Why Ruin the World's Best Anti-Poverty Program? by Alexander Tabarrok

June 05, 2006

Winston Churchill famously said “If you put two economists in a room, you get two opinions—unless one of them is Lord Keynes, in which case you get three.” Churchill, however, was wrong. Brad DeLong worked for the Clinton Administration and regularly calls for the impeachment of President Bush. In contrast, Greg Mankiw speaks warmly of President Bush and headed his Council of Economic Advisors. Readers of their respective blogs (DeLong, Mankiw) will know that no love is lost between these two. Yet, both these economists were early and enthusiastic signatories to my Open Letter on Immigration (I didn’t tell them that the other had signed until the letter was publicized, however!).

DeLong and Mankiw are not alone. In a survey, economists and the general public were asked whether “too many immigrants” was a reason for bad economic conditions with 2 being a major reason and 0 not a reason at all. The public rated immigration a 1.23, economists just a 0.22.

Why do economists think more favorably of immigration than the general public? I think there are three reasons: theory, empirical research, and ethics.

In terms of theory, the public focuses on the idea that “immigrants will take our jobs.” But immigrants buy our products too so the primary effect of immigration is simply to increase the size of the market. Moreover, few people complain that in twenty years time our jobs will be threatened when all the babies born this year start working! Yet, population growth and immigration are very similar economic forces. Jobs can be a problem in a recession or if labor markets are not free and flexible but these problems are not caused by immigration and ought to be addressed directly.

What about wages? Economists do recognize that immigration can lower wages; but unlike the general public they also know that immigration can increase wages. Clearly, the immigration of a high-skilled worker can increase wages for Americans. Google, Yahoo and Sun Microsystems? All founded by immigrants. But the immigration of a low-skilled worker can also increase wages for Americans. More low-skilled workers mean lower prices for services such as day care or dry cleaning and this means that higher skilled Americans can spend more time doing the jobs at which they are most productive. Immigration, like trade, increases total production—instead of moving the goods we move the workers.

The fact that immigration and trade are similar also means that even if immigration lowers wages, restricting immigration won’t necessarily raise wages. With fewer low-skilled immigrants in the United States the incentive to move production overseas will increase.

Economists have extensively investigated the wage question with special attention being placed on the effect of low-skilled immigration on the wages of U.S. high school dropouts. The results from both proponents and opponents of immigration are surprisingly similar. Studies by David Card (UC Berkeley) suggest a zero effect of low-skilled immigrants on low-skilled workers. Studies by George Borjas (Harvard) suggest a wage decline of 7.4%. Borjas acknowledges that his figure is probably on the high side as it doesn’t take into account increases in the capital stock brought about by immigration. Card’s studies are probably on the low side because they assume that labor markets in different cities are not at all connected. Most economists are happy at some number in between.

High school dropouts have it hard already so even a small decline in wages is not something to be ignored. But is reducing immigration really the best way to help high school dropouts? How about encouraging them not to drop out instead? Why must we pit the poor against the much poorer?

Economists are probably also more open to immigration than the typical member of the public because of their ethics—while economists may be known for assuming self-interested behavior wherever they look, economists in their work tend not to distinguish between us and them. We look instead for policies that at least in principle make everyone better off. Policies that make us better off at the price of making them even worse off are for politicians, not economists.

Immigration makes immigrants much better off. In the normal debate this fact is not considered to be of great importance—who cares about them? But economists tend not to count some people as worth more than others, especially not if the difference is something so random as where a person was born.

Economists do sometimes distinguish between the rich and the poor, but high school dropouts in the United States are rich compared to low-skilled immigrants from Mexico. It’s a peculiar kind of ethics that says we should greatly penalize very poor immigrants in order to marginally benefit relatively rich Americans (peculiar at least if one is not stuck in the Robbers Cave).

Immigration benefits not only the immigrants but also their families back home because of the billions of dollars of their own money that immigrants send to their families. Remittances to Mexico in 2004, for example, amounted to 16.6 billion dollars—to put this in perspective that’s about the same as all direct foreign investment in Mexico. Remittances far exceed foreign aid and remittances go directly to poor people and not to corrupt governments and dictators. Why ruin the world’s best anti-poverty program?

Economists, of course, don’t have all the answers nor do they agree about everything. Immigration is bound to have important effects on politics and culture, for example, even if no one understands what these effects will be. The Open Letter on Immigration was written not to end debate but rather to say ‘Let us debate. But let us make it an informed debate.’ I’m proud that economists have something important to add to that debate.

Professional economists or other social scientists interested in signing the open letter may do so by sending an email with their name and affiliation to OpenLetter@Independent.org.

Alexander Tabarrok is research director at The Independent Institute, associate professor of economics at George Mason University, editor of the Independent Institute books, Entrepreneurial Economics, The Voluntary City (with D. Beito and P. Gordon), and Changing the Guard: Private Prisons and the Control of Crime.

Alvaro Vargas Llosa is a Senior Fellow and director of The Center on Global Prosperity at the Independent Institute. He is the author of Liberty for Latin America.

Robert Higgs is Senior Fellow in Political Economy at The Independent Institute, author of Against Leviathan and Crisis and Leviathan, and editor of the scholarly quarterly journal, The Independent Review. Click here for a bio on Dr. Higgs, the noted economist and historian.

William Marina is Research Fellow at the Independent Institute in Oakland, Calif., and Professor Emeritus of History at Florida Atlantic University.

David T. Beito is a Research Fellow at The Independent Institute, Associate Professor of History at the University of Alabama, and co-editor of the book, The Voluntary City: Choice, Community and Civil Society.

William Marina and David T. Beito belong to "Liberty and Power," a group blog at the History News Network.

For further articles and studies, see the Center on Peace & Liberty and OnPower.org.

Nicolas Heidorn is a public policy intern at The Independent Institute in Oakland, California.

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