Guest Essay: AN IMMIGRANT’S VIEW OF IMMIGRATION by Svetozar (Steve) Pejovich, Professor Emeritus of Economics, Texas A&M University

Bernie Sanders told us that the US economic system is rigged against the poor. Sanders chose to ignore that the United States is the land of immigrants. The one-way flow of people into the United States has been steady since the 19^th century.  That is so because our economic system has provided a living for the poor and a safe haven for the oppressed.

Unfortunately, both political parties and numerous rent seeking groups have succeeded in politicizing immigration. Today, we observe an array of proposals to reform immigration. Most of those proposals are variants of open-borders and border-control methods of governing immigration, and are all lacking in-depth economic analysis.

The efficiency of alternative immigration rules is not independent of the prevailing institutional structure in the country. Institutions generate behavioral incentives that affect the outcome of all economic activities including immigration. Thus, different institutional structures support different methods of governing immigration.

Two major methods of governing immigration are open-borders and border-controls. The history of immigration laws shows that open-borders dominated the rules of immigration until the late 1930s with border-controls becoming a prevailing factor in the second half of the last century.

Neither method of governing immigration is a free lunch for immigrants. Immigrants are leaving behind the culture they understand, the rules of behavior they grew up with, and the life-long relations they can depend on.  Moreover, immigrants face considerable risks and uncertainties in the process of adjusting to an alien social environment and making a living in a different economic system.  Immigration is not a free lunch for American taxpayers, either. Taxes and fees capture most if not all different costs of immigration, such as schooling, health care, policing, etc.

The economic efficiency of any method of immigration requires the contribution of the annual flow of new immigrants to the American economy to exceed changes in the costs borne by taxpayers.  The level of those costs depend on the rules governing immigration. That is so because different rules create different behavioral incentives, and different incentives produce different outcomes.

The prevailing institutional structures in the United States up to the 1930s were alien to those not coming from the British Empire. The British Common law prevailed over statutes. Property rights and the rules of contracts were emerging from the bottom-up choices. Voluntary interactions among individuals and groups governed most economic and social activities. Private contracts dominated economic life. Sheriffs and common law judges interpreted and maintained the law and order, and enforced contracts. Most importantly mandated social programs were yet to reach the United States shores, especially the West.

Given the prevailing incentives and constraints in the 19^th century America, people who came to the United States were by and large those who opposed the established order at home, rejected medieval guilds, complained about the church, and hated taxes imposed by kings, local leaders, guilds and bishops. They had a “rebellious” desire to make their own choices, create their own rules of the game, and develop their way of life. They came to America for one and only one reason: to work. Some stayed in the East as laborer, others chose to become settlers in the West. They all faced considerable risks and uncertainties earning a living in an alien environment with an unfamiliar and evolving economic system.  Hence, those immigrants, skilled and unskilled, educated and uneducated, were true entrepreneurs. Like entrepreneurs everywhere, they innovated, exploited opportunities not noticed by others and many of them failed. In the aggregate they did pull the American economy forward and reinforced the American tradition of competition, self-responsibility and self-determination.

In the 1930s the top-down regulation began to replace the bottom-up open-border rules of immigration. In the 1940s and 1950s, a wave of political immigrants (including the author) came from Eastern Europe. Their reasons for seeking home in America were different from the motives of economic immigrants. Some political immigrants were eager to adjust to America. Others wanted America to adjust to them.

In the 1960s. the ‘war on poverty” started a major restructuring of American institutions. With a small interruption in the 1980s, the United States steadily moved away from the free-market, private-property economy dominated by the bottom-up rules of the game into a European like social-democracy governed by the top-down decisions and massive welfare programs.

Institutional changes, and especially the expanding welfare programs, created a different set of incentives for immigrants. Immigrants coming to the United States today still include entrepreneurs and hard laborers. However, new incentives also attract welfare seekers and pregnant women who want their babies to be born in the United States.

It is predictable that this new mix of immigrants into the United States will continue as long as our welfare payments exceed their costs of immigration. Since no change (other than increases) in welfare benefits are in sight, it is also predictable that at some point the contribution of working immigrants will fall short of the costs of all immigrants to American taxpayers.[1]

I conjecture that the comparative efficiency of open-borders and border-control methods of immigration, defined as the contribution of new immigrants to the economy in excess of the additional costs on new immigrants borne by taxpayers, depends on the prevailing institutions and behavioral incentives they generate.  Regretfully, open-borders are incompatible with a welfare state.

To superimpose open-border rules, which are efficient in a free-market, private-property economy, on the prevailing institutions promoting welfare programs and a culture of dependency, would take the US economy down the path toward the tragedy of the commons; in bleaker terms, toward an economic ‘black hole’ which destroys everything on its path.

[1] In one page Cato Polcy report, W. Niskanen suggested a way around this problem. See Niskanen, W,  “Build a Wall Around the Welfare States, Nor Around the Country,” Cato institute, September/October 2006 .