The economics of immigration policy

in #immigration2 years ago

In the latest "wait, what?" move from the current American President, apparently the US is going to impose a tariff on all goods from Mexico, its second-largest trading partner, until Mexico "does something" about the illegal immigration problem along the US-Mexico border.

Let's leave aside for the moment that it's almost certainly just a distraction from something else.

Let's leave aside for the moment that, just like the Chinese tariffs, it's almost certainly going to do as much if not more harm to US companies than to Mexico, especially as many companies were in the process of moving manufacturing from China to Mexico.

Let's leave aside for the moment that illegal immigration has been declining for years, since long before Trump was in office.

Let's leave aside for the moment that illegal immigrants make up only about 3% of the total US population.

Let's leave aside for the moment the racist attitudes and beliefs behind much (although not all, I would argue) of the anti-immigration movement, and behind the entire Trump foreign and immigration policy positions.

Leaving all of that aside... it's still incredibly stupid. Assuming for a moment that your goal is reducing immigration into the US, for whatever reason, basically everything the Trump administration and its supporters propose to do is wrong and counter-productive toward that goal.

The core problem is supply-side economics.

Supply-side economics

Supply-side economics is the economic theory that prosperity comes from increasing the supply of goods and services (collectively "stuff"), so anything we do to increase the supply of stuff is naturally good; whether the stuff is useful or not is irrelevant. Quoting Wikipedia:

As in classical economics, supply-side economics proposed that production or supply is the key to economic prosperity and that consumption or demand is merely a secondary consequence. Early on, this idea had been summarized in Say's Law of economics, which states: "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value".

In essence, "if you build it they will come" as an economic theory. That leads to the belief that the best thing a government can do is to cut taxes, get out of the way, and allow suppliers to make more supply, and everything will work itself out. That is the entire basis of conservative fiscal policy for the last 50 years.

As an extension, of course, is that if you want people to not do something or use something, you restrict the supply of it. That is economic theory applied to social behavior. "If you make it hard to get, people won't come for it."

That is the entire basis behind tight immigration policy: Make it so hard or dehumanizing to immigrate to the US (legally or illegally) that people will just stop doing it.

That is the entire basis behind the "war on drugs": Make it so hard or dangerous to get drugs (by arresting everyone you possibly can and throwing them in jail for as long as possible) that people will just give up trying to get drugs.

That was the entire basis behind Prohibition: Restrict the supply of alcohol down to near zero, and demand would go away.

That is a large part of the basis behind "sin taxes": Make things we don't like more expensive and people won't be able to afford them. (At least, poor people won't. Rich people can still afford it, because any form of sales tax is inherently regressive.)

Supply-side failure

There's just one problem: It doesn't actually work.

The rate of illegal immigration in the US has been declining since 2007, and hasn't really changed with Trump's draconian border policies. (See Pew Research link above.)

The "war on drugs" has had no significant effect on illegal drug usage over time. (See the chart about a third of the way down the page.) It has had a massive financial and social cost from making the US the world leader in locking up its own citizens.

Prohibition may have reduced alcohol consumption in total, but certainly did not bring it to zero and usage rose again once it was made legal again. But of course it was a great boon to criminal enterprises that benefited from supplying the ample demand that still existed.

Sin taxes seem to have small but inconsistent impacts on usage, and it's really hard to separate the data from confounding factors so even that is a stretch.

Quite simply, if people want something they will get it. Making it harder for them to get doesn't really change much: If they want it so badly, they will find a way to get it, legal or not, and there will always be someone willing to make it available.

"If you build it they will come" doesn't work, either. For every Henry Ford or Steve Jobs that builds a product "people didn't know they want", there are 1000 that built something no one wanted. Silicon Valley is littered with the corpses of companies that built it and no one came.

