The Case For Free Immigration – Part I

This is the first of a three part series. Parts II and III.

Immigration is a hot topic. In virtually every newspaper everyday there is at least one article relating in some way to immigration. People’s emotions on this topic run very high. It’s strange that even though people argue about immigration, they all seem to be on the same side. It seems to me that free immigration is one of the few topics in which both left and right can unite to denounce. Why the backlash against immigration? I feel a lot of people react emotionally to the issue and never bother to really analyze its consequences.

This is a big topic and there is much to say on it. I will break the argument down into three parts. The first part, this one, examines the economic case for free immigration. I will identify some examples of why economic analysis tells us that immigration should be free. This is not meant to be a comprehensive answer. If I were to thoroughly explain all the economic ramifications of free immigration vs. restricted immigration, it would literally take a book. This is meant to give a general idea of the economic case for free immigration and I hope the discussion can be continued through questions, comments and challenges. But I assure you, the economic case for free immigration is formidable.

The second and third part of the argument for free immigration will deal with liberty and what I call “soul”.

There are many definitions of efficiency, and all of them lead to the conclusion that the best economic policy is free immigration. The first aspect of efficiency we’ll look at is the intersection of marginal social benefit and marginal social cost. Efficiency is measured by comparing marginal social benefit (MSB) with marginal social cost (MSC). When the two are equal, we have achieved efficiency. As long as MSB exceeds MSC, the action in question should continue, whether it’s buying pizza or letting immigrants into a country.

In other words, as long as the benefit we get from an action is greater than the cost we suffer, we should go ahead and do it. Think of eating pizza. If you’re really hungry, you will really value a piece of pizza. The benefit to you of eating that piece will greatly exceed the cost of, say, $3. Once you’ve eaten your first piece, you’re not quite has hungry as before. You’re still hungry, and hungry enough to pay $3 for a piece of pizza, but if that second piece of pizza cost $5, you might not eat it. Once you have enough pizza that you’re full enough that you no longer want pizza and would rather save your $3 for something else, the benefit of eating pizza is less than the cost of $3. The last piece of pizza you will eat is the one that gives you only $3 worth of benefit. At this point, the marginal benefit of eating pizza equals the marginal cost of eating pizza. If you ate any more pizza, its value wouldn’t equal the value of the money you’d have to spend to get it.

This example works for immigration too, as we’ll see.

So, when MSB equals MSC, the action in question should be stopped, or rather, it will stop - all on its own. The question then becomes how do we measure MSB and MSC? And whom do we ask? Well, we measure by asking people. In economics, there is positive economics and normative economics.

Positive economics is simply fact, something that shows a definite cause/effect and can be proven. For example, to say that when the price goes up quantity demanded goes down would be positive economics. Normative economics is what we think should happen, but is ultimately only opinion. An example would be someone saying something like, “The government should provide healthcare because it’s wrong that some people can’t afford it.”

So in order to measure if the marginal social benefit of immigration exceeds the marginal social cost of immigration, we need to ask people how they feel about it. Some claim a normative judgment is required because at some point we have to decide to not include some people. In other words, we have to make a conscious decision to exclude some people.

But as any statistician will tell you, the larger your sample size, the more accurate your result. Also, when collecting data, it is imperative that the sample be as random as possible. For example, if you ask 100 baseball fans whether baseball should be eliminated, it is pretty easy to guess what their answer would be and their response would not accurately reflect the opinion of the population at large.

Immigration is no different. If we want people’s views on immigration, to decide if immigration would make them better or worse off, in order to create immigration policy, it would make no sense to ask only those people in a high-wage area; we would know what the answer would be and it would not accurately reflect the view of the population at large. If we do not accurately reflect the larger population, our conclusions about where MSB equals MSC would be incorrect. If it’s efficiency we are striving for, it is essential that we can accurately measure MSB and MSC.

Also, immigration, by definition, affects at least two countries. Therefore, we need to collect data from at least two countries; but which two? If we are interested in the United States, we would collect data from the United States (even though we probably already know that outcome) and which other country? Mexico? But what about all the other countries that have people who wish to immigrate here? If we collect data from Mexico, it is probably a safe bet that the results will be the opposite of what we found in the United States (a high wage country vs. a low wage country).

