Coase And The Wall


This post is by Jeff Carter from Points and Figures


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Yesterday I was at a Chicago Booth event and I just happened to sit down next to Sam Peltzman.  We didn’t talk politics.  I asked a lot of questions about economics.  We talked about Ronald Coase.  He knew Coase very well, and he edits the journal Coase used to edit until he passed away at 102.

Sam mentioned that even to this day, most people don’t really believe in or understand Coase.  It’s true.

It’s a very tricky theorem because it goes against a lot of internal confirmation biases in people.  It makes them feel uncomfortable.  It also often is applied to issues that are deeply emotional since it is alternatively known as a theory that solves problems in social costs.

A lot of people want the government or some authority to solve a problem when effective bargaining can do it for us. want to be told what to do.  They might feel like they are morally superior, or intellectually superior, or unbiased and independent, so the solution they come up with is better than what the participants can come up with.  They never think that maybe letting a market fix the problem or that leaving two independent parties alone is a better solution than anything any of us could come up with.

Look around, you see a lot of “fixing of problems” going on with centralized authority today and it seems like a lot of the problems never get fixed.  That is because centralized authority rarely if ever works to solve the sticky types of problems that people are using centralized authority for.

It’s pretty clear there is a titanic battle being waged at the United States Southern border.  The US has made significant policy errors over time when it comes to immigration.  No matter what your political party is, I think we all can agree that immigration in the US is pretty messed up.  I saw this editorial in the WSJ today and I thought of my conversation with Professor Peltzman and Coase.   Clearly, the mistake in this negotiation is that using tariffs to change international policy is bad precedent.

How would Coase solve the problem given current policies?

The most optimal solution might be for the US to build a wall for Mexico at their Southern border and staff it with US personnel.

In order to figure that out, you’d have to know how much the US is spending on fighting illegal immigration at its border, along with the cost of taking care of illegals once they enter the US and establish a base here.  It might be far cheaper to pay for a wall in Mexico and stop them from entering their country.

In the meantime, we ought to really look seriously at Professor Gary Becker’s ideas on immigration and change our policy to match them.