Tag: technical progress

Immigrants from Hell

What immigration policies best serve the national interests of the United States?

Every country on the face of the earth has citizens whose intelligence, enterprise, and moral character range from 0 to 10. In poorly governed countries, we might call them “hell hole” countries, their best and brightest (the 8, 9, and 10s) often immigrate to more promising environments. The United States, with our constitution of liberty, has attracted a disproportionally large number of them. This is a dominant factor in the economic success of America and our spirit of individualism and enterprise. https://wcoats.blog/2010/06/10/a-nation-of-immigrants/

Just as individuals and companies compete in the market place to maximize the reward for their efforts (those who serve the public best, profit the most), so do the countries of which they are a part. When and if individuals and companies are given the chance to protect themselves from and restrict such competition they generally take it. Free (i.e. competitive) markets rarely offer such opportunities but governments often do. Governments claim to restrict competition to protect consumers or protect jobs from cheap foreign labor, etc. But more often than not government measures to interfere in the market are the result of political pressure to serve and protect special interests, what most of us would call corruption. Examples of government measures to protect companies or individuals from competition include: import tariffs, teachers’ unions that protect the jobs of bad teachers, excessive product safety standards that foreign competitors as well as domestic start-ups find hard to meet, and restrictive professional licensing through which medical doctors (to name just one profession) have limited who and what medical services can be provided.

The government’s regulation of who may immigrate temporarily or permanently is another area heavily influenced by individuals and companies seeking to protect themselves from competition. Subjecting American firms and workers to competition from foreign firms and workers (either from “cheap” foreign labor making it there and exporting to us, or immigrating and making it here), promotes long run economic growth.

Immigrants don’t take existing jobs from Americans; they create new jobs needed to pay for the consumption they add to the economy. While it is true that a firm can profit more with a monopoly by charging more by supplying less, the income of the nation as a whole suffers when supply is monopolized. Thus while worker and firm monopolies (e.g. the United Auto Workers, and uncompetitive steel manufacturers protected by import tariffs on potential competitors) will increase worker and firm incomes in the short run, the country would be poorer than otherwise in the long run. If we closed the border to trade all together, the country’s income would suffer considerably in the long run.

In this note I review a few immigration issues from the perspective of what policies best serve the national interest. By national interest I generally mean policies that best promote broadly shared economic growth. The self-selection of the best and brightest from around the world to immigrate to the U.S. in our earlier history clearly helped make us the prosperous nation that we are today. Our poorest citizens live better than the average citizen in many of the world’s poorer countries.

Attract the best and the brightest. To continue our past history of attracting the best and the brightest from around the world, our immigration policy should favor admitting the most talented and those with the work skills most needed. If we do not continue to attract and admit them they will go elsewhere boosting the economic fortunes of other (competitive) countries. “Immigration-is-practically-a-free-lunch-for-America”

Of the approximately one million foreigners given permanent residency each year about 70% are extended family members of existing permanent residents. These are the parents and grandparents and aunts and uncles of existing citizens or green card holders most of whom do not intent to work and/or do not have skills relevant to our labor markets. From a given total of immigrants the extended family preference crowds out workers. If we want to promote faster economic growth, we should pull the family preference back to the nuclear family (spouse and children) and keep or increase the total number of immigrants allowed each year thus increasing those coming to work.

Attract the best and the brightest. Similarly we should replace the existing green card lottery with merit based selection criteria (i.e. with H-1B visas, which are currently limited to 85,000 per year). The green card lottery, which provides 50,000 immigrant visas per year from countries with a low number of immigrants over the preceding five years, is meant to increase the diversity of countries from which people immigrate. Such country quotas, even if immigrants from each country are accepted on merit rather than luck, diminish the average skill levels from a global total without diversified country quota. A case might be made, however, that America’s interests are served by the good will gained when citizens of a large number of countries have a better chance of immigrating to the United States.

Help those displaced. While increased worker productivity increases our standard of living, it also causes some workers to loose their old jobs and to acquire the new skills needed for the evolving work place. While some of these dislocations come from the competition of global trade, most is the result of improving technologies that increase labor productivity and from changes in consumer tastes. These costs, which fall on a few for the benefit of many, must not be minimized or ignored.