So now if we want to accurately capture MSB and MSC, we are back to square one. We have two sets of conflicting data. Which one is true? Which one do we follow? Well, probably neither set of results is true and it would be unwise to create policy based on either one. Therefore, we must include a third country. Indeed, we would not be finished; we would not have an accurate feel for MSB and MSC until all countries are included. Including everybody is the only scientific approach. It is the only approach where a normative judgment is not required and it is the only approach where we can trust our results will be accurate.

There is another way to measure MSB and MSC: remove immigration restrictions. Immigration will flow until naturally MSB and MSC intersect. We will know that MSB exceeds MSC as long as we have immigration. Once we achieve efficiency, immigration will naturally stop, without any type of governmental coercion or intervention. The simple fact that there are many people in this world that wish to immigrate tells us that, for them, the marginal benefit of doing so exceeds the marginal cost. The second aspect of efficiency comes in here: immigration restrictions prevent resources (labor) from flowing to their most highly valued use.

In our example of marginal social cost and marginal social benefit above, we used pizza to illustrate the idea. You would eat pizza until the benefit of doing so equaled the cost. What if you ate that next piece? Well, for one, you would be spending your $3 on something that you don’t truly value. In other words, you would rather spend your $3 on something else, so to spend it on pizza would be silly. If there is something that you value more highly than pizza that you could get for your $3, you should spend your money on that which gives you the most benefit. You’re in effect wasting your money by buying pizza you don’t truly value. Not only do you get something you don’t truly value, you don’t get something you actually do value. This is clearly a waste of resources.

Also, by buying that next piece of pizza, that means that pizza is no longer there for somebody else to eat. Perhaps they value that pizza a lot more than you do and would be willing to pay $10 for it. But they can’t because you already ate it. That pizza would have been put to better use if it had been consumed by someone who truly valued it, just as your money would have been put to better use if you had used it to buy something you truly valued.

It’s this idea that is behind immigration. If there is pressure for immigration, it means that resources (labor) are trying to move to their most highly valued use. To restrict immigration means we are wasting resources by paying for labor that we don’t value as highly as other labor. Our social welfare (well-being) and the value we get for our money would be better served if that money was spent on something we truly value – more effective and cheaper labor.

Similarly, those laborers who are prevented from moving where they desire are having their labor wasted. It could be more valuable somewhere else. They could get more bang for their labor buck if they were allowed to emigrate to where their labor is more highly valued. Immigration restrictions are a blatant, artificial means of preventing resources to naturally flow to their most valued use.

To the classical liberal, government should have no role beyond protecting its citizens from harm. Traditionally, this has often been an argument for immigration restrictions. Immigration is harmful; therefore government has a duty to regulate it. Really? Who, may I ask, is being harmed? The typical answer is that the American worker is being harmed because he can’t find a job because his job has been taken by an immigrant; or similarly, that his wage would be depressed because immigrants work cheaper.

Economically speaking, neither argument is valid. Labor is a commodity just like any other. As long as that commodity is in demand, there will be ample work opportunity for everybody, and wages will spiral upwards. When demand for labor decreases, there will be fewer jobs and wages will fall. Immigration doesn’t affect the domestic worker in either of these areas. Immigrants come to this country only as long as there is a demand for their labor; in other words, only as long as there are more jobs than workers.

If this is the case the domestic worker already has his job and there is still yet more work to be done. When the demand for labor decreases, as in times of recession, the immigrants do not come, and in fact go home, leaving the jobs that are left for the domestic worker. When immigration is free, supply of labor will always meet demand, just as for any other commodity. Insert government intervention into the mix and we fail to achieve efficiency.

The argument that immigrants work for cheaper is also not consistent with efficiency. Since when are we guaranteed a certain wage? Classical liberals for decades have been crying out against labor unions and minimum wage because these are impediments to the free market. They are artificially propping up a wage above the market equilibrium price. Government intervention in the form of immigration restrictions does the same thing. By restricting immigration in the name of high wages is just as offensive as labor unions and minimum wages. The market - and only the market - should set the price for commodities, including labor.

Taking all of this into account, it seems clear that restricting immigration is an unwise policy from an economic standpoint. If we are striving for efficiency – whether we define efficiency as the intersection of marginal benefit and marginal cost, the maximization of resources or the intersection of supply and demand – by restricting immigration we can virtually guarantee that none of these things happens. Any way you slice it, if sound economic policy is our goal, restricting immigration should be the last thing we do.