Artificially Constrained Supply
In opposing H1-B immigration, Chris Pepper writes:
Paul Graham wrote Let the Other 95% of Great Programmers In. But I find it hard to believe that he got both programmer quality and supply & demand so wrong. Actually, that’s an understatement. I am angry that Graham argues, as a capitalist, that the US government should grant him exemption from supply and demand (of labor). [emphasis in original]
Phillip Greenspun says much the same:
…“When the market gives you an answer you don’t like, declare market failure.” Presumably Graham’s pal could hire 30 great programmers tomorrow if he offered compensation significantly in excess of what Google, Apple, and Microsoft are paying and/or simply called up great programmers to ask “How much would I have to pay you to quit your job?” and then agreed to whatever price was quoted.
…[I]f companies nationwide paid programmers more than the BLS’s median pay of $74,280 per year (source), additional Americans would be attracted to this field.
[Note that in my home state of Massachusetts, $74,280 pre-tax is $52,192 per year after tax (ADP Paycheck Calculator), i.e., comparable to what a person could get in annual tax-free child support following a one-night encounter with a $300,000/year earner. A person who wanted to have two children could collect more than $52,192 per year by having sex with two different Massachusetts residents, each earning $135,200 per year or more (see worksheet).]
I literally would not exist but for the H1-B program of the United States. But I will not oppose the above on that basis. Instead, I oppose the arguments above as someone who thinks the words “supply” and “demand” have actual meanings and is offended when they are twisted to suit someone’s politics.
If you run the only chain of grocery stores in a town, you can gain control of the permits office and prevent any other stores from entering. You can overcharge your customers knowing that you’ve limited their options.
But at the next town meeting, please don’t lecture your customers about your prices just being a result of supply and demand.
Restrictions on borders (which exist on nearly every border in the world, regardless of the quality of the opportunities they block) are a result of the political process. The rulers of the country prevent those outside of the country from entering to compete as workers. This is an externally imposed restriction on the supply of workers. Even if workers are able and willing to cross a border to work to work at an agreed upon rate, political mechanisms stop them, not market mechanisms.
Feel free to argue for or against the merits of those restrictions, but don’t pretend to yourself that the price premium you enjoy is simply a result of supply and demand.
Edit: I modified the Greenspun quote to remove a reference to an analogy that was confusing the way I originally had it referenced. Please click through if you’d like to see his original.