The Immigration Crisis

and the Super Network Effects of Money

The Problem

Europe, the USA, Australia, and the UK are facing a growing migration problem. Canada is shielded by distance from undesirable countries. The number of migrants arriving in Europe this year [written Aug. 2015] is already equal to last year’s total.

The influx of migrants is stressing both the social fabric and the economic welfare systems of destination countries.

The Current Reaction

A small number of usually highly-skilled migrants are permitted to relocate in desirable countries. However the main reaction is to prevent migration by building walls, deportations, and by building refugee camps in less-undesirable countries, such as Turkey. Australia does not allow any unapproved boats to land. Boats apprehended at sea are turned back or towed elsewhere for processing.

The reaction is not a solution; the desire to migrate grows, alongside the risks those people are willing to take.

The Root Cause: Monetary Network Effects

The recent turmoil in Syria is an anomaly. The primary reason young men (most migrants are young men) choose to migrate is economic. People in places such as South-East Asia and Senegal don’t have a bad life, but they choose to migrate in the hope of a better life.

Life in Canada, US, Europe, and Australia is desirable for a host of complex and historical reasons. But it boils down to money. Those countries are rich and even being the poorest in a rich country is better.

A Thought Experiment with Language

Imagine a world with 10 people: 4 speak French, 6 speak Spanish:

The number of possible 1-on-1 conversations is 6 French, versus 14 Spanish:

The Spanish network is 2.3 times bigger and more diverse. It incentivizes new people to learn Spanish rather than French. This network effect means that as more people learn Spanish, the incentive to learn Spanish grows. If there is enough interaction between the two groups, the eventual result is that everyone speaks Spanish.

A Thought Experiment with Money

The same network effect exists with money, except it is super charged by the scarcity of money.

Language is unrestricted; I can talk and write pretty well as much as I want without affecting your ability to do so. Money is scarce, which means the more I hold, the harder it is for you to acquire some.

The more people who use US dollars, each US dollar becomes harder to acquire. Supply and demand mean the value of each dollar grows. This increases the total wealth of the network, which makes it even more attractive to those who use small-network money, such as the West African franc.

Scarcity reinforces the already-strong incentives to adopt big-network moneys, such as the US dollar and the Euro, and shed to small-network money. (As of 2000 13 countries used the US dollar as their official currency.)

The Inevitable Government Reaction

As network effects push the value of US dollars higher, the costs of manufacturers increase. They complain that the strength of their money makes it hard to compete with businesses in small nations, who pay wages in weak moneys.

Of course, central banks are more than happy to create new US dollars in order to devalue existing dollars. Not only does it keep manufacturers happy, but even better, the banks get to create money, for free! They can give some to the government and lend some out at low interest and everything is awesome!

The draw of living in a nation that can create money for free is a major component of the current migration crisis.

End Games

The super-charged network effect of money seems to point to ever-increasing migration crises, bigger walls and bigger camps. Small-market currencies will continue to weaken and die, either through dollarization or unions with other currencies, such as the Euro. Perhaps one day the US dollar, or maybe the Chinese Yuan, will become the de facto currency of the world.

A much more peaceful and fair end game is one in which a new money that is separate from governments, arises. But given the super-charged network effects of money, it seems extremely unlikely that a new money could even emerge, let alone become dominant.

Bitcoin has emerged, and its advantages over government money include transparency, integrity, programability, send-ability, and security. Not only has it emerged, it has grown in value during six of its seven years of existence.

If bitcoin continues to grow in value, governments will eventually be forced to compete with it, by slowing down, and eventually stopping new creation of their money. This would equalize nations and decrease the incentive to move away from small countries.