Tag Archives: immigration

Smash the New Aristocracy

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My visceral reaction to arguments for less-than-100% open borders is to scream, and call names, and punch in the face. I will not act on these urges. I cannot punch 6 billion people in the face. Many of the people who oppose open borders are my friends; I like them. And intellectually I know that people do the best they can—they do not intentionally hold wrong moral beliefs. Instead, I write, and hope to persuade.

Let me offer an analogy. At the height of, say, the British aristocracy, one’s rights and privileges were determined by the social position of one’s family at birth. Almost all modern commentators will concede that this was deeply wrong. Whatever the barriers to achievement are in our current age, everyone seems to agree that at least the coercive ones should have nothing to do with one’s starting social position.

Today, around the world, one’s rights and privileges are determined by the physical position of one’s family at birth. It is not only the case that there are, in practice, disparities in the opportunities available to people born in different parts of the world; we have raised additional, coercive barriers to achievement that bind especially for those with unfortunate starting physical positions.

It is perhaps unsurprising that those who think they benefit from the current system wish to keep it. They trot out all kinds of practical-sounding excuses for why we cannot completely open the border. All of these reasons have analogs in the system of class-based privilege. Most of us, I imagine, would like to think that if we were aristocrats of centuries past, we would see through the lameness of the arguments for using the state to keep down the lower classes. Yet the widespread opposition to open borders today shows that we are not that good.

Go ahead. Spend some time with the analogy; wrestle with it. Tell me, if you can, where it breaks down. While I await your reply, I will tentatively postulate that there is no morally important sense in which it does. If there is such a thing as moral progress, then history will judge current opponents of open borders just as harshly as those who in the past made excuses for state-sanctioned aristocracy.

Radicals and especially libertarians are often accused, with some justification, of alienating their more-moderate allies. Perhaps that is what I have done today. A number of writers I admire have pointed to the case of Jose Antonio Vargas as indicative of what is wrong with the American immigration system. Vargas is admirable, but he will have little difficulty remaining in the United States. I am far more concerned for the hundreds of millions of potential immigrants, the huddled masses, who will never win a Pulitzer Prize. Must we, the new aristocrats, continue to oppress them?

Immigration as Fiscal Externality

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Many rich-country governments are heavily in debt. Some are on the verge of default; for others it’s a matter of time. One trivially simple way to lower the burden of national debts is to let in a lot of immigrants. Since the amount that the government owes does not vary with population, debt per capita and debt/GDP would decrease.

At any moment in time, population is zero-sum. More net immigrants to the US, say, means fewer people living in other countries. This means that the US can only lower its debt per capita through immigration only by raising the debt per capita of some other country.

My intuition is that this would lead to downward spirals in the fiscal situation of second-movers. The process could look like this:

  1. The US opens its borders.
  2. Lots of people from all over would move to the US.
  3. Debt/GDP falls in the US.
  4. Debt/GDP goes up in some heavily-indebted countries such as Greece.
  5. Faced with higher taxes and unemployment in Greece, more Greeks move to the US.
  6. Repeat steps 3-5 multiple times.

In the end, the US fiscal picture looks quite rosy and the Greek government ends up defaulting.

What is bizarre is that this has not happened yet. If there is a huge first-mover advantage to open borders, one would expect that governments would be eager to open their borders. In terms of a Prisoner’s Dilemma, governments are not defecting when it is in their interest to do so. They are playing the cooperative equilibrium with no outside enforcement, providing a local public good (globally, of course, immigration restrictions are a huge deadweight loss). Each government is sacrificing its own fiscal position for the fiscal position of the others.

I’m all for the study of non-coercive provision of public goods, but in this case none of the usual factors that accompany cooperation are present. It is not the case, as with Coase’s lighthouse, that this public good is tied to private goods. Nor does the repeated nature of the game seem to be the factor that holds the cooperative equilibrium together; governments do not seem to want to defect. The glue that makes immigration restrictions possible is probably just plain old xenophobia.

This makes me more optimistic about the long-term future of the world. On one hand it sucks that voters are such racists. But our fiscal/immigration equilibrium is unstable. If it is at all disturbed, it will probably unravel. If one heavily-indebted rich-country government decides to open its borders, others will almost certainly have to follow suit. In the long run, governments will have to be more open to immigrants and more fiscally responsible. Getting to the long-run stable equilibrium could be tumultuous, though.

