Immigration and Inflation

George Borjas relates the history of immigration from Puerto Rico to the current immigration issues. He makes the important point that the Costs of immigration are high, and that reducing the labor population of Mexico will not necessarily equalize Living Standards there by raising Wages (think immigration consists of superfluous labor elements where Supply Costs set the Wage levels; a known characteristic which forestalls equalization of Wages in geographic areas of this Country). George does not mention the relevant fact that the Costs of immigration affect the intended Desire for Guest workers to return home after completing their Jobs; this factor easily established that such Costs are tied to the Country of Origin. What I mean is that while it might actually cost $130k to immigrate to this Country from Mexico (Borjas estimates seeming too high to me), immigration back to Mexico may be as high as $700k. Economists should study George Borjas’ Work carefully, as it says a lot more than a lot of them realize.

Jeffrey Lacker has the right idea about Inflation, but has a language in it’s definition which is hard to follow. I will try to use the phrasing of the Common Man on the Street, and will probably be as equally undecipherable. The relationship between Output and Inflation is tenuous; it exists and has real impact, but in reality, only in Third Generation progression (meaning a Mood swing only after an intervening Production cycle which had already been scheduled). There is also an immediate impact, though, propelling Inflation. Economists call this Inflation Expectations; and Economists have more ways of explaining it, than Madonna can sing ‘Like a Virgin’ and not mean it. I mention this because most Economists treat Inflation Expectations as only a Talking Point.

The real propellent of Inflation Expectations lies in a group of factors–lower Wage Costs, higher Sales than expected, faster Production than expected, etc., whose Bottom Line said that Profits of Production were higher than expected. Normal Business Managers think they might as well increase Production Schedules, as there is a Temporary window where they can coup enhanced Profits from improved Production Costs. This is a Second Generation Effect, and One that artificially skews Wage and Resource Price levels higher in the next Production cycle. Business Managers find higher Production Costs appearing in the Second Generation of Production, and instead of cutting back the Production schedule because of salvageable Hopes, simply passing along the Costs in higher Prices while cutting back the Production schedules of Third Generation production; the end-result bringing higher Product Prices with more limited Product in the Third Generation production. The End-Result is higher Product Pricing in the Third Generation with sustained Consumer Demand, due to the constriction of Production. lgl