Tuesday, May 16, 2006

Illegal Immigration: the Solution

The U.S. immigration issue is a painful topic to write about, for a number of reasons. The two most important ones are (1) the debate is largely informed by bad economics and bad data, and (2) the solutions generally offered won't work and are worse than the status quo.

There is a solution to the issue, but it has two drawbacks -- it requires understanding of economics, and no one will like it.

Here's a bit of economic analysis, by no means complete, but as much as I wish to say about this hopeless topic.

1. The overall economic effects of illegal immigration appear to be positive for the U.S. Illegals pay taxes -- this helps reduce the U.S. budget deficit, and also extends the time horizon of the current social security system. (Actuaries for SSA explicitly take illegal immigration into account -- illegals "contribute" taxes to Social Security but take almost nothing from it.) Economist Julian Simon's work showed that immigrants to the U.S., and especially illegals, tended to be net payers of taxes, compared to native born citizens who tend more to be net consumers of taxes. There certainly are harmful distributional effects (some school systems and medical services being driven into the red by illegals, for example) but the net effect is positive. Ileegals come here to work, and that increases America's total output.

2. Illegals do not reduce the number of jobs available to Americans. The idea that there is a fixed number of jobs is nonsense. Employment rates depend upon the demand for workers, which in turn depends on a stable monetary environment, on low levels of regulation and intervention into the market, on productivity of technology and organization of business enterprises -- things at which America excels relative to most of the rst of the world (although the Feds are working hard to overturn some of these). Illegals probably do help to reduce wage rates for unskilled labor, but the solution to the problems of the perpetually impoverished isn't higher wage rates for unskilled labor -- it's skills.

3. Regardless of what the United States do to curb illegal immigration, such immigration will continue. The U.S. is the world economic powerhouse, and it cannot help but attract foreigners -- poor and rich alike -- looking for better opportunities. The only thing that can change this dynamic is an end to the disparity -- presumably through higher growth rates in the countries experiencing out-migration to the U.S. (Of course, the U.S. could always undergo a lingering depression to make itself less attractive, but that's not much of a solution.)

The remedy for Latin American economies is relatively simple to write (implementation is a different matter):

1. Macroeconomic stability (cut government spending and push for balanced budgets, avoid inflating the money supply)

2. Microeconomic liberalization (free prices, free entry and exit, abolish gov't monopolies and privatize state industries, open the borders to free trade)

3. Drastically reduce corruption

4. Develop private property rights for the poor (Hernado de Soto's remedy -- the poor have enormous potential capital they could use for productive investment, but corrupt elites refuse to protect the rights of the poor)

5. Hanging Hugo Chavez and that goofball in Bolivia (this would have a salutory effect on Latin America's would-be socialists; hanging Pinochet in the interests of being "fair and balanced" would be a reasonable step as well)

For Mexico, I suppose the easiest way to do achieve all this would be for the U.S. to simply annex Mexico as its 51st state, imprison any corrupt Mexican officals (i.e. all Mexican officials) and grant automatic citizenhip to Mexicans. We'd then have traded an immigration problem for a "re-unification" problem similar to Germany's -- but unlike Germany, we have a dynamic economy that could handle the problems.

Of course, this is a ridiculous proposal that no one but me (and maybe a few poor Mexicans) would ever support, and so it has no chance of even being considered. But still I like it... unlike the "solutions" under consideration (sealing the borders , guest worker programs, felonizing anything vaguely connected with immigration, tattooing "U.S. Property" on all citizens, etc.) it actually addresses the root problem and doesn't involve setting up a system of internal passports in the U.S.

Economic reform and growth in Latin America is the only solution. Expect to see it implemented in, oh, 40 to 50 years.

Glad to see some sensible macroeconomic analysis, Charles. Far too much hand-wringing and chest-pounding is being spent on "securing" the borders, without addressing the root cause of the influx of illegal immigrants.
Mr. Steele,

If the US can keep people from coming across the S. Korean/N. Korean border, why can't they do the same with US/Mexico border? It can be done, but you are right, its not the solution.