Play the Advisor Game

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The New York Times has a piece on Obama’s latest stimulus proposals.

[Obama] chided Senate Republicans for engaging in “pure partisan politics” by holding up a jobs bill that would offer tax breaks to small businesses and ease credit with a $30 billion initiative to channel loans through community banks.

Community banks!? That‘s the stimulus plan?

The president also said he and his team were “hard at work in identifying additional measures,” including extending tax cuts for the middle class that are scheduled to expire this year, increasing government investment in clean energy and rebuilding more infrastructure.

What a joke. Sorry, but none of these is going to make a significant contribution to ending the recession.

Maybe we can help Obama identify some additional measures to stimulate the economy. Here are the rules. First, your proposal must be revenue-neutral, or at least very cheap. Second, Sumnerian monetary policy (which I support) is off the table as “too obvious,” as is encouraging people to counterfeit. Third, your proposal needs to provide actual short-term stimulus, not just be good long-term policy.

My proposals:

First, permanently eliminate the employer portion of the payroll tax and charge it to employees instead. Remember, in the long run this change makes no difference whatsoever, since the incidence of a tax is the same no matter who technically pays it, as long as prices are flexible. But the reason labor markets don’t clear in recessions is that the price of labor (the wage) is not flexible. Real wages need to fall to clear the market. Shifting the payroll tax burden to employees would be an immediate cut in real wages, which would induce greater hiring and a lower quantity of labor supplied, moving the market closer to clearing.

Second, let in several million more immigrants. There are 19 million unoccupied houses in the country. The malinvestment in housing has decreased homeowners’ and investors’ net worth, which is creating fear and uncertainty. The wrong way to solve the housing problem is through subsidies which encourage further malinvestment. The right way is to make the malinvestment an ex post good investment. This can be done by importing residents, demanders of housing. Start by eliminating quotas for H1B and student visas, but ultimately, if people promise not to go into the construction industry, let them in. This proposal would have been even more stimulative during the financial crisis when it could have also propped up the value of mortgage-backed securities, but it would still do some good now.

Are there flaws in my proposals? What would you suggest instead or in addition?

The Economics of the Startup Visa

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For a long time, Silicon Valley types have been agitating for more immigration visas. One idea is the Startup Visa, which would enable entrepreneurs who get US venture capital investment of at least $100k to move to the United States. Today, Senators Kerry and Lugar introduced the Startup Visa Act in Congress.

I support expanding immigration in whatever form I can get it, so I am happy to endorse the Startup Visa Act. Nevertheless, this idea is clearly suboptimal.

One way the government can help the American economy is to encourage people to move to the US and start a new business which produces goods and services people want to consume. But another, equally useful tactic is encourage people to move to the US and help an established business be more productive. Startups are great; I love startups. But there is no a priori reason to favor them over other businesses, and vice versa. You can argue that established businesses tend to be more sclerotic (I do think this), but maybe what they need is someone with a different perspective to help them innovate.

Furthermore, an important ingredient in dynamic or adaptive efficiency is the process of shutting down failed ventures. An entrepreneur who relies on his business for his immigration status will draw out the process of shutting down a business that he knows to be a failure. This delays the reincorporation of the resources of the failed business into new and potentially profitable ventures. While this is less inefficient than immediate deportation or than not allowing him in the country in the first place, it would be better if immigrants felt free to close their businesses and try something new (or just get a normal job) without risking their residency status.

Finally, the bill will not bring in immigrants in nearly the numbers we could use them. During the 2008 financial crisis, I argued that the best solution would be to let in 50 million new immigrants; this would drive up the price of housing and make the ex ante malinvestments in housing ex post profitable, averting the crisis. And one way to deal with the looming fiscal crisis is to let in millions of immigrants to expand the tax base. Given that no one seems to want to raise taxes, cut spending, default, or inflate, I am surprised that more people are not interested in the immigration free lunch.

So by all means, pass the Startup Visa Act. But don’t stop there; a more liberal immigration policy would benefit both Americans and the immigrants themselves.