Category: Economics

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I live in a nicely cosmopolitan little apartment complex. It’s one of the cheaper places to live in town, so we get a nice mix: single people, young couples, seniors, working-class folks, grad students. Those last two categories in particular add a good bit of racial diversity—African Americans, South Asians, East Asians. It makes for a nice place to live.

Because I like living in places like this, I find myself conflicted on the topic of  immigration.

The largest motivation for opposing immigration (setting aside the wrong-headed opposition that springs from racism) is economic—but most of the people trying to make the economic argument get it wrong. Or maybe they just state it poorly.

Population density

The most important reason that the United States is an attractive place to live is the low population density. This was true from the beginning of European settlement. There was enough land that anyone could be a landowner. The low population meant fewer workers, which kept wages high and working conditions good. Natural resources were abundant, meaning everyone could have and use more timber, more water, more grain, and (especially over the past couple of generations) more coal, oil, and natural gas.

There is high population density in cities, and that’s the best way to arrange things: If most people live in an urban environment, it preserves the maximum amount of land for crops, timber, pasture, natural areas, and so on. Sprawling the people out in subdivisions and exurbs wastes a lot of land. But however you arrange the living and working spaces: the more people you have, the smaller the average person’s share is going to be.

Economists dismiss this argument, on the grounds that people are productive: Each new person produces more than enough to be self-supporting, so each new person can potentially raise everyone’s standard of living. That’s not wrong exactly, but it’s largely a self-serving argument. The monied interests benefit from an influx of new workers, because a larger labor force holds down wages. At the same time, the monied interests don’t suffer as their pro-rata share of nature’s bounty declines, because they don’t settle for a pro-rata share; they buy as much as they want, leaving that much less for the rest of us.

Many people understand this at some level, but view it in pieces rather than as a whole. If they’re workers, they object to other workers willing to work for lower pay. If they’re business owners, they claim that there are “certain jobs” that Americans just won’t do. (A falsehood: it would be easy to find Americans to do any job, if it were a full-time salaried position with health insurance, a pension, and education benefits—just like every job I ever had as an adult.) Others point to the increased demand on social structures when “different” people arrive—people with bigger families (more children to be educated) or people who speak a different language (public safety information needs to be translated). At this level, the pro-business argument is correct: immigrants are productive and the taxes they pay easily cover the costs of the services that they use. But they still increase the population density—and that means dividing all the resources of the country among more people.

It’s an economic issue, a quality-of-life issue, and particularly an environmental issue: there are many things that are only environmentally harmful if the demand for inputs exceed the local environment’s capability to provide them, or if the outputs produced exceed the local environment’s capability to handle them.

So: I’m not against immigration; I’m against population growth. In the context of a stable population, I’d like as much immigration as possible, because I enjoy a cosmopolitan community.

Where the anti-immigrant argument turns really wrong, is when it comes to strategies and tactics of handling a population that includes some immigrants.

Police state

If you’re going to allow people to visit, whether for tourism, cultural exchange, as guest workers, or whatever, some number of those people are going to stay here. They’ll stay for all kinds of reasons—for economic opportunity, for freedom, because they fall in love with someone who lives here, or just because they like the place they’re visiting.

If the number who stay are the number you want to stay, then everything’s fine. But if it’s more than you want, there’s no way to reduce the excess without turning the country into a police state.

I don’t want to live in a police state. I don’t want police to ask me for my papers. It’s annoying. It’s un-American. It’s unconstitutional. (Well, it’s constitutional for the police to ask, but it’s unconstitutional for them to do anything if I don’t present my papers. Note that the Supreme Court seems inclined to disagree with me on this point.)

For one thing, there’s no obligation for a citizen to even have papers. Almost everyone does, because a drivers license counts and it’s so handy to be able to drive, but it’s not required. It’d be pretty tough to get along without a social security number, but you can have a number without having an identity document. (Early social security cards—I still have mine—had no security features at all: just a name and number printed on card stock.)

