Some More Thoughts On Immigration

Many people will complain that, so long as the institution of welfare and voting exist in this nation, we cannot have open borders in regard to immigrants.  They claim the immigrants will just come here and become welfare queens and vote away our democratic institutions for their socialist ones.  Ignoring the factual issues with these complaints (Immigrants use welfare at lower rates than domestic citizens and naturalized-immigrant voting patterns and policy views don’t differ much from Americans), there are larger issues at play here.

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Regime Uncertianty: NBA Edition

President Trump’s executive order last week banning entry into the nation from several predominantly Muslim countries can best be described as a charlie-foxtrot.  Among those caught in the wave of uncertainty following the order was the National Basketball Association.  From nba.com:

The NBA, its players and its coaches have waded into political waters in the months before and since the November election. But this week politics bled into the NBA when President Donald Trump signed an executive order temporarily limiting immigration from seven Muslim-majority countries.

Milwaukee Bucks rookie Thon Maker and Los Angeles Lakers veteran Luol Deng both are natives of Sudan, one of the countries subject to the temporary ban along with Iran, Iraq, Libya, Somalia, Syria and Yemen.

The Bucks were concerned about Maker’s ability to travel freely with the team back to the United States from its game Friday in Toronto. The NBA released a statement saying it has contacted the State Department for information on how the restriction might affect personnel from the seven countries.

Fortunately, there were no initial negative consequences for the Bucks.  From ESPN:

Bucks coach Jason Kidd, in announcing Saturday that Maker would start, confirmed that Maker had made it to Milwaukee without incident. Maker scored eight points and grabbed two rebounds in eight minutes in Friday night’s 102-86 loss at Toronto, where he had lived for two years prior to being drafted in 2016 by Milwaukee.

However, the fact that Maker was able to re-enter the country from Toronto does not mean there are any losses involved.  Indeed, there were many unseen consequences from the executive order:

  1. Coach Kidd had to spend time devising an emergency game plan in case Maker was detained.  This subtracted from his time focusing on a “true” game plan where all his players can be used.  This may have contributed to their 112-108 loss to Boston on Saturday.
  2. NBA and team lawyers have been scurrying to get clarification on the new rules, detracting from other duties
  3. State Department officials have been scurrying to answer the questions poised by the NBA and team lawyers, detracting from other duties
  4. Maker himself (and likely his teammates) were distracted by this non-basketball issue, diverting attention away from practice and game planning (again, possibly contributing to the loss on Saturday).

The list above is hardly exhaustive.  Further, we can imagine this uncertainty, and similar costs, multiplied across the nation for all kinds of industries and employers.  These disruptions, while perhaps at a cost of only a few thousand dollars each (a number I arbitrarily made up.  Could be higher/lower), multiplied across millions of individuals becomes a great sum.

One final NBA-specific point: 90 days (the length of the ban) seems small in the scheme of things.  But, for the NBA, that is half their season.  This ban is no small thing for the Association.

On (Im)Perfect Subsitution

Another Econ 101 mistake people make, especially with regard to immigration and international trade, is some form of “foreigners (immigrants) can do all the work we do but for much lower prices!  Without subsidies/tariffs/minimum wage, they’re just going to take all our jobs!”  Other versions of this include “if a bunch of immigrants enter the nation, they’ll drive down wages!  Law of Supply and Demand!”

Both the above arguments make the same mistake, namely they assume foreign labor is a perfect substitute for domestic labor.  They treat all labor (or all low-skilled labor) as a homogeneous blob, one part easily replaceable with another.  But, alas, that is not the case, as price theory can show us.

Looking simply at the wages of laborers, we should ask the question “why do immigrants/foreigners command lower prices than domestic workers?” The fact that there hasn’t been wholesale replacement of domestic labor with foreign means we can rule out any cultural/biological/cost-of-living reasons such as “lower cost of living in 3rd world” or “they have a lower standard of life and thus demand lower pay” etc.  If this were indeed the case, domestic companies could just pack everything up and ship it overseas (that is, stuff that can’t be staffed by immigrants) and make tons of profits (while I have no doubt some people believe that is what is happening, the data say otherwise).

