As I emphasized throughout the post, I was not telling MAGA fans, “You shouldn’t support this H1B policy.” Rather, I was trying to isolate the precise reasons why it was a good idea, because many of the people who responded to my thought experiment on social media disagreed with the self-driving truck case.
In this second post in the series, I will address objections that people raised to my first post, where I laid out the analogy. As before, my primary purpose here is to help the reader sharpen his or her worldview, and adopt an internally consistent view of the economy.
Response #1: “Your gotcha fails, Murphy: I would support such a fee on self-driving trucks.”
Some of the Trump’s supporters on the H1B move, told me they likewise would support an analogous policy for owners of trucking fleets who were looking to eliminate jobs. Indeed, Tucker Carlson once told Ben Shapiro that he would obviously support an outright ban on self-driving trucks, because this occupation was such a staple for middle-class breadwinners.
As I said in the previous article, such a stance is certainly internally consistent, but I wonder if people realize what this implies. Throughout history, there were plenty of innovations that “destroyed jobs” in some sectors, but were part of a broader trend of increasing labor productivity. For example, at the time of the Civil War, more than half of the American workforce was engaged in agriculture, yet that had fallen to 26 percent by 1920, and is currently around 1.5 percent. The various innovations over the years resulted in “displaced farm workers,” but it obviously helps society as a whole when we can grow more food with fewer people. It frees up the former agricultural workers to go into other sectors, so that total economic output includes not just the food that they originally helped produce, but all sorts of new goods and services as well.
Part of the difficulty with technological innovation is that you can’t say precisely what the displaced workers will end up doing instead. It’s very easy to look at laid-off truckers and think, “This is a bad result of self-driving vehicles.” But likewise, it would have been easy to look at the first use of tractors and think, “This is going to put a lot of honest farm hands out of work.”
Response #2: “There’s a lot more to life than maximizing GDP. You economists only care about efficiency.”
Another popular response was to point out all of the ways that immigrant workers differ from technological innovation. For example, critics of recent US immigration policy worry about cultural transformation, crime, and voting trends, among other issues. In contrast, we don’t need to worry about self-driving trucks stuffing the ballot box for Gavin Newsom. (On the other hand, anything can happen…)
Again, this response is consistent—such a critic is explaining why he opposes more H1B workers but welcomes new technology. However, if this is the way the reader handles my thought experiment, let me tweak it: Suppose a US firm lays off American-born workers, and replaces them with workers from India who use technology to do those jobs from India. Would you then agree that this was a boon to the average American, in the same way that a labor-saving technological device would be?
Given the popular complaints about customer service representatives “who can’t speak English,” I would be surprised if the typical fan of H1B visa workers was a supporter of outsourcing jobs to telecommuting workers in foreign lands. But again, I would encourage such readers to think through the exact reasons. What if a US firm installs a computer to field incoming customer calls, in order to save money on human operators? Should the government ban such practices? What about grocery stores installing self-checkout stands?
As an aside, let me clarify: With all of these examples, the question isn’t, “Do you, the reader, like these trends?” For example, I personally don’t like it when I have young kids with me in the store and the human cashier lanes have long lines. But as an economist, I understand that grocery stores operate on tight margins, and that the move to self-checkout is a way to contain costs in the face of minimum wage hikes and wholesale prices.
For a different example: We can appreciate the extra quality in “handmade” items, but also recognize that having a machine-produced, inexpensive variant is beneficial too, for consumers who are on a tight budget. In any event, I think government attempts to restrict the introduction of automation would make things worse.
Response #3: “The difference between the H1B program and your self-driving truck analogy, Murphy, is that the foreign workers remit their earnings back home, taking that money out of our economy.”
This particular objection, in my view, rests on faulty economics. It’s wrong to view it as a “drain on our economy” if some workers (who happen to be foreign-born and are only within our borders because of a temporary work visa) send their paycheck to residents of other countries.
First, try this: Suppose an H1B visa worker gets paid $5,000 for his monthly salary. He goes to the bank and cashes the check. Then, he literally lights the money on fire.
Would this represent a terrible waste for the US economy? On the contrary, it would represent a $5,000 loss to the H1B worker, and it would be a $5,000 gain spread among the holders of USD-denominated assets. By removing US dollars out of circulation, the foreign worker would be doing a great service to everybody else, because now the USD price of goods and services would be slightly lower than otherwise. Just as a counterfeiter makes the rest of the community poorer, someone who destroys his own (legitimate) currency makes the rest of us richer.
