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