Even the core fiscal policy, supply-side fails. Every time conservatives push for some massive tax cut, generally for the wealthy (under Regan, under W. Bush, and under Trump), they make the Laffer Curve argument that cutting taxes will stimulate economic activity and increase tax revenue in total. In practice, of course, that does not happen. Ever. The entire concept of the Laffer Curve has been shown time and time again to be (pun only sort of intended) laughable at all but the most extreme levels of taxation. (Yes, 99% tax rates would not allow for much economic activity, but as an argument for moving from 30% to 25% tax rates all the data says it's wrong.)

As both a financial and social policy, supply-side thinking is flat out demonstrably wrong.

The alternative

So what does that have to do with immigration and tariff policy? Suppose you want to reduce immigration; ignore for a moment why or if your reasons are "good reasons" or not. How do you most effectively reduce immigration?

Any attempts to do so on the supply-side ("make it harder/less pleasant") are going to fail. We know this. We've seen this. Why do we keep doing something we can see doesn't work? (Tip: That's the definition of insanity.)

Instead, if one is going to borrow from economics one should look at demand-side economics. That is, in short, if people want something ("demand it") then suppliers will figure out there's a market and make it happen; if that requires research and development and innovation to do, they'll do it, because there's money to be made. If you want to stimulate the economy, you increase demand by giving the bulk of the population more purchasing power (higher wages, lower income tax on lower-income people, etc.) and they'll go buy whatever it is they want to buy, creating demand that suppliers will innovate to fill.

That fits the historical data much better. It also fits social behavior a lot better. If people want to use cocaine, they'll find some way to get it and someone will be willing to supply it. If you want to reduce the market for cocaine, you focus on reducing the number of people that want cocaine in the first place (through social programs, education, etc.) and the suppliers will go find something else to do.

That's the entire basis of the marketing industry. The whole purpose of marketing and advertising is to create demand for a product you want to supply. If there's no demand, you cannot sell it at any price. So you artificially increase demand and poof, you have a market. If that process didn't work, we wouldn't have a marketing industry.

Back to immigration

Thus if your goal is to reduce immigration to the US, the way to do it is to reduce demand. That is, don't make it harder to immigrate to the US, but make it less appealing.

Why does anyone want to immigrate to the US (or any country)? There are in general three reasons:

  1. Their economic prospects are far better in the destination country.
  2. Their prospects of not-dying re far better in the destination country.
  3. They have close social/relational ties in the destination country (family).

That's pretty much it for the vast majority of people. Put more simply, large scale immigration happens because the prospects for quality of life (QoL) in the destination country are substantially higher than in the country of origin.

So, to reduce immigration, you reduce the delta between the expected quality of life in the US and the expected quality of life in the country of origin. Less difference, less reason to move.

There are only two ways to reduce the delta between QoL in the US and some other country:

  • Make it lower in the US.
  • Make it higher in the other country.

I am going to assume that most Americans do not want their quality of life to go down. There is of course the option of "make it go down but only for those people", but if you think that's a good idea then you're a racist asshole and it doesn't work, because "those people" are economically tied to everyone else so it's impossible to do without bringing the quality of life down for everyone.

So that leaves the only option as "raise the quality of life in the other country", making life there better and thus less of a reason to leave, for the US or elsewhere.

Thus if you oppose immigration (illegal or otherwise), your best move is... to work to make life in Latin America better. Seriously, that's the most effective option available to you. Any other strategy we already know and can demonstrate is self-defeating.

Demand-side immigration reduction

OK, so how do we make life better in Latin America, with the goal of making it less necessary to immigrate to the US? By improving their economy, for the bulk of the population not for the same rich people that are already doing just fine. Greater economic power and stability leads to a greater ability to address social issues and dangers (gangs, drug cartels, and worse), without heavy-handed outside interference. Of course, some of that can be helpful in the worst cases, but it has to be in small doses to avoid becoming a military occupation (which helps precisely no one).

So then, what policies should the US pursue in order to improve the quality of life in Latin America, and thus reduce immigration?

First, trade: Lots of it. Trade means economic activity, which means money flowing, which means jobs. Tariffs are the exact opposite of that.

Second: condition that trade on good pay. It's fine if the going rate for labor in another country is lower than in the US; that's not the issue. But workers making goods for export to the US should be paid well to very well by the standards of their country, or the trade does not actually have the desired benefit. Does that mean the US imposing a minimum wage on another country??? Yes... if the goods are to be sold in the US then they damn well have the right to require that the workers making it were paid well, just as they have a right to demand that the goods weren't produced in slave-labor conditions.

Speaking of which, third: condition that trade on good working conditions. The US is absolutely within its rights to require that goods imported into the US were manufactured under conditions that meet or exceed American health and safety standards. We already require that the goods themselves meet American standards (eg, no lead paint, are labeled accurately, etc.), so requiring that the labor conditions do as well is not a stretch.

Will those requirements increase the cost of manufacture in those countries? Yeah, probably. Paying people a good wage costs more than slave labor. That's why it's a good idea! Doing so implies pumping more money into that economy. It may even raise it high enough that it makes economic sense to leave a factory in the US, which has a benefit for American workers. If not, companies may still move factories to where it's cheaper (capitalists gonna capitalize), but the same effect would then be felt there, too.

So the most effective way to reduce immigration, and improve the economy in the US and around the world, would be to simply require that any goods or services sold in the US must be produced under conditions that meet or exceed American standards for health, safety, and pay. Maybe even (gasp) support unions to ensure those improvements stay. Simple, non-invasive, doesn't even require the military. Enforcement, however...

Wait, what was the last trade agreement that tried to protect workers and working conditions? NAFTA.

What trade agreement failed miserably at that goal? NAFTA.

What trade agreement failed because such requirements were never enforced, because wealthy business owners didn't want to have to treat their workers well? That's right, NAFTA.

From the last link:

Was U.S. workers’ loss Mexican workers’ gain? While production jobs did move to Mexico, they primarily moved to maquiladora areas just across the border. As Carlos Salas of La Red de Investigadores y Sindicalistas Para Estudios Laborales (RISEL) reports, these export platforms-in which wages, benefits, and workers’ rights are deliberately suppressed-are isolated from the rest of the Mexican economy. They do not contribute much to the development of Mexican industry or its internal markets, which was the premise upon which NAFTA was sold to the Mexican people. It is therefore no surprise that compensation and working conditions for most Mexican workers have deteriorated. The share of stable, full-time jobs has shrunk, while the vast majority of new entrants to the labor market must survive in the insecure, poor-paying world of Mexico’s “informal” sector.

(Emphasis added.)

Failing to protect Mexican workers from exploitation made life in Mexico worse, not better. That makes it a better breeding ground for drug cartels, gangs, and other violence. That makes the incentive to pack up and move to the US stronger, that is, increases the demand for immigrating to the US. Legal or illegal is beside the point when you're broke, hungry, and getting shot at, which is exactly what so many who try to cross the border illegally are running away from.

Fix that problem, and you begin to really address illegal immigration. No walls needed.

Don't shoot yourself in the foot

In conclusion then, what should an anti-immigration advocate do? If they want to be most effective toward that goal, they'll work for improved worker rights and working conditions in Latin America and around the world; doing so in the US is good too but one step at a time. They'll advocate for free trade, but specifically free trade that benefits employees, not rich business owners.

That's true regardless of why you want to reduce immigration, whether it's ethical or not, whether it could be considered racist or not. That's just straight up economic reality.

Basically, anti-immigration advocates should be opposing all of the supply-side stupidity that we've been seeing out of the political right for the last 40 years and instead focusing on demand-side improvements to worker conditions and worker pay in every one of our trading partners.

Of course, what's happening instead is that President Trump is awarding a Presidential Medal of Freedom to Arthur Laffer, of the eponymous and as mentioned counter-productive Laffer Curve.

Because actually accomplishing a goal has never been the intent of this Administration. But that's another story.