Since the mid-1980s, employers have been insisting on seeing identity documents, because otherwise they can face penalties if they hire illegal immigrants—an early example of exactly what I’m unhappy about.

Even if you have papers, even if you keep them sufficiently in order that you can present them to an employer when you start a new job or a bank when you want to open a new account, there’s still no obligation to keep them on hand to show to the police.

Still, objecting to being asked to show papers is really just a personal quirk. The real harm comes from having people here who can’t safely use ordinary public institutions. Communities where people are afraid of being arrested or deported are inevitably bad communities.

  • Crimes will go unreported, which will result in more crime—and more violence, as people who lack access to the courts have to resort to self-help to settle their disputes.
  • Sick people won’t seek medical care, producing pockets of disease.
  • Pernicious institutions like check-cashing stores and pay-day lenders thrive where people can’t open bank accounts.

I don’t want to live in a town where there are people who don’t feel safe talking to the police when they get robbed or the department of labor when they get cheated by an employer or the bureau of weights and measures when they get cheated by a merchant. I don’t want to live in a town where lots of drivers don’t have insurance because they don’t have a license because they don’t have the right kind of visa. I don’t want to live in a town where some people have to work for cash because there’s no legal way for them to pay taxes.

As I say, I’m of two minds. I want to keep the low population density we enjoy in the US—it’s a key factor in our high standard of living. At the same time, I enjoy living in a diverse community. But it’s impossible to have it both ways: If you allow foreigners into the country, some of them will stay, and any effort to remove them produces problems that are much worse than the small hit that any one immigrant produces to our standard of living. And yet, in the aggregate, the hit on our standard of living is significant.

In the end I come down squarely against measures like the recently passed law in Arizona—it will do a lot more harm than good. I’m generally in favor of efforts to control the border, to make it tougher for people to sneak into the country, but that’s no panacea—not unless you use control of the border to hold the number of temporary visitors below the number of permanent residents that you’d be willing to accept. I’m not sure there is a solution, except for the rest of the world to become as nice a place to live as the US, and thereby produce a balance between immigration and emigration.

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In his article Saving Yourself [Note: article is now behind a paywall] Daniel Akst buries at the end a particularly good statement of the central point I try to make in my personal finance writing:

Thrift is thus a way to redeem yourself not just from the unsexy bondage of indebtedness but also from subjugation to people and efforts that are meaningless to you, or worse. Debt means staying in a pointless job, failing to support needy people or worthwhile causes, accepting the strings that come with dependence, and gritting your teeth when your boss asks you to do something unethical instead of saying “drop dead”. Ultimately, thrift delivers not just freedom but salvation—which makes it a bargain even Jack Benny could love.

To get there, though, he takes you on a wonderful journey through the American history of thrift, from Jack Benny to the Puritans and back again, with a couple of side trips to Sexyland.

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My Wise Bread post Have Style, Not a Lifestyle was featured on the Discovery Channel’s Planet Green.

Here’s the gist of what I had to say:

The key to resisting the Diderot effect is to have style. Not just any old style, but a particular style. Something nicer than everything else you own isn’t in keeping with your style and that makes it easier to resist: It’s just not you.

Check out the Planet Green’s Watch Out For the Diderot Effect which includes a link to a translation of Diderot’s famous essay.

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This is exactly right:

Subjecting children to daily unpleasantness – in the form of arbitrary rules, dysfunctional socialization, scholastic regimentation, age-segregation, teasing, bullying, verbal abuse, or what have you – in the name of acclimatization to the “real world” simply lowers their standards for the life they will accept.

via The Lazy Faire » Blog Archive » It’s OK to give your kids high standards

The idea that parents should stand aside from protecting their kids—or even go so far as to deliberately do things that are cruel or capricious—to make sure that children learn the various lessons that add up to understanding that “life is tough” or “life isn’t fair” is an insane one. No child, no matter how coddled or protected, is going to fail to confront the sorts of problems that drive those lessons home.

