Should the U.S. Merge With Mexico? A New Freakonomics Radio Podcast

Listen now:
Photo: Public Domain,  Sgt. 1st Class Gordon Hyde, via Wikimedia Commons

The separation of densely-populated Tijuana, Mexico, and the United States Border Patrol’s San Diego Sector.
(Photo: Public Domain, via Wikimedia Commons)

There seem to be two global winds blowing in opposite directions: companies are merging like never before while nation-states from Spain to Iraq to the United Kingdom are threatening to break apart.

What if the United States bucked the trend of nation-states and instead went the way of companies? What if, for instance, the U.S. decided to merge with Mexico? Welcome to Amexico, with a population of nearly half a billion people and the best hamburgers and enchiladas in the world. Is this as crazy as it sounds? That’s the question we explore in our latest Freakonomics Radio episode, “Should the U.S. Merge With Mexico?” (You can download/subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

The spark for this show came from a listener named Dan Woerner:

DAN WOERNER: “I was lying awake last night thinking about what might happen if the U.S. somehow incorporated Mexico. I’m not talking about waging war and taking over, but rather a mutually beneficial merger.”

(Source: U.S. GAO)

There is of course some history to consider. After the Mexican-American War in the late 1840s, the U.S. forced Mexico to sign the Treaty of Guadalupe-Hidalgo, which gave the U.S. the present-day states of California, Nevada, and Utah, as well as parts of New Mexico, Wyoming, Arizona, Colorado, New Mexico–and Texas, which itself was originally part of Mexico.

This was of course more of a hostile takeover than, as our listener suggested, a “mutually beneficial merger.” But maybe it could be done differently this time around, with both nations benefiting. To find out, Stephen Dubner interviews former Mexican president Vicente Fox; former White House chief economist Austan Goolsbee; and Mad Money host Jim Cramer.

Cramer owns property in Mexico and a Mexican restaurant in Brooklyn. We asked him what advice he would give investors if there were an initial public offering for a U.S.-Mexico merger:

JIM CRAMER: Look, that IPO, I want everyone in and I’m willing to pay 20 percent above the price talk. Because I think people are short-selling Mexico because they think it is just a place where you just have lawlessness. They have not been to Mexico, they don’t realize the immediate premium this deal’s gonna go to. I want in that deal, and I’m also gonna buy in the aftermarket after it comes public.

Vicente Fox, who considers himself a great friend of the United States, is nevertheless not enthusiastic about a merger:

VICENTE FOX: I see that [as] close to impossible. It’s not the wish either of the United States and its wonderful people, nor is [it] the desire of Mexicans and our great culture.

These days, Fox spends most of his time on non-profit work at his presidential library Centro Fox. Even though he’s dead set against “one nation,” Fox does dream of a stronger partnership between the countries of North America:

FOX: We can have a union, a North American union, which will be much more than a trade partnership. … For instance, we should have a customs union, because right now we see products that are coming from China into the United States, and they come to Mexico taking advantage of the no-duty program that we have through NAFTA. And so that would be one advantage. If we could blend, mix, get together our financial systems, that would be again another engine to move our economies.

Austan Goolsbee had even less interest than Fox in a U.S.-Mexico merger. Among his objections: potential issues with a monetary union, the effects on U.S. wages, and the impact a merger would have on the federal government’s budget:

AUSTAN GOOLSBEE: The first thing to note is that median family income in Mexico … [is] below $5,000 a year. So given the fiscal setup of the U.S., if you’re going to add 60 million people who make less than $5,000 a year, under our current system, you’re going to have massive transfer payments and subsidies from what are now the United States to the new states that are formerly of Mexico. And in a way you could have cost saving the same way if you merged two companies. But most of the people in the U.S are going to say, “Wait a minute, wait a minute, cost saving in this context means that everybody in the U.S. is going to be paid less. Is that really what we’re looking for?”

You’ll also hear from MIT economist Daron Acemoglu, co-author of Why Nations Fail, in which he and James Robinson argue that the quality of a country’s institutions are critical to its economic success: “extractive” institutions hold nations back while “inclusive” ones propel them forward. What would be the institutional impact of a merger between the U.S. and Mexico?

