Why Republicans Should Embrace Comprehensive Immigration Reform

The escalating child migrant crisis has once again brought our ailing immigration system back into the mainstream spotlight.  As usual, both sides revert back to their usual arguments.  Republicans take the migrant crisis as being a result of loose borders and lax executive enforcement, and many call for more deportation of both the child migrants and all illegal aliens within the United States.  In contrast, Democrats generally argue for making it easier and faster to become a citizen and to implement gradual amnesty. Though both sides have legitimate concerns and arguments, I (surprisingly) mostly side with Democrats on this issue, and I strongly believe that Republicans should reconsider their stance on immigration reform.  Here’s why:

  1. We need more immigrants, legal or illegal, and badly.  Contrary to the beliefs of many, virtually all types of immigrants – legal or illegal, skilled or unskilled, etc. – benefit the country economically (though legal immigrants are, of course, preferable to illegal immigrants).  Skilled immigrants make up a large proportion of  innovative business start-ups, while low-skilled immigrants lower prices for consumers & employers and take jobs that natives are less inclined to perform.  All groups add to national GDP, and (unlike in many European countries), they usually contribute more to overall tax revenues than they consume via social programs, helping to balance budgets at the federal, state, and local levels.  As such, there is a strong economic argument to expanding legal immigration and making legal naturalization avenues more efficient.  Macro-economically, more legal immigrants could serve as both a short and long-term economic stimulant to the moribound US economy, adding to short and long-term supply and demand.  Due to the retirement of the baby boomers, the US labor force will continue to contract in the coming decades, producing labor shortages that an influx of immigrants could help fill (and freeing up natives to perform other jobs, thus boosting job creation).  Additionally (and largely due to the aforementioned retirement of the baby boomers), America faces long-run fiscal challenges that more legal immigrants (with their contribution to higher GDP and higher tax revenues) could help to alleviate.  Considering that Republicans are broadly regarded as the “party of business” and of fiscal conservatism, Republicans should thus be embracing legal immigration.  Instead, though they pay lip service to legal immigration, their laser-like focus on illegal immigration and accelerating enforcement measures overshadows their support for legal immigration.  Ironically, an increasing of legal immigration via immigration reform would help to solve illegal immigration and the presence of large numbers of undocumented workers.
  2. Continued deportation of unauthorized immigrants is impractical and costly.  Currently, there are over 11 million unauthorized immigrants residing within the United States.  Many Republicans argue that deportation should be ramped up to deal with them.  I disagree.  First of all, despite the perception among many, deportation rates have stabilized at relatively high levels in recent years – rates have not fallen off a cliff, so it’s not like this strategy isn’t being actively pursued.  Second, can you imagine trying to deport all 11 million + immigrants from the US?  Deportation already costs the government quite a bit, with the Department of Homeland Security reportedly requesting approximately $230 million in budgetary authority for the deportation of undocumented immigrants just in fiscal year 2015.  That is for the current rate of about 400,000 people a year, which is, of course, partially offset by continued inflows of unauthorized immigrants.  Logistically, deportations of a larger scale would undoubtedly create massive strains on the system.  Additionally, the removal of 11 million people would be hugely destructive economically – lowering productivity, raising prices, and disrupting both the creation and operation of businesses, at a time when the US has yet to fully recover from the 2007-2009 recession.  Of course, we also cannot forget the costs of splitting up families, which imposes deep scars the social fabric of the nation.  If anything, deportation should be scaled down.
  3. Resources devoted to immigration enforcement are at historical highs – and further enforcement measures, like building a wall, will not stop illegal immigration.  As partially mentioned above, immigration enforcement (such as deportations) is hardly on decline.  Indeed, according to The Economist, border enforcement costs about $20 billion a year, which is more than all other federal law enforcement agencies combined.  Yet, despite all these costs, we clearly still have enforcement problems, and until we reform the immigration system, we always will.  Why?  The reason is simple: the economic incentives for people to immigrate to the United States are overwhelming.  Even for low-skilled immigrants, pay is usually several times greater in the United States than it is in their country of origin.  No matter how much the federal government devotes to border enforcement and trying to prevent people from immigrating (legally or not), people will keep trying to come here – and many will find ways to succeed.  Since these forces will not be disappearing anytime soon, it would be better to work with the force, not against.
  4. Current immigration policy is tantamount to anti-trade protectionism – the antithesis of Republican ideology.  Republicans, in accordance with their belief in free markets, tend to be much more supportive of free trade than liberal Democrats.  However, the current legal immigration system is based largely on a series of quotas.  According to Vox.com, on the employment side a maximum of 65,000 H1B visas (for high-skilled workers) and 66,000 H2B visas (for low-skilled workers) are issued by the federal government annually.  Both of these quotas are usually hit pretty quickly, indicating that employer demand in the US is far outstripping supply.  These quotas are artificially restricting the supply of workers, raising employment costs and decreasing growth prospects.  Additionally, the number of “green cards” supplied tends to be less than demanded, especially for people without US-based relatives or prospective employers.  These restrictions do not let the market to operate efficiently, which goes against Republican notions of free market capitalism.  Not to mention, these quotas help to drive the illegal immigration that everybody is so furious about.
  5. Current immigration proposals do not grant unconditional amnesty – nor should they.  Last time I checked, the current mainstream immigration reform bills passed by House committees in the summer of 2013 allowed unauthorized residents to gain citizenship only after meeting several conditions, including paying several fines and going through vigorous checks.  Republicans are right to be weary of the granting of unconditional amnesty – unauthorized immigrants did, after all, technically break the law, and the rule of law must be upheld for the republic to function properly.  However, the current bills (and any bill that is likely to be passed) will not let unauthorized immigrants  off the hook.  Now, many Republicans say that any form of amnesty, conditional or not, is both unfair (as others still had to wait to become naturalized) and undermines the rule of law.  I think the fines help to partially offset this, punishing those who broke the law.  Though it (understandably) seems unfair that immigrants would be able to gain a “special” route to citizenship this way, such a route is, on net, still much more practical than sending those residing here illegally “to the back of the immigration line”.  Doing so would be too costly economically, difficult logistically, and would overwhelm the already strained legal immigration system.
  6. Republicans could use immigration reform to their political advantage.  Everyone knows that Hispanic voters tend to lean Democratic, and that this persuasion is becoming increasingly costly for Republicans electorally.  As the Hispanic population continues to grow in influence, the political parties increasingly need their support in order to win elections.  Right now, Republican opposition to immigration reform and a perceived anti-immigrant ideology is hurting the party.  Embrace immigration reform, and the Republicans could vastly improve their political fortunes.

Considering all of the outstanding issues on the federal policy radar, it is understandable that immigration reform might not top the policy agenda at the moment.  But until Washington is ready to devote its full attention to the issue, Republicans should seriously consider revising their views on the subject.  Too much is at stake for them not to do so.

Can We Solve Market Imperfections by Changing Societal Norms?

In economic policy discussions, there is a lot of talk about the government intervening in the market to solve for market imperfections or failures, whether it be too many negative externalities, too little positive externalities, disequilibrium due to wage and/or price stickiness, etc.  These are usually assumed to be constants that only the government can really take corrective action to address.  However, I think that many of these market imperfections stem from prevailing societal norms and modes of thinking, an underlying structure that frames how the market actually operates.

For example, take the example of pollution.  The market tends to overproduce pollution, as the private costs of pollution do not usually match the societal costs of pollution.  Or, at least, it might not seem to private actors that private costs match societal costs.  In reality, though, perceived private costs are likely much lower than actual private costs, as many of the effects of pollution are indirect.  For example, a company might release air pollution that damages the health of either its employees or its customers.  This lowers productivity, reducing potential income both for the company and society (who could use that money to buy company products).  Even though these indirect costs might be substantial, it is the norm for businesses not to think beyond direct costs and thus to undervalue both the private costs and societal costs of their actions, causing them to overproduce pollution.  This is further reinforced by the widespread belief that environmental protection tends to hurt business, causing a market underproduction of environmental protection relative to optimal private & societal production.  If we could change these norms and modes of thinking, we could potentially help solve the negative externality of environmental pollution.

