Ruminations, November 30, 2014
Immigration – Long term and short term
President Barack Obama has announced a plan for semi-amnesty – allowing 5 million illegal immigrants (out of an estimated total of 12 million) guaranteed non-deportation and rights to work in America. Switzerland this week will vote on a proposal to limit immigration – in violation of a treaty with European Union (EU). British Prime Minister David Cameron last week announced plans to limit rights of immigrants to Britain from receiving welfare, tax credits and housing – again in violation of treaties with the EU. The Pope last week in an address to the European Parliament in Strasbourg, called for immigration reform citing the thousands who have died crossing the Mediterranean Sea to gain access to Europe. And the current crisis in Iraq and Syria has, by United Nations’ estimates, created 13 million refugees or “stateless persons.”
What’s going on here? Whatever your views on immigration, you have to admit that it has become a global issue and decisions will be made that will have global implications.
But there’s more. We just listed some events having to do with people moving across borders, but there are also borders moving across people. A prominent example is the Islamic State, which has moved across swaths of Iraq and Syria and yet it is clear that they have neither the capability nor the goal (short and intermediate, anyway) of absorbing the entire entities of Syria and Iraq. Last August, Mexican President Enrique Pena Nieto came to the U.S. and proposed America change its domestic laws by liberalizing immigration. In Ukraine, the nation has been de facto devolving into Ukraine, Eastern Ukraine and Russia. The Catalonian region of Spain held a non-binding (and illegal, according to Spain) referendum three weeks ago and 80 percent voted for independence from Spain.
Is there some social evolution going on where we in the trees cannot see the forest? Maybe so. Let’s step back and look at some long-term historic trends.
The nation-state. Somewhere around the 14th century, nation-states began to form. The “nation” part is language- and culture-centric people and the state is a political-geographic entity. At times, nations have existed without states. An example is the Polish nation that has existed for roughly one thousand years but there were times when the Polish state did not exist. At the same time, states have existed that had no uniform nation Many Italian immigrants to the United States in the late 19th century didn’t realize that they were Italian until they reached the United States and were told so; some thought that they were Sicilian, others thought they were Piedmontese and still others thought of themselves as Tuscans.
What of the United States? Certainly we are a state but are we a nation? In some ways we have a culture that unifies us despite our differences. An example occurred last Thanksgiving at the Manchester (Connecticut) Road Race. During the playing of the National Anthem, the sound system conked out. The 15,000 gathered, without missing a beat, sang the rest of the anthem a capella.
But has the nation-state outlived its usefulness? Not yet, anyway – there are too many functions that the state provides (e.g., police protection, infrastructure, a monetary system, education, etc.) but looking to the future what do we see?
Open borders. The United States is, arguably, the prime destination of many, if not most, immigrants. And yet, we find that this state has relatively porous borders — with Mexico and Canada, not to mention those who enter via those who enter via Cuba. Is it good for the United States or not? Both.
Undoubtedly, there are bad actors entering the United States – criminals, people who would exploit the United States and, perhaps, some terrorists. But there are also many who come to the United States who see it as a land of opportunity and are willing to work hard and often have skills in short supply. However, even those with skills in short supply (e.g., computer specialists, medical technicians) increase the labor supply and therefore drive down the wages of those professions (the old law of supply and demand).
Copenhagen Consensus. Let’s consider the findings of the Copenhagen Consensus Center. Headed by Denmark resident Bjorn Lomborg, the Consensus is a think tank that determines the best ways for governments and philanthropists to spend money. What a cool job; it’s kind of like, what would you do if you had billions of dollars?
But the Consensus is more serious than that. Membership is restricted to economists and Nobel Laureates who know how to estimate a return on investments. A little over a week ago, Lomborg published an op-ed in the Washington Post in which he described the three top goals of the Consensus, One of the goals was loosening the restrictions on global immigration.
