Lorenzo Warby Complains about Economists
My complaints are somewhat different
Australia has much higher migration rates than does the US and the UK. Yet, you do not see the nannies, gardeners, and other personal services to the rich in anywhere near the same scale in Australia as in the US and the UK. Australian car washes are still mechanised.
That is because Australia selects migrants such that their average level of education (their human capital) is higher than that of the residents. Migration into Australia therefore does not reduce the Baumol effect. If anything it increases it, as capital increases faster than labour.
Are all of these highly-educated immigrants mowing their own lawns and cooking their own meals? If so, then this is a very inefficient way to run an economy. But it might reflect a scarcity of low-skilled workers, which helps to raise their wages, if that is what you are after.
Warby also says
Warby levels the charge that economics is
anti-scientific—because not oriented to the correct level of structure—emulation of Physics, rather than the consilience with biology required for Economics to be science.
Note that Darwin himself credited Thomas Malthus with supplying some of the inspiration for the theory of evolution. And evolutionary thinking is constantly reappearing in economics. Warby praises the concept of satisficing (as opposed to maximizing) without crediting Herbert Simon, who (a) coined the term, (b) was awarded a Nobel Prize, and (c) was known for taking an evolutionary approach. Indeed, Simon’s Nobel lecture includes this excerpt:
If we wish to be guided by a natural science metaphor, I suggest one drawn from biology rather than physics (Newell & Simon, 1976). Obvious lessons are to be learned from evolutionary biology, and rather less obvious ones from molecular biology. From molecular biology, in particular, we can glimpse a picture of how a few basic mechanisms - the DNA of the Double Helix, for example, or the energy transfer mechanisms elucidated so elegantly by Professor Mitchell - can account for a wide range of complex phenomena.
Nonetheless, it is fair to say that within the economics profession, Simon’s evolutionary focus is more the exception than the rule. The complaint about mainstream economists’ relentless focus on maximization has some merit.
But one of my big complaints about mainstream economics is its continued use of the aggregates of “capital” and “labor,” when those concepts are heterogeneous. The attempt to describe production in terms of exactly two factors is a failure, in my view.
Yet Warby tries to rely on this distinction. Of course, he immediately has to modify it in order to emphasize the difference in the supply of skilled labor and unskilled labor. That gives you three factors of production, not two.
But then you have to look at all of the other differences that affect relative prices. Not all college degrees are equally financially rewarding. Not all differences in economic rewards can be explained by education. Economists have come up with more categories of “capital” than I can even remember. Social capital, networking capital, relationships capital, emotional capital, identity capital, institutional capital, cultural capital—all of these, and more, have been proposed.
The phenomenon of personality traits makes this even more complicated. Any of the “big five” traits can turn out to be positive or negative, depending on circumstances. Being open to new experience can be an advantage for some jobs and a disadvantage in others. The same with being conscientious, extroverted, neurotic, or agreeable. And there may be other personality traits that matter also, including systematizing vs. empathizing.
We can see that the question of whether more immigration is “good” or “bad” for a particular subset of workers is much more complicated than can be answered by thinking in terms of two or three factors or production. What I call the patterns of sustainable specialization and trade are able to arrive at many different configurations.
I find it plausible that very rapid immigration flows put a strain on the economy’s ability to adjust.
But my intuition is that the main problem in the U.S. economy is that too many highly educated people work for government and for non-profits, where they mostly make trouble for the productive sector. There are workers who could be useful and decently paid in infrastructure, energy production, and housing construction—if the moochers would get out of the way.
Substack referenced above: