The Naked Economist on Illegal Immigrants

Charles Whelan, The Naked Economist, writes the following about liberalizing labor markets,

Should we liberalize labor markets, so that workers can more freely cross international boundaries?

My answer: Yes. I find it hard to justify criminalizing anything that I would do myself. If I were poor and trying to raise a family in Mexico, I would do anything to get to the U.S. — legally or otherwise. Capitalism is all about rewarding those who are willing to work harder or cheaper. Why is labor that crosses an international border any different?

When we buy a cheap stereo from China, that’s globalization. When we give the kitchen remodeling job to the lowest bidder, that’s competition. When some guy from El Salvador offers to cut the lawn cheaply, that’s illegal. To an economist, it’s just another voluntary transaction that makes both parties better off.

Yes, we need to police the borders — for terrorists, not cheap poultry workers. You can reasonably disagree with me, but you must concede that I’m the one advocating the “free market” outcome in this case and you’re not.

Which is exactly right. No matter how much you spin it, the idea that we have to keep out illegal immigrants to protect American workers is not a market based solution. In fact, it is exactly the opposite. We can bring in Treasury Secretary Paulson’s comments to underscore what is going on,

When special interests seek protection in the name of low-wage workers, we should acknowledge that limitations on imports do not benefit the vast majority of Americans. They deny people the freedom to choose from a broader array of goods and services, and impose a cruel tax on people who rely on low prices to stretch their family budgets. The cost of protectionism falls most heavily on those who are least able to afford it — the poor and the elderly.

When you buy a stero made in China or some other country you are in effect purchasing some of the labor from that country. Why should illegal immigration be different at least as far as labor markets are concerned? We could make the exact same arguments for prohibiting the purchase of foreign made goods as is often made for purchasing labor from illegal immigrants. The problems with social services while valid, is another issue. Personally, my view is that if we didn’t offer these social services at all that would solve most of this objection. Of course, the problem is that most Americans love these subsidies/forms of welfare, so they aren’t going anywhere any time soon.

FILED UNDER: Economics and Business, 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. He joined the staff at OTB in November 2004.

Comments

  1. RJN says:

    Steve, you are saying that citizenship means nothing. You are saying that “social contracts” mean nothing. You are saying that we, as a people, with a past, can not arrange our own governance but, must instead accept whatever any peoples outside our borders say we should.

    Crap.

  2. Steven Plunk says:

    I come from a family of migrant workers who faced discrimination and harassment by government officials all because they crossed borders to seek work and a better life for themselves. They worked hard and eventually became part of the place where they settled. They were Okies who settled in California and Oregon. How can I look at my families past and not be sympathetic to those outside another border who wish the same opportunity?

    This does not mean we open the borders and create havoc. It does mean we should look at this situation more reasonably and rationally.

    Through trade agreements capital and goods flow across the borders freely but labor can’t. Recognizing this is a first step among the many steps we need to make in order to fix the problem.

    RJN’s point about citizenship is well taken. The solution is to make these people part of the community through assimilation, the melting pot, rather than continuing to isolate them.

    For many emotions are driving the debate and we know that is just the wrong way to do it.

  3. M1EK says:

    Also, allowing illegal immigration (which artificially increases the supply of labor) is effectively gaming the market system in favor of capital, which makes it disingenuous to later claim to simply be in favor of free-market economics. When you bring a bunch of people from outside “the market”, you’ve changed the rules of the game.

  4. I think you have a point, but don’t fully tie it together. How is buying a cheap stereo from China different than hiring a guy from Mexico to cut my lawn because he is cheaper? The answer lies in two areas that you touched and a couple more that you didn’t.

    1) Security.

    We don’t allow nukes or tanks to be imported from China, while we allow stereos. What is the difference? Security issues. As you say, this could be accommodated by policing the border for terrorists (or criminals). But what you leave out is the details for that. Imagine a truly open border. How many in Mexico and parts south would want to cross? How many from Africa, Asia, Eastern Europe, etc. Now think of that flood and say that you are going to sieve out the terrorists. I’m not saying its impossible, but excuse me if I would like to see some details before I support just opening up the border.

    2) Social services.