DARON ACEMOGLU: There are examples in history where when you have two different parts of a single country [that] have evolved differently institutionally. Sometimes the extractive part dominates and poisons the inclusive part. Sometimes the inclusive part dominates and ultimately takes over the extractive part. So the example I would give for the former … is Italy, where the south of Italy has to a large extent made the north of Italy politically more inefficient … And then the example that you would give for the latter is the United States, where after a period of the extractive part, the South, dominating the political equilibrium through the Antebellum period … ultimately, after the Civil War…the northern institutions became more and more dominant in the South. … But you know, were Mexico and the United States to merge, which part would dominate? One cannot say with certainty. But you know, I think given that U.S. institutions are themselves shaky at times, it could go either way I guess.

For what it’s worth, we aren’t the only people thinking about a much closer relationship between the U.S. and Mexico (and, while we’re at it, Canada). Last month, a Council of Foreign Relations Task Force headed by David Petraeus and Robert Zoellick put out a report called “North America: Time for a New Focus,” which argues that it is “time to put North America at the forefront of U.S. policy.” As they write:

“Here is our vision: three democracies with a total population of almost half a billion people; energy self-sufficiency and even energy exports; integrated infrastructure that fosters interconnected and highly competitive agriculture, resource development, manufacturing, services, and technology industries; a shared, skilled labor force that prospers through investment in human capital; a common natural bounty of air, water, lands, biodiversity, and wildlife and migratory species; close security cooperation on regional threats of all kinds; and, over time, closer cooperation as North Americans on economic, political, security, and environmental topics when dealing with the rest of the world, perhaps focusing first on challenges in our own hemisphere.”

 


Robert Westie

I split my time in both countries and will offer this advise. Don't try, don't even think about trying. You are not welcome in either. Matter of fact a better idea would be for Mexico and Canada to ask you to please vacate North America and leave the continent in peace.

Gerdoink

No. Next?

julianrpe

Would <3 to see an Amero currency & transcontinental unity. Great issue!

Steven H Noble

At the very end you alluded to a big hurdle indirectly. You mentioned Mexican Coke. But isn't the main reason why Coke isn't made with cane sugar in the US is because of corn subsidies? Which brings up the hurdle. The different countries have different players who have succeeded in regulatory capture. None of them are going to want to give up their hard fought wins so they'll do everything possible to block a merger.

Of course, I often wonder if this is the real reason for the recipe difference of Coke. Is it actually because of the subsidies or is that just a myth?

Vicente

Mexico would never ever want to be a part of america. Its already growing more than twice as fast as the U.S. It just needs some time. American money is basically chinese money. Mexico has its own currensy (pesos) it doesnt owe any of it to anybody.

Buho

You do not have a freaking idea of what you are talking about (Mexico pesos, debt), unless you are being sarcastic....

Anonymous

IMO, what should happen is a slow expansion of NAFTA, faster in Canada and slower in Mexico. For example, we should allow all Canadians regardless of profession to have the right to work in the US and the right for all Americans to work in Canada. We should eliminate all remaining trade and investment restrictions. Once we have completely free movement of goods and capital across the border then we can talk about a monetary union. These things should happen with Mexico too, but happen slower because of the income disparity. Slowly, NAFTA would look more like the EU.

David

A few times in this podcast you bring up the idea that a combined US-Mex national soccer team could be a global powerhouse, but even if the sovereign North American nation-states merged I don't think that necessarily means their national soccer teams would need to merge. Note that England, Scotland, Northern Ireland and Wales each have their own national team recognized by FIFA, despite all being part of the United Kingdom.

Fred

A much more viable option would be for Canada and the U.S. to merge - similar GDP per capita, the same language. But, of course, you would have to bow to our cultural superiority and recognize our under appreciated Canadian bands.

Geopolitical Canadian

And put French on everything!

James

Already being done. Seems like at least half the things I buy come with packaging in English, Spanish, and French.

scott fowler

Not sure about a merger, but maybe a union including Canada, US, Mexico and maybe Central/South american countries to rival the EU. But i'm in favor of a global union a la Star Trek, because that is what would drive us to attain level 1 in Isaac Asimov scale of civilization. currently we are around .7 and leave behind the nationalistic notions that continue to divide humanity arbitrarily.

david woodman

it's inevitable

Jesse Richard

Thinking about this as a Canadian, and as an Albertan (Alberta has the highest GDP in Canada, a higher median income than California, lower taxes than the United States at both the personal and corporate level, and widely considered one of the most free economies in the world), beyond the immediate cultural concern that Canadians identify vehemently as "Not Americans", and beyond the fact that I don't think the United States would have much to offer the Canadian way of life or economy (that's not a pejorative, it's a reflection on cultural difference and economics), I would see the biggest hurdle as incompatibility of view in the role of government.

