Should the U.S. Merge With Mexico? (Ep. 185)

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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.”

 


cherri

I was extremely disappointed in this episode since following freakonomics from the get-go. Dubner doesn't even listen to what any commenter save fanboy (and the poster boy for cultural appropriation) Cramer has to say. Every person interviewed generally stated 'not going to happen, bad idea'. But Dubner keeps pressing like a little kid that is certain his answer is right, going so far to twist the words of documents and interviews to match his theory. This idea is no good for one main reason that Cramer kept going on as if it were the best idea ever: exploitation. There is not one country in the world that isn't sick and tired of the US's exploitation of resources, people, military footing, etc. And now you want to hail our same history of exploitation as a holy grail? No one's drinking that juice. Did the writers take a time machine back to manifest destiny days?

James

That's a double-edged blade: there are a lot of Americans who are tired of propping up every other country in the world, too.

QCIC

I have long thought that in light of Mexico's status as a failed state right on our border we should stop the nation building around the world, and stop the silly pissing contest with China in what is sensibly their sphere of influence, and start slowly annexing Mexico.

Grab the northernmost string of provinces and run them under martial law as territories for a few decades, then make them states and move south. Would give the military industrial complex something to do that doesn't make the Muslim world so irate, and would improve the quality of life for Mexicans. In the long run it would help make the US stronger.

Jonathan West

One of the big reasons that manufacturing is moved to to Mexico is that they are considered a "low cost country" (LCC). Major US corporations are under significant pressure to move from US suppliers to LCC suppliers. For larger components and products Mexico is a good balance of manufacturing and freight costs. If the wage gap would continue its shift from 10:1 to 5:1 to 3:1 or smaller then manufacturers would move their factories to another lower cost country. This is the same thing that has happened in Asia...

Oscar

A union is more desirable, leveling out economic factors would benefit all countries. As a union, every country would maintain their identity organically and slowly merge into a more all-inclusive culture naturally. Moving around the union freely would be great.

Herbgee

If we were to merge with Mexico, the drug trade could be easi;ly increased since the U.S. is
the world's largest market ...and maybe we could collect taxes from that huge industry.

Julien

From an economic and personal point of view, it seems all the benefits discussed in the episode can be achieved by tearing down barriers, even if unilaterally. There is no need to step into the realm of politics, arbitrary boundaries and the conflicts that come with forceful integration of people.

Eric Riese

Interesting that Jim Cramer says that his personal investments in Mexico give him "bona fides." I'd call that a "conflict of interest."

Gareth Bane

Hey guys great podcast!

Not so much a comment as a question...

I'm really into the track you use out of the gate on this episode. Looked around for a credit, but couldn't find one. Who's the band?

Cheers and keep it up!

Gareth

Jason

I say go for it. I already speak pretty good Spanglish.

Steve Richter

I would like to listen. But there is no option to download as an MP3? I do not mind paying, just do not have iTunes. I want to download to a USB stick where I can listen in my car.

Tuan Nguyen

I'm mixed Vietnamese and White. I want all countries to merge. I'm living in America, I think it's a great idea to merge with Canada, and Mexico as an initial.

Francisco Casahonda Rodríguez

IMO, Mexico has already got an important and colse reation ith te U.S. in almost all the main topics: politics, culture, economics and security. So, going beyond would represent a risk in the way of a bet: you don't know the impacts of such merging, even if you calculate some consequences; there are substantial differecnces amog the cultural and socil ways of living in both countries.
In conclussion: there's no reason for expanding a relation that is already strong and strategic for these two countries. It wolud be silly to get more risks than potential benefits for thes utopical union.

Scott Michie

The Canadian author and newspaper publisher, Diane Francis, published an in-depth book on a US-Canada merger (pub Oct 2013): The Merger of the Century. It's a detailed socio-economic-political look at the topic. She lays out different models from an EU economic union model to full-on merger. It's an interesting "thought experiment" if nothing else. Her basic premise is that the world has changed and world markets are ever changing in ways that no longer make a simple nation-state model work in the global market place; so thinking in new ways about borders and making them more porous is a good and needed thing to do.

Domination

While the concept of merging the United States and Mexico is conceivable and that megamergers of corporations take place frequently, I cannot help but say that mergering countries is not like merging companies.

Certainly the goals of a union between private firms and a union between sovereign nations are not the same. The employees of a merged firm have two overriding goals that permeate the organization. One is to work for the newly merged firm's survival and the second is to make the firm prosper. It ought to be understood by all who work for such a firm that certain norms and behaviors are expected of them and that anyone who does not share in these goals, norms and behaviors should either leave the firm or they will be forced to leave for others who will share these goals. In short, the employees of a merged must share a culture, and as difficult as it is to establish a common culture in a merged firm, just imagine the difficulties in establishing a common culture between the US and Mexico. For the most part, the two countries do not share the same language, the same institutions, or the same history.

If the difference in cultures was not bad enough, the loss of Mexican independence is likely to breed resentment among many Mexicans who are likely to view such a union as an imperious acquisition by El Norte. Even if most Americans and Mexicans are willing to go along with such a merger, the expenditures required to integrate the nations are likely to be an order of magnitude larger than the optimists realize, much as the cost of the Iraq War was, by some reports, suppose to cost approximately $100 billion, but has escalated over the years to roughly $2 trillion.

By all means let us continue with the economic ties established through NAFTA and assist the Mexiacans in everyway possible to promote goodwill among our peoples, but please stop this inane talk about a merger between our two countries.

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Saif Ahmed

If we compare a merger between the US and Mexico just like a corporation we would get the same outcome as a corporate merger. In the short term at least, it may be good for the corporation who's overall output might increase, but it's almost always worse for the workers.

Adriana

Dear Stephen,

I am a huge fan of the podcast and I delightfully listen to it whenever possible. Yet, this show brought real tears to my eyes because it failed to acknowledge, or even mention, the political turmoil Mexico is going through at the moment. How could a merge between these countries could even be conceive, when there is a government that allows the killing of harmless students?
I know the focus of the show is economical and not political, yet, and please correct me if I am wrong, the objective of the show is also to bring awareness, and ponder on ideas. I think it is a fantastic questions explored quite poorly. I have lived half of my life in Mexico, and the other half in NYC. I am, in a way, a walking merge of these two countries. I could benefit in many ways from such merge. Nonetheless is bad timing to focus on trivial matters, like the soccer team, or how I would be able to visit my family more ofter.
The events of Ayotzinapa, where 43 students were killed with the assistance of the Mexican police, has reached such magnitude that they must not be ignore. Internationally, It might not seem of much importance because it is no rare that people disappear and get killed in Mexico
However this type of violence is so out of control, that it is starting to resemble the acts of a totalitarian regimen, where those in charge abuse power and display terror in brought day light.
How much revenue the gun factories would loose if Mexican mafia is eradicated, and corruption abolished? what is the hidden cost of repressing a nation? What is the hidden cost of violence, riots and marches? are thy really effective?
I would love to participate in a show that addresses those questions.

Kind Reagards,

Adriana

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