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Is Migration a Tool of the Consumptive Class?

Summary:
Migration is part of the wider concept of economic freedom. This makes it desirable if prosperity is the goal of policy. But more applicable to the current attitudes and values of Western leaders than mundane economic arguments, migration presents an opportunity to increase the pool from which they extract real income. This is required in the face of poor demographics and growing socialistic ambitions. The extraction is achieved by taxation and inflation, which create huge costs to the productive sector regardless of its makeup. In this sense, any large-scale migration is likely to be an example of states coming to the right answer in the wrong way. Factors Seek the Highest Rent The mobility of factors of production is always desirable. Migration is simply the

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Migration is part of the wider concept of economic freedom. This makes it desirable if prosperity is the goal of policy. But more applicable to the current attitudes and values of Western leaders than mundane economic arguments, migration presents an opportunity to increase the pool from which they extract real income. This is required in the face of poor demographics and growing socialistic ambitions.

The extraction is achieved by taxation and inflation, which create huge costs to the productive sector regardless of its makeup. In this sense, any large-scale migration is likely to be an example of states coming to the right answer in the wrong way.

Factors Seek the Highest Rent

The mobility of factors of production is always desirable. Migration is simply the mobility of labor over national borders. Not all factors are mobile by their nature—for example, railways and national grids—but the mobility of those that can move enables more wants to be satisfied than otherwise. It lowers the cost of producing consumption goods, which increases real incomes and tends to lower interest rates.

Owing to immigration rules, labor is usually more constrained than financial capital and produced goods. But given the chance, labor movement follows the same rule as all other factors: on the margin, it goes where the rent (wages, in this case) is highest.

It is worthy of note that labor is unique among factors in an important way. Besides being a tax subject and having a vote, it is the most nonspecific factor and required in every branch of production, even in a high-tech economy. This makes migration of special interest.

The Foundation of Wealth

The land within a national border can be barren or blessed with natural resources. But there is an institutional foundation required for any wealth to be accumulated regardless of natural endowment. This is relevant because it is wealth that creates the high real wages that attract migrants in the first instance.

The key is the enforcement of property rights and contracts, and this is why resource-rich Venezuela can be so poor compared to nations like Switzerland. Adam Smith surpassed many contemporary understandings of economic development when he wrote in 1755 of opulence resulting from “peace, easy taxes, and a tolerable administration of justice.”

It seems fair to say that respect for this foundation is driven by cultural factors, and that these are liable to change. Notably for democratic states, what Ludwig von Mises called the “climate of public opinion” can drive a wealthy nation to squander the foundations that made it wealthy by electing governments that involve themselves in everything but protecting property rights and enforcing contracts.

The Great Fiction

“Government is the great fiction through which everybody endeavors to live at the expense of everybody else,” wrote Frédéric Bastiat. The basic truth of political economy is that the productive sector (voluntary, private, net contributor of real resources) funds the consumptive sector (coercive, state, net consumer of real resources). It funds it by taxes, lending, and in having purchasing power seized when the treasury is funded by credit expansion. But the costs do not end there, for resources used by the latter cannot be used by the former, and regulations create monopolies and cripple production in ways far beyond the crowding out of resources. The state’s inflation even undermines the system of profit and loss itself. It falsifies the ability of producers to do accurate capital accounting and allows unprofitable productive sector firms to stay in business longer than they could otherwise.

Beware the Limits

Unlike all voluntary market transactions, which must add utility to both parties ex ante, transfers from the productive to the consumptive are generally utility destructive. Although the latter wants to grow the real value of this transfer, there are limits. Failure to understand the limits of extraction can be observed (after the fact) every time a government pushes tax rates beyond maximum revenue, as popularized by the Laffer curve.

It can also be seen when capital flees a nation due to high costs of doing business. An even more extreme case is that of hyperinflation, where the currency becomes unable to transfer any ability to command real resources. The strategy then must shift from taking purchasing power in often vague and poorly understood ways to stealing property outright, which is inefficient and costly.

It is possible that technological developments adapted to statism—for example, surveillance and central bank digital currencies—cultivate the attitude that this limit could be pushed beyond prior levels. But unlike contributors to production, like labor, these cannot change economic realities.

What Makes Up the Consumptive Sector?

Although the consumptive sector depends on the state for its survival, it consists of more than just the government and its agencies. Also included are the central bank, private sector firms whose revenue comes from the treasury, government education, and net recipients of taxes.

Worthy of special mention are nongovernmental organizations and nonprofits in receipt of treasury funding. These play an important role, especially in coordinating the global consumptive sector. They are also active in producing justifications for more government action and in encouraging economic migration under fashionable pretenses—having been shielded from the market for so long, they are neither interested nor convinced by mundane economic arguments. Altogether, the consumptive sector can be seen as a penumbra of interests empowered and financed by the state’s monopoly on coercion, taxation, and inflation (via its monopoly issuer, the central bank).

Wealth Leads to High Taxation

A stable and entrenched government is most able to grow its economic influence over a sustained period. This stability requires strong property rights and contract enforcement and leads to a high level of wealth, income, and spending. But it rarely ends with unilateral contentment.

The climate of public opinion, influenced by anticapitalistic intellectuals (part of the consumptive sector) and secondhand dealers in ideas, all too often comes to favor the redistribution of this wealth and income. And so, unfortunately for the prosperity of everyone in the long run, wealth can lead to high and progressive taxation to fund a large and inefficient state and its hangers-on.

Migration as the Solution

As the consumptive burden grows, more labor is required in both sectors—both because more valuable labor is squandered in the consumptive sector and because more is required in the productive sector to produce the value that props it up.

Further compounding the demand for labor in the developed world are shrinking working age populations and inflationist central banking. More capital per person would allow each worker to be more productive. But low interest rates and inflationary disincentives to saving have reduced capital investment beneath where it would otherwise have been.

Migration, then, can be a means of perpetuating the consumptive sector. Historically, very few nations have been able to maintain low rates of taxation and inflation for long. The unwavering tendency is to increase the takings to fund a growing state penumbra (incidentally, a key argument against minarchism). There remains no political appetite to deal with ballooning deficits or lower taxation across the developed world, which has also been ravaged by inflation. So it appears a scramble for productive workers is needed to keep the show on the road (a technological revolution would help, too, but that also needs saving and investment).

There will continue to be a net migration away from states that never had much of a productive sector to plunder toward developed states with an elaborate apparatus for taking a cut of every private transaction, capital gain, and piece of property. Assuming they fill jobs, a net migration toward these regimes appears a boon for all parties, but insofar as it perpetuates the consumptive sector, the productive lose in the long run. That is, until the plunderers overreach.

Conclusion

State barriers to migration have existed for a long time despite its economic benefits. Given the current fiscal behavior of the developed world, any change in stance to such barriers is unlikely to be due to a new appreciation of free market economics. It is more likely to be the consumptive sector using the levers it has to maintain its real income.


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