own accord, but the company’s management should not violate their duties and force him to do so against his will.
It’s a crazy and radical idea; I know. For nations, this notion also includes broadly regulating the conditions of entry and exit of foreigners across its borders and the process by which certain aliens of certain numbers can apply and achieve membership in the citizenry. Again – a fanatically, hyper-extreme position. How hateful.
The G-Mules disagree with this, with differing levels of adamance, but with most favoring an Open Borders policy on both Economic, and, as of late, Moral grounds. The intense Libertarian interest in these sorts of moralistic or ethical deontologically-originating pronouncements seems to be a recent phenomenon, and one that seems at odds with the anti-moralism, absolutist-individualist thread that remains its common, Individualized Utilitarianism approach to other questions, such as sexual activity or the prohibition of drugs. I don’t think I’m the only one who has noticed this, but the obvious dissonance isn’t stopping them.
The Left-Libertarians, ‘Liberaltarians’ and ‘Bleeding Heart Libertarians‘ are likewise incoherent species of this Rawls-inspired tendency towards Progressivism – whereas ‘Libertarian Paternalism’ is merely pretending to be ‘Hayekian’ but is being pushed mostly by very anti-Libertarian types. Not that there’s anything wrong with a properly targeted paternalism, of course there’s not, or that there’s something inherently correct about Libertarianism, but “as much choice as we can trust you to exercise responsibly” Libertarian Paternalism is to Libertarianism as Liberty Under The Soviets is to Liberty. Heavy on the Paternalism and the Soviet, not so much of the other stuff.
Regardless, the point is that we get a lot of sanctimonious scolding and self-righteous sermonizing from these folks these days, especially to upbraid any blasphemers on the evils of immigration control. Where is all this coming from, you ask?
Easy! It’s because Libertarianism is Racist. In three major ways.
The first way is the one that Foseti demonstrated. Even if you were to have some kind of biblical grand jubilee and erased all debts and distributed all capital equally, (and erase all hate and privilege, etc., etc.) it is most definitely in the nature of things that the market, in due time, would begin to redistribute income, jobs, anything scare and valuable, unequally.
Some people are naturally more talented, motivated, and effective at producing things other people demand and are willing to pay for, or in economic parlance, sacrifice alternative opportunities for. This even includes things like ‘sexual allure’, and we know well the lengths to which people will go to get themselves some of that.
Alas, Nature and God have conspired to fail to distribute these talents equally amongst the genders and various ethnic groups. It’s such an obvious truth – that one constantly observes everywhere one goes – that it’s clear as day to any honest bigot whose honesty, if public, revokes his progressivism-issued permit to earn a living. Someone once said:
For even when we were with you, this we commanded you, that if any would not work, neither should he eat.
A policy of that sort will sure encourage people to hussle, won’t it? Very ‘American’. Just a few years later, Trotsky observed the other edge of this incentivizing sword. That you could preserve this principle and simultaneously ensure everyone is fed by guaranteeing everyone jobs. You could do this because you created a new military-like collectivist economic system where you control all the jobs, assign them to everyone, and force them to work. Well, not ‘everyone’ of course; not your enemies. They just don’t get jobs. And so they do not eat. A cruel but powerful tool for control.
Today, you may notice the existence of the worst of all worlds combination; the preservation of the tool of control, but the absence of the original motivating moral principle. There are plenty of people who feed well without having to go to the trouble of expending their labor. There are plenty of people who want to labor, but aren’t allowed to do so by the people who, somehow, mysteriously, seem to have control over that. Because ‘social consequences’. Or something. All this in the ‘American’, ‘capitalist’, ‘free’ society. All the Puritanical moral enforcement but without the Puritan’s God. Where have we heard that one before?
So, without intervention and redistribution, (which Libertarians are supposed to presume are bad), you’re going to get disparate impact, which is wickedness beyond words. This rings up a serious intellectual conflict, and you can always end a war most quickly by surrendering. The Left-Libertarians are mostly-cool with this form of anti-racist, anti-inequality policy, and so are all Progressives. Not much daylight between them. So can we tell the difference?
