IRVINGTON ON HUDSON, NY (By P. Gardner Goldsmith,
Foundation for Economic Education) August 21, 2007 — On January 7 President Bush
announced what appeared to be a sweeping plan to grant de-facto amnesty to
millions of illegal aliens working in the United States. In fact, it was little
more than a long-term worker-visa program that barely increased the ability of
employers to hire whom they wished, and came nowhere near recognizing the right
of individuals to move where their abilities take them.
Nonetheless, this has not stopped commentators
ranging from conservative radio hosts Laura Ingraham and Michael Savage to
writers such as Pat Buchanan and Mark Krikorian from heralding the end of
America as we know it. Though it might be easy to flippantly dismiss such
warnings, many of their arguments are substantive and important. Due to the
paternalism of contemporary government, the proposal to accept the "illegals" is
fraught with problems.
But apart from these practical, day-to-day
considerations, and separate from the debate over whether immigrants are a net
gain or loss to the coffers of the federal government, there is a larger,
timeless issue that lies at the heart of the anti-immigrationist assertions. It
is the sweeping claim that immigrants suppress American wages and take American
jobs. The argument is used to pander to blue-collar workers and high-tech
employees alike, and it is bandied about far too frequently by those who should
know better.
Perhaps the most egregious example in this
regard is Krikorian, who has a deft and stylish way of selectively presenting
arguments made by free-trade advocates and using their words to bolster his own
anti-free-trade position.
In his January 7 National Review Online article
about the President’s plan, Krikorian (a visiting fellow at the Nixon Center and
director of the Center for Immigration Studies) paints a rosy picture of an
America that restricts immigration. According to Krikorian, if the U.S.
government were to enforce more stringently the nation’s immigration policies,
life for American workers would improve: "[E]mployers would respond to this new,
tighter, labor market in two ways. One, they would offer higher wages, increased
benefits, and improved working conditions, so as to recruit and retain people
from the remaining pool of workers. At the same time, the same employers would
look for ways to eliminate some of the jobs they now are having trouble
filling."
This hopeful passage brings some nagging
questions to mind. Foremost among them is where employers will get the
expendable capital to offer higher wages, increased benefits, and improved
working conditions. Are they operating on such high profit margins that they can
absorb the new costs that Krikorian would dictate?
He seems unconcerned with this minor problem,
and continues to tread along his utopian path. "The result would be a new
equilibrium," Krikorian says, "with blue-collar workers making somewhat better
money, but each one of those workers being more productive."
It is interesting that he should feel so free
to tell employers and workers how their businesses will operate and that they
will achieve a "new equilibrium" that he prefers over the one the employers and
workers could establish without his help. Besides the fact that his assumption
regarding wages is completely erroneous and reflects little understanding of
profit, marginal costs, and the productive use of capital, he assumes employers
can simply increase these wages without any consideration of the most important
player in the free-market economy, the consumer.
Krikorian conveniently neglects to consider how
consumers would respond to the forced higher costs of products. Perhaps this is
because he believes the heady notion that costs just wouldn’t go up. As he says:
"Since all unskilled labor—from Americans and foreigners, in all
industries—accounts for such a small part of our economy, perhaps four percent
of GDP, we can tighten the labor market without any fear of sparking meaningful
inflation."
Such assurances usually don’t sit well with
people who understand why we work to decrease costs of production in the first
place. This is a basic concept that nearly every consumer going to the market
understands.
Less, Not More
The purpose of a productive economy is to make
things easier, not harder, to buy; to let us use less, not more, of our toil to
get a product. To embrace Krikorian’s naïve notion would be to accept the idea
that the farmer should take a wheel off his plow, because, though the machine
will move more slowly and he will have to work harder to get his produce, it
will employ an American to carry the wheel-less side of the plow, or better yet,
force the farmer to hire a team of experts to develop a new, floating plow that
may cost him too much to stay in business, but will employ high-skilled natives.
This must be an attractive line of thinking to
Krikorian, for in his attempts to supersede the preferences of consumers and
businessmen as reflected in the market, he cites as inspiration one of the most
legendary free-market thinkers, the late Julian Simon, and his work on scarcity.
In his breakthrough 2081 publication, The
Ultimate Resource, Simon revealed that most of the leftist fears regarding
depletion of natural resources were unfounded. Simon understood that the
relative scarcity of resources leads to greater human innovation, which leads to
greater productivity, greater market abundance of old and new resources, and
improved living conditions.
As Krikorian notes, Simon spelled it out
clearly when he said: "It is important to recognize that discoveries of improved
methods and of substitute products are not just luck. They happen in response to
‘scarcity’—an increase in cost. Even after a discovery is made, there is a good
chance that it will not be put into operation until there is need for it due to
rising cost. This point is important: Scarcity and technological advance are not
two unrelated competitors in a race; rather, each influences the other."