    As much as the left thinks we don’t do enough, we actually do a lot on social services. Think of that flood described above. Think of what that does to the infrastructure (everything from schools to sewers). How does it impact public health (not just in direct health care, but bringing in epidemics like the AIDS epidemic in Africa). While one solution is to say we will stop the hand outs for all, some of those things (like roads) are part of what civilization needs to operate. Public schools are already not in the best of shape (and an entirely separate discussion as to what to do about it), but imagine that flood of immigrants children being dumped into the mix. Again, I would like to see more of a plan than “Don’t offer these social services at all”.

    3) Culture.

    The flood of truly treating workers like commodities that should flow freely across the border would also have a huge impact on all of our social institutions and contracts. The US has some history in handling sudden influx of people who are “different” (e.g. Irish need not apply). Since my grandfather was an immigrant, I freely acknowledge I am a beneficiary of the culture of assimilation that takes people in from around the world and makes them and their children Americans. But if you just open the flood gates, that change could be more than our society could tolerate. Especially if you acknowledge that a truly open border would be attractive to so many people that we literally could double or triple our population in a few years if there really was no border hindrance. While the flood may very well stem and indeed reverse because it ruined what was making this country attractive, I’m not sure I want to run that experiment to find out or live through it even if we knew that would be the outcome.

    4) Unintended consequences.

    Whelan noted that if he was in Mexico, he would be doing anything to get to the US. And he is right. The many of the best and the brightest would be trying to get to the US. Knock down the border and much of the cream of that country flows to the US. Now that can be argued as a good for the US and I think a goodly part of what makes the US different is because a lot of the genes in the country comes from those who self selected to come here. But what happens to the countries that sees a large portion of their self starters leave?

    But how do you distinguish between freedom to trade in goods and freedom to move as people? One aspect is that the trade in goods helps to alleviate the problems from above. At one point, we had a very open border with Canada. On both sides of the border, I could cross by just saying I was a US citizen and was just visiting. I remember once getting a funny look (and extra scrutiny) because I handed the US customs person my US passport when I was crossing between Detroit and Windsor. I didn’t know how open the border was. I once crossed with a man wearing a gold Nehru jacket and a gold medallion that was about 4″ in diameter saying “Nixon ’72” with no more trouble than having to elbow him in the ribs to answer when the Canadian border guard asked him if he had any weapons (he replied “Not on me, do I need one?”). But why were we able to have such an open border with Canada and not see them flood into the US? Because Canada was close enough economically to damp down the flood. And free trade in goods helps to build up both economies to make that open border more feasible.

    That doesn’t mean things are perfect. We could use more free trade in goods (e.g. agriculture). We aren’t doing well with the shadow world of illegal immigrants (we want the benefits of the cheap labor with out the flood, so we have a nether world for them). We don’t do that well in truly securing the borders from a terrorism point of view (e.g. the 9/11 bombers certainly got through). And we certainly can do better on who and how easily we let people legally in the country (e.g. change from priority on reuniting families and move to recruiting for capabilities). But just because the current system is less than perfect does not mean I have to either repudiate my advocacy of free trade in goods or adopt a position that acknowledges no limits on freedom of movement for people.

  5. superdestroyer says:

    What do “conservatives” think will happen with open borders, unlimited immigration, and the welfare state the is being proposed by Senators Obama or Clinton. They will tax away the vast majority of wealth from native born Americans in order to pay off the heavily Democratic voting Hispanics.

    The only question then will be where does my family immigrant to get away from the high crime, high taxes, and lousy living conditions?

  6. ken says:

    The problem with Steve is that everything to him is viewed through the twisted ideological lens of conservatism.

    So, to Steve, a citizen should be grateful for saving $300 on a stereo, thanks to free trade, and ignore the $1,000 drop in income, also thanks to free trade.

  7. James Joyner says:

    So, to Steve, a citizen should be grateful for saving $300 on a stereo, thanks to free trade, and ignore the $1,000 drop in income, also thanks to free trade.

    But, of course, the stereo isn’t the only commodity whose price is lowered by free trade. If, in arguendo, foreign labor reduced the price you could charge for your labor by $1000 annually, but foreign goods reduced the cost of the goods you buy by $2000, you have gained an increase of purchasing power of $1000. As a bonus, poor people abroad are $1000 less poor.