Anyway, the second way actual Libertarianism is racist is that the contemporary definition of ‘racist’ also includes ‘insufficiently anti-racist’. And insufficiently anti-racist means not favoring ethnicity-and-gender-conscious government coercion to counteract the disparate impacts that would result from both impersonal market forces and personal preferences. (Hint: Libertarianism is supposed to be against, ‘ethnicity-and-gender-conscious government coercion’, so … oh snap.)
Any utilitarian philosophy that prioritizes individual preferences tends to run into some trouble when those preferences, the things that some people want, the things that make them happy without directly coercing anyone else are … ‘just plain wrong!’ Traditional Libertarianism, completely unlike Progressivism, had trouble pronouncing non-sadistic, non-coercive preferences as morally good or evil.
It claims to favor ‘freedom of association’, but doesn’t know what to do or think when racists or sexists wants to do it in their racist, sexist way. It can claim the free market made things better, but that argument doesn’t truck with those who get to weigh its validity. Equality and Liberty are values that sometimes conflict, and, when combined with a fairly severe ‘social consequences’ environment, Libertarian thinkers were compelled by necessity to stretch their minds tighter and tighter to try and square this stubborn circle.
Eventually, this rubber band is going to snap. It did so in two ways. The first was through Auster’s familiar ‘unpricipled exception‘. Don’t pretend there’s anything wrong with or worth changing about Libertarianism; just make a special exception for certain isms the progressives get to identify and the list of which they get to modify anytime they feel like it. You may note that this is also descriptive of a lot of the History of modern ‘Conservatism’.
Ah, but the other way the elastic pops is to join the Progressives and go all-in with the latest version of their moralism software (they never stop putting out new releases of their OS), with perhaps a few nods-to-actual-Libertarianism tweaks here and there in the kernel.
There is a strange, third way that Libertarianism is inherently racist. Not just racist, of course, but anti-minority in general (for which hell will have to begin construction on an additional level) and even self-contradictorily anti-Libertarian as implemented. Libertarianism has a Democracy problem, but it doesn’t know what to do about it. Demonstrating that Democracy is a horrible way to make rational collective decisions is just too easy, and that’s not what I’m getting at.
The problem is that most people don’t want Libertarianism in general (though they may want to legalize a specific drug here and there), but Libertarianism supports … people getting what they want, which is a lot of redistribution and government coercion. Whoops.
Libertarians also hope to shape opinion so that a larger portion of the voting, resident population favors Libertarian policies. But they also support allowing thwarted, would-be immigrants into the country, about whom we know empirically that their likelihood of supporting Libertarian policies is even lower than that of existing Western populations. Whoops-squared.
If more Libertarianism is good for us, individually and collectively, then a lower chance of Libertarianism is bad for us all, individually and collectively, and even for would-be-immigrants. Libertarians like Caplan say there is no paradox because voters are irrational and cannot be counted upon to know, let alone vote for, their own interests when the calculation becomes complex. Alas, I have yet to see any of them engage seriously with this fact; not even arguendo.
Furthermore, in a Democracy, majorities are going to vote for anti-Libertarian policy, and so they’ll get it, good and hard. Libertarians have to turn against Democracy (about as survivable a strategy these days as defending a racist’s right to be racist), or they have to favor some kind of Libertarian version of Constitutional interpretation which will forbid the Democracy from acting out its anti-Libertarian desires. Once upon a time such an interpretation actually ruled the day, but that time has long since passed.
But why shouldn’t the majority get what it wants, even if it’s anti-Libertarian? As David Friedman conceded in that video linked above, the Economic basis for Libertarianism cannot provide much of a moral foundation unless you go along with John Stuart Mill (On Liberty, Utilitarianism), and Jeremy Bentham (who looks a lot like Benjamin Franklin) and propose the axiom, “… it is the greatest happiness of the greatest number that is the measure of right and wrong …”
Sounds seductive as an ethical principle, just like ‘do unto others …’ but, as philosophers and bloggers have noted for centuries, without plenty of ‘grown-up qualifications‘ it leads us into a lot of absurdities, and maybe a few outright monstrosities when implemented politically.