What’s more likely is that foreign workers and immigrants are simply less productive than domestic workers.  Immigrants coming into the country, legal or otherwise, face major barriers, not the least of which is the language barrier.  The manager at McDonalds cannot simply fire an American order-taker making minimum wage and hire a foreign worker for half the cost. The foreigner, simply by virtue of not knowing the language, will be less productive, thus his lower salary.  A similar argument for offshoring can be made: foreign workers, by virtue of less capital augmentation, will be less productive and thus command lower salaries.

In short, foreign workers/immigrants are not perfect substitutions for domestic labor!

It may make sense for some firms to replace/augment domestic labor with foreign labor, but the mere fact it is cheaper is not the reason why.  David Ricardo’s powerful idea shows there are times it is prudent to replace more productive resources with less productive resources, but to do so on a large scale with disregard to opportunity cost is a recipe for disaster, and why firms and individuals do not do it.

Trump’s Immigration Plan Cannot Make America Great Again

The other day, I wrote how Trump’s tariff plan cannot make America great again.  In that post, I promised a follow-up on immigration.  This is that post.

A quick note before I begin: many people will likely object to this post because of various social problems immigration may bring (they’ll vote away our freedoms, they’re violent, they suck welfare, etc).  I, and many others far smarter than I, have addressed those myths in the past and I will not reiterate those arguments here.  This post will focus on the economics of immigration.

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Illegal Immigration Follows The Laws of Supply and Demand. Who Knew?

Writing at CATO, David Bier has an excellent article on illegal immigration.  The whole thing is worth a read, but there are two particular points I want to focus on:

Border patrols and deportations were increased to stop the flow of unauthorized immigrants, but they had little effect. “I’ve no doubt whatever that the man finally deported is back here,” the Assistant Secretary of Labor told the Times. “Easily 50 per cent of them return.” In July 1929, Congress gave in and provided “amnesty” or citizenship to the undocumented immigrants. Then, the Great Depression dried up demand for workers, temporarily resolving the issue.  When the economy finally picked up again following World War II, illegal immigration returned.

Illegal immigration finally nosedived after the housing bubble burst, and the illegal population shrunk from 2007 to 2014.

[Emphasis Added]

Lest I be accused of cherry-picking, the trend of immigration tapering off during recessions and increasing during booms holds throughout history (obviously, the more severe the recession, the more pronounced the decline in immigration).

This pattern is exactly what one would expect: when the economy is growing, labor demand is growing, and the wage rate (the cost of labor) is increasing, more supply (immigration) is attracted to the market.  When the economy is shrinking, labor demand is shrinking, and thus the wage rate is falling, supply is repulsed from the market.  Just a simple analysis of the labor market.

There Is Still No Difference Between Immigration and Free Trade

At Cafe Hayek, Don Boudreaux posts his prepared remarks from a recent talk given in Atlanta. The whole thing is worth a read, especially if you want a quick summation of Econ 101.

However, I want to call attention to one point in particular, spoken by Don but also by my professor Walter Williams:

I here, at the last minute, add an eleventh point to the elemental case for free trade.  I was reminded of this point just this morning by an e-mail from my great colleague Walter Williams.  Walter asked me to remind you that countries don’t trade with each other; people trade with each other.  China doesn’t trade with America.  Individuals who reside on that part of the earth that we today call “China” choose to trade with other individuals who reside on that part of the earth that we today call “America” and who choose to trade with people in China. [original emphasis]

The concept that economics is just human action is vitally important to understanding.  All too often, people will make the mistake of forgetting this vital, yet simple, fact.  When people trade in goods, it is the owners of goods swapping.  In other words, people.  When people trade in labor, it is the owners of labor swapping.  In other words, people.

I hear far too often from many people who are nominally free trade that we can’t have free trade of labor (that is, free movement of labor across borders, not just within) because labor is people and people can corrupt (or be corrupted).  But this is no different than the false argument “demand analysis doesn’t apply to minimum wage because these people are workers not commodities!”  Both statements are wrong.  The owners of capital, people, are just as likely to subvert liberal values than laborers (who do you think calls for protectionist tariffs?  Subsidies?  Regulations?).  In fact, I’d argue the owners of capital are more likely to subvert liberal values because they, unlike immigrants, can actually vote and participate in the political process.