Why in the world would economists recommend loosening the restrictions on global migration? They say that immigration has an overall positive effect on both the sending and receiving countries. It sounds good on paper but if it is really really good, then we should get all the people of one country to move to another and both would prosper. Well, no. that’s not really what the Consensus is saying. First of all, it’s true that they are talking about large groups of people but not the mass movements of entire populations. Second, they are talking about migration from less advanced countries to more advanced countries,
Let’s explore those issues. How large a group are we talking about? The Consensus says the receiving country should be able to handle an inward migration of about three percent of its workforce. The U.S. workforce is about 156 million so that would mean we could absorb about 4.7 million immigrants per year. And we all know that a growing workforce contributes to prosperity. But hang on. Historically, we know that we have had a growing workforce in economic downturns, too – and that contributes to higher unemployment. At this point, the U.S. accepts about 1.2 million legal immigrants per year.
On the theory that every silver lining has a cloud, who would be hurt by immigration? Most immigrants from less advanced countries tend to be low-skill, low-wage workers who compete with low-skill, low-wage Americans. So, by increasing the supply of low-skill, low-wage workers, labor demand is driven down and, therefore, so are the wages of low-skilled Americans – especially when there are fewer jobs to go around in the first place.
Short-term immigration. While immigration is a good thing, timing is everything. At a time of high unemployment in the receiving country, it is likely that the new immigrants will have even a higher unemployment rate and compete with residents for jobs, often at lower wage rates. In addition, new immigrants often put a strain on schools, hospitals and the welfare system.
Given the enormous debt that the United States now has, financial support for new immigrants will have to come from either increased taxes (not a good idea in times of faltering growth) or increased borrowing (not a good idea for a state deeply in debt).
What about Obama’s new proposals to legitimize some five million illegal immigrants. Well, the illegals are immigrants – no doubt about that. Giving them preferential status over legal immigrants is mainly political. The costs associated with making them legal and the economic strains noted above are somewhat offset by their contributions to the economy via taxes, assuming that they earn enough to be taxed. Any productivity gains have been, for the most part, already achieved.
Long-term immigration. The Consensus is right on this point. The benefits of long-term immigration, “if undertaken at a moderate pace to allow internal adjustments, will be shared by citizens of both recipient and origin countries.” This is especially true given the low-birth rate of those Americans whose families have been here for generations. And, of course, there will be a debate over exactly what “moderate pace” means.
The morphing of the state. Globally, the state as we know it is going nowhere – even given the dynamics of the present world. There will be a continuing effort by some to form amorphous states such as the Islamic State, and well-established states such as comprise the Western World will need to develop new ways of dealing with these entities.
Perhaps states should be bigger but with more federalism thrown in. The EU has tried this but failed, largely due to sacrificing member states’ fisc in order to prop up the euro.
But the United States is being moved in that direction. English is increasingly becoming the international language. For example, all pilots must communicate in English in order for all other pilots to understand each other. Last year, there were almost 750 thousand foreign students in the U.S., all gaining some level of English proficiency. In the EU, the common language used for informal meetings is English. In India, the common language among all the various speakers of various dialects is English.
And as far as the monetary system is concerned, the U.S. dollar is the world’s reserve currency. In addition, seven countries use the U.S. dollar as their standard currency and seven others have partially dollarized. In Latin America, despite restrictions, the dollar represents around 50 percent of bank deposits. China has loaned the U.S. so much money (about $1.2 trillion) that it is perhaps more in their interest to prop up the dollar than it is to prop up the renminbi (almost). (If the Federal Reserve ever operated as if it were managing a world currency instead of using an outmoded Keynesian economic model, we might all be better off.)
And, for good or ill, the standard for entertainment is the Hollywood motion picture model and all the values transmitted by it.
And when it comes to international policing, the United States is in the forefront. Even NATO, which is sometimes headed by a foreign leader and has rules that require it to defend states that are not the United States, is militarily dominated by the U.S.
Conclusion. The future of the nation-state and its associated immigration problems is yet to written. However, discussing and anticipating their evolution should be a current long-term focus with short-term solutions evaluated in its light.
Quote without comment
Economist and founder of the journal International Finance Benn Steil writing in “The End of National Currency,” Foreign Affairs, May/June 2007: “But the dollar’s privileged status as today’s global money is not heaven-bestowed. The dollar is ultimately just another money supported only by faith that others will willingly accept it in the future in return for the same sort of valuable things it bought in the past. This puts a great burden on institutions of the U.S. government to validate that faith. And those institutions, unfortunately, are failing to shoulder that burden. Reckless U.S. fiscal policy is undermining the dollar’s position even as the currency’s role as a global money is expanding.”