Now, if you’re a Nozickian, (or any of the folks that MacIntyre wrote about in After Virtue) you might claim that it’s hopeless to try and compare incommensurables, or to calculate policy to optimize dynamic personal utilities, and thus to derive moral principles thereby. But the reality is that you need some metric to argue that some policy makes things better, so you need a notion of what ‘better’ is.
Most Libertarian Economists settle on the concept of Maximizing Net Social Welfare, (the economic component sometimes being conflated with GDP) and it is here that we run into two more kinds of racist trouble.
The first is that if you believe individual utilities are indeed commensurable (a shaky assumption deriving from egalitarianism, but whatever), and you combine that with a belief in the diminishing marginal utility of wealth (a more valid assumption, but not unassailable), then if Utilitarianism is a moral principle, then the Robin Hood strategy is also a moral principle. Take from the rich and give to the poor. Everybody’s doing it.
With maybe a little caveat to not take too much so that you break the Laffer Curve , or ruin constructive incentives too much, which would perhaps impede rates of innovation and productive factor accumulation, which would in turn leave less to redistribute in the future. Maximum Expected Value of Sustainable Robin-Hooding is about where you end up. Now, that does seem familiar, doesn’t it? And that’s also not very Libertarian, now is it?
But it is anti-racist, as defined above, and if Libertarians have trouble with it, then they’re racists. But more to the point, with a few progressive-favored exceptions, USG isn’t in the business of protecting liberty from democracy anymore.
It is, however, most definitely in the business of protecting minorities from majorities, that is … from racists, like Libertarian racists. But if you really believe in maximizing social welfare, and you believe you can approximate it by counting heads, then the logic dictates that you favor policies where majorities triumph over minorities. That’s definitely racist.
It can hardly make numerical sense under this paradigm if the interests of 95% of the population are subordinated to 5%. Even if the 5% perceived that they gained up to 19 times more than the 95% perceived they lost. If the 5% were willing to pay 20x what the 95% were willing to
extort accept for such accommodation, then perhaps we could sell indulgences, fashion law in a Coasian manner from trade and auction, but we don’t do things that way.
But if the same logic that justifies coercive redistribution also invalidates minority protections, how come the Progressives are absolutely obsessed with minority rights, no matter how much the majority desires otherwise, and no matter how small a minority it is (even 0.1%)? You need a kludge, and Rawls is here to help. Veils of Ignorance, Original-Position Social Contract Negotiation Blindness, yadda yadda … Social Justice! Universal Human Rights! (but not to bear arms.) Redistribution and Minority Favoritism! What’s not to like?
The government doing it, that’s what; at least for racist Libertarians. Moral principles are one thing. Believe what you want. Give away your own money; fine. But enforcing them coercively on dissenters through the government in a Socialism-lite manner is another thing, and racist Libertarians aren’t supposed to like that shizzle! And mostly they don’t. Which is why they are racists. Or maybe they’re not racists, but also they’re not Libertarians anymore either, they’ve just kept the name because it has positive connotations and valences that help them feel vaguely hip and above it all.
So, if you’re a racist Libertarian, not just in name but in some actual non-Progressive way, and your philosophy is inherently, triply racist, and yet you still want to be an invited party to the ‘Grand Conversation‘, then you are in critical, desperate need of some way to prove your anti-racist bonafides that lines up, even remotely, with ‘Libertarian Thought’. It would also help a lot if that position was shared by the same people who were in charge of selecting whom gets accused of racism and who is thus allowed to talk and earn a living at the same time.
Enter Immigration. And the ‘Society of Einsteins’. For nearly eight years now.
Let’s chronicle the evolution of this meme. Read the whole thing.
- 21-JAN-2006: “Where Eugenics Goes Wrong: The Implications of Comparative Advantage” – Bryan Caplan
- Let me begin with a thought experiment, then explain the general principle. Suppose we have an isolated society in which everyone is a genius. Let’s call them the Brains. Who takes out the garbage? A Brain, obviously. Who does the farming? Again, Brains.
