Smoke on Your Pipe and Put That In!

Harvard economist George Borjas, perhaps the leading academic skeptic of increased immigration, has started a blog. In a West Side Story-themed post this morning, Borjas argues that the failure of Puerto Rico’s per capita GDP to converge fully with the United States’, despite the fact that the flow of people and capital between the two countries is completely unrestricted, challenges the idea that a liberal migration policy can make people in the developing world better off.

There are also no restrictions that hamper the flow of capital between the two places. Yet despite all these unrestricted labor and capital flows, there is still a sizable income differential between the United States and Puerto Rico. By 2003, price-adjusted per-capita GDP in Puerto Rico was still only two-thirds that of the United States (according to the Penn World Table). Whatever happened to the factor price equalization theorem? If 60 years is not the “long run,” maybe Keynes was right after all.

The fact that migration entails very high costs if an important–and often ignored–part of the economics of migration. The fact that wages don’t equalize even when a “country” loses a large chunk of its population and there are unrestricted capital flows is both interesting and important. It should give some food for thought to those who view migration as a policy tool that can help alleviate many of the developing world’s problems.

I think this is misleading. Mississippi, the U.S.’s poorest state, has a per capita gross state product of about $28,000 per person, which is not quite 2/3 of the overall U.S. per capita GDP, $43,500. The relevant comparison would seem to be the per capita GDP of Puerto Rico next to that of other Caribbean islands. Puerto Rico’s PPP-adjusted GDP per capita for 2006 was about $19,000.

First, it should be pointed out that the U.S. Virgin Islands, whose inhabitants have been U.S. citizens since 1927, does even less well, at about $14,500 per capita. (That’s a 2004 number, so it’s probably a bit higher than that.) But this isn’t a very good comparison, either; the Virgin Islands has a population slightly bigger than Davenport, Iowa, the economy basically runs on tourism, and the people who own the resorts don’t live there. Cuba, with a population about three times Puerto Rico’s, comes in with a GDP per capita of around $3900, less than a quarter of Puerto Rico’s. But we already knew that communism is terrible. The best comparison is probably the nearby Dominican Republic, which is neither a socialist dystopia nor a U.S. territory. GDP per capita in the Dominican Republic is $8000, less than half Puerto Rico’s.

But who cares about Puerto Rico, the territorial jurisidiction? How are Puerto Ricans doing? According to Wikipedia’s entry on Puerto Ricans in the United States, slightly more Puerto Ricans now live Stateside than on the island, and, “in 2002, the average individual income for Stateside Puerto Ricans was $33,927.”

I find it pretty hard to see this as anything less than a slam dunk for the humanitarian benefit of the freedom of movement.

On a more technical note, why would one really expect wages to fully equalize in the absence of the idealized conditions of the economic model? First, there’s the obvious fact that an island in the Caribbean is “off the grid” of the main U.S. trade infrastructure. Second, as Borjas points out, there is a high cost to immigration. Those able to foot the bill are likely the most productive workers with the greatest capacity to save. And those with higher levels of skill are likely to see a bigger relative returns from participation with U.S. labor markets, reinforcing the incentive for the more skilled to move. If that’s true, and Puerto Rico has lost disproportionately many higher-skilled workers to the U.S., then the fact that GDP per capita is still so high compared to neighboring democracies is really a slam dunk.

To drive the point home, a fun quotation from the the CIA World Factbook entry on the Dominican Republic:

Haitian migrants cross the porous border into the Dominican Republic to find work; illegal migrants from the Dominican Republic cross the Mona Passage each year to Puerto Rico to find better work.

And Puerto Ricans who can afford it “like to be in America.”

[Lyrics to Bernstein and Sondheim’s “America” here.]

German Finance Minister Endorses Flat tax

Sounds like a great headline, but the details leave a lot to be desired. As a matter of fact, the German concept of a “flat tax” is an additional daily levy imposed on prostitutes, not a simple and fair system for all taxpayers. As a news report explains, German politicians are motivated by a desire to capture more revenue:

Germany’s Finance Minister Peer Stein [Ed. note: error in original report. the name should be “Peer Steinbrück”] wants prostitutes to pay a flat tax of 25 euros a day, according to a report in Tuesday’s edition of the daily newspaper Bild. Sex workers would still file an annual tax declaration and, according to the number of clients, the tax authorities would either reimburse them part of the daily tax – or oblige them to pay more, said the paper. … Prostitution has been legal in Germany since the beginning of 2002, and prostitutes in theory have social security cover, but like taxation, the system does not work well in practice. According to a 2003 report, the German taxman misses out on about 2 billion euros from prostitution.

Advice for Cash-Paying Patients: Just Walk up to the Desk and Demand Your 50 Percent Discount

When I received an MRI on my knee back in October, I knew I wasn’t going to hit my health savings account (HSA) plan’s $2,600 deductible. In other words, I knew I would be paying for the MRI myself, in cash.

The radiologist charged me $1,500. But my PPO negotiated that price all the way down to $1,300.

I wasn’t impressed. An imaging center near my home quoted me a list price of $1,275 for one knee, which they were glad to reduce to $637 for cash-paying patients. I mentioned this to the radiologist, and they dropped the price to $1,035.

I still wasn’t impressed. So today, seven months later, the radiologist and I finally settled on a price of $700. That’s 53 percent less than what they originally charged me.