Many of us are no longer such big risk takers as were our ambitious ancestors. We prefer a bit more security at the expense of increases in income. In any event we need to provide an effective and efficient safety net for those of us whose skills are no longer appropriate in the labor market while retraining for the new jobs that replaced the old ones. Very importantly, a public – private partnership should improve the targeting of training of new entrance into the labor force for today’s and tomorrow’s needs and to better support the retraining of those already in the labor force but in no longer needed occupations. This is a reasonable price to pay by the rest of us who benefit from the raising living standards of improving productivity.

Restore the rule of law. There are 11 to 12 million illegal immigrants living in the United States. It is not in our national interest to go on ignoring the law. But it would be devastating to our economy (to the firms that employ them) and to the personal lives and welfare of these people to expel them even if we had the military/police capacity to do so. So the laws defining their status must be changed. There is almost unanimous agreement that the Dreamers (those brought into the country illegally as minors) should be given legal status (permanent residency) but less agreement about citizenship. In my opinion, all illegal immigrants who have been here for more than say five years and have not been convicted of a felony should be granted permanent legal residency. However, to become citizens they should be required to go through the same process and procedures as anyone else applying for citizenship (though from their American residence). https://wcoats.blog/2017/02/12/illegal-aliens/

Trade and Globalization

Specialization and the accompanying astounding development of productive technologies have lifted the standard of living around the world to unbelievable heights over the last three centuries. Trade—selling what we specialize in making and exchanging them for the wide range of things we need and want to consume—has made this possible. The pace of wealth creation and poverty reduction has accelerated in the last half century as the size of the markets in which we trade have expanded rapidly with falling costs and barriers to global trade. https://wcoats.wordpress.com/2014/12/18/free-markets-uber-alles/

But new technologies that displace older ways of doing things require workers and firms to adapt. New skills must be learned to replace the old, no longer needed, ones. Americans have been particularly adept at such flexible adjustments and thus have experienced greater increases in wealth and living standards than most other countries. No pain, no gain, as we might say.

Workers and firms have tried from time to time to defend their positions from the competition of other workers and from firms with newer and better technologies. Protectionist tariffs enacted to “protect” American jobs in 1930 deepened and prolonged the Great Depression. The closed shop autoworkers unions in Detroit seriously damaged the American auto industry. But generally Americans pushed aside these restraints on free markets and trade to the huge benefit of the population as a whole.

Nonetheless, such competitive advancements in our ability to produce more and more did require those with outmoded skills to acquire new ones. When the pace of innovation was measured, the required adjustments by workers and firms were easier to make. Younger workers would acquire the new skills from the outset while older ones would eventually retire. The turn over of firms, even very large and well established ones (Dell, Polaroid, Kodak, Motorola, Chrysler, Yahoo, etc.) has always been large in the U.S., continually making way for new and better ones.

The last half century has seen a rapid increase in the expansion of markets – globalization. While this increased competition and innovation has reduced poverty in the world at a never before seen rate, it has also increased the numbers of workers having to give up the skills they had refined and acquire new ones generally requiring a higher level of education. These adjustments have often been difficult for those having to make them, especially for middle aged and older workers. We seem to be experiencing a backlash from those forced to adjust.

“The experience of the past quarter century suggests strongly that the central factors of our era are not nationalism or militarism, but rather the two periods of radical change stimulated by technology and innovation during not one but two Industrial Revolutions. The first one began 175 years ago; the second, the information age, has now lasted about four decades.”[1]

Immigration is an aspect of globalization and the wealth creating impact of free trade. It raises similar but even more challenging tensions between freedom and progress and security and protection of the status quo. It also calls for careful management of the pace of immigration to soften the anxieties of potentially affected workers.

More liberal trade agreements facilitate globalization. Ironically President Obama, who opposed the trade agreements on the table when he first ran for the Presidency is now fighting for the adoption of the Trans-Pacific Partnership (TPP), while Hillary Clinton, never one to put the national interest above her own, who as Secretary of State helped start the TPP negotiations, now opposes it. And Donald Trump, who shouts out what ever passes through his mind at the moment, is currently strongly protectionist (i.e. protecting the status quo).

Rapidly increasing globalization has enabled an incredible lifting of living standards but has also increased the insecurity and costs to those displaced and needing to seek out new employment. We need to provide more effective assistance to these people. This should be the focus of our policy discussions, not closing off progress (protectionism).

[1] John Kornblum, “The Amerexit,” The American Interest, July 25, 2016