- 25-JAN-2006: “Where Dysgenics Goes Wrong: Comparative Advantage Strikes Again” – Bryan Caplan
- 15-SEP-2010: “Against High-IQ Misanthropy” – Bryan Caplan (See Also Caplan’s: Selfish Reasons to Have More Kids)
- AUG-2013: “Immigrants and Native Workers: New Analysis Using Longitudinal Employer-Employee Data” – Mette Foged and Giovanni Peri
- 29-AUG-2013: “Unskilled Immigration To Denmark Increased Wages For Low-Skilled Danish People” – Matthew Yglesias
- 30-AUG-2013: “Immigration and wages – Alex Tabarrok”
- 03-SEP-2013: “Implicit Aristocracy” -Ly Cygne Gris
Now, a little aside. There has been a lot of econoblogosphere commentary on the issue of ‘economath’. Here is Kling, for example, who takes the view that there is too much Physics envy in the field, a theme he’ll explore in his upcoming book. I am sympathetic to the argument, but I think the piling on is over the top.
Furthermore, some kind of mathematical modelling, or the use of mathematical symbology to express relations and assumptions and logically explore interactions and interactions is particularly useful to avoid the myriad common abuses of the narrative style. The main thing is that it helps nail the slippery weasels down. One should always express a healthy skepticism of overprecise overconfidence from fields with such high inherent complexity, but one should avoid enabling the weasels to get away with their weaseling by denigrating weasel repellant. The world always needs more and better weasel repellant. Math is weasel Deet.
But weasels aside, the best thing about demanding some math is that it, as Mankiw notes, is very useful in illustrating the Strong Assumptions necessary to arrive at some popular conclusion; assumption which, if implausible, must tend to degrade the plausibility of the conclusion itself.
So, putting my nonexistent LaTeX-in-free-Wordpress skills where my mouth is (sorry if your reader software or device can’t handle the renderings), let’s dive into the math and explore Caplan’s world. Here’s the toy model of a General Equilibrium:
- Let L be the total amount of labor in our closed economy and K be the total amount of productive factor capital. You could redo this whole model on a per capita, K/L basis, but we’ll keep things easy for now.
- There are two kinds of workers. E’s and M’s. E can stand for ‘Educated’ or ‘Einsteins’ or ‘Everyjob’ and M can stand for ‘Manual’ or ‘Mexicans’ or ‘Monojob’, whatever you prefer. The smart fraction is s. So:
- We are assuming full employment of both capital and labor. Every employee works a standard work day.
- There are also two firms which each employ people to do one particular job. TP is the Theoretical Physics firm and hires people to look for GUTs. FS is the Floor Scrubbing firm, which hires people to sweep and stuff. The firms are ‘normal profit‘ – they distribute all their output to rent both capital and labor, which determines real wages.
- Here’s the thing: either M’s or E’s can FS and do so with the same productivity, but only E’s can TP. It follows that the E’s act like a kind of floating reserve for both firms. If FS wages rise higher than TP or vice versa, E’s will change jobs until parity is restored. However, if all the E’s are employed by TP, then the rise of TP wages is unconstrained. Your economic intuition spider sense should already be tingling, because you would expect some kind of ‘inequality trend discontinuity’ to appear at the point the last E switches into TP work. The fraction of E’s working in TP is r, so the TP labor force is .
- Let c be the fraction of capital rented by FS to augment its workers.
- Let the production functions be constant-returns-to-scale Cobb-Douglas type: and . All variables are treated as given except the allocations, r and c, so we’ll eventually have to solve for those.
- All output is split between capital and labor. We’ll call the Capital Shares KSTP and KSFS and the Labor Shares LSTP and LSFS. So we have the identities: and
- But first, all our workers have identical utility functions. (That’s pretty commensurable!) The function is also Cobb-Douglas (it makes the math work out nice, but is reasonable, I’m not pulling a fast one on you) and is .
- Prices are and . Prices are nominally indeterminate, so we can only really understand price ratios, but that’ll become evident momentarily.
