Wednesday, June 24, 2020

Shoddy Executive Order Bears Fingerprints of Navarro and Krugman

An immigration Executive Order was issued two days ago.  I read it yesterday and gathered my thoughts and relevant memories over the subsequent 24 hours.

The EO contains immigration regulations and purported economic justifications for the regulations.

The EO’s economic justification is essentially that it is good to suppress labor supply during a recession.  I disagreed with such a conclusion when it was offered years ago by Krugman, Eggertson, and others.  The conclusion is just as wrong when it comes from President Donald Trump.

The empirical fact, which is not a surprise from a theoretical point of view, is that labor supply and demand matter just as much at the margin during a recession as they do during an expansion.  See Chapter 8 “Recession-era Effects of Factor Supply and Demand” of my 2012 book (a more recent JPE paper confirmed these results but I cannot find the link right now).  A recession is not an economic excuse for suppressing labor supply.

The faulty economic analysis I see in the EO sounds to me like Peter Navarro talking.  Hearing his voice now catches me a bit by surprise because, although he is a part of the populist story, his “rudeness, ignorance, and dishonesty” are well known from the President on down.  [I believe that Hassett, Mnuchin, Mulvaney, and Kudlow shot down such Navarro initiatives in the past, although I was not present at those meetings or even much involved with the prep.]

Suppressing labor supply is also poor public relations.  The employment and productivity numbers will come in lower than they would with a more market-oriented recovery.  (Only a couple of the Navarro stories were included in my 2020 book because they were a small fraction of my experience, and the President is a lot more interesting.  But a hilarious one – in the reader-spits-out-coffee category – is about another time that Navarro flunked marketing.)

The justification for the EO’s regulations, if there is any, would have to be that it somehow begins a path to fixing the broken status quo system that was in place before Monday.  That system was full of special-interest favors, which the President should be removing as he has removed them in many other regulatory areas.  I am pessimistic (i.e., optimistic for the entrenched special interests) that there is any such path in the immigration area, though.

Gary Becker’s immigration plan should be given serious consideration.  President Trump agrees with that on purely economic grounds (Chapter 6 of my book), although he sees that as a political nonstarter (“radical” as Becker put it).  Perhaps the immigration plan Trump proposed in May 2019 (essentially the Canadian and Australian systems) is a more politically correct approximation to the Becker plan.

Part of this EO pertains to foreign-born scholars working in the U.S., which saddens me personally.  My closest friends are squarely in that category.  The value they add is so great that policy will likely change so that they continue to work in the U.S. 

A little known fact is that President Trump is a very good listener (my book is filled with examples; that’s how he became a populist president).  So speak up!  He may decide in your favor.  After listening, he may articulate your position better you do.  In that case, I’m sorry because that is a strong indication that he is deciding against you (e.g., here) and wants you to at least know that you were heard.

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