    That’s win-win, no?

  8. RJN says:

    “The problem with Steve is that everything to him is viewed through the twisted ideological lens of conservatism.”

    Pat Buchanan is a conservative. Here is a link to what he thinks of this subject.

    http://www.humanevents.com/article.php?id=19590

  9. RJN says:

    James: You are ignoring the disabling stress faced by so many lower wage Americans. The lower third, or so, of our working citizens – those whose fathers and grandfathers worked so hard for this country – are being systematically separated, economically, from the rest of our country.

    By the way; what happens when a biological cell wall ruptures, or is penetrated?

  10. Steve Verdon says:

    RJN,

    Steve, you are saying that citizenship means nothing. You are saying that “social contracts” mean nothing. You are saying that we, as a people, with a past, can not arrange our own governance but, must instead accept whatever any peoples outside our borders say we should.

    No I didn’t. I was merely pointing out that reforming immigration laws to allow for greater freedom to transact in the market place is the “pro-market” stance. Disagree with it if you want, but please don’t make sh*t up.

    M1EK,

    When you bring a bunch of people from outside “the market”, you’ve changed the rules of the game.

    This same argument can be applied to foreign made goods.

    YAJ,

    1) Security.

    Sure, and I’m in favor of changing immigration laws to improve border security. Trying to close off the entire U.S. border just isn’t going to happen.

    2) Social services.

    And immigration laws and labor laws can be changed to deal with this. Further, these are policies we’ve put into place and can be changed. That there isn’t the political juice to change them suggests that you (and me) are just SOOL on this.

    3) Culture.

    America has had a history of lots of people from different cultures coming here. Yet many of the things that make American America are still unchanged.

    4) Unintended consequences.

    Sure, there is this problem, but historically freeing up markets usually increases welfare vs. decreasing it. I mean seriously, are you really advocating Statism and Totalitarianism to keep out those foreigners?

    Superdestroyer,

    What do “conservatives” think will happen with open borders, unlimited immigration, and the welfare state the is being proposed by Senators Obama or Clinton. They will tax away the vast majority of wealth from native born Americans in order to pay off the heavily Democratic voting Hispanics.

    Strawman; I see nothing indicating that there should be “open borders”.

    ken,

    The problem with Steve is that everything to him is viewed through the twisted ideological lens of conservatism.

    Which is why the conservative posters are attacking me. In the words of the great Inigo Montoya, “I don’t think that word means what you think it means.”

    So, to Steve, a citizen should be grateful for saving $300 on a stereo, thanks to free trade, and ignore the $1,000 drop in income, also thanks to free trade.

    Funny, here we have ken, RJN, superdestroyer and YAJ all on the same page when it comes to immigration. I’m thinking that ken is highly confused…must have missed that first cup of coffee.

    RJN again,

    You are ignoring the disabling stress faced by so many lower wage Americans. The lower third, or so, of our working citizens – those whose fathers and grandfathers worked so hard for this country – are being systematically separated, economically, from the rest of our country.

    This is just nonsense since the same argument can be made against modernization/technological advancement. Are you really a Luddite RJN? Should we stop scientific research lest it lead to break throughs in things like nano-technology that creates lots of unemployment for low wage workers, maybe even mid to high wage workers?

    In fact, I be willing to bet that more people have lost their jobs to technological advancement, mechanization, and so forth. Hell, hundreds of women mathematicians were put out of work with the advent of the mechanical computer. All the human computers (the women mathematicians) lost their jobs. What a Hell that must have been. Why our society has never recovered. And the assembly line? Another serious economic blow to the country.

    And getting to James’ point about the stero and incomes. What if the Stero costs $1,400 without free trade and no immigration and your income goes up by only $900? You are down $500. In short, the idea that Americans, in general, are going to be made worse off is an empirical question, and a question those opposed to immigration haven’t really tried to answer save anecdotally.

  11. LaurenceB says:

    I guess someone has to be on Steve’s side this time, so I guess I’ll be the sacrificial lamb.

    Steve’s absolutelty right.

    The true market capitalist is in the unique position of being able to offer a viable, effective solution to the illegal immigration problem: Namely:

    Increase the immigration quotas and let them immigrate legally.

