Thread by @GarettJones

In the climactic battle of Open Borders, the armored knight Caplan mathematically battles the big-brained alien I’ll call Hive Mind.

In the end, the knight claims that even in Hive Mind’s model, open borders would about double world GDP. Big, as they say, if true.

Thread:

How does Caplan conclude that even accounting for big IQ spillovers, moving everyone to the U.S. & reducing U.S. test scores would still double world GDP?

Because he assumes that anything that matters for prosperity that isn’t IQ is permanent, unaffected by population changes.

That’s right: On page 131, Caplan assumes a two-factor model of the Wealth of Nations.

1. IQ
2. An unexplained permanent factor (or equivalently, an explained permanent set of factors).

Here’s a summary of the model of national productivity implicit on page 131:

Given page 131’s model, it’s clear why open borders would double world GDP per capita: It’s because
there’s something magical—that’s the best word for it—magical about being in America.

That’s what the page 131 model assumes: Some degree of permanent American magic.

Magic—& miracles—have a long history in economics, rightly so.

But the wise, like Nobelist Robert Lucas, try to explain those miracles rather than leave them unexplained & permanent.

Maybe they are permanent!

Maybe they are inexplicable!

But it takes science to find out.

But the page 131 model of the magic of open borders isn’t a complete model of national prosperity—
even by the book's own standards!

Just looking at the previous 30 or so pages, Caplan considers other human-made drivers of national
prosperity beyond national average IQ:

In real life, these factors surely overlap--hence the Venn--but just as surely they’re not all simply synonyms for each other.

Caplan uses Trust, Deep Roots scores, IQ, & indirectly even geography to explain cross-country income differences.

Since Caplan apparently places some weight on people-driven causes of prosperity beyond IQ, causes that to some degree travel with immigrants to their new homes…

…That means that his page 131 estimate of the merits of open borders is an overestimate--by his own standards.

Perhaps Caplan can issue a clarification concerning page 131, since it’s an incomplete model of global prosperity by the standards of the book--& certainly by the standards of Hive Mind...as the quote below shows.

Improvements to the academic literature are always welcome.

But there’s a bigger issue here: the mystery box.

Those unexplained permanent sources of cross-country differences in national institutional quality & in total factor productivity are doing a lot of work in the case for open borders.

The case for open borders has much in common with the case for real business cycle (RBC) theory, the view that booms & busts are largely caused by exogenous, unexplained year to year differences in
productivity.

Kydland & Prescott shared a Nobel for their work on RBC:

Both RBC theory & open borders activism rely crucially, critically, on large, often unexplained differences in total factor productivity.

RBC theorists believe in technology shocks across time.

Open borders activists believe in technology shocks across countries.

Fortunately, there’s been a lot of research on the sources of those persistent cross-country technology shocks.

Prescott himself has been a leader in the area. Much has been explained.

But if the only drivers of cross-country income differences are *some* linear weighting of the traits of a nation's residents plus exogenous productivity shocks, you’re still in a world where open borders maximizes world GDP.

That’s just math.

But if the world is log-linear, that clean result for open borders goes away.

If ethnic conflict can hurt institutional quality, that clean result goes away.

And if the richest nations rely on excellent institutions to innovate, that clean result explodes.

That’s all for today. I’ll save the math for another time.

There’s still much more to discuss about Caplan & Weinersmith’s beautifully illustrated book.

Buy your copy here, $10 on Kindle, $14 paperback:
amazon.com/dp/1250316960/…