It would be helpful in this debate, over illegal immigration, that the corruption in Mexico and the rest of Latin America be highlighted more. Then, maybe civil society and think tank organizations will do more to solve this issue. It seems that Americans or America is always demanded to make change, instead of other fledgling societies.

In the MSM, the corruption issue is not spoken about much. A little public embarrassment about it may help in making change.

The solution to the immigration problem is to get rid of the welfare state. Then most taxpaying Americans will have nothing to oppose in giving amnesty to illegals.

To me the gist of the problem is the fear of an increase in the tax burden and the increase in public services to subsidize the illegals.

Libertarian policy analysts and wonks should direct more energy on the abolishing of the US Federal Income Tax, just as they have been doing about the plight of non-American immigrants.

It puzzles me why the Income Tax has become a less important issue with Libertarian think tanks, thinkers, bloggers, and wonks.
Thanks to botrh of you for the comments.

Anaonymous -- first, the Korean border is much shorter than the Mexican border. And the U.S. has *not* successfully closed it, at least according to military analysts who claim that N. Korea has built substantial tunnels under the border. Also, it's the N. Koreans who have effectively stopped illegal immigration to S. Korea, by essentially imprisoning their population.

It is indeed the poor economic and political performance of the Latin American countries that drives migration to the U.S.; this was my original point.

The income tax is a red herring here. First, the arguments against immigrants are that they overwhelm the welfare state -- but the welfare state isn't largely financed by income tax, but by FICA/Medicre/Medicaid; similarly, some school systems are hard hit by illegal immigration, but the burden is at the state and local level.

Eliminating the income tax would do almost nothing to fix any of this. Eliminating the income tax would be a good thing, but in the grand scheme of things, it wouldn't fix much -- reducing the size and role of the state is far more important.

Finally, there's an important reason for worrying about illegal immigration that has nothing to do with the existing welfare state -- taking in a very large number of immigrants (legal or otherwise) without assimilating them could change the polity, by building a large bloc of voters who do not understand Aemrican politics or culture.
Mr. Steele

I agree with you that there is a danger in accepting and not assimilating a large number of immigrants. If you've notice in the recent rallies, there were a significant number of collectivist organizations sponsoring or behind the the protest. This gives me pause. I am afraid there were more leftist political interest than free labor migration interest.

I am pro free market. Free migration of labor comes along with and is as important as free trade. However, just as you pointed out, most newly arrived immigrants are unfamiliar with our political system. I would say this is very true with the large uneducated migrants in low wage occupations. I sense that there will be many efforts made by collectivists to exploit the not so politically informed migrant to sign up for their agenda.

It won't surprise me that there will be a lot of shenanigans going on in this years election by economic populists, who are mostly in the democratic party. The same can be said for the republicans, but, in my opinion the democrats have the advantage with a socialist style platform.

Because of the rise of economic populism in Mexico, Central and South America, I believe those same sentiments are migrating right along with today's immigrant. I could be wrong, however, I suspect this is true since cultural pride is said to be very important with many Latinos.

I want the illegals to become legal. But, what can be done by libertarians or free-marketeers to stop the rising influence of these leftist-socialist organizations that are playing a significant role in this debate. The US sure don't need anymore imported collectivists rhetoric.

What do you think?
Anon -- I don't share your view that the democrats are more populist than the republicans.

It's republicans who have led the charge recently for the idiotic prescription drug benefit (biggest welfare program since LBJ's "great society"), for restricting free trade (Bush's restrictions on steel and textile imports), for restricting FDI into the U.S. (e.g. the China-Unocal deal, and the DPW-P&O deal), for spending well beyond the govt's means, and for trying to turn any questioning of Bush's foreign policy into unpatriotic treason -- all populism.

There are decided differences between the two parties, but both are populist and both favor a massive state that intervenes in most aspects of life.

I also do not see immigration -- illegal or otherwise -- as one of the big problems this country faces. On net, immigration generates economic growth, and most of the problems associated with immigration are things to which immigration contributes, rather than causes -- in other words, fixing immigration doesn't fix the problems.

Hence I don't find imigration a very compelling topic for debate -- except as an illustration of fhow far removed from reality political ebate can be.
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