    Obviously, nativists who are defending “our culture” (e.g. Buchanan) hate this idea. But for the rest of the Libertarians, this makes sense.

  12. ken says:

    If, in arguendo, foreign labor reduced the price you could charge for your labor by $1000 annually, but foreign goods reduced the cost of the goods you buy by $2000, you have gained an increase of purchasing power of $1000. As a bonus, poor people abroad are $1000 less poor.

    Sure, if…..

    But that is not what has happened. Incomes have fallen and overall prices have actually risen, even with the offset of cheaper goods made overseas. After you buy your cheap stereo, a few shirts, and a pair of sneakers, all made overseas, there still is housing, utilities, insurance, food, and other necessities to pay for. All of which are going up in price.

  13. RJN says:

    Steve: Stuff the phony Luddite smear. You are ignoring the fact that losses of jobs to technological advances – the buggy whip syndrome – in the old days meant that the new jobs stayed inside our borders, and that our workers would upgrade.

    Your “One World” Cato mindset is destructive to the U. S. We, in the goodness of our hearts among other reasons, accepted many job losses to Europe, and Japan, and the Far East after World War II. We understood, then, that the countries of these regions would prosper, and raise their living standards, and we would then regain a competitive balance.

    Now is different. Now there is an almost unlimited supply of cheap manpower available to sink our workers deeper into hardship. Now it is international corporations, who fund spokespeople like you, who are the engines propelling us into financial disaster. They don’t care about us, or our national cohesiveness.

  14. Steve,

    Rough guess, how many people do you think would come to this country assuming absolutely open borders (other than security)? You seem to ignore my entire argument. My guess is we could easily see 300 million immigrants in less than 5 years. If you think it would only be 3 million, then I agree, open the border. If you look at the cost people are paying smugglers to get here, then reduce that to a bus/ship/plane ticket, then I think the suppressed demand is in the 100’s of millions of people who would want to come here. So how many do you think would want to come to the US if we had the totally open borders you advocate.

  15. Dave Schuler says:

    I’m puzzled about the reaction to Steve’s post. As I read it all he’s saying is that the free market position WRT to immigration is open borders. I don’t read him as saying that a free labor market is the only good or even the highest good.

    The position seems obvious to me.

    However, I also think that the citizens of a country have the right to decide that they’re willing to trade a little bit of economic welfare for other things they think are good and IMO that’s a perfectly good argument for restrictions on immigration. What those restrictions should be and how strict they should be is another question entirely.

    If I were poor and trying to raise a family in Mexico, I would do anything to get to the U.S. — legally or otherwise.

    I wonder how Mr. Whelan would view the situation if he were not poor. I also wonder, if he’s relatively indifferent to laws as a means of preventing people from bettering their economic circumstances, how he feels about the laws against theft and extortion.

    I think we should be a little more careful in our stereotypes about Mexico. Although the per capita GDP of Mexico is lower than in the U. S. Mexico is no longer a poor country—by World Bank standards it’s a middle class country albeit a middle class country with quite a few poor people in it. The U. S. is a rich country with quite a few poor people in it.

    My point is I don’t think we should be buffaloed into thinking that Mexico is a poor relation and treating it accordingly.

  16. Steve Verdon says:

    Rough guess, how many people do you think would come to this country assuming absolutely open borders (other than security)?

    I don’t favor absolutely open borders so this kind of question is useless.

  17. Rick DeMent says:

    Which is exactly right. No matter how much you spin it, the idea that we have to keep out illegal immigrants to protect American workers is not a market based solution.

    I guess this is a great argument if you believe that market based solutions are always the best.

  18. Steve Verdon says:

    ken,

    Sure, if…..

    Sorry ken that “Sure, if….” applies to your scenario also.

    RJN,

    Steve: Stuff the phony Luddite smear.

    No smear it was a question to highlight the sophistry of your position.

    You are ignoring the fact that losses of jobs to technological advances – the buggy whip syndrome – in the old days meant that the new jobs stayed inside our borders, and that our workers would upgrade.

