Rihab HAFIDHIRihab HAFIDHIJuly 17, 2018


Give me your tired, your poor, your huddled masses yearning to breathe free, The wretched refuse of your teeming shore.”

The New Colossus, engraved on the Statue of Liberty

Homo Sapiens have been relocating around the planet since the beginning of time. Estimates vary, but modern humans started to spread out from Africa around 80,000 to 60,000 years ago, and since then they have been moving all over the globe.

Here, we will try to look into international migration, and focus on voluntary economic migration in particular. In 1889, Georg Ravenstein wrote in his Laws of Migration : “Bad or oppressive laws, heavy taxation, an unattractive climate, uncongenial social surroundings, and even compulsion… all have produced and are still producing currents of migration, but none of these currents can compare in volume with that which arises from the desire inherent in most men to ‘better’ themselves in material respects.” Ravenstein wrote this during the Great Atlantic Migration, which began in the 1840s as large numbers of Europeans relocated to the Americas.

Immigration is, in many ways, a result of technological advances. Improved transportation like steamships reduced the cost and difficulty of travel, and the rapidly growing industries of the west needed foreign labor to keep producing.

Today, immigration is a major component of the economy and is one of the most contentious issues of almost every election. Most studies agree that immigration is beneficial for national economies and associate it to increases in GDP and in productivity. Its opponents, however, point to the costs that usually come along with immigration and that it might result into short term drops in wages and contribute to inequality by shifting money from labor to capital.

Harvard economist George Borjas wrote about a category of economic models he called the Immigration Surplus. Population growth through immigration increases the demand for goods, which can, in the long term, lead to more employment and higher wages. This can come at the cost of people who are already in the job market, as cheap immigrant labor can drive down wages. But the majority of economists point to this as a short-term effect, and that the overall growth in the economy driven by population growth will eventually push wages up.

Furthermore, the immigration of high-skilled workers has many advantages. Studies indicate that high-skilled immigrants are more inclined to innovation. Actually, foreign-born entrepreneurs register about 25% of new patents in the United States. The 1998 doubling of the quota for H1-B visas, which enable employers to hire high-skilled foreign workers, led to an average 15% of revenue increase for the American companies in question.

And that’s not just pie in the sky liberal thinking. Many non-partisan thinkers and economists believe that immigration reform granting easier access to a legal status would bring undocumented workers into the tax base, and thus leading to more growth in revenue and creating additional jobs.

If the debate over immigration were only about economics, there wouldn’t be much of a debate. But the world is a very complex place. Like any form of economic change, immigration causes anxiety and disruption to many communities. But in general, nations thrive on dynamic transformations that produce winners as well as losers. Such transformations stimulate growth. Certain societies with a dominating nationalist culture have opted for more controls and regulations on immigration and labor markets. They certainly have more stability, but less growth and fewer jobs. Economists have highlighted these issues, but they still cannot decide them. The resolution depends on a question that David Card once asked but our politicians have not yet come to answer: “What is it that immigration policy is supposed to achieve?”

Rihab HAFIDHIRihab HAFIDHIJuly 17, 2018


The main spur to trade or rather to industry and ingenuity, Is the exorbitant appetite of men, which they will take pain to gratify.

John Cary, 1695

Capitalism is an economic and cultural system that is characterized by innovation, risk taking and private investment to increase wealth.

Let’s say it’s the 13th Century and you’re a fabric merchant. Just like merchants today, you sometimes need to borrow money or credit to buy the fabrics you want to resell at a profit, in order to pay them back with interest once you’ve resold the merchandise. This is called mercantile capitalism, which was a global phenomenon from the Chinese, to the Indian overseas trade network, to Muslim merchants who would sponsor trade convoys across the Arabian Desert. By the 17th century, British and Dutch merchants had expanded upon this idea to create joint stock companies in order to finance bigger trade missions and spread the risk of international trade. These were the beginnings. However, industrial capitalism is completely different, both in scale and in practice. According to Joyce Appleby’s definition, it is: “An economic system that relies on investment of capital in machines and technology that are used to increase production of marketable goods”.

Industrial capitalism developed first in Britain, which was the dominant power on the seas and was making wealth off its trades with its colonies, in the 19th century. The growth of capitalism was supported by the half-century of civil unrest resulting from the 17th century English civil war. The economic regulations imposed by the British crown before the war couldn’t be maintained during the turmoil, which led to freer markets. Another factor was the remarkable increase in agricultural productivity by the end of the 16th century. As food prices started to climb, it became profitable for farmers, both large and small, to invest in agricultural technologies that improve crop yields. The higher prices for grain resulted from population growth, which in turn was boosted by increased production of food crops. This increased productivity, eventually brought down prices, thus encouraging more innovation in order to increase yield. Lower food prices had an added benefit: since food cost less and wages remained the same, workers had more disposable income, which means more consumption. This incentivized people to make consumer goods more efficiently.

This rapidly increasing productivity also meant that fewer laborers had to work in agriculture to feed the population. To put this in perspective, 80% of the English population in 1520 worked the land. By 1800, only 36% of adult male workers were in agriculture and in 1850 that percentage dropped to 25.

