Inflationomics

Building Walls to Keep the Competition Out

The idea of building a wall between Mexico and the United States has been in the news a lot lately.  The idea is short-sighted.  It’s treating a symptom rather than the cause.  The reason Mexicans want to come to the U.S. is because there are more job opportunities in the U.S. than there are in Mexico.  (When there are fewer opportunities in the U.S., fewer Mexicans move to the U.S.)

Mexico is more socialistic than the U.S.  The government is more corrupt…they nationalized the oil industry back in the 1930s and only recently realized that the national oil company (PEMEX) could no longer search for more oil.  It didn’t have the capital any more…it had squandered its money on social handout programs and corrupt government officials.  In short, business and jobs were less important to Mexican government officials than keeping their own pockets lined with oil money.  Other politicians thought that they could use the oil company to give their supporters cush jobs where they didn’t have to work, they would receive double the market wages, and receive excellent benefits.  This too, weighed down Pemex with dead weight and made it impossible to spend money on research and development.  In short, cush government jobs crowded out the private businesses (other than the drug lords who run the risk of running an illegal business), making it difficult to start and run a profitable business.  With a shortage of jobs in Mexico, Mexicans looked elsewhere for work…and many of them found it in the U.S.

The problem the U.S. has, is that it has a huge welfare system that it has lost control of.  Just about anybody can get on the government dole, even Mexicans who haven’t jumped through the hoops necessary to become legal U.S. citizens.  (BTW, it’s also easy for Mexicans to become U.S. citizens by having a child born in the U.S….the child automatically becomes a U.S. citizen, which makes it difficult to extradite the parents…of a U.S. citizen.)  If the U.S. didn’t have a welfare system, anyone coming to the U.S. would have to work for a living rather than just mooching off others; i.e. government handouts.  This would either slow down the flow of people from Mexico (and other poor countries), or it would increase the overall U.S. productivity, or both.  Of course, it would also lower wages for the more menial tasks which first generation foreigners would be inclined to perform.  Once again, this would not be bad.  People would pay less for housekeepers, lawn mowers, waiters, farm workers, etc., but it would run afoul of another U.S. short-sightedness…minimum wage laws.

Minimum wage laws, as everyone knows, keep the less productive members of our society unemployed because they do not produce enough to justify a higher wage…a wage as high as mandated by the minimum wage laws.  If the U.S. were to eliminate minimum wage laws, the influx of cheap foreign labor would be a boon to business…they wouldn’t have to open their factories in Mexico, China, etc.  They could open their factories in the U.S. and find plenty of people who would be willing to work for a “reasonable” wage.  Rather than sending businesses to all corners of the world to find reasonably priced labor, they could import the labor and keep business in the U.S.

The extra labor would need places to live.  In short, there would be greater demand for everything people want, from housing, to i-phones, to food and clothing…and businesses wouldn’t have to go to China to get it.

But, alas, it takes time for some people to learn the lessons their great-grandparents knew. Perhaps in another generation or three, people will focus on making themselves more productive rather than keeping their competition away by passing laws or building walls.

Robert F. Sennholz

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