Now having said that, it’s not true that sending money abroad, represents a boon to other Americans. This is because the money isn’t actually “removed from the economy.” Let’s say our H1B worker, instead of burning his $5,000, instead wires it to his mother in India. Presumably she wants to convert it to rupees so she can spend it at her local stores. By offering USD for rupees, she slightly lowers the exchange rate, which makes US exports more affordable for Indians, and Indian exports less affordable for Americans. Consequently, some Americans who previously would have imported something from India, now buy American instead, and some Indians who previously would have bought locally, now import from America instead. So even though the H1B worker didn’t directly spend his $5,000 paycheck buying goods from US merchants, by sending it to his mother he set in motion a chain of events that stimulate net exports to India.
To be clear, I’m not saying that the H1B worker sending his paycheck to his mother is “good for the US economy.” Rather, what I’m saying is that it provides just as much “support for US workers” as it would if he directly spent the money at Costco and Arby’s.
If you’re still thinking something is fishy here, try this: Suppose the H1B worker either (a) bought some presents from US merchants and shipped them to his mother, or (b) wired the money to his mother, who then used it to import those same presents from the US merchants. Surely we can agree that those two scenarios are equivalent, as far as the impact on US merchants. Now, if instead the mother wants to buy things that are difficult or counterproductive to ship across the ocean (like bread and haircuts), we achieve more efficiency by rearranging transactions such that Indian merchants produce more of the items she wants, by producing fewer of the items that it does make sense to import from the US. And then, by mirror image, on the US side, it doesn’t make sense for the son to buy bread and ship it across the ocean. So instead, US producers make fewer loaves of bread, and with the freed-up resources make the extra items that it doesmake sense to export to India. The overall impact on employment in America and India is a wash, but desired goods and services are delivered at the cheapest price.
Response #4: “The H1B visa workers are coming from another country. If they produce here in the US, they aren’t producing back in India. So total global output isn’t higher. In contrast, if a trucking company introduces self-driving vehicles, that’s not reducing GDP in Computer-stan.”
It’s true, nobody actually said the above to me verbatim; but some of the objections to my analogy were grappling with this distinction. And I do want to commend such responders, because this is a subtle point.
In the first place, the typical MAGA supporter isn’t worried about global GDP; in fact, that’s one of their proud talking points when criticizing the pointy-headed academics. And so if we’re narrowly focused on the standard of living of American-born workers, then the issue reduces to this: Does a worker from India (say) end up doing more for the amount of stuff that a US worker can buy for an hour of his own labor, by coming to the US or by staying in India? And I think the obvious answer in general has to be: A foreign worker helps Americans the most, by going to where he or she produces the most. And clearly, the participants in the H1B program are doing it, in part, because they earn more here than they could back home.
Now it’s true, as more Indians (say) come to America rather than remaining home, we would expect lower exports from India to the US. And so it’s true, in that sense the rearrangement of workers around the globe only helps because of the increment in output from each worker, as opposed to the total gain that occurs when there is a technological innovation that, in a sense, is like a new “synthetic” worker who came from the sky.
If all of this is confusing, I would encourage the reader to first think through something easier: Does it make you personally richer, if other people exist at all? I’m not here talking about having friends and enjoying a baseball game with a crowd. Rather, I’m asking you to consider: If the population of the rest of the world suddenly fell by 95%, do you think an hour of your labor would buy more or less at your local store? (I point readers to this earlier article I wrote on this question.)
Response #5: “The H1B program as it stood was a perversion in which politically favored companies got to reap windfall gains from receiving exemptions from normal immigration limits, which are in place for a variety of reasons, including non-economic ones. Trump’s plan simply reduces the ability of lucky companies from monetizing the amount foreigners are implicitly willing to pay to come to the US.”
This is an intriguing defense of Trump’s plan. It’s similar to what Gene Callahan and I argued, earlier in the year when Elon Musk and Vivek Ramaswamy went to battle against MAGA on the H1B program. Specifically, Gene and I argued that it didn’t make sense to debate the H1B program in a vacuum; one had to first decide if the overall restrictions on immigration made sense. If they do make sense, then it’s nonsense to speak of a “tech worker shortage,” just like the high market-clearing price of diamonds doesn’t mean there’s an “engagement ring shortage.”
In conclusion, my point in these two posts hasn’t been to argue for or against Trump’s policy move. Rather, I’m simply trying to help readers clarify their worldview in light of economic principles.
Dr. Robert P. Murphy is the Chief Economist at infineo, bridging together Whole Life insurance policies and digital blockchain-based issuance.
Twitter: @infineogroup, @BobMurphyEcon
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