Fresh water v. salt water

Editorial note: If you have not yet read our mission statement above, please do so in order that you can put our blogs in context. 

29 November 2013

You can have open borders or the welfare state, but not both, according to Nobel laureate Milton Friedman (1912-2006), a ringleader of the freshwater economists bunkered down at Chicago University,  economic kremlin of the-market-rules-OK school.

Antigone1984:

Still awaitin’ our Nobel prize for economics, but we beg to differ.

If you allow unlimited immigration to a rich country alongside a pay free-for-all, then immigrants from poorer countries will flood into that country to take jobs at a pay-scale between the lower level in the country from which they come and the higher level in the country to which they emigrate.

The result will be to impose an unbearable burden on the welfare benefits of the country of destination and this for two reasons: (1) existing and aspiring employees in the host state will be pitchforked onto welfare as employers  replace them by immigrants prepared, unlike themselves, to graft for rock-bottom wages and (2) the immigrants themselves will necessarily draw on welfare from time to time, eg when they first arrive in the host country, when they move between jobs and when they fall ill.

However, if the host government sets a high legal minimum wage – and, crucially, polices its enforcement– employers in the host country will be prevented from employing cutprice labour full stop. The result will be to deter immigration as the news gets about that there are few jobs to be had.

In these circumstances, you can still have open borders but your welfare system will not buckle under excessive demand.

Milton Friedman and his ilk cannot envision this alternative, however, as they cannot stomach any government intervention in the market, least of all in the form of the saltwater concept of a minimum legal wage (ie as advocated by academics on the east and west coasts of the USA).

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 You might perhaps care to view some of our earlier posts.  For instance:

1. Why? or How? That is the question (3 Jan 2012)

2. Partitocracy v. Democracy (20 July 2012)

3. The shoddiest possible goods at the highest possible prices (2 Feb 2012)

4. Capitalism in practice  (4 July 2012) 

5.Ladder  (21 June 2012)

 6. A tale of two cities (1)  (6 June 2012)

 7. A tale of two cities (2)  (7 June 2012)

 8. Where’s the beef? Ontology and tinned meat (31 Jan 2012)

Every so often we shall change this sample of previously published posts.

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