Immigration, Net Costs, & Misplaced Priorities

This morning on the radio, the topic was once again about illegal immigration. This time the discussion focused on the “costs of immigration”. I found the discussion to be shallow and frankly tinged with a not too subtle tone of racism. The problem is two fold. First there was literally no discussion of the magnitude of the costs, and the discussion focused solely on the costs, not the benefits that illegal immigrants provide.

Typically the discussion was about little Juanito and how much money it costs to educate this illegal child in the U.S. school system. Nothing was said about the work that Jaunito’s parents do and the value such works adds to the economy. Nothing was discussed about the taxes paid. The true measure of the costs here should be the net costs, not the total costs.

So how much are the net costs of illegal immigration? This report from the GAO from 1995 (pdf) put the net costs at anywhere from $2 billion a year to $19 billion a year with an illegal population of 3 to 5 million. So even if we take the worse case scenario of 3 million immigrants and $19 billion in net costs and scale it up to today’s estimated population (say 12 million) we are talking about $80 billion in net costs. A middle of the road estimate would be around $50 billion. Either way I see this as chump-change for the most part.

First we have to remember that the U.S. economy is well over $12 trillion dollars in terms of GDP. Or in other words illegal immigration is equal to about 0.64% of GDP. By contrast the U.S. budget deficit is ten times larger as a percentage of GDP. Spending for the Medicare Prescirption Drug plan is going to cost $18.2 trillion.1 And Medicare, aside from the prescription drug program, has a shortfall in the range of $50 to $60 trillion over the next 75 years. But here we are worried about chump-change due to illegal immigration.

This leads me to, “Why?” The only thing I can think of is that things like Medicare shortfalls are boring and dull. After all it requires reading actuarial reports, figuring out what the taxable wage base is, and looking at projections which brings in things like statistics and already 48.3% of the audience is on the verge of a coma. Illegal immigration on the other hand seems to touch off some sort of fear of people who are different. They don’t look like “us”, the don’t talk like “us” and they eat all that weird food and dammit I can’t read the signs over the stores that cater to their consumption! So illegal immigration gets lots of attention, but the complete shambles that things like Medicare are in are just ignored. If we could just stem the flow of illegals why economic nirvana would result. Americans would go back to hanging drywall, mowing their own yards, and chopping up chickens. I’m even sure that controlling the U.S.-Mexico border would reverse the global downward trend in manufacturing employment.[/sarcasm]

In short, I see all this handwringing about the U.S. becoming part of Mexico as nothing more than misplaced priorities by people who seem deathly afraid of people who are different than them. The response to the charge of racism is often, “It isn’t racism! We just oppose illegal immigration. And the costs are real.” Sure the costs are real, but they are much smaller when compared to other issues such as Medicare funding. And sure illegal immigration isn’t a good thing, but instead suggest a guest worker program (i.e. make those illegal immigrants legla) and you still get the howling. So both objections, IMO, while technically true are just rhetoric to deflect criticism and hide the rather disquieting aspects of the illegal immigration movement.
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1This number is from Jagadeesh Gokhale’s testimony. It isn’t explicit, but I think that number looks at the net present value of the prescription drug program in perpetuity (basically forever). There is not a similar calculation for immigration, but I would imagine that if such a calculation were done the number would be much, much smaller like by a factor of 10. The reason is that prescription drugs are expensive and going to get even more expensive as the U.S. population ages. In fact, we might want more and more young workers from south of the border simply to shore up these fiscally reckless policies.

FILED UNDER: Economics and Business, National Security, Race and Politics, Steve Verdon, US Politics,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research.

Comments

  1. By the same line of reasoning, why did we bother with the WTC attack. If you compare the number who died to the number who died in 2001 (2416425 source CDC) to the number killed in the WTC II attack (2986) its only 0.12%. Surely this country could shrug off such an attack. We lose about 11 times more people due Septimocia every year.

    Saying that its a small problem so you can only care about it if you are a racist or not enough of a wonk to worry about other bigger issues is not a persuasive argument.

    Look at your own example. In 10 years, the number of illegals grew 4x. Go out another 10 years and an $80 billion a year problem could become a $320 billion a year problem. Go out another 10 years beyond that and we are at $1.2 trillion. Of course we can’t just project the number of illegals will quadruple every 10 years. But even if it got no worse, the $80 billion over the 75 years of the medicare example is $6 trillion. Surely that doesn’t stay in the range of ‘chump change for you. Should we wait to see if it takes care of itself or try to take care of it as a small problem. We tried to take care of immigration in 1965 when it was a small problem. It got worse. We tried to take care of it as a still manageable problem in the 80’s. It got worse. The problem doesn’t seem to be taking care of itself.

