Thoughts on Immigration

Everybody at Modeled Behavior is in love with immigration, and sees in it the key to economic growth and the salvation of our country.  I disagree.  Like almost all Americans, I descended from immigrants, some of whom came here as recently as two generations ago - if you can call well over 100 years recent.  I am not, in principle, opposed to immigration.  As a practical matter, though, I think it makes sense to realize that not all places and times are the same, and changing policies to fit changing circumstances is both rational and appropriate.

Karl Smith wrote a post today which I think neatly sums up the difference between rote free-market ideological dogmatism and a reality-based approach to the real world problem of immigration. He praisingly quotes a paper by one of his students which contains this assesment.

On a very basic level, this explains why immigration would only serve to expand the economy.

It is this kind of abstract absolutism that makes thinking like an economist a very treacherous way to look at life in the real world.  My rejoiner:

I guess ad-hocery is where you find it. Your student’s one-side analysis reads like something from a Chamber of Commerce training manual, and the last sentence smacks of brain-washing. 

I would have written that paragraph as follows. Would you give me a failing grade? Why or why not?

Immigrants not only join the circular flow of the economy as consumers, but also as labor. The supply and demand result is that firms have lower labor expenses, which translates directly into higher profits, while the already unemployed have to compete for fewer job openings at lower wages. Immigrants also spend money on goods and services which results in higher profits for corporations. As an aside, they might have purchased some of these items while still in their home counties, which would have improved our balance of payments situation.

The net result is a gain for employers, and a loss for the general population, aka labor, and potentially for the general economy. This contributes to even further wealth disparity between the rent-seeking and labor classes of society. The most successful corporations are then able to spend their earnings buying out their competitors – a trend that has already been distorting the U.S. economy by removing competition for several decades. This ultimately gives a small number of corporations relative monopoly power on the supply side, and monopsony power regarding labor demand. While immigration is not a main driver in corporate consolidation, it does contribute to it in this subtle way. Even more troubling is the growth of international corporations which have these powers across nations and continents, and owe loyalty to nobody.

Relating this to the current situation, in a depressed economy, higher corporate revenues do not tend to increase firm production, since the demand of consumers is low, because they do not have the ability to pay due to unemployment, low wages, and/or excessive debt. Henry Ford understood the importance of a living wage 100 years ago in the age of anti-trust fervor, but that bit of knowledge has become the bunkum of history to modern CEOs.

It’s interesting to note that, despite the current depressed economy, corporations have recently seen the greatest gains in profitability ever attained over any 18 month period in history. This has not led to more jobs. By a bitterly ironic coincidence, U6 has hovered near 17% for that very same 18 months, as firms sit like misers on piles of retained earnings. On a very basic level, this suggests why immigration in a time of high unemployment has mixed and difficult to predict effects on the economy which might well net out to a negative.

Cheers!
JzB