    There are number of responses to this “objection”. First, the upgrading and new jobs take time when job displacement occurs because of technological innovation. You make it sound like it was painless. I doubt this was the case for many individuals/families. Second, what is to prevent this from happening with immigration? Is this some sort of appeal to permanent unemployment due to immigration? After all, immigration is where the labor moves here vs. the factory moving overseas. In both cases, the domestic workers are out of a job. Yet people don’t remain unemployed forever and they move on to other jobs.

    Now is different. Now there is an almost unlimited supply of cheap manpower available to sink our workers deeper into hardship. Now it is international corporations, who fund spokespeople like you, who are the engines propelling us into financial disaster. They don’t care about us, or our national cohesiveness.

    Please, I am nobody’s “spokes person”. And your claim that “now is different” is just specious. Technological advancement is continuous and as I’ve noted has probably displaced more workers than immigration ever has or will.

  19. James Joyner says:

    After you buy your cheap stereo, a few shirts, and a pair of sneakers, all made overseas, there still is housing, utilities, insurance, food, and other necessities to pay for. All of which are going up in price.

    Although none of those things have much to do with the issue. I’m not sure why, say, the risks faced by insurance companies are changed because we’re importing goods from abroad.

    Further, we’re living in much bigger, more lavish houses, eating more and more varied food, etc. You’re not seriously arguing that the American standard of consumption is lower than it was, say, 30, 40, or 50 years ago?

  20. Steve Verdon says:

    I guess this is a great argument if you believe that market based solutions are always the best.

    What can I say Rick, I find the statist/totalitarian solutions to be the least effective at promoting welfare. I know, call me crazy.

  21. ken says:

    James, are you being intentionally thick headed?

    Inflation is a fact, prices have been going up, not down, even with the benefit of cheaper imported goods the cost of living has been going up. That is not controversial.

    The drop in incomes attributed to globalization has not been, nor will it ever be, offset by cheaper goods provided by globalization.

    You buy only one stereo but you pay higher rent for a place to listen to it, pay higher premiums to insure it, pay higher electricity costs to play it. All the while your income keeps going down.

    That is what makes this issue relevent to so many people. People, I think, would rather have higher wages and fewer cheap commodities – commodities that they don’t even need to buy in the first place.

  22. Steve,

    Okay. I misunderstood the post. You want something between what we have now and absolutely free borders.

    So how do we decide who we bring in? Do we prioritize engineers or orange pickers? What’s the free trade argument for letting in X number, but not X+1? The devils in the detail and if this is less than a call for open borders, then the details are critical.

    The free trade argument has for the most part been about free trade. Not the first 100K cars, but as many cars as the market will bear. We may have some restrictions on class of goods (analogous to no terrorists or criminals), but quantity restrictions have tended to be viewed as something less than free trade (first example off the top of my head was the limits on the number of cars from Japan).

    But I agree that most of my objections were based on the assumptions of truly free (not just freer) movement of people. Limit the number who can come over, then with the right number we can make it work. But, what about the X+1 guy. Won’t he want to come over also? What’s to keep him from making the trip? Let me guess, we will just close the border to the X+1 guy.

  23. RJN says:

    No Steve: I don’t say now is different because of technology.

    I say now is different because we have international corporations pushing every manufactured item they can offshore, and we give other countries tax and tariff advantages against the interests of our own people.

    Now is different because we have dropped our pants, at our borders, and sold out our own population. Shame on Bush.

  24. floyd says:

    “”My answer: Yes. I find it hard to justify criminalizing anything that I would do myself.””
    ………………………………………….

    SURE! You and six billion other people!! [lol]
    ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

  25. I agree that there are no good economic arguments for limiting immigration. That does not mean that there are not other good arguments.

    The problem is that the Constitution grants automatic citizenship to anyone born in the country. This may have been reasonable when other barriers to entry were fairly high. The children of folks who risked a dangerous ocean voyage and tenuous foothold in a new country and who faced powerful incentives to assimilate have, unsurprisingly, made as good citizens as those whose parents were born here.

    I think the fear — possibly mistaken, possibly justified — that immigrants today face a much smaller entry barrier and much weaker incentive struture to assimilate should be taken seriously.

    If it were possible to set up a guest immigrant category whose children were barred from automatic citizenship (but could be naturalized by the usual process,) I could go for fairly open borders. The Constitution simply doesn’t permit it. That’s the rub, IMO.