The woman I negotiated with has handled this radiologist’s billing for the last 20 years. She told me that if – God forbid – I ever need another MRI, I should just walk up to the front desk and demand a 50 percent discount.

She described insurance companies as “evil” and “rich,” and said, “I don’t mind making the insurance companies miserable, but we don’t do that to our customers.”

A Brave Heart for Atlas Shrugged

Randall Wallace’s script for the movie Atlas Shrugged is 129 pages long, according to an interview in Script magazine. That seems pretty short for such a massive novel. According to one TV critic, “On a two-hour movie, the average screenplay runs 120 pages. Maybe 125. For ‘A Few Good Men,’ [the famously dialogue-heavy] Aaron Sorkin’s weighed in at 149. For ‘Schindler’s List,’ on which he did a final ‘dialogue polish’: 183 pages.” I don’t think they’re going to include John Galt’s Speech.

Wallace says he has finished the screenplay, and it’s been “greenlit” by the studio. Angelina Jolie has been signed to play Dagny Taggart, and the movie may be in theaters next summer.

Wallace was nominated for an Oscar for his script for Braveheart, another movie popular with many libertarians. He first read the novel when his son at Duke University recommended it. Wallace gave his son C. S. Lewis’s Mere Christianity, which suggests some interesting dinner-table conversations. (He’s also writing a screenplay for Lewis’s Screwtape Letters.)

Wallace found a familiar theme in Atlas Shrugged:

The assertion that change occurs when heroic individuals are willing to stand up–and further, that people in the herd want to be heroic individuals but aren’t encouraged to do so until they find a leader worth following–is very much in Braveheart, and it’s something thoroughly ingrained in the American psyche.

Wallace himself does not claim to be an Objectivist or a libertarian. He seems to be more enamored with the idea of great ideas than with the ideas themselves. And many fans of Atlas Shrugged are going to be skeptical that you can capture its essence in two hours. But I think Wallace is correct to say that a movie is not a book on screen. It has to be a creative work in its own medium. If it works well, it will introduce the ideas and the book to millions of new readers.

Wallace may direct the movie as well. The New York Times tells the story of the 35-year struggle to bring Atlas Shrugged to the big screen, with key roles played by Godfather producer Albert Ruddy and Objectivist businessman John Aglialoro. Script magazine is here, but the Wallace interview is not online.

A Rising Tide Lifts all Boats

Kennedy was right. Not Teddy Kennedy, of course, but his brother. President John F. Kennedy stated that a rising tide of economic growth generated benefits for all. A new study from the Congressional Budget Office looks at income trends for families with children and confirms JFK’s wisdom. The Wall Street Journal reviews the key findings:

A new study by the Congressional Budget Office says the poor have been getting less poor. On average, CBO found that low-wage households with children had incomes after inflation that were more than one-third higher in 2005 than in 1991. The CBO results don’t fit the prevailing media stereotype of the U.S. economy as a richer take all affair – which may explain why you haven’t read about them. … The poorest even had higher earnings growth than the richest 20%. The earnings of these poor households are about 80% higher today than in the early 1990s. … CBO says … earnings from work climbed sharply as the 1996 welfare reform pushed at least one family breadwinner into the job market. … earnings for low-income families have still nearly doubled in the years since welfare reform became law. Some two million welfare mothers have left the dole for jobs since the mid-1990s. Far from being a disaster for the poor, as most on the left claimed when it was debated, welfare reform has proven to be a boon. … The report also rebuts the claim, fashionable in some precincts on CNN, that the middle class is losing ground. … every class saw significant gains in income. … the CBO study found that, with the exception of chronically poor families who have no breadwinner, low-income job holders are climbing the income ladder. When CBO examined surveys of the same poor families over a two year period, 2001-2003, it found that “the average income for those households increased by nearly 45%.” That’s especially impressive considering that those were two of the weakest years for economic growth across the 15 years of the larger study.

Even Swiss Politicians Concoct Bad Tax Ideas

Proposals for global tax schemes normally emanate from places like Paris and Brussels. Swiss officials, by contrast, generally have a more sensible attitude – especially since they often are in a position of having to defend Switzerland’s fiscal sovereignty. But as Tax-news.com reports, one Swiss Minister wants a “tax on information” to fund global redistribution:

Swiss Communications Minister Moritz Leuenberger has suggested a ‘tax on information’ to help bridge the digital divide between wealthy countries with good communication infrastructure and poor countries where most of the population have no access to modern communications. Leuenberger revealed his proposal to a United Nations meeting convened to follow up on the World Summit on the Information Society (WSIS), held jointly in Geneva and Tunis in 2003 and 2005. … Leuenberger surmised that such a tax could be raised on information content which is paid for and computers.

Abortion Restrictions, Desperate Women, and Children Without Smiles

Moebius syndrome is a neurological disorder that causes facial paralysis, impaired speech, limb deformities such as club foot, difficulties eating, autism and an inability to smile. Moebius syndrome may have genetic roots but is also caused by misoprostol, a drug commonly used to induce abortions. In Brazil, where elective abortions are illegal, misoprostol is cheap and readily available. Moebius syndrome appears in 20% of children born after failed misoprostol abortions. Unfortunately, misoprostol abortions are also not very effective and 80% result in the pregnancy going to term. “Since the mid-1990s, dozens of cases of Moebius syndrome have been linked to misoprostol.” See the May 11, 2007 issue of Science [pdf].