Just a quick note. I’ve been working on a bit of a research project about changing quality of life patterns in the post-WWII era. Part of that project is looking at income distributions and real purchasing power. I get the impression that fifty years ago wage ratios between smart, highly-educated people and average, uneducated manual laborers were much lower than they are today. There are a lot of stories you can tell to ‘explain’ that, but a change in the s profile, given the different kinds of jobs available today, could contribute as well.
Ok, now we can start deriving. First, we must determine how our employee consumers, rational, utility-maximizing homo-economicus, will choose to allocate their budgets towards TP and FS. The simplest way to solve this kind of optimization problem is to use the technique of Lagrangian Multipliers.
As yet another aside: as a closet math-geek, I tend to think about non-math issues in mathematical terms. Relevant factors in a court case? Those are the ones which, if you take the derivative of the mean holding in similar cases with respect to that variable yields a statistically significant effect on the outcome. That includes your judge. You should be able to write the actual law in this form for frequently litigated cases not of first impression. You can then feed them into a computer and … oh snap, Cowen is right, Google’s going to eat my profession’s lunch. Yours too, eventually. Maybe the toadies will give us nice drugs to smooth out our depressions.
Lagrangian Multipliers are also a good way to think about rational policy in general. The general form looks like this:
You are trying to optimize some multivariate function f, subject to some other multivariate relation (set equal to zero) that expresses the real constraints under which you are operating. For static problems, you just set and hope it’s analytical enough to solve or approximate.
Even assuming Bruce Charleton is right that we ‘secular’ (non-Orthodox-Christrian-theocratic) neoreactionaries are no better than the progressives when it comes to ends (the f function), we can still claim that we would be much better at the means directed at accomplishing those ends, because our is truer than their
Thus they want Leftism; but just a different kind of Leftism from the mainstream: a more realistic Leftism, a more efficient Leftism, a Leftism that actually does promote the maximal hedonic well-being which the politically-correct Left only pretends to advance….
… Seeking the magic button, the chink in the armour, the vulnerable patch of soft underbelly, the microscopic software vulnerability… that, if precisely exploited, would swiftly and effortlessly yield-up modern society to themselves and their theories.
I’ll respond to Bruce, and propose my own ‘chink in the armour‘ in due time. But let’s get back to solving that Lagrangian. What you’ll find is that:
And that implies that the overall labor share of the products consumed by employees has the identical ratio. (I can prove this more rigorously if you’d like).
What about the Capital Share ratios? The allocation of capital will be such that the returns to investment (similar to an interest rate, so we’ll call it i) are equal, so we can write:
Now we’re getting somewhere. Let’s solve for r.
Here’s a key piece of reasoning mentioned above: If not all E’s are TP’ing (), then wages must be equal. If they weren’t, E’s would switch jobs. Wages are:
But we know the ratio between Labor Shares, and so we arrive at:
If wages are equal, , else, , which means that our equality trend discontinuity lies at . If your smart fraction is greater than that then , wages are equal and you get toy-model equality. Otherwise, takes off asymptotically with shrinking s. See, as Sailer and Foseti keep reminding us, there’s this thing called the law of supply and demand. If demand is held constant, but supply shrinks, then relative prices rise automatically to clear the market. And vice versa. And even in the labor market, which is the insight unions (which we are supposed to favor) have been relying upon for centuries to keep their wages up.
Now we’re going to try and crack the capital allocation nut. How do we solve for c? In a homogenous labor environment, we would usually assume Pareto Efficiency but in our two-types-of-employee market, that will lead us into some problematic dilemmas because one kind of labor hits the wall regardless of demand, as we’ll discuss later.
So for the moment, we’ll take a different tack. We’ll assume reasonably that both competitively big for capital and expand production until marginal profit with respect to capital is zero. We don’t include wages because employees get whatever remains after disbursement of the capital share.
Because of the convenient form of the production functions, we can write:
which means two things. First:
But second, because we have some new expressions involving i, we can combine those with the equal returns assumption and the identities from earlier and discover:
Wait, what? The Capital and Labor shares and capital allocation stays constant regardless of the smart fraction or the overall capital to labor ratio and are based entirely on the capital-labor tradeoffs of the production functions? That’s not very realistic and should make your spider sense tingle about the plausibility of our assumptions. But, in the mean time, we can use it to solve for this bizarrely constant c:
Well, now that we have all that, we can throw in some reasonable numbers for our givens and plot a few charts and see what happens when you change the smart fraction s.