I’ve written on the same topic.  In particular, in Find Work Worth Doing, where I criticize mock work (such as most school work) and go on to say:

I think parents also do their kids no favors when they encourage them to take low-skill, part-time jobs to earn pocket money.  (Sometimes they do so with the explicit motivation that it will teach their kids the value of work!)  Kids will be far ahead of the game if they’re taught how to identify work that’s worth doing, and how to find a job doing that work.

Protecting a child from the hard knocks of life will not prevent your child from learning the truth about the real world. Nothing can.

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Jay Lake gently suggests that just waving your hands and saying “Cross-subsidy” is not a complete answer to the notion of what Amazon thinks its doing, and that’s a fair point. I think Amazon’s real objectives have a lot to do with controlling the marketplace. By selling ebooks below cost they do several things at once; in particular, they make it expensive for anyone else to enter the ebook market for new bestsellers.

If they can establish the one true price for the ebook edition of a new hardback, and keep other booksellers out of the market by selling the books at a loss, they’ll soon be in a position to dictate terms to the publishers in the same way that big-box retailers dictate terms to their suppliers in other markets. (Clearly they were supposing that they were already in that position, else I don’t think the “disappearing buy button” fiasco would have happened. Fortunately, it looks like Amazon pushed too hard too early.)

I think the result of an Amazon victory would have been very similar to what we have seen in the big-box stores over the past few years: Consumers would enjoy low(ish) prices while suppliers would see ever-increasing pressures on their profits. (I’m seeing the publishers as suppliers here, although the profit pressure would pretty quickly flow on to authors as well.) Choice would decline as profit pressures forced all but the lowest-cost suppliers out of business.

So, I’m glad that seems to have been headed off, at last for the moment.

Having said all that, though, I think the cross-subsidy analysis is also correct. I think Gillette made its own razors to give away, but it wouldn’t have needed to. Nowadays it would surely outsource razor manufacture, but that wouldn’t be necessary either. It could just as easily announce that it would sell any razor that matched the specs for its blades, and then sell them for less than it paid its suppliers. (In fact, that might be a perfectly viable business model. Surely some shavers would go for a cool-looking limited-edition art razor and accept the resulting lock-in to Gillette blades, as long as the razor wasn’t too expensive.)

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Toby has a good take on ebook pricing issues.

Very briefly, mainline publishing houses would prefer to go with a pricing model similar to the model for physical books, where books start at a premium price when they’re new and then are sold at gradually cheaper prices. Amazon, on the other hand, wants to sell a cheap(ish) $10 ebook edition of new hardbacks, because that’s a price point and market segment that drives sales of the kindle, but shows no sign of further lowering the price as cheaper editions of the physical book come out. (One supposes Amazon’s theory is that there are a lot of people will pay $300 for a kindle to read the latest bestsellers for $10, but many fewer who will pay that much to be able to read last year’s bestseller for $4.)

The whole issue (Amazon taking down the Buy button for most books sold by Macmillan imprints, etc.) has produced a lot of talk by non-authors about how publishers are obsolete anyway and authors should just produce and market their own ebooks. But that sort of talk just goes to show that they don’t understand that publishers are specialized venture capital firms (as opposed to specialized manufacturing companies).

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I published one short story in 2009:

My story submission database isn’t really set up to answer the question of how many new stories I wrote this year, but I see three whose first submission to an editor was in 2009.  Hopefully some of those will appear in 2010.

Two articles of mine appeared as guest posts at personal financial blogs:

I wrote 71 posts for Wise Bread.  I’ve bolded a few where I thought I managed to say just what I was trying to say, and commend them to your attention:

One of my Wise Bread posts (Understand Capital Costs) was featured in in US Airways Magazine (October 2009, page 22).

