Promises, Promises

Many economists are so religiously wedded to their models that it takes an awful long time, and an awful lot of contrary evidence, to shake them from what they learned in graduate school. We are now in the midst of such a reappraisal when it comes to globalization in general, and immigration in particular. Larry Summers’ new oped in the Washington Post illustrates just how much momentum this rethinking has gathered.

It is clear after the Brexit vote and Donald Trump’s victory in the Republican presidential primaries that electorates are revolting against the relatively open economic policies that have been the norm in the United States and Britain since World War II. If further evidence is needed, one need only look to the inability of Congress to pass legislation on immigration reform and the observation that the last four candidates left standing in the U.S. presidential contest all oppose the Trans-Pacific Partnership…Studies are produced about the jobs created by trade agreements, the benefits of immigration and the costs of restrictions on trade. In most cases, certainly including the cases for TPP and against Brexit, the overall economic merits are clear. But in this advocacy there is a kind of Gresham’s Law (the economic principle that bad money drives out good) whereby bolder claims drive out more prudent ones, causing estimates to often be exaggerated and delivered with far more confidence than is warranted. Over time, this has caught up with the advocates of integration.

And it’s about time, I would add!

The fact is that the lofty promises made by advocates of globalization often fail to materialize. We need look no further than the promises made when the North American Free Trade Agreement (NAFTA) was being debated in the early 1990s. The experts promised that Mexico would become much wealthier and that a wealthier Mexico would send us fewer immigrants. By 2004, Joe Stiglitz saw the writing on the wall and wrote:

While the hope was that Nafta would reduce income disparities between the United States and its southern neighbor, in fact they have grown…Meanwhile, there has been disappointing progress in reducing poverty in Mexico, where real wages have been falling.

And by 2007, the New York Times reported:

The North American Free Trade Agreement…held out an alluring promise: the agreement would reduce illegal immigration from Mexico. Mexicans, the argument went, would enjoy the prosperity and employment that the trade agreement would undoubtedly generate—and not feel the need to cross the border into the United States. But today the number of illegal migrants has only continued to rise.

The problem is that the experts who truly believe in the holy grail of globalization often make promises based as much on wishful thinking as on any actual evidence. The Fantasyland world in which they operate is best seen in the context of immigration. The open-border advocates would have us believe that the world would be much wealthier if we could only get rid of those pesky national borders that restrict immigration. That promise is based on the belief that immigrants are an army of robotic workers, who only bring with them their raw labor inputs. Yet everyone else knows different–immigrants are not robotic workers. They are people who bring with them far more than the ability to produce stuff in an assembly line. And the baggage they bring may or may not be so desirable and has economic consequences that could easily offset their productive contribution.

This is why time has finally caught up with the experts who promise us that globalization and unrestricted immigration will create huge wealth. People can see for themselves what actually happened. As a result, many of us have learned to ignore those promises and are adopting a much more realistic perception of what globalization is about. Globalization has consequences, and some of us will clearly be made worse off. And it is far from clear that some types of globalization would even generate a net economic gain at the end. As German Chancellor Merkel has learned, sitting in the high perch of (unearned) moral superiority and using rose-colored glasses to view the influx of over a million immigrants can have very dangerous consequences.

Burt Bacharach and Hal David have a nice turn-of-phrase that describes the reappraisal that is now going on in many people’s minds:

Promises, promises
I’m all through with promises, promises now
I don’t know how I got the nerve to walk out.

There is a growing perception that one can walk out of the globalization plantation without being ostracized out of polite conversation. Larry Summers even says that “responsible nationalism” has a place in the political debate. Responsible nationalists, I guess, will now be immune from accusations of being racists or xenophobes. The shackles are off, and the economic “establishment” is finally free to see–and admit that it sees–what has been plainly obvious to practically everyone else.

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