One of the ways the British achieved this agricultural productivity was through the process of enclosure, through which landlords could reclaim and privatize fields that for centuries had been held in common by multiple tenant farmers.

Now capitalism is also a cultural system, and it is rooted in the need of private investors to make profit. Thus, people had to develop the capitalist values of taking risks and investing in innovation. The main reason why these values developed in Britain was that they were very well publicized. Writers like Thomas Mun, who worked for the English East India Company, exposed people to the idea that it was human nature for individuals to participate in markets as rational actors. Even the English language changed; the word “individual” wasn’t introduced until the 17th century and up until the 18th century a “career” referred only to the racing life of a horse.

Today we’re in the 21st century and it is evident that industrial capitalism has overcome. But it isn’t without its critics or shortcomings. One way that workers responded to these shortcomings was by forming labor unions. Another response was socialism. Capitalism advocates like to point out that it’s more inclined to human nature which means that if left to our own devices, humans would still construct capitalist economic relationships. Socialism in the other hand, at least in its modern versions, makes fewer pretenses towards being an expression of human nature; but rather the result of human choice and human planning.

We can confidently say that today industrial capitalism has won out, at least for now, and in terms of material well-being and access to goods and services, it is rather a good thing. But how and to what extent can we use socialist values to regulate free markets remains an open question. Is capitalist competition natural and good or should there be systems in place to regulate it for the sake of our collective well-being? Should we provide free health care for the sick and pensions for the old? Should governments run businesses and if so, which ones? Those are the challenges where industrial capitalism and socialism are still competing and in that sense the struggle continues.

Rihab HAFIDHIRihab HAFIDHIJune 17, 2018


When we think about inflation, the first thought that comes to mind is prices going up. But what does it really mean?

Let’s say you’ve got a 2% raise at work. But right after that, prices rose by 5%. This means you did not get a real raise, because after adjusting for inflation, you have actually lost 3% of your purchasing power.

We all know that prices tend to go up over time. The average movie ticket in the France today is 10€. In 1960, when Gone La Dolce Vita was released, it was 28 cents. So in order to compare box office sales between different years, we must adjust to inflation. To do so, economists first pick a list of goods representing what an average consumer buys in a year that we call consumer basket. This allows us to follow the evolution of the basket price throughout the years. You can pick the base year of your choosing in order to determine the consumer price index. The CPI traces how prices have evolved between during the years, and it’s the most commonly used measure of inflation.

It’s worth mentioning that the CPI isn’t perfect because it supposes that the market basket is constant over time, a traditional CPI does not adjust for either new products on increases in product quality. A 1950s black and white TV is nothing like your 40-inch flat screen.

Government economists use adjustment elements to account for technological progress and keep two different years comparable. But in general, we can use the Consumer Price Index to calculate the rate of inflation and how quickly the price levels could rise from one year to another.

In France, prices sped up in the ’40s right after the war, slowed down in the 50’s and 60’s and then sped up again during the ’70s and ’80s, since then it has been slowly rising. On the other hand, prices in Japan have been falling for the past 25 years.

So what causes inflation? What happens exactly?

Let’s say we gave Alan 1 Million euros and asked him to start buying goods. If other people also have the same amount of money, they will be bidding up the prices of goods and services. If Paul offers 15€ for a Pizza, Alan might counter-offer 20€, then Anna would counter-offer back 50. And so it goes on. This is actually called “Demand Pull Inflation”; when there’s a lot of money, chasing much fewer goods.

Another cause of inflation would also be the decrease of availability of a vital productive resource, like oil for example. An oil shortage would increase the prices of gasoline, which itself would increase the cost of processing and delivering flour, cheese, and other ingredients, thus increasing the cost of making Pizza. And therefore a smaller number of Pizzas can be produced. Economists call this Supply Shock, and this causes “Cost Push Inflation”.

So in general, higher demand and lower supply means higher prices.

On the other hand, when it comes to the 2007 Subprime mortgage crisis it’s hard to explain the rise in home prices with only supply and demand. The American population didn’t suddenly skyrocket or get that much richer and there was no shortage of building materials. So what happened? Home prices have diverged from these fundamentals, between the years 2001 and 2006, into what economists call “bubble”. In the early 2000s, low interest rates and fraudulent lending practices encouraged people to buy homes, thus raising demand and increasing prices.

People assumed that this upward trend would continue forever so they liquidated whatever they had and bought houses in the hope of making a profit. The more buyers were pulled into the market the faster prices rose.

The main problem with a bubble is that it depends on an ever increasing supply of buyers, even if each buyer is betting that they will be able to sell at a higher price to the next person. And eventually, you run out of buyers and the bubble bursts.

Bubbles aren’t new. We can all remember the early 2000 stock market crash due to the reckless behavior of investing in anything that ended with a .com or a .net.

Perhaps the mother of all bubbles was the 1630s Dutch tulip mania. Tulips became a status symbol among the upper classes that competed for the rarest bulbs, driving up the prices. At the height of the mania, people traded or sold their possessions, including properties, to participate in the Tulip mania. Eventually the bubble burst and tulip bulbs are now worth less than a euro.

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