“People don’t flee their homes because they want to, they flee their homes because they feel they have to.” Those are the words of Nayib Bukele, president of El Salvador, and as reported by Kirk Semple of the New York Times.
One senses that people understand the above well when politics and partisanship are left out of the migration discussion; that the desperate from other countries routinely risk everything to get to the United States because it’s where the jobs are. Some say it’s about collecting welfare despite the fact that even legal immigrants aren’t eligible to access welfare for five years, but to bring up the latter is to miss the point. They come here for the jobs. So long as the U.S. economy booms, the world’s poorest will continue to find ways to make it to the country where hard work is a certain path out of poverty.
Bukele says it “is our fault” (as in El Salvador’s) that so many Salvadorans have left a country where poverty is the brutally persistent norm. Most of the Salvadorans have migrated to the United States; the number according to the New York Times is 1.4 million. One can only hope that the Times’ editorialists are made aware of the previous number since it’s one that slays various economic myths routinely promoted on the newspaper’s editorial page.
For one, Times editorialists frequently argue that government spending is the driver of economic growth. Salvadorans would surely protest what is absurd, and that is most aggressively promoted by a certain Princeton economist who has a prominent column on the Times’ editorial page. They would reject Keynesian mythology mainly because the latter suggests El Salvador’s economic struggles are an effect of too little government spending. Such a view isn’t serious.
A more realistic truth is that government spending doesn’t power economic growth as much as it’s a consequence of it. In El Salvador’s case there’s very little government spending precisely because a lack of economic dynamism in the country means there’s very little achievement for government to tax in the first place. This of course explains why so many Salvadorans bring their previously suffocated talents to the United States. This is where it gets interesting.
You see, according to the Times, in 2018 “Salvadorans abroad sent nearly $5.5 billion in remittances to El Salvador, equivalent to about 20 percent of the nation’s gross domestic product.” What little growth of the GDP variety that there is in El Salvador is actually growth that first took place in the U.S. It’s a reminder to the Keynesians who dominate the economics profession that consumption (as GDP measures) is always and everywhere an effect of production first. While El Salvador’s GDP is pretty small, a big portion of it is the result of production that took place stateside. Production first, then consumption.
Where it gets even more interesting is that according to a Migration Policy Institute study cited by Semple, remittances from abroad “constitute two or three times the country’s public social spending.” This matters simply because it’s a reminder that governments once again can only spend (most often in wasteful fashion) insofar as the private sector is producing wealth for them to spend. Government spending yet again doesn’t power economic growth as much as it’s an effect of it. It’s not as though El Salvador’s politicians are less Keynesian than their counterparts up north, and it’s not as though they’re particularly frugal; the simpler story is that there’s very little growth in El Salvador for the government to tax. That explains why most “aid” to El Salvador is actually a happy result of stateside production. Oh well, all aid – government, private, or NGO – is always, always, always a consequence of private sector production. Much as economists at Princeton might wish otherwise, the laws of economics are just that. Governments, NGOs and people can only spend insofar as private sector production has already taken place, only for the fruits of that production to be shifted to others, or for governments to take it from the productive only to redistribute it to government consumers.
Taking the remittance story even further, it’s useful to stress that money on its own serves no purpose. Money is only useful insofar as there are actual goods to be exchanged.
Which brings us to the monetarist school of thought. For the longest time monetarists have posed as free market types. Why not? Milton Friedman was a prominent monetarist. That he was is a reminder that even Friedman missed on a few things. The simple truth is that monetarism is just Keynesianism turned inside out.
Keynesians believe government spending powers growth. No, it’s a consequence of it. Monetarists believe money creation powers economic growth. No, it’s a consequence of it. That there are billions of dollars circulating in El Salador isn’t an effect of Federal Reserve benevolence whereby dollars are printed for Salvadorans to spend; rather the dollars circulate in the country precisely because some of the fruits of production that takes place in the U.S. are shifted down to El Salvador. As previously mentioned, over $5 billion was shifted to El Salvador in 2018.
This matters because absent U.S.-based production that empowers Salvadorans to spend, dollars would serve no purpose in El Salvador. But since stateside production accounts for at least a fifth of the Salvadoran economy, the Salvadoran people have consumptive powers that businesses aim to meet. Money supply is production determined, and dollars are increasingly abundant in El Salvador thanks to production up north. If you see a monetarist, give this person a hug. With their rejections of Keynesianism, they doth protest too much. Monetarists are confused, and in their rejection of ludicrous Keynesian thought processes, they reveal themselves as self-hating. Money follows production as opposed to it stimulating it.
The good news with El Salvador is that President Bukele at least recognizes that Salvadorans lucky enough to not be in El Salvador quickly discover productive skills that are smothered within their own country. Policy matters as it were, which is a statement of the obvious. Unknown is if the policy types lucky enough to be in the United States will allow the lessons of El Salvador to clear their clouded minds. Keynesians and monetarists need to exit their shared room.