The economics of the Startup Visa
Feb 24, 2010
3 minute read

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.