Illegal Aliens and Unemployment: Causes and Effects
by Gary North: Geithner
Wants To Get Rid of Physical Currency (Better Tracking)
I recently wrote an article on how Ben
Bernanke's explanation of the rate of unemployment rests on Keynesian
economics. He blames a lack of aggregate demand. This was Keynes'
explanation for all forms of unused resources, which he presented
General Theory of Employment, Interest, and Money (1936).
I argued, as
free market economists have argued for almost two centuries, that
an unemployed scarce resource is unemployed because its owner has
priced it above the market.
A scarce resource,
by definition, is a resource for which there is greater demand than
supply at zero price. If supply can meet demand at zero price, then
the resource is not scarce. It is like air.
It is possible
for supply to meet demand in a market in one geographical region
but not in another. In this case, this is not a free resource. It
is a resource that is not being used in one region, but if transportation
and other costs of moving it from one region to another are lower
than the price in a distant region, an entrepreneur has a profit
opportunity. He can buy low (zero) in one place, pay money to move
it to another place, and sell high.
is based on the logic of human action. Men seek to improve their
situations. If investors see a way to take advantage of other people's
lack of perception of a price spread, some investors can and will
buy low and sell high. The price spread will disappear. That is
because the ignorance that created the price spread disappears.
is universal. There may be social costs associated with certain
transactions, such as moral revulsion at a particular activity,
but this does not violate the general law of markets. The moral
revulsion adds a cost to the transaction. This reduces the number
of people who are willing to buy low and sell high in a specific
market. But the logic of the process is in no way affected. It is
not true that "every man has his price." It is true that
the higher the price that would-be buyers offer, the larger the
number of sellers who are willing to supply the item.
IN MY MARKET!"
One of the
problems that every defender of the logic of the free market eventually
encounters is the reader who responds, "What you are saying
may be true in other markets,' but it is not true in my market."
I have found that the person making this criticism is the recipient
of some sort of subsidy by the government. He does not wish to lose
this subsidy. So, he argues that the logic of the free market either
does not apply to his market, or if it does, it should not be allowed
to apply. The government should therefore stop all profitable transactions
buying low and selling high by the threat of violence.
government cannot stop price equalization at zero price. Government
is not a zero-cost resource. The government must extract money from
some taxpayers in order to interfere with any market.
can increase the cost of participating in a market. Because of transaction
rising costs, the supply of the controlled item is reduced. But
demand remains. For liquor or drugs or weapons-grade plutonium,
there is still demand out there. It will be supplied, as the economist
says, at some price.
Let me offer
an example. A reader who read my original article on Bernanke's
analysis of unemployment began sending me a series of emails. The
initial one is representative.
I am a longtime
admirer of your work, so I very pleased you had decided to analyze
the Bernanke Unemployment presentation.
But I was
very disappointed with the outcome. What you wrote is fine as
far as it went, but how can the current U.S. joblessness issue
be considered without any reference to the ongoing very heavy
levels of immigration?
fault Bernanke for only being willing to consider the demand side
of the equation, but the labor supply issues you point to are
overshadowed by the fact that a million or so legal and illegal
immigrants are arriving every year a situation which did
not exist in the Great Depression.
wants government controls on immigration. I understand the case
against immigration. It relies on such factors as government welfare
programs that aid immigrants: higher taxes. It relies on an analysis
of the naturalization process. The immigrants may get the vote,
or their adult children will, and then they will vote for more welfare
programs: higher taxes. Furthermore, their cultures are different,
and this increases the costs of adjustment for existing residents.
Immigrants impinge on existing residents' comfort zones.
at hand, however, is hired hands. Do immigrants cause increased
is a Keynesian. He does not see this, because he does not understand
Keynes. Let me explain.
and his disciples still argue, that the cause of unemployment is
insufficient aggregate demand. This is another way of saying that
the cause of unemployment is excessive aggregate supply. The fact
that Keynesians never put it this way does not affect the analytical
truth of the argument.
analysis of unemployment must always be discussed in terms of these
three factors: supply (at a specific price), demand (at this price),
and time (at a prevailing rate of interest). Keynesians and non-Keynesians
agree on this. The disagreement comes when the discussion turns
to this: supply of what, demand of what, and interest rate set by
is a collectivist methodologically. He looks at aggregates. He recommends
government programs that affect aggregates.
economist is a methodological individualist. He looks at a specific
resource offered at a specific place at a specific time.
blames a lack of aggregate demand for unemployment in general. He
focuses on the demand side. Logically, he could just as well focus
on the supply side: aggregate labor. He could just as easily call
for government programs to reduce the supply of aggregate labor.
He could call for immigration quotas. The fact that he doesn't is
due to his preference for government spending. He hates to focus
on supply-side issues.
blames a lack of price flexibility, either because of government
restrictions on prices (floors) or stubbornness on the part of the
participants. Either the seller of goods/services (buyer of money)
is stubborn, or else the buyer of goods/services (seller of money)
is stubborn. One of the participants is saying no to the offer.
But this is
not unemployment. The seller of goods/services is holding on to
whatever it is he has to sell. This is called reservation demand.
The seller of money is doing the same. Each is an owner. Each has
the legal authority to offer to trade. Each thinks that what he
owns now is a better deal than owning what the other person has
at the asking price.
RESOURCES ARE ALWAYS EMPLOYED
The idea of
unemployed resources is conceptually flawed. Resources are always
employed. Someone owns them. This was the point that W. H. Hutt
made in 1939 in his classic book, The
Theory of Idle Resources. You can download it for free here.
commentator on Mises.org has stated its thesis well.
for the heart of Keynes's prescription for recovery, which was
to get idle resources moving, whether that is money, capital,
or labor. If something isn't being employed right now, it is being
at length that there is nothing uneconomic or necessarily inefficient
about an idle resource. It is the decision of the owner to hold
back when faced with a long-term plan, a judgment call concerning
risk, a high reservation wage, or a demand for larger cash balances.
certainly true as regards labor. In a changing economy, people
move from sector to sector, something choosing periods of unemployment
over employment at low wages. This makes sense for them. For this
reason, it makes no sense to craft policies designed to achieve
"full employment" since this means overriding human
choice. . . .
environment is plagued with enormous unemployment the ultimate
idle resource. What is the problem? Is it a macroeconomic problem
of aggregate demand? Or is it is a simple labor pricing problem
alongside legal restrictions? Hutt takes the latter position,
and utterly crushes the Keynesian view.
Hutt was responding
to Keynes' theory of insufficient aggregate demand. I am responding
to my critic's position: excessive aggregate supply. They are the
same argument, analytically speaking. The Keynesians call for government
intervention to control aggregate behavior. This is called macroeconomics.
Macroeconomics rests on this proposition: badges and guns more trustworthy
than competitive bidding by individuals for the use of scarce resources.
the rest of the article
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2012 Gary North
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