Thursday, 6 October 2016

Immigration and Romer

Like many economists, I have this love-hate relationship to disputes over immigration and so I tend to stay away from them (admittedly, I do occasionally write about them: see here and here). My reasons for this are fairly simple; the topic is controversial in a tainted and unhelpful way, but mostly because the disputes mainly lie outside the scope of economics (namely culture, politics, political sovereignty etc). When economists point to some economic aspect of immigration, or some economic process affected by immigration, proponents or opposers take that as firm evidence one way or another, and entrench their political views further. Hardly useful and not exactly something I happily contribute to. As Greg Mankiw pointed out a few years ago, in his wildly controversial article Defending the One Percent:
Economists who discuss policy responses to increasing inequality are often playing the role of amateur political philosopher (and, admittedly, I will do so in this essay) it is useful to keep in mind when we are writing as economists and when we are venturing beyond the boundaries of our professional expertise. (p. 22)
For a variety of reasons, I lean towards a Tabarrok-Caplan-Cochrane-Clemens-Powell-Huemer style open border position, where the economic gains of a worldwide labour market, and the potential instant eradication of world poverty, outweight the reasons for states to "secure" Fort Europa. As I said, amateur political philosophers – here we come!

The other day, when I had a look through Paul Romer's writings when reviewing his The Trouble With Macroeconomics, I found out that he recently gave a talk in Stockholm, and was interviewed by the largest newspaper partly on the subject of immigration (besides making headlines discarding macroeconomics). This is what he said:
The migration issue is a huge problem, but there are possible solutions. Sweden, a sparsely populated country, could rent out an area the size of Hong Kong, where it could recieve millions of people who would take care of themselves and not be a financial burden to anyone. 
The important thing is that this free zone should be counted as an independent unit, with its own laws and rules – not as a part of Sweden. Those who live there won't be Swedish citizens, and live their lives separate from rest of society. 
And it's not the first time Romer speaks positively on free economic zones and urbanisation and its ability to solve many of humanity's most pressing needs.

What I don't get is the "separate from rest of society"; presumably, most of the gains from urbanisation and agglomeration that Romer's recent research has pointed to, involves the positive externalities of agglomeration and creativity/overlap coming from economic clusters. Keeping people separated from "rest of society" seems to run counter to that.

Predictably, Lord Keynes went bananas, and claimed the experiment would be a European "third world enclave":
Unfortunately for the neoclassical madmen, wage and price flexibility does not lead to full employment equilibrium, and a massive Third World enclave right in the heart of Europe is more likely to accelerate the massive catastrophe unfolding.
Sometimes I just roll my eyes when Keynesians furiously go after windmills.

Anyway, Paul Romer keeps things interesting and it would be quite the event if we manage to bring him to Glasgow Economic Forum

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