Does increased immigration run the risk of importing people hostile to liberal culture (or creating a “Trump effect” backlash against liberalism by natives)?  Yes.  But that danger is not unique to immigration.  It holds just as true for capital.  Economics is human action.

Restricted Immigration Will Not Protect Liberal Values

This comment fragment was left on this AEI blog post today:

Of course, many, if not most, commenters here are acolytes of diversity and scream RACISM at the top of their lungs with any suggestion that having large amounts of immigrants who have a culture the polar opposite of life, liberty, and the pursuit of happiness is a dumb idea.

The commentator’s point is that an influx of immigrants from what is deemed illiberal cultures will ultimately change America’s liberal* culture into a carbon copy of wherever they came from.

The arguments against this are legion.  I’ve written on them multiple times here on this blog.  But there is a larger, more fundamental error contained in the argument: illiberal values can coexist in a liberal society.  However, liberal values cannot coexist in an illiberal society.

Within a liberal society, many kinds of value systems can coexist.  Indeed, that is the emphasis of liberalism: individual freedom to live as he so chooses so long as he doesn’t involuntarily violate the rights of anyone else.  Mini dictatorships, communist societies, socialist, they all can (and, in fact, do exist) within relatively more liberal societies.  Corporate structures can be dictatorial.  Family structures tend to be communist.  Religious organizations can be socialist.  And yet, none of these illiberal institutions threaten the overall liberalism of a society.

However, in an illiberal society, liberalism cannot exist.  Illiberal societies require conformity and homogeneity.  They tend to ruthlessly squash dissent (and that ruthlessness need not be overtly violent.  For example, imagine a social-democratic society.  They vote to build a bridge.  One person dissents and refuses to pay.  The others throw him in jail for tax evasion.  This is an example of the kind of ruthlessness I mean).  Liberalism is not tolerated in this kind of a society, even as a sub-culture.

To bring this back to immigration, people who make the argument like I quoted above, under the guise of liberalism, advocate for very illiberal policies.  While an immigrant can come from an illiberal place and have an illiberal culture all his own, in a liberal society he cannot foist that upon anyone else. He can live as he so chooses, but cannot compel anyone else.  Liberal values are preserved.  However, in an illiberal society, such as the one advocated for by the commentator quoted above, by necessity destroys liberal values (in this particular case, the right to pursue property and liberty of both the domestic citizen and immigrant) and indeed promotes illiberal values (hegemony).

The restriction of immigration will not, indeed cannot, preserve liberal values.  It can only seek to undermine them.

*Please note I am using the word “liberal” in its classical sense.

Skittles, Math, and Risk

Donald Trump Jr tweeted a rather old (and idiotic) meme the other day, sparking conversation about refugees.  There are many, many things wrong with that meme, but others far smarter than I have covered them.  Instead, I want to focus on the bad math and conversation about risk contained therein.

In the meme it shows a bowl of Skittles, which I estimate holds probably two bags, so about 100 candies.  Assuming Junior Trump’s statement correct, 3 of those would kill you.  That would put the risk of death at 3 in 100, or 3%.  Rather high.  But the true risk of death from refugees is not 3 in 100.  It’s 1 in 3.64 billion.  In other words, 0.00000003%.  Effectively zero.  Whereas the risk of dying from food poisoning is 0.00006%.  You are far more likely to die eating actually poisoned Skittles then by refugees represented by Skittles.

But it is also important to remember risk is a part of everyday life.  If you get out of bed in the morning, you are taking a risk.  If you get in a car, you are taking a risk.  If you enter a high-rise building, you are taking a risk.  Let’s put some risks into perspective using the same candy metaphor:

Killed by Cancer: 1 Skittle in 540 is poisoned
Killed by Car Accidents: 1 Skittle in 8,200
Homicide (non-terrorist related): 1 Skittle in 22,00
Drowning in the Bathtub: 1 Skittle in 950,000
Killed by Home Appliances: 1 Skittle in 1.5 million
Killed by Deer: 1 Skittle in 2 million
Commercial Aviation Accident: 1 in 2.3 million

(Source for above numbers)

Notice that all of these have significantly higher risks of death than refugees.  So, let me flip the script: Mr. Trump, Jr: if I had you a bowl of Skittles, and just 1 in 8,200 of them are poisoned, do you take a handful?

