Friday, December 7, 2007

Immigration Policy Priorities

I'm not really sure what our immigration policy priorities are, let alone what they should be. There is some viscious and biased information about how immigrants impact our economy and our society, and at times it makes me sick, as most of it is motivated by little more than prejudice and Nationalism (read: not simply "Patriotism"). But immigration is problematic: Although the free flow of migrant labor does generally help the "average" citizen certain pockets of the native workforce would be hurt. Furthermore, there is some argument to be made that policies should include some allowances to help those unfortunate souls who have been born into poverty around the world (so long as they can demonstrate some ability to be productive in our economy).

One of the most unfortunate facts about immigrants is that they tend to be less educated than US natives. There is no disputing this. Some would go so far as to say that they are "the stupidest of their own populations," as Benjamin Franklin did about German immigrants over 200 years ago. Some would go yet another step and advocate policies that ensure that those who are allowed to immigrate here are only those who are the most highly-educated and skilled. That may artificially increase our workforce education levels, but is it even desirable? Gains from trade primarily come from the fact that countries are different, and if immigration is a potential source of reaping these gains and we are a relatively skill-abundant workforce, the argument could be made that the greatest gains would come from allowing the entry of less-skilled immigrants, not more-skilled.

Another problem I have with pundits who cite these differences in education between natives and immigrants is that we have a long tradition for forming our immigration policies in a way that helps the least fortunate abroad, and we recognize that there are countries in which the poor and displaced have a much harder time of things than they would here. One fact that I could cite here is that refugees are consistently measured to be the least skilled of all legal immigrants to the US. Does that mean we should eliminate refugee status as a visa class preference? Few would argue for that.

So the problem is this: for immigration policy to work it should do let's say four things. First, it should do something to stem the tide of undocumented aliens who enter as a matter of national security. No amount of restriction and no practical amount of spending on enforcement will stop people from trying to enter. The question is more one of managing it optimally and minimizing the externalities of the undocumented entry (such as smuggling of drugs and weapons or the threat of terrorism) rather than trying to exclude anything beyond the arbitrarily-defined quota. Second, policy should be motivated by our national economic interests, and here I specifially mean aggregate welfare. Unskilled labor may contribute most to aggregate welfare on a per capita basis. However, it will have serious consequences for certain groups, and these do tend to be those with the most modest means in our society. So, the third and fourth parts of our policy (and the most complicated) is concern for those less fortunate, but would include: (1) natives, and; (2) those living in adverse conditions around the world. Poverty in our own country is a problem, and increases in immigration would have serious adverse impacts for natives who lack at least a high school education. However this "foreignization of poverty" is not something I worry much about because the "foreign poverty" that immigration brings represents immigrants who are moving from one form of poverty to a "better" level of poverty. Yet, two-thirds of the world is living in a "Less-Developed" Country, as defined by the World Bank. Many of these countries lack the institutional stability and transparency in governance that would allow entrepreneurial talent to flourish, or even allocate resources to those well-suited to use them profitably.

So these are my priorities. The only one of them that would not be well-served by having a more open border is number three, concern for the native poor. Since I don't want to trivialize this concern, I am open to suggestions for how the main objectives (namely numbers 1 and 2) could be achieved.

Tuesday, December 4, 2007

"Foreignization of Poverty" in the US

From leading immigration economist Professor George Borjas' blog (citing a Center for Immigration Studies study):
1. The number of immigrants arriving in the past seven years (both legal and
illegal) is a historical high.
2. More than half of these recent arrivals
are illegal.
3. About a third of adult immigrants lack a high school
4. One of every 3 persons lacking health insurance is foreign-born.
5. A third of immigrant households use at least one major welfare program;
as compared to only 19 percent of native households.

These data tell us almost nothing about the impact of immigration on natives, and less about what we should do about immigration. The only conclusions we can draw are ones that are motivated by our existing prejudices and biases before seeing this information. The study seems to promote that these statistics imply that there should be reduced immigration through stricter control (tightening quotes and enforcing them more stringently), and Borjas, though he attempts to keep his comments vague and intellectually detached, seems to agree.

(Aside: With regard to the last two above, I'm imagining a funny scene where an undocumented immigrant is arriving for his first day of work at some meat processing plant or something and begins to negotiate his contract to include health benefits. In my mind the negotiation takes place in esparanto. Guess what program those one in every three of immigrants who don't have health insurance are on!)