    Just because it doesn’t happen to be your favorite policy wonk issue doesn’t make it a stupid issue. If a country can’t secure its borders is it really a country? If you make it hard for legal immigrants to get in who want to assimilate to your culture and its easy for illegal immigrants to get in who act more as colonists (wanting to import the old country as opposed to assimilate into the new country) guess which group of ‘immigrants’ is going to dominate.

    The howling on amnesty is that 1) we tried it, 2) it didn’t work because the “one time” amnesty program seems to not be just one time, 3) the amnesty program is likely to draw more people in illegally in anticipation of the next “one time” amnesty program if we don’t first figure out how to prevent that, 4) we wouldn’t be keeping faith with those who did the hard work of jumping through our bureaucratic hoops to get her legally and 5) what would the unintended consequences in attracting people from all over the world to come here, overstay their tourist visa, pay $3,000 in fines and taxes and become US citizens. How many people around the world would like to take that deal?

    You usually have a clearer head than this when you make an argument.




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  2. Frank the Crank says:

    I don’t think it’s so much about racism as it is about culturalism.
    For better or worse American culture has led us to be the last remaining superpower and an economic powerhouse unlike any other country in the world. Sure, we’re messed up in some ways, but mostly when you compare our present state to what our potential is as a country. Compare us to other countries however, and we look pretty damned good.

    In previous generations, immigrants took great measures to adapt to that American culture, become part of it, and add to it’s success. That recipe has worked for generations of Italians, Dutch, Germans,Irish and many more. It’s also worked for the country.

    The immigration of Hispanics over the past two decades has been different. They (not all of course) seem to have no interest in being part of the American culture. They hold allegiance to their former countries, and insist that we adapt our culture to make it easier for them to work here. I don’t consider seeing an immigrant waving a Mexican flag as part of “chasing the American Dream”. They don’t want America, they want an easy access to our economy.

    My question is, if these “immigrants” are so important to our economy, if they are what makes our engine run, then why isn’t the engine of Mexico running as well? With all of those great workers laying around in Mexico at their disposal, you’d think Mexico would be a powerhouse themselves. The difference is their culture, and I personally don’t want to have to change our culture to be more like theirs for fear our country might become more like theirs.




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  3. Steve Verdon says:

    yetanotherjohn,

    Your extrapolations based on that short of a dataset is rather dubious. The Medicare numbers on the other hand have a much longer data set and are based not on wishful thinking, but some pretty rock solid demographic projections: There are x babyboomers, so we should expect to see a*x retire and start using Medicare and Social Security (where a is less than 1 greater than 0).

    My problem with the apparent racist tone of the debate is that these numbers are often unstated by the other side. Why? If they are such a big deal, then tell us what the numbers are. Either they don’t know and they are bloviating out of ignorance, or they do know and realize that they don’t add up to what they are bloviating about. Either way is dishonest, IMO.

    On top of it, when we put these numbers in context the problem takes on a much less significant appearance than many claim. $80 billion at worst is nothing, we waste something like 4x that money every year preparing our taxes.

    As for 9/11, I do see a difference between killing our citizens and imposing some additional social costs due to being low income. Reducing everything to dollar terms strikes me as rather inappropriate, but if you are going to do it…give us the numbers so we can make informed decisions and stop the demogoguing.

    As for the $6 trillion you forgot to discount back to the present value. That would have a very significant effect in terms of reducing the total costs (my guess is it’d cut the costs by over half). If we went with the more reasonable estimate of $50 billion the numbers are even smaller.

    As for one time amnesty, I don’t think I used the words “one time amnesty”. I’m thinking of a guest worker program. That is, make it easier to enter the country legally (vs. illegally) and you’ll get back control of the borders, get more tax revenues, and so forth. As for the current set of illegal immigrants here, one could either work at deporting them or bringing them into the guest worker program. So you entire “one time” argument is irrelevant, IMO. As for the fine, I’d say make it larger as well to disuade people form making that kind of cost-benefit calculus. Make the fine $30,000 (or higher) or deportation and then you could get a different result.

    You usually have a clearer head than this when you make an argument.

    Considering you are staking out positions for me that I don’t hold, this conclusion is trivial and false.