Another example of how norms can cause market imperfections (and how changing them could thus solve such market imperfections) is in the case of wage and price stickiness.  As I’ve mentioned on this blog before, there exists certain modes of operation when businesses set prices and wages.  Prices for many products, for example, are usually only adjusted a few times a year (out of habit, law, and/or fear of disgruntled consumers), and in certain industries it is the norm to adjust the number of employees before modulating wages (or vice-versa).  Wages, too, do not usually change rapidly, out of habit, law, and/or out of fear of disgruntled employees.  For both prices and wages, laws restricting their flexibility stems from societal norms, and consumer/employee disgruntlement that would result from such flexibility would stem from established consumer/employee expectations of stability.  Unfortunately, this wage/price stickiness tends to cause disequilibrium (a deviation in actual output from potential output) and (at least temporarily) can exaggerate (rather than mitigate) expansions and contractions in the business cycle.   Perhaps, if we changed these modes of operation and societal thinking, we can make wages and prices more flexible, helping the market to naturally smooth out the business cycle itself rather than relying on governmental counterbalancing.

The great thing about adjusting societal norms is that it could theoretically lessen (though not eliminate) the need for government intervention to solve for market imperfections.  The problem, however, is twofold: first, adjusting norms is obviously rather hard.  Additionally, changing norms can itself ironically require governmental intervention so as to affect an actual change.   Regardless, as we seek alternative methods of boosting the economy, it merits consideration.

Our 5-Year-Old Recovery: A Belated Birthday Wish

So much has been happening lately that it’s hard to know what is most deserving to talk about. Outside the US, the biggest news is that the middle east is further accelerating its long post-Arab Spring slide, with Iraq plunging back into civil war and tensions between Israel and Palestine yet again escalating.  Here at home, meanwhile, the Supreme Court has ruled against the Obama Administration on issues ranging from mandated contraception vs. religious freedom to “recess” presidential appointments.

Perhaps the strangest news, however, is that the current business cycle expansion (the economic recovery” turned 5 years old in June.  This comes at the heels of revelations that just a month prior, we finally reached pre-recession levels of total employment (really no achievement at all, since growth in the potential labor force thoughout all this time still leaves a massive jobs gap.  Not only is it unprecedented that the 5th birthday of the recovery comes only one month after a return to pre-recession employment levels, but it’s also unprecedented that such a large output gap remains at a point where we’re likely closer to the next recession than the end of the last one.   At 61 months, it is now past the average of 58 months for all post-war recoveries.

Now that the party has died down, its time to face some ugly truths.  First of all, longevity does not imply good health.  Despite repeated predictions, this recovery has proven to be neither broad-based nor robust, and unfortunately, its running out of time to ever show sustained periods of health.  From indicators ranging from GDP growth to income growth to productivity growth (etc, etc), there has been sub-par performance.  There are many plausible reasons why (both supply and demand-side explanations), which have been discussed to the point of exhaustion.  I’ll re-list the main ones anyway:

  • contractionary fiscal policy
  • inadvertently contractionary monetary policy? (see Vox.com explanation)
  • lingering effects of private debt deleveraging on consumer spending
  • lack of public investment in physical & nonphysical capital
  • High energy costs
  • Business uncertainty (due to regulations, policy ambiguity, shaky macroeconomic environment, etc.)
  • High or complex taxes, especially corporate taxes

Considering that this year is shaping up to be another economic disappointment recovery-wise, and the recovery’s rapid aging, we now face the troubling prospect of entering the next recession far from having truly recovered from the last one.  By recovered, I mean not just a complete closing of the output gap.  My definition also includes labor market healing, such as a reversal of skills erosion and a return to full employment, as well as meaningful gains in median income and wealth.  Since it is increasingly likely that none of this will happen, would a small recession now be far more painful than usual?  And what will we do policy-wise?  Monetary policy is, at least in terms of fed funds targeting, is as loose as it can get, and its doubtful the federal government will be willing to pursue aggressive fiscal stimulus like they did in 2008 and 2009.

Although it is good news that the recovery is 5, and I wish it a belated happy birthday, its longevity should not make us complacent about past, present, or future performance.  Overall, past performance has been weak, present performance is weak, and it is likely that, in the near future, only more pain will appear.  It’s a rather sad, but realistic, outlook.

The clock is ticking…