Expatriation

Economics Economics Questions
1

Please help settle a debate. A friend and I disagree about the effects of Americans retiring to another country. We both agree that a person should be free to do so, but he argues that there may be an ethical reason not to. His point centers around the idea that other Americans may be dependent on the profits from selling him goods and services for his nest egg.

I contend that when I stop working I become a burden on the economy. It’s as if I’ve worked my whole life and enabled others to consume a big portion of my entitlement. The day I stop working is the day I start redeeming this deferred consumption. If I just “went away”, then everyone would be better off sharing their future output among themselves alone, instead of having to cut me in on a piece. But my friend’s position is that the liquidity of my continued consumption is beneficial to the community, and that if I take it away then it hurts everyone else.

I realize that this departure could take two forms – in one, I take my wealth in cash and leave, and in the other I leave my wealth invested in the US and take distributions on which I would pay income tax. Personally, I think my ownership of my wealth is more assured if I leave it here, and I can imagine that some foreign banking systems may not recognize my property rights the same way, or may attach wealth taxes to larger balances.

And it seems to me that if I went to live in a place like Bali, eventually (and inevitably) some foreign national or foreign bank would show up with my American money, willing to buy American goods or services with it. It’s hard for me to see how Americans would be harmed by this, except that some tiny fraction of effort would shift toward meeting this foreign demaind instead of serving me domestically.

My friend believes that you can spend your career acquiring wealth, and if you then don’t spend your account balance here then you have taken that wealth to another country. I believe that you have spent your career creating wealth that was immediately consumed by others in exchange for credit that you redeem in the future by cashing in assets to fund post-retirement consumption, and that if you take your money elsewhere it gives your home economy its best chance of never having to actually pay you back.

Finally, I realize that this is an Austrian-centered forum. If you can point out any less-settled aspects of this (I could imagine a Keynesian objecting, for example), please feel free to mention it.

I think my friend’s position incorrectly assumes that a retiree’s departure hurts the local economy, and that he would not object if it could be shown that no such harm occurs. I think no economic harm exists in it, at least in the case of one who is genuinely retired and no longer producing, and who I would argue is mostly a burden on the system anyway. But maybe I do not understand this. Can you help?

Thanks in advance,

Rick

2

What’s tripping you up is his usage of the word “hurt” to describe the act of not paying money to someone. As in, if you don’t buy from Joe America, then you are thereby hurting Joe America. It’s incorrect usage of the word “hurt” and you should challage him to prove that his usage correct.

Also, by his own logic, you could point out that the retiree is hurting foreigners by not buying from them. Thus, no matter how the retiree spends his money, someone is being hurt.

Furthermore, ask him that if not buying from Joe America hurts Joe America, then should the retiree be forced to immediately spend all of his money on Joe America? After all, by withholding his money from being spent, the retiree is hurting Joe America.

3

Clearly the capital you take with you out of the country hurts the country you are leaving from as it is no longer as easily available to entrepreneurs there. Now the spending that you are depriving the leaving country of is REALLY A GAIN TO IT. Now those resources that your econonmy devoted to you in your retirement will go to someone else at a lower price thus making the someone else better off. Yes, a non-working person is only depriving their country of origin of their accumulated savings and actually is making their country of origin wealtheir as those remaining get resources that would go to the expat at a lower price. The concept that you are depriving your country of origin of spending is Keynesian nonsense and does not hold up to logical examination.

The sick part of the this trend of the government trying to keep consumers from leaving is that it provides consumers and producers who might consider coming a big reason not to. And it of course deprives the country of that savings.

4

when a person leaves a local economy, the ecomomy can lose out. a person could sell those local assests to someone who would contribute more to the local economy though so that local economy gains.

here is one of my thougts

a couple buys a house for 75 thousand in 1987, in 2012, they sell that house for 500 thousand to a couple that both want to work local, and invest in local business, and have a lot more money in assets then the now retired couple who no longer would work and would just have the local investments. say they have 1 millian in local investments, they can sell those to other people who will have a vested interest in the local community and invest more on top of that.

a economy can gain or lose when people start working

investments always work as passive income.

if a person still wants to help out the community he was once a part of, he can invest in local business and the money works for him and the local town

leaving the entitlement behind could help a community, just like any insurance, people that don’t ever file a claim are great for that insurance company. but there is also the factor of the mentoring a person could do if they stay in the local place. by teaching and helping others prosper, that is a contribution to the local economy.

departure can , depending on different factors, increase or decrease a economy.

5

Bogart:

But we’re not really talking about taking any capital from the country. We would either sell the capital and take American money in a lump sum, or draw down the account by selling the capital over time and taking American money in regular distributions. In both cases the capital is sold to other Americans.

I am less clear on the effect of the American money ultimately returning to the States via the foreigners who’ve traded with me for it, but I don’t see where the harm is in that. Is there a threat that they will buy capital? Does their purchasing of American consumer goods stand to raise American prices any higher than if I’d consumed them myself?

6

You said there are two scenarios one where you left the capital or savings in the form of capital investments in the USA and the other would be that you left with the savings after converting it from capital to cash. In the case where you left, that is the case where you would make the USA poorer and the country you take the savings to richer. (This is assuming that you don’t just turn around and invest it back in the USA.) The only economic loss is in the loss of savings and any of your labor left. The consumption you do is not lost as it will go to the next person who would face slightly less competition for the same resources making them slightly wealthier. In the case where the savings stay and the body leaves then there is only economic gain from savings and nothing lost in consumption.

7

If you leave and stop consuming in the USA then prices will go down leaving other consumers wealthier.

Please do not fall for the “Great Economic Con” of the 20th century which is that spending drives an economy. Savings (Deferred consumption) drive an economy. The people that proposed the Great Economic Con knew of Say’s Law and the work of the Austrians but chose to ignore logic and reason and instead dreamed up a giant scam to consume the wealth of people trying to save for future earnings.

8

Bogie:

In both of those cases, I take liquidity, but doesn’t the actual capital stay? How does the country become poorer when I take money out of it? If my leaving marks the point at which one less bakery is needed then I can see that a bakery is thrown out of business, but it also frees up an entire bakery-full of resources that will be available to produce some new wealth for a smaller number of wealthier people who already have all the bakeries they need.

Does the country really get poorer when I take mere cash out of it?

9

If someone wishes to expatriate, the question that needs to be asked is what economic conditions have made expatriation preferable to staying in the home country?

How is his countries economy hurting him to the point that leaving the country, and all his family and friends, to live in another nation altogether, has become preferable to his current situation.

10

Cuprick:

Yes, the physical things still remain in the country of origin, but the cash can be then used to purchase these physical things from the other country, or can be used to compete in the purchase of resources from suppliers in other countries. Entrepreneurs compete for savings, anything that decreases the total savings will increase the price of the savings making entrepreneurs worse off. Similarly, consumers want as little competition as possible for the items they desire, so any reduction in consumption reduces the prices of things consumed and makes the current consumers better off.

Your act of removing cash savings from the country of origin makes the country of origin poorer.

11

The country gets poorer, but only to the extent that my personal wealth no longer counts in the national total – the exercise of property rights. The effect on entrepreneurs is more interesting - I can see this having a multiplier effect on it that could not be offset by the lowered prices alone. Still, this seems more of a liquidity matter, since all of the original wealth remains in the states. Future wealth – well, that depends on how the foreigners bring back my money.

Plus I’d still be paying taxes on the distributions/withdrawals, even though I’d no longer be consuming significant government services. Here: You guys can have my share of government; I don’t want it anymore – good riddance.