It’s All People

The other day, I discussed the human decision-making element contained in economics (the short version: people, not collectives, make decisions).  At this point, I want to make explicit what has been generally implicit in my posts (or, just taken as given as understood by the reader).

Economics is, as Ludwig von Mises described it, the study of human action.  Economists look at how people act and react in a world of scarcity (that is, not enough resources to satisfy every want or need).  There are other definitions of the science of economics (the study of the allocation of scarce resources is another popular one), but they all generally derive from this since, at the end of the day, we are looking at people.

Why is this important?  Misunderstanding this fact leads to “this time it’s different!” claims.  Things like “labor doesn’t react to demand curves in the same way as machines/commodities because it’s people!”  Or “immigration [free trade of labor] is different from free trade of capital because it’s people who can potentially vote!”  I chose these two examples specifically because they are common tropes on the left and right, respectively, but they both make the same mistake.

This is the point I want to make explicit: Capital (machines, factories, other inputs) and labor inputs (simply called labor) are not people.  They are resources and churn out output.  The sellers and buyers of capital and labor are people.*  As sellers and buyers, they face the same issues, the same incentives.  For example, a man selling a computer no less is insulted if you try to low-ball him then a man selling his labor.  To address the right-wing criticism mentioned in the above paragraph, a laborer is no less likely to vote for protectionist measures to protect his job than a steelmaker. Both are threatened by free trade (the laborer from immigration and the steelmaker from imported steel).  It is incorrect to say that one will vote on the matter but not the other in response to free trade.  To address the left-wing criticism, the fact that buyers and sellers of labor are no different from capital is why minimum wage legislation fails to raise the lowest income workers out of poverty; why they are likely to be replaced by capital when the relative price of labor rises.  Labor is subject to the same demand conditions as anything else.

In economics, we often get lazy and simply refer to these things as ‘labor” and “capital,” rather than sellers of labor and sellers of capital.  Perhaps it doesn’t matter as much within the profession (although I have met and read a fair number of economists who have made arguments similar to that which I discuss above), but it certainly causes great confusion among laymen.  Imprecise language is bound to confuse.  I can only hope that this is just a small contribution toward eliminating that confusion.

PS: I hope, after reading this post, you can now see what I think “study of the allocation of scarce resources” is a necessary, but not sufficient, definition of economics.

*This may sound strange, especially when referred to labor, but it is merely a method of categorization necessary to better think of the issue.  Consider this: a store needs 3 cashiers to operate. it currently employees Jack, Jill, and Chris.  Chris leaves and is replaced by Joy.  The physical sellers of labor has changed, but not the amount of labor.  Just as if I bought a Dell computer to replace an HP, my capital hasn’t changed just the brand-name.

That’s the Whole Point of Immigration

Marco Gutierrez, founder of Latinos for Trump, in describing the “dangers” of immigration, said the following (emphasis added):

“My culture is a very dominant culture.  And it is imposing, and it is causing problems. If you don’t do something about it you are going to have taco trucks on every corner.

Source

While Mr. Gutierrez was trying to make a point about the supposed costs of immigration, he actually demonstrated what a boon immigration is to the host nation and how immigrants must act when in a market economy (even one as limited as ours).  How does the Mexican culture “dominate” us?  By serving us tacos.  Or, to shorten it even more: To Serve Us.  Immigrants are an increase in the labor supply in a country.  Despite the slurs long hurled against them (and not just in the US.  Go back to the Book of Exodus to see Egyptian anti-immigrant attitude against the Israelites), immigrants add to the productive nature of an economy, not detract from it; as Julian Simon once said, the greatest resource are humans.  And immigrants are simply humans born on the opposite side of an invisible line.*

One final thought, if this is the “dominating culture” we need to worry about, I say bring it on.  There simply aren’t enough taco trucks in many areas (especially in the DC region).

*The shrewd reader will notice this is the exact same logic as with capital goods (that is, imports).  Generally speaking, increasing the capital stock in a nation increases the economic productivity, and imports are just capital that was created on the opposite side of an invisible line.