But what do these statistics really mean? OK, if you mix one sample with another and one sample and the sample you introduce has a higher (lower) mean, it will pull the pooled mean up(down). In our examle, if immigrants have higher rates of poverty, heck if MEXICO has higher poverty rates and you mix them randomly with the US population, there will be an apparent increase in poverty. But so what?

There's absolutely nothing here to suggest that immigrants are making natives more poor, less educated, less likely to have health insurance or more likely to be on welfare. It's possible that these things could be occurring, but there's nothing in the study to support it. It's equally possible, if not likely judging from the conclusions drawn by other noted labor economists, that natives may enjoy a small boost to their own incomes around the middle 20% of the income distribution and above. Furthermore, it is logical to conjecture that the immigrants themselves are better off, otherwise the pipeline (both legal and illegal) would stop. So, before going further, who's hurt by immigration and why should we invest scarce resources in preventing it?

Now let's dig deeper: Does the Center for Immigration Studies or Professor Borjas have a magic wand that makes the Fundamental Economic Problem of Scarcity disappear? If cutting off immigration is your objective, how should we do it and how much should we spend to keep people out? Immigration's net strain on the fiscal budget has been estimated at around $10 billion. That was a few years ago, so I'll be generous and double it, so say that today it's about $20 billion per year (heck, triple or quadruple it for all I care). Set every red cent of that aside into a fund for a "fight immigration task force" and do you know what would happen? We would still have countless numbers of undocumented immigrants streaming into our country, imposing a lesser but still a substantial amount of fiscal strain on the budget, and we would have diverted billions of dollars of productive resources away from the private economy to tilt at windmills. Bottom line: the cure is worse than the (alleged) disease.

Monday, December 3, 2007

Bioenergy Part Trois

Today, I want to close the loop on the topic I began with Thursday's post, and continued with Friday's post. To review, Juan Enriquez's claim that instability in oil prices may serve as a disincentive for investment in alternative energy may well be true, but his solution of price controls are the wrong policy response because they (1) don't work that well, and; (2) have serious consequences.

Suppose we want more stable prices. Energy prices are not a "simple matter of supply and demand." The "law" of supply and demand, or the basic Week Three Principles of Economics analysis which is all the CEOs corporations remember (or which they hope is all YOU remember), only applies for competitive markets. The concept of a "market supply curve" implies that the firm is a "price taker." A monopolist (or cartel) does not have a "supply curve" in the traditional because their own actions have a tangible influence on price.

Prices in competitive markets tend to be much more stable. So we must ask the question: Why is OPEC able to operate as a cartel? Part of it has to do with ownership. The public (government) ownership of oil production in most oil-exporting countries is a major hindrance to competition and serves as a significant barrier to entry. It ensures that only one firm will produce in each country and makes the coordination aspect of cartel decision-making much easier. So one true way stabilize the price of oil would be multiple private firms for oil production in each country.

Privatization is not feasible for a wide range of political and economic reasons, not the least of which being that the state, with its monopoly over the use of coercive force, will always have an incentive to nationalize oil production. We also do not have the right to dictate policy to other states (except the ones we decide to run over militarily), and besides, our politicians should focus their energies on the great job they do screwing up our OWN economy. Plus, this wouldn't necessarily provide incentives for research in energy alternatives, because a more competitive market would tend to dictate a consistently lower price (and yes, in this case I'm implying that is a bad thing because part of Dr. Enriquez's proposed Policy Objective Bundle was incentives for alternatives to petroleum).

So what are some other options? Well, in oil-importing countries, we do in fact have the opportunity to take some of the pricing power away from the cartel. Governments in oil-importing countries have a monopoly over the right to tax. By taxing the hell out of a foreign monopolist we can divert some of the monopoly power and rents (profits) from the foreign government to our own, all the while maintaining a more stable (albeit uniformly higher) price to offer "incentives" for research in alternative fuels.

The reason we do not tax crude is simple: politics in our own country. Politicians buy votes with their plans to "negotiate" or "encourage" low prices for gasoline and energy. Not one of them has the courage to say "yes, the price of oil is $100/barrel, but it must be taxed to take the power and profits away from foreign oil producers." The first to do this would be out of the race in no time. Instead, politicians console us with ill-gotten plans to subsidize our oil habit. This keeps the power of and profits in the hands of the unstable and corrupt governments.