STEM controversy

So I was trying to do research about stem cell controversy when I ran into another STEM controversy--the debate about the policy of opening America up to people pursuing a career in science and technology. Leading the opposition is Norm Matloff, who happened to be a veteran in computer science, actually a professor in UC Davis.

When it seems that Matloff's experience would give him more credibility at the issue, I would argue it is exactly his experience that brings suspicion of conflict of interest. This policy, after all, pits the technology industry against veteran IT workers. At the risk of caricature, here is how: veterans cannot compete against the new international comers, in terms of cost efficiency, so they lose from the policy. The tech companies, now having a larger pool of labor to draw from, benefit. It is very much the same idea in medicine, when cardiologists set up associations, and refuse to recognize degrees from other nations (like EU or India, which is doing an amazing job in cardiology), they are setting up a monopoly, so as to shield them from competition. Since I mentioned conflict of interest, I should disclose mine: I am an international in US, but I am not in STEM. Thus even if I chose to stay in US after graduation, I do not benefit from STEM, and in fact, since the policy is leaning towards STEM and away from others, I might lose from it.

The main opposition is that STEM brings in cheap labor that replaces American labor, instead of "best and brightest" as in the rhetoric. Of course, reality and rhetoric is different. So I ask what is the alternative? no STEM law. Unlike medicine, which is non-traded goods/services. Technology is traded. Now we are looking at factor intensity differences, and I tend to think of the classic HO model, which tells you that trade in goods/services makes trade in factors unnecessary. What does that mean in plain English? So if we have different economies, India and US. Suppose India has more skilled labor and US has less. Then one would expect that in India, the relative wage for skilled labor will be lower than in US. HO's insights are that if you allow the country to trade, these two countries will specialize in such a way that equalizes the relative wage. Of course in reality, trade frictions prevents perfect equalization, but the force more or less works. The wage differential we observe today between rich and poor countries are mainly due to the premium to skills (that is they are different labor, rich countries have more skilled labor so they get paid more). According to HO, US will begin to outsource many of its IT job (though it gonna be a slow process, during which veterans like Matloff will still enjoy the benefit), and the demand will not grow as fast. More specifically, when an entrepreneur have an idea, he will find it more expensive to find technical people to implement it, and this deters potential innovations. It is not a new story--after all, US manufacturing lost its dominance due to outsourcing, which takes place in the absence of cheap labor inflow.

What is the bottom line? Matloff is right in that STEM will not matter for the "best and brightest", but for an industry it is not the "best and brightest" that matters. What matters for the thriving of an industry is a ready pool of competent, and cheap labor. Above all, the dynamics of being able to replace old, impotent, expensive labor with new , competent, and cheap labor is the core of growth.

What about welfare. First of all, IT people are not underpaid. They earn way more than the average American. When I say cheap, I am still talking about 100k. Second, it is THE misconception that to be labor friendly, we have to kill mobility. We have to guarantee that a laborer can always hold on to his job at the price he used to get. Some of us know it is bad for the economy in the long run, but they feel it is a fair price to pay. This needs not be true. Denmark has one of the lowest inequalities, and yet it has no minimum wage law, does not restrict companies to fire its workers. Indeed, if you look at it, their labor has high turnover rate. But they retrain themselves and find a job in a different industry. This ability to cope with change is the essence of growth, it is the best security a laborer can get.

Finally, I wish to talk about general equilibrium. Basically, I told a general equilibrium story about how trade balance things out. I never conceal my conviction that economists have a fetish for general equilibrium. We do, every models we write now must be a general equilibrium one. This has its problems because as I said general equilibrium is not immediate and the economy could be out of equilibrium for a while. Thus it will be impossible to explain some of the stylized facts we observe with a general equilibrium model. Nevertheless, I believe that any story that is not general equilibrium is not complete--it is temporary. It is fine to explain things with it, but to debate a policy with it is unacceptable. You are leaving things out with an incomplete story. You are not telling the whole truth.