The image makes sense. If you have fewer E’s, you get less TP and more FS. When s hits that magical equality discontinuity point and E’s can start floating between FS-work and TP-work at equal wages, everything flatlines.
Now, since we have an expression for the wage ratio, we can also calculate the famous, inequality measuring, Gini Coefficient. For this two-worker-type economy:
Which also makes sense. Perfect equality with lots of E’s, but lower than that magic point, the wage ratio and Gini inequality both increase quickly.
We can’t identify nominal wages, but we can take the ratio to the prevailing interest rate, and the chart looks like this, just like the law of supply and demand.
Finally, we can now also evaluate what happens under different scenarios.
What if, I don’t know, you were to import a number of M’s equivalent to 20% of the population, but who don’t bring any capital with them? Seems like an important question to me for some reason, at least, one we should try to answer and understand before we actually go ahead and do it. Here’s one example:
You can see that, on an absolute basis, TP wages don’t change all that much over most of the range of smart fractions, but FS wages can rise or fall, depending on the production function trade-offs and which side of the smart-fraction discontinuity point we were on prior to the M-immigration. Here is what it looks like on a relative post-vs-pre-immigration basis:
We shouldn’t expect reality to be any less complicated than this toy, and so evaluating which side your society is on would be a very important thing to know before you were to embark on such an irreversible policy course. That is, if you care about what happens to the absolute, relative, and comparative wages of the various worker-types in your society.
Which changes our capital allocation to:
Which is the same as it was above except at smart fractions below discontinuity, where it begins to diverge asymptotically as s shrinks by the ratio
Ah, that makes more sense! When all the E’s are busy doing Theoretical Physics, as the number of E’s shrink, and in order to keep production ratios in line with consumer demand, capital is reallocated towards E’s to make them more productive while making M’s less productive and reducing their output (and real wages).
But now we run into some problems. I won’t torture you with any more mathematics, but, in narrative form, what happens is that if the TP labor productivity is more capital augmentable than FS (i.e. ), then under certain conditions, for our poor Floor Scrubbers, the Labor Share and Wages can fall below zero. What went wrong?
The full employment assumption, that’s what. Obviously, as wages approach zero, our M’s will drop out of the labor force, reducing FS output and supply, which would raise prices, and stabilize wages but at some positive unemployment rate.
So, to fix our broken toy, we could do several things. We could add a ‘leisure’ component to the utility curve, and/or add some kind of reservation wage below which M’s will not work, and a consequent floating unemployment rate that keeps FS wages pegged to that reservation wage. We could justify the reservation wage through the availability of welfare, and also add a Government actor, which taxes both capital and labor and redistributes to unemployed M’s at some level below the incentive to work.
Now things are getting more complicated, but also more ‘realistic’, even in our simple toy. What all this effort is really getting at is that one cannot trust, sans plus, the kind of media-narrative assertions we often read on the economic impacts of immigration. It all depends on the particular nature and state of your society.
That being said, we can still stand by a few plausible statements about our own society. In general:
- We appear to be on the left side of the discontinuity.
- Our E’s are scarce. They get good wages, which are pulling away from those of our M’s, which are stagnant or worse.
- We have a whole spectrum of E’s and M’s, of course. Our hyper-E’s do things almost no one else can, and their incomes have exploded along with the Gini coefficient. Our hypo-M’s are barely attached to the labor force and heavily dependent on government transfers.
Under these conditions, if the above model has any validity at all, we would expect the rapid significant immigration of lots of new M’s to:
- Lower FS real wages for old M’s.
- Raise FS unemployment old M’s.
- The effect on most E’s will probably be neutral.
- Some E’s, especially employers of M’s, will benefit greatly.
Ah, but what if the new M’s will vote with the E’s and against the interest of the old M’s? Ah … but that really would complicate the analysis, wouldn’t it.