Read a Pacific Northwest, liberal perspective on world, national, and local politics. From majestic Redmond, Washington - the Northwest Progressive Institute Official Blog.

Saturday, May 27, 2006

The economic answer to immigration

Non-answers to the immigration problem begin with those of Charles Krauthammer, which include erecting a wall along the entire border and in one motion legalizing those inside the country and slamming a miracle door that keeps everybody else out. This goofiness follows directly after Krauthammer lampoons Bush for thinking he can close the border with a military style action. And of course, there is no shortage of liberal straw men in Krauthammer's analysis.

In fact, liberals like Thom Hartmann have made the case that illegal immigration is a favor to Corporate America because it depresses the price of labor by increasing its supply. He and others have correctly pointed out that if employers of illegals were jailed for hiring them, the flow would be stanched quicker than any size electric fence could accomplish. (Notably, Krauthammer fails to mention this central alternative to the Berlin Wall of the South.)

But the real answer, the economic answer is to provide development support for the populations where they currently reside: Basic investment in roads, utilities and education, not subsidies to factories on the edge of town, whose only mission is to exploit cheap labor before it has to cross the border.

The advantages to this approach are numerous, beginning with the avoidance of silly spending on low-wage soldiers running around in the desert trying to catch an evil tide of Jack-in-the-Box counter clerks. If the same dollars were spent on schools, it would give the carpenters among those counter clerks work on that side of the border. Second, and more importantly, it would generate human capital there. And both sooner and later it would generate well-being, a truly indigenous economy, and even real demand for US goods.

Instead,we pretend we have something here that everyone wants. Hell, all we've got is debt. If they're looking for debt, we ought to let them have some. From that perspective, it's the IMF and the World Bank who are the primary coyotes. Let's lock up those guys.

OR

(before the depressing part)

(to expose the charade completely)

Let's just set up our retirement villages in Mexico, take the bedpans to the nurse's aids, rather than make them carry their kids across the desert to get to us. Our retirement checks will go further there, the climate is nice, and they need more fat people.

Now for the depressing part.

Imagine how much worse the immigration issue would be if the jobs dried up. The flood of immigrants seeking work in the US has already sparked its inevitable response. But the word "crisis" is misapplied to the current situation. With an economic downturn, a crisis will come into full flower. When employment starts dropping again, as it must, the pressure on these people will be enormous.

Now they are employed, in building trades and personal services. These would be the first jobs to go. When those occupations dry up, not only will the illegals begin to look elsewhere, but legal Americans will come looking for their jobs.

Lock them out! Deport them! It is an immigration problem!

In fact, it is an economic problem, a trade problem. To a very real extent, people flood into the US because the economies of their native countries have been decimated by a trade regime instituted by the US. The agriculture that has been the backbones of many of their economies and provided the framework for their societies has been wiped out by cheap American imports.

The point is often made that menials can earn four times the wage here in the United States that they can in Mexico. First, Four times nothing is still not a living wage. Second, People only need self-determination and a chance for survival, not big bucks, and it is these minimum conditions that are becoming scarce.

Since the 1970s the economies of the developed and newly industrial countries have increased steadily, if in some cases not spectacularly. Economies of underdeveloped countries have contracted by one-third. It is not material extravagance these folks are rushing into when they come across the border, it is want they are fleeing. All for the benefit of the industrial farm that has already wiped out the family farm here at home.

In the 1940s and 1950s a choice was made about how to support farmers in the US. One camp preferred income supports. The other preferred price supports. Price supports won. From that point on the industrial farm became inevitable, inevitable because of a simple calculation: the cost of farming an additional acre is always lower than the average cost. In econo-speak, the marginal cost is lower than the average cost.

Thus, bigger is always cheaper. And in the nearly perfectly competitive world of farming, that is the metric that destroyed the family farm. It is now destroying the farms of people all over the world.

In the United States, people have clung to the remnants of the agrarian lifestyle with ferocious intensity. To no avail. They have been forced into cities or live 80-hour work weeks, subsidizing their farms by employment elsewhere. The farmers of underdeveloped countries have it worse. There is no successful industry to transition into. There is no place to go.

What is the answer? The first real answer is to eliminate farm products from trade agreements. Every country has a national security need to grow its own food and have a diversified crop base, not a plantation-only economy. Further, in most societies which are not developed industrially, farming is an organizing structure, a healthy place to build, raise children, and so on. It rewards hard work and skill and can create family wealth.

Yes, population grows at a rate where not all farm children can grow up to be farmers, but it is likewise true that the decimation of the farm population both here and abroad is not a result of population pressure, but of mechanization, subsidies, and chemicals. And so long as marginal cost is less than average cost, the calculation comes out minus for a healthy agrarian society. (There are ways -- not all of which are income supports -- to reverse that equation.)

A solution in the end will mean higher farm prices, but higher incomes and greater demand for other goods, more stable societies, and far less pressure to "keep them out." Whether higher farm prices will translate into higher food prices is not completely a sure thing. Probably it would. But much of the price of food goes to the cartel of food processors. That is a story for another day.

By itself, allowing countries to protect a diversified and healthy farm society, by tariffs and otherwise, will not eliminate immigration problems. It is a step in the right direction, the direction of building and sustaining domestic demand in these struggling societies. But more is needed.

Nothing has ever in the history of economics been so nefarious as the insistence of the powerful that the developing world must balance its budgets and even run surpluses in trade to get investment capital, while the powerful themselves ignore those same rules and run massive deficits for themselves.

Schools and roads and water and power ought to be our exports to these countries, not slave-wage factories and ecological nastiness. We have made the world a plantation economy, not a global economy. Low-priced goods and commodities are the only product we will accept. Were these thriving societies, with effective demand of their own, the free trade model could work.

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