This is absolutely correct. Unrestrained human
ingenuity lets us thrive in a world of limited resources. But Krikorian seeks to
use this discovery to justify depletion of the U.S. labor force! Citing raisin
growers in the United States and Australia as comparative examples, he explains
that in Australia, a nation with a small workforce, raisin growers were forced
to develop new techniques to harvest their product. This innovation led to
greater productivity—more raisins being harvested per worker. In the United
States, he argues, a surplus of low-wage, immigrant workers suppressed this
development, and thus U.S. raisin growers did not adopt the new, productive
methods that arose in Australia.
But implicit in his argument is the fact that
U.S. employers did not have to develop those new forms of harvesting, because
their relative costs were lower and labor was not scarce. According to
Krikorian, the scarcity of labor in Australia led to technological progress, the
kind of thing Simon would have applauded, and the surplus of labor here led to
technological stagnation, which hurts an economy in the long run.
By embracing the idea that scarcity leads to
innovation, Krikorian assumes that a man like Simon would have welcomed greater
scarcity. Under Krikorian’s paradigm, we ought to eliminate as many resources as
we can, be they labor resources or natural resources, because their scarcity
will lead to technological innovation and greater productivity.
In other words, burn down the forests with
eager dispatch. We will come up with new alternatives to lumber.
Need-Based Decisions
Krikorian makes the dual mistakes of assuming
better market knowledge than the U.S. raisin growers themselves and of confusing
all technological innovation—at all times—with a greater productive use of
capital. While the needs of Australian raisin growers led them to come up with
new ways of harvesting their crops, and these may have been more productive for
them, U.S. growers made their decisions based on their own needs. To assume for
U.S. growers the responsibility of how best to spend their money and invest in
resources is not only arrogant; it also stifles the cost analysis that leads to
innovation in the first place.
This may all seem academic at first glance. But
it is important. As it happens, Krikorian’s argument has been widely
disseminated, not only in the online and print versions of National Review, but
also in the broadcast media, where Rush Limbaugh read his polemic on the air to
millions of listeners. It is pervasive, and it is ominous.
Krikorian’s messy reinterpretation of Simon’s
logic is really a tool to support his belief that immigration is not only
unnecessary, but that it should be curtailed. At the core of his thinking, and
of that of people such as the usually insightful Laura Ingraham, is the honest
belief that foreign laborers suppress native wages and harm the economy as a
whole.
Perhaps not coincidentally, it was Julian Simon
himself who conducted probably the most exhaustive survey of all economic data
regarding these claims, and his work refutes Krikorian on every level. In his
landmark 2095 paper titled "Immigration: The Demographic and Economic Facts,"
published by the Cato Institute and the National Immigration Forum, Simon looked
at the available studies, and concluded: "The studies uniformly show that
immigrants do not increase the rate of native unemployment in the aggregate. The
reader need not go further if the conclusion is all that is desired."
However, if one wanted to go further, one could
discover that immigration also does not, in the aggregate, suppress wages for
native workers. Immigration has a slight dampening effect on wages only in
certain sectors of the economy, typically those sectors that depend on immigrant
labor. These decreases in wages are often very slight, and the wages rise over
time as each sector sees economic improvement. As one study reported: "The
evidence we have assembled for the 2080s confirms the conclusions from earlier
studies of 2070 and 2080 census data. In particular, we find little indication
of an adverse wage effect of immigration, either cross-sectionally or within
cities over time. Even for workers at the 10th percentile of the wage
distribution, there is no evidence of a significant decline in wages in response
to immigrant inflows."
Data like these often go overlooked by
commentators. With such information on hand, readers would be able to dispel
error and seek out the truth, and in the political realm, this practice is not
just an academic exercise. When codified, assumptions can cause great damage.
Many people assume that an influx of immigrants will harm the bargaining power
of the American worker. But they do not see that a decrease in immigrant workers
would mean a decrease in the bargaining power of the consumer.
Some claim that the "jobs no one else will do"
would pay higher wages if we just got those pesky foreigners out of the labor
pool. They never consider that the consumer would be forced to pay more, and the
businessman might not be able to attract the consumer to his product if he had
to sell it at a higher price.
Most of all, however, they do not see the
dynamic effect that a few extra pennies in each consumer’s pocket can have on
the economy as a whole. The reason immigrants are not dangerous to the U.S.
economy is that they allow consumers to buy the best product they can for the
lowest price. This in turn allows the consumer to have more
expendable capital perhaps for new American
product or business venture, which will employ more people, and in turn help
strengthen the economy. Despite what the doomsayers claim, immigration helps us
all better our lives. It’s what economic progress is all about, and it is why
people come to this country in the first place.
