The Case for Open Borders

The Case for Open Borders

In the past, I supported limited, restricted immigration for two reason reasons:

1. Immigrants are more likely to vote for statist policies
2. Immigrants would be a net drain on public resources

Recently, I have changed my stance on immigration. Massive immigration would (1) grow the overall size of the economy, (2) provide the additional labor needed during the reallocation process – part of the Austrian Business Cycle Theory, (3) increase specialization, (4) grow the global economy, and (5) fix our long-term fiscal problems. I will address each of these.

Domestic Economic Growth – Each additional worker in the domestic economy produces additional output, commonly measured in GDP. Empirical evidence shows that this does not take away from native workers – but enhances it. A recent article in The Economist article below links to studies that illustrate the benefits of a larger market — the increase in low-skilled labor makes the comparative value of higher-end skills (like speaking/reading/writing English and 8th grade math skills) go up. As a result, even semi-competent natives benefit tremendously.

The welfare impact of immigrants is over-stated. I used to add in the cost of education immigrant children, commonly cited as a per pupil cost….$14,000 in California for example. But really, isn’t this just teachers union propaganda? It does not cost an additional $14,000 to add a child to a classroom — the sunk costs are already there. So on the welfare side, we’re really looking at medical cost, workers comp, and the like. If you reform Medicaid, you eliminate 90% of the problem. Again, benefits far outweigh the costs.

Aiding Recovery Within Austrian Business Cycle Theory – As recently explained by Dr. Robert Murphy, once a bubble has been recognized within the economy, economic preferences shift back to what they should have been without the interference of the government or the central bank. During this time, unemployment spikes because workers have to find new lines of work, as the previous level of production is not supported by the new preferences. We are currently in that transition period.

One way to facilitate this process is to import the labor to perform the jobs. So if, say, there is a shortage of software providers because of a quick reallocation of preferences towards software, bring in a bunch of immigrant software engineers. If preferences are reallocated towards manual services, labor can be imported from Latin America. As these industries grow, the relative weight of the bubble sector diminishes...and those out of work workers can go back to their old jobs. Here's an example: Suppose that the pre-bubble housing sector was 25% of the economy...but grew to 33% during the bubble. If the rest of the economy grows through immigrant labor and reallocation, that higher level of housing output can be supported by the growing economy. In this case, the rest of the economy would have to grow 33% to support the bubble-era housing output. Immigrants would help this process, substantially.

Increased Specialization – If market forces are allowed to operate, a larger population leads to an increase in the division of labor – a more intense division of labor. Adam Smith pointed this out long ago in the Wealth of Nations when he stated that “the division of labor is limited by the extent of the market” – larger markets lead to a more intense division of labor. Christianity – especially Catholicism – have also understood since time immemorial that larger populations lead to increased prosperity…in additional to spiritual wealth.

Global Growth – While we are usually focused on domestic economic policy, we all participate in the global economy through trade and travel. With an increase in the division of labor, the global economy will blossom. The best way to think about it is that immigration is a market process for efficiently allocating human capital. A worker in Latin America or Southeast Asia produces under $5,000 of GDP annually, but that immediately becomes $30,000 – $40,000 upon migration to the West. So let’s say that the English-speaking world — the US, Canada, Australia, the UK, and New Zealand — absorbed the population growth of Latin American and Southeast Asia (about 25 million per year), global GDP would increase by 1/2 to 3/4 of a trillion dollars per year. That’s an additional point of GDP growth per year, a substantial sum. The economy suffers when capital is mis-allocated and suffers high unemployment when labor is mis-allocated domestically – either geographically or by specialization. The same is even more true on the global scale.

The American Financial Reckoning – If the United States does not change course, the massive entitlement programs of Social Security and Medicare will destroy the country within a couple of decades. Benefits need to be cut, the economy needs to grow, or the population needs to grow in order to alleviate the situation. While all free market-oriented persons favor a cut in future entitlements (or elimination), we know it is politically difficult. I believe that we will see some slight curtailment of long-term entitlements, but nothing drastic. As a result, we should focus on the other two options.

One possible solution I have is to open the borders over the next 40 years to increase economic growth and lower the burden of entitlement programs on the economy. Letting in an additional 2.5 - 3 million immigrants per year would double our population over the next 40 years (combined with our domestic growth rate). We would have an America with an inflation-adjusted GDP of $65 Trillion and 625 million citizens...the current trendline would give us 425 million Americans in 2050. Per capita GDP in 2005 dollars would be $100,000+ with this new growth. Economic union with Canada would also expand the division of labor and specialization -- giving us an even higher GDP growth rate. Canada should look to double their population by 2050 as well -- they only need to increase their intake of immigrants by 150,000 to 175,000 per year over the next 40 years (they have a much higher growth rate than us. We could easily have 700 million people in the US-Canadian economy with $100,000 per capita GDP in 2005 dollars; that can easily service our entitlement. Even without cutting one red cent from future entitlements, entitlement spending as a percent of GDP would be no higher in 2050 than it is today.

Conclusion - The populist libertarian right should take a more pro-immigration stance for their own self-interest and -- for those who are nationalist in leaning -- the best interests of their country. I have stayed away from the cultural and religious arguments in this article, but most immigrants to the United States are pro-family, pro-life Catholics, so increased immigration will also give us a more right-wing culture over time.