Benefits of Immigration

I suspect that the recent article by href="http://vedantam.com/">Shankar Vedantam, in
the Washington Post, will largely be taken as fuel for the immigration
debate.  However, that is not why I find it interesting.

href="http://www.washingtonpost.com/wp-dyn/content/article/2007/10/14/AR2007101400993.html?hpid=topnews">When
Immigration Goes Up, Prices Go Down

By Shankar Vedantam

Monday, October 15, 2007; Page A03

Why would the same company charge you 14
percent more for an identical product in one location?



Because it can.



That's the simple answer. The free market relies on the willingness of
consumers to punish businesses that overcharge. If you are willing to
pay extra for the convenience of filling up your car at an expensive
gas station on your way to work, rather than the cheaper one that is a
little out of your way, why blame Exxon for taking your money?



But there is also a more interesting answer, which brings us to the
subject on tap: The difference in gas prices may have to do with the
fact that Wheaton has many more immigrants who are not yet fully
assimilated into the economy than does Bethesda...

This is based upon the work of economists href="http://economics.huji.ac.il/facultye/saul/saul.html"
rel="tag">Saul Lach and href="http://faculty.wcas.northwestern.edu/%7Eane686/" rel="tag">Aviv
Nevo (workling independently).
 The work was inspired by and based partly upon observations
of the effect of large-scale immigration of Russian Jews to Israel.
 



Of course, it is hard to make generalizations by studying a special
case, but apparently there are other findings that strengthen the
hypothesis.

...Lach said in a new paper published in
the Journal of Political Economy that immigrants tend to do what
Bethesda drivers do not do often enough: They go the extra mile to the
cheaper gas station. Lach found that new immigrants spend much more
time comparison-shopping than natives -- perhaps because their economic
circumstances force them to look for the best deals, or because they
have more discretionary time to compare prices, or because they have
not yet developed brand loyalties...

Of course, there are exceptions:

href="http://econ-www.mit.edu/faculty/angrist/shortbio"
rel="tag">Joshua Angrist, an economist at MIT,
said Lach's paper is interesting, but added that research also shows
the poor sometimes pay more for things because retailers tend to avoid
setting up shop in poor neighborhoods. Wealthy people also have more
financial leverage for expensive purchases.

Plus, once people settle in, their behavior tends to become more like
everyone else's.



What this shows is that immigrants tend to counteract the criminality
of patriots such as ExxonMobil.



What interests me about this is the fact that economics is really a
subset of psychology.  Indeed, Vedantam's WaPo column is
titled "Department of Human Behavior."  

Consider this: economists refer to inflation as "a state of
mind." ( href="http://www.washingtonpost.com/wp-dyn/content/article/2007/07/10/AR2007071000846.html">1, href="http://www.time.com/time/magazine/article/0,9171,937664,00.html">2).
 Of course, inflation is a complex phenomenon, and it would be
a mistake to view it in overly simplistic terms.  Yet, the
theory has merit.  If people expect prices to go up, they may,
more readily, purchase things at higher prices, and spend less time
shopping around for the best price.  Likewise, merchants may
think they can get away with a little more price increase here and
there.  



So getting back to the psychology angle, and the patriotism angle, I'd
like to point out that inflation is a serious threat to our country.
 We can all do out parts by being good consumers, that is,
frugal consumers.  



Even if we just focus on a few areas of expense, say fuel and housing,
we can all do our part to stave off economic collapse.  For a
while, anyway.  Of course it would help if the so-called
financial "services" sector would cooperate.  And the oil
companies.