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  4. Jonk says:

    Steve, you need to take a close look at local economies. Take a look at the Rhode Island economy…it is dying, being crushed under entitlement programs that have grown 83% (over ten years) to well over a billion dollars a year — more than 30% of the state budget, with no end in sight. The race card is instantly played if you even dare to talk about bringing it under control. Add to that, teachers unions (which basically run things in the State House) don’t want the problem addressed as their budgets are linked to enrollment numbers, which would shrink by more than half (as well as their budget) if the illegal issue was actually addressed.




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  5. Steve Verdon says:

    By the way, did you stop and think that perhaps this is the nut of the problem,

    If you make it hard for legal immigrants to get in who want to assimilate to your culture and its easy for illegal immigrants to get in who act more as colonists (wanting to import the old country as opposed to assimilate into the new country) guess which group of â??immigrantsâ?? is going to dominate.

    Make legal immigration easier, and it will have the added benefit of making illegal immigration relatively more costly.




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  6. Steve Verdon says:

    Jonk,

    I see all of that as a problem with the welfare state and at best tangentially related to the immigration issue.

    Frank,

    I found your post rather disturbing.

    The immigration of Hispanics over the past two decades has been different.

    As I said, xenophobia–i.e. “they” are different. I’m no historian, but I bet if we looked we’d find that assimilation takes at least a generation or two. So, is it surprising that some people still wave around the flag of their home country? No. Does it bother me? No. It is part of “our” culture to allow freedom of expression.

    My question is, if these â??immigrantsâ?? are so important to our economy, if they are what makes our engine run, then why isnâ??t the engine of Mexico running as well?

    Actually I haven’t said they were important to our country. In fact, this posts notes that illegals are, if anything, most likely a drag, though not a huge one (relative to other problems).




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  7. Frank the Crank says:

    So, is it surprising that some people still wave around the flag of their home country? No. Does it bother me? No. It is part of â??ourâ?? culture to allow freedom of expression.

    We allow freedom of expression? Thanks for the update.

    Seriously, I’m not advocating not allowing people to express thier feelings. I am however, wary of those folks marching by the millions in the streets “expressing” their feelings that America should give Mexico thier land back.(perhaps you didn’t see the news last week??)

    Hispanics have been immigrating to America for two hundred years, it’s only recently that the immigrants ( since Reagan’s “amnesty” ) that many of the immigrants have made no attempt at becoming part of our country.

    I know of plenty of Hispanics that are American, and they are as concerned about this as I am. This ain’t xenophobia, this is about tyring to preserve the American way of life, which is what draws all of the immigrants here in the first place.




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  8. My point on 9/11 was not comparing dollars but lives. Why did we make such a big deal about something when we lose 11 times as many people due to septimocia. The link between your to arguments is the proportionality argument. You point that the net cost is only 0.64% of our GDP, therefore it is not a big deal (or ‘chump change’ in your parlance). That same proportionality argument would apply to the WTC II attack. Was our focusing on something that was only 0.12% of all deaths for the year a “misplaced priority”? Sometimes the issue is not can we afford it, but rather should we afford it.

    If you think that the only is is the net cost, then I think you are wrong. If the only negative was the net cost, then I could make a great argument that the 0.64% of our GDP that we would spend on illegal immigrants would possible be a good investment for the 3% of the Mexican GDP that helps stabilize that country. http://www.dallasfed.org/research/swe/2006/swe0601c.html

    But the issue is not just the cost. As I and other commenters have pointed out, there is a huge difference between an immigrant who wants to assimilate and one who does not want to assimilate. The commenter who excused this as only being a first generation phenomenon doesn’t seem to be familiar with the organizations and signs that were claiming the land was not part of the US, but rather belonged to them and the US citizens living there are the interlopers.

    If Al Qaeda states California, Texas, Arizona, New Mexico were all part of the Caliphate, had 500,000 people march in LA carrying signs saying this land belongs to us, would we just say “wait until the assimilate”? Now Al Qaeda has shown they are much more prone to violence, but as Europe has shown, just because the initial immigration was not accompanied by violence, that doesn’t guarantee future peacefulness. Do you have any data that says there is no reason to fear a repeat of what is happening in Europe? Is it just possible that it is not a “misplaced priority” to want to do something about the problem now while it is smaller and more manageable?

