How to make an economic cripple

As the proposed five year stay limit for alien workers is being discussed, it’s time to take another look at Ed’s Second Law of Economics: “You cannot make the unproductive productive by making the productive unproductive.”

Before delving into the foggy abstract of economic theory, let’s consider a what if.

What if…every alien garment worker in Saipan was sent home tomorrow. Would that mean 13,000 or so freshly opened up jobs for the rest of us? Would we all have higher wages and better professional opportunities?

Answer: Nope.

The garment industry would close, and so, too, would all the other industries that depend on the garment industry. Result: far less jobs and economic opportunities in the Commonwealth.

To put this into more abstract terminology, by reducing the amount of labor in the economy (sending the aliens back home), we have reduced the productivity of capital (the garment factories), which will result in a reduction of the amount of available capital (the factories relocate to more productive locales). Reducing the amount of capital in the economy reduces the productivity of labor, and consequently reduces wage rates.

If a productive person enters an economy, that person isn’t taking away someone else’s job. That person is actually helping to create more jobs. Capital follows productivity, productivity follows capital, which is why the United States is rich and, say, the Philippines isn’t.

And the Philippines is a great example. There’s no shortage of hard working, diligent labor over there. What’s more, for anything involving English language skills, the Philippines is miles ahead of most of emerging (or submerging,take your pick) Asian economies. Then why is the country so poor, with a growth rate in population that will probably exceed economic growth in the coming year?

The answer: policies that discourage capital from flowing to the country. The Philippines is seeing the problem with having misguided government policies cooked up by (perhaps well meaning) non-economist economists who don’t understand the relationship between capital and labor any better than I understand the theory of Quantum Mechanics. I think it’s a pretty cruel joke to play on people, as they have to confront a situation where they’re willing to work, they want to work, and they’re good at working…and yet there’s really no place for them to go.

Indeed, even the basic basics of economics–sort of the mathematical equivalent of two plus two equals four–are not understood in most of the world. The result is a “peasant mentality,” where people understand only the soil beneath their feet, and never the abstract issues in which the invisible hand of capitalism guides the formation of industrialization.

Putting restrictions on alien labor here just for the sake of doing so is like cutting off your left leg in order to make your right leg stronger. Mess with labor, you mess with capital, which in turn will mess with labor. Like legs, the two have to work together. Plenty of crippled economies can serve as ready testimony to that.