Efficiency neglect, or why we fear population growth

Our minds play tricks on us when we think of a growing population. Plus a few updates.

Hello Friends,

I hope this finds each of you thriving! I was hoping to be in touch last week but, alas, I contracted some kind of virus that kept me down for many days. So I guess I haven’t been thriving… But I’m back on my feet and thankful to be able to share something with you.

Updates

The Truth About Immigration continues doing well. I’m especially pleased by the strongly positive reviews on Amazon and Goodreads. I understand that many of you are in the process of reading the book, and I hope you’re enjoying it as much as I loved writing it.

I would like to repeat my plea for reviews, especially on Amazon. For better or worse, the success of a book depends on algorithms, and algorithms favor books with more reviews.

At the risk of being too self-promotional (that ship probably sailed already), here are some of the most fun interviews I’ve had since book launch:

• A wide-ranging conversation with Major Garrett (CBS) on The Takeout. My first time doing an extended TV interview (while eating a meal!).

• A profile of my book and recent op-ed on Ali Velshi’s (MSNBC) show. He also interviewed me for a few minutes afterward, but that’s not posted on the website.

• The Penn Gazette made my cover boy dreams come true! The article is the most personal story I’ve done so far, explaining how my journey has informed my research on global business, economic growth, and immigration. Plus, being on any publication started by my hero Ben Franklin is pretty cool.

• A tidy summary of the key economic effects of immigration in Barron’s, covering the “big five” benefits: investment, innovation, job creation, taxes, and talent.

Efficiency Neglect: The Psychology Behind the Fear of a Growing Population

I don’t like politics. But it’s hard to avoid when you study immigration. No topic has been more salient in the political news lately. Not just in the US, but everywhere.

I’m not here to tell you how to vote. But I’d like to tell you about a fascinating study that can help you navigage a very common political argument that gets made about immigrants.

One of the most common reasons people oppose newcomers is a sense that resources are scarce. If so, we must “protect our own” instead of making those resources available to newcomers. This mindset is as old as time. It seems intuitive to many that, when a large group of newcomers moves in, local resources will be strained. Housing prices will go up, schools will get crowded, traffic will increase, the cost of living will rise. In academic circles, this idea go at least as far back as Malthus.

A recent study tells us that this kind of zero-sum thinking is rooted in a psychological bias called “efficiency neglect.” Jason Dana, George Newman, and Guy Voichek document it in a paper that I found really illuminating.

Let me quote the authors directly to explain what efficiently neglect is:

When thinking about the effects of population growth, people intuitively focus on increased demand while neglecting the changes in production efficiency that occur alongside, and often in response to, increased demand. In other words, people tend to think of others solely as consumers, rather than as consumers as well as producers. Efficiency neglect leads to beliefs that the real costs of some consumer goods are rising when they are actually decreasing and may contribute to antiimmigration sentiments because of the fear that increasing local population creates competition for fixed resources.

Here’s a simple example. A lot of people move into where you live. You worry that the price of milk will go up because more people are demanding milk. Solution? Keep them out!

But you don’t stop to think that some of those new people will take jobs in dairy farms that expand to meet meet the rising demand. Nor do you stop to think that dairy farmers have an incentive to make milk production more efficient because the market for dairy products is larger. Nor do you realize that those same producers will consider introducing new dairy products because newcomers have more differentiated tastes and preferences. It might not also occurr to you that one of those newcomers will invent an ingenious approach to increasing milk production or introduce a new dairy product. Like Hamdi Ulukaya did by bringing greek yokurt to the American market. Or like Danish immigrants did in the late 1800s (remember my previous post on that?)

That focus on demand (people as consumers) but not supply (people as producers) is efficiency neglect.

The authors document this thinking bias in a series of experiments. The upshot?

We demonstrate that economic pessimism and antiimmigration sentiments are reduced when people are prompted to consider their own beliefs about increased productivity over time, but are unchanged when they consider their beliefs about increases in demand.

Remember that the next time you hear an argument about a community or country being at capacity. Which is probably gonna happen the next time you read the news or talk to your crusty uncle.

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I’m sure that someone reading this might react with some skepticism by pointing out that large inflows of newcomers actually do put pressure on infrastructure, which increases the cost of living. At least in the short run.

That can indeed happen. Just to give one example, a well-designed study in Switzerland shows that immigrants caused rent and housing prices to go up. (The cost-of-housing argument has become another common political argument lately.)

But the logical solution to this is not to kick newcomers out. For two reasons.

First, immigrants are the very people who will build new housing to satisfy the growing demand for places to live. Immigrants fill about a quarter of construction jobs in the US, for example. Native-born people increasingly decline to do construction work, and there are fewer of them anway as birth rates decline and baby boomers retire. Construction firm owners understand this very well. Which is why they consistently call for more visas to fill job vacancies in their sector.

Second, a mass deportation program in the name of solving the housing crisis is self-defeating. Yes, no doubt housing prices will decline if you eliminate a large percentage of the population where you live. But that’s because you’ve shrunk the economy and created a depression.

What you really want is a more efficient way to build infrastructure in response to a growing economy. Seeing that requires framing newcomers as producers and not just consumers.

When you do that, the zero-sum mindset vanishes.

Along with the fear.