I think that Canadians, along with most highly developed European countries, see government in a far different light than many Americans do. There tends to be less suspicion about motives (though we all hate the taxman and politicians), we tend to see government operation as a necessary evil, and we tend to see their involvement in our lives to have a much larger mandate. Thus we seem to grant our governments much more power than would be traditional in the United States. For instance, in Canada things like guns are not a right, they are privilege granted by government (I'm a redneck gun owner to put this in perspective), whereas things like healthcare are a right. Those two pieces alone are a microcosm of government role IMHO. We're more worried about maintaining the health of our neighbour than we are about the government impeding our freedoms. Do you see that working in Texas?

Again, to maintain, this is merely a reflection of the difference, not a statement on which ideology is better. Two nations, two cultures, two approaches to governance that by all accounts are doing most of the combined 300-some-odd million people pretty well. But those cultural differences, permeate far beyond our day-to-day interactions with each other and far beyond our ability to exchange money with each other . They permeate the ideology that we as a collective agree to to move our nations forward.

And by those standards I think a merger would be impossible. What we have now seems to be working for both of us anyway.

Read more...

Tyler

We are more likely to join the EU then the USA. much closer in culture and relative power. we would be just another 35 million person country in the EU. if we joined with the USA we should have zero power due to being outvoted by 300 million americans.

James

The problem here is that countries are fundamentally different from companies. A company has incentives to be efficient, and if its customer base doesn't like its products, they can buy elsewhere. A country has no efficiency incentive, and indeed, a lot of bureaucratic empire-building disincentives. If a country's 'customers' don't like its product, their only alternatives are emigration or revolution.

We might take the EU as an example. Almost immediately, it added an expensive (and from what I read, almost universally despised) layer of Brussels bureaucracy on top of the existing national institutions. That new bureaucracy immediately went on a regulatory binge, creating nonsense rules (like banning gourmet cheese) that have no consideration for local lifestyles.

While closer economic cooperation makes sense (unlikely as it is to happen unless certain parties in the US recover from their 'War on Drugs' insanity), from a purely human quality of life perspective, it'd make more sense to devolve the US a bit, along the lines of the California division. How much do people living in Cedarville have in common with those living in LA? What does Bishop share with San Francisco? How does one government provide for all those diverse needs & lifestyles, without doing a really bad job at some, or all?

Read more...

alex

The issue here is there is no voice that understands the difference between political power and corporate power. The reasons corporations merge (efficiency, consolidation, etc) to not apply to political institutions. One of the major benefits to a corporation of a merger is reduced competition, which means that they can make more money at the expense of the public!

I suppose the same rational could apply to the GOVERNMENT, it would benefit as there would be no risk of citizens moving to another place to escape oppressive policies or taxes. However, I just told you the benefit of political Balkanization: People can live in a place that they like to live in without being under the thumb of a government they strongly despise. All you get with a political union is a 1-size-fits-no-one government, which is, of course, the whole point of Federalism!

Sergio de Regules

Greetings from Mexico. We might or might not benefit from merging with the US, but to ask Vicente Fox's opinion? Really? The semi-literate Fox is widely regarded here as a clown and an embarrassment who never failed to put his foot in his mouth whenever he spoke publicly (an appreciation that your interview does nothing to dispel). He is also viewed as a bitter disappointment, after becoming the first democratically-elected president of Mexico and then conducting the business of governing the country no better than his predecessors. If you really wanted an educated opinion from a former Mexican president, you might have gone to Ernesto Zedillo, who at least has a Ph.D. in economics, but of course, Zedillo is not as available as this bozo. "We like enchiladas and tacos", ooh, boy.
I'd cancel my subscription in protest, but if I've learned anything after several years of listening to Freakonomics, it is not to waste time and energy in a futile pursuit that has no probability of having an impact. So I'll listen on, but please, no more Mr. Fox. We had enough of him for six years. It was painful.

Read more...

Richard

Canadians rejected Americans in 1776 and again in 1812.

And that was when the bonds were the closest.

As these decades roll on Canadian identity grows very strong without the Americans realizing what is going on up here in Canada. There is palpable pride in this country that isn't just hockey and maple syrup but a sense of building a respectful society where I care about my fellow citizen as his or her prosperity benefits mine.