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A while back Trent Hamm at The Simple Dollar invited me to do a guest post and I finally came up with an idea that I liked:  Living off Capital.

People who come from wealthy families learn how to live off capital. The rules are taught along with all the other things they learn from their parents–how to dress, how to eat, how deal with bankers and trust officers. But even though most people don’t learn the rules, living off capital is just a skill, and it’s one that everybody should learn, because everybody lives off capital sometimes.

It talks about investing for income, reinvesting to preserve capital, diversifying, and keeping your expenses flexible.

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The apartment complex where we live was built over the course of a decade or so, back in the 1960s. I don’t know what the building code and zoning rules said about things like building spacing, but I imagine that they left quite a bit up to the builder.

Without rules that had to be followed, the builders built the complex with an eye toward maximizing their profit. If you put more units on a piece of property, you can bring in rent from more tenants. But at some point adding more units leads to diminishing returns—adding more buildings makes the space feel sufficiently cramped or crowded that potential tenants view the place as a downscale complex and they won’t pay as much. For a while that can still be profitable—you gain more from the extra units than you lose to lower rents. But squeezing yet another building in won’t just cut the rent on those units, it’ll cut the rent on all the other units as well. Eventually you reach the point where you lose more in rent than you gain from having extra units, so you stop and don’t build that building.

Zoning regulations can change the dynamic. Currently, there are rules in Champaign that limit apartment builders from jamming ever more buildings into a complex.

Apartment complex near where we live
Apartment complex near where we live

This picture is from a newer complex just a few blocks from where we live. The buildings are crammed so close together, it seems to me that you might just as well be living in the same building as your neighbors, as far as noise and privacy go. (This picture shows them face-to-face. Side-to-side they’re even closer.)

Again, I don’t know, but I assume that the buildings are built as close together as zoning regulations allow.  That’s the pernicious side-effect of having that sort of rule.

Because, see, there isn’t just one answer to the question of how closely packed buildings can be before they begin to feel downscale.  It depends on other stuff.  It depends on what people are used to. It depends on what alternatives are available.

When you create a rule, some fraction of the builders are going to aim for the bottom—just meet the rule. Those units aren’t going to be upscale, but there’ll be some people who will rent them.

If there were no rules, of course, some builders might build complexes where the buildings were even closer together than that, but those complexes would seem especially downscale. When you set a minimum, though, everybody who was thinking of someplace in that neighborhood will tend to aim for that same point.

Obviously the people who would have aimed more downscale would be prohibited from doing so. But the people who would have aimed for just slightly better will also be drawn downward. If there were a wide range of densities, builders would see advantages to being just slightly more upscale than the next guy. But with rules setting a lower limit, we don’t see the full range. Instead, we tend to see a binary division between the downscale units that are at the maximum density permitted, versus the upscale units that offer a sufficiently lower density to stand out. The legally mandated minimum becomes normalized (because so many complexes build to that standard) and ends up being a standard, rather than a minimum.

Courtyard outside our apartment
Courtyard outside our apartment

The courtyard outside our apartment is a common area that is actually used by us and our neighbors.  There are picnic tables and grills. The space is comfortable. It’s big enough that we don’t feel like we’re sitting right outside our neighbor’s apartments, but not so big that we feel lost in a vast space.

The space outside the nearby complex, though, feels wretched to me. With the buildings so close together, the space between becomes just a dark corridor. It’s not inviting, which is just as well because there’s no room to do anything there anyway.

In one sense, it doesn’t really matter to me. Our complex exists at its present density, and I can’t imagine that it would make any sense to try find find a way to pack in more buildings. But it makes me sad to see all the other, higher-density, complexes going up. It means that we aren’t getting new options.

The rules that set “reasonable minimums” instead are producing a binary distribution, where our only choices are downscale apartments crammed together or high-priced luxury apartments, where tenants get a reasonable density, but are stuck paying for other amenities that we don’t care about.  It’s the downside of reasonable rules.