    I agree that one questionable study and some current estimates showing a 4x increase is not nearly the data set we have on Medicare or SSA. Its not nearly as wonky an issue. But think about your own numbers. Is the net cost linear? Is there an exponential aspect to it so that 4x the number of people produces a 16x cost. Maybe it actually declines. We don’t know. You don’t have the data showing it. It maybe a much worse problem than you portray. I can’t prove it one way or another, but I suspect you can’t either. Again, just because an issue is not wonky enough to have lots of charts and graphs doesn’t mean it isn’t a problem. The one set of seemingly hard numbers is a 4x growth in the number of illegal immigrants.

    And no you didn’t use the term “one time amnesty”. But that was how the last discussion on what to do with illegal immigrants in our midst was portrayed. I’m sorry if you don’t have enough background on the issue to follow the references.

    I agree that the growth of entitlement spending is a real issue. SSA and medicare will create a crisis in a few years. The failure for us to act on them now will only make the problem worse. But you have failed to show that it is an either or situation. Do you have something to back up the idea that we would be tackling the medicare shortfall if we just were “misplacing our priorities” on the immigration debate? Is there something about them that they can’t be solved separately? Could polls showing that 2/3+ of Americans consider this a major issue possibly have something to do with congress considering the issue? Ideally, lets solve both problems. But the reality of politics says that with the failure to achieve reform on SSA last year, we aren’t likely to see reform on it or medicare this year. So if we worry about any problem that does not show a larger monetary cost is the only conclusion that we have “misplaced priorities”?

    Sorry, I still think you don’t understand the whole issue and are accusing others of closet racism because it doesn’t happen to be your area of wonkiness.

    We see an increase in the number of illegal immigrants by 4x, have them march in our streets in large numbers with signs saying that they own the place not the US citizens and all you can say is it is a “misplaced priority” because there are other problems that may or may not have a larger net cost involved is not persuasive to me.




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  9. floyd says:

    the issue is still national soveriegnty.tossing derogatory epithets won’t change that.




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  10. Steven Hashim says:

    I feel this immigration debate is missing the whole point. The bottom line is that the United States would be broke without immigrants. Who would work at McDonalds, landscape, do janitorial work, work in factories, paint houses, etc. My point is that the majority of the manual labor jobs demanded in this country are done by immigrants. Without immigration who would have done these low wage, manual labor jobs that allowed our economy to prosper. There is definitely not enough American born citizens that would be willing to do these jobs at their current wages. This would create an under supply of workers in relation to the demand for these workers. If demand stays where it is, wages for these low wage jobs would have to go up. This would cause less liquidity in the middle class causing a demand for higher wages, and so on. Through fundamentals, this would eventually lead to inflation, supposedly the Fed’s biggest enemy. If immigration was actually made “illegal” and low wage labor is still in high demand, the ripple effect would not be sustainable. As long as the United States has a demand for low wage jobs, it will have a demand for immigration. As long as the US dollar is strong in comparison to the native countries of the immigrants the demand will be even stronger. The furthest the Government can go is to implement laws which control the process of immigration to make the process more efficient, but in the current labor system our economy depends on, immigration is an unavoidable necessity.

    Another thought on the subject:

    With the speed of technology growth, it seems logical to believe in the possibility of technology, being more efficient and at a lower cost, replacing a majority of the low wage jobs. Depending on how fast technology moves, when this replacement occurs, we are talking a whole different ball game. Consolodation, efficiency and low cost currently seem to be driving business decisions, this replacement sure would follow the theme.




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  11. Steven,

    You are right that there aren’t enough US citizens to do the jobs at the prevailing wage. But that doesn’t mean they wouldn’t get done. I suspect that if you raise the wages enough, you could get people to do the jobs. Or the raised wages may force a change in productivity assets that change how things get done (ever notice how you are pumping your own gas, but it didn’t use to be that way?).

    Right now there isn’t an incentive to add capital assets to replace the manual labor. But that doesn’t mean its a static world as you point out.




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  12. Jonk says:

    bah.




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  13. More on Immigration…

    Steve Verdon has an interesting post in Outside the Beltway that reflects a lot of my concerns on the question of “illegals.” Please note that I do not regard all those who advocate sealing the borders as racists, but I……




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  14. Illegal alien debate – respect and disrespect for Rule of Law, and costs to America beyond the tangibles…

    As the compromise between Senate and House on the bill ostensibly “handling” illegal immigration collapses, I want to revisit some of the arguments in this debate which I believe have a tendency to downplay the seriousness of illegal immigration. Lit…




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