“All the problems we face in the United States today can be traced to an unenlightened immigration policy on the part of the American Indian” – Pat Paulson
I saw a commercial the other day that I found quite interesting. I disagree with its message, but not as vehemently as one might think. First, the commercial. It’s from a group called “NumbersUSA” that is looking to clamp down on immigration – in this case LEGAL immigration.
So, here’s the message: People who are already Americans are having trouble finding a job, so we should clamp down on LEGAL immigration to help unemployed Americans find jobs.
As a general economic rule, protectionism doesn’t work. It fails quite miserably.
Perhaps I should quantify that statement. If the goals is general, overall economic growth and wellbeing for the whole country, protectionism fails miserably. The problem is that it appears to work, if you measure only the short term implications and chalk up the negative effects to “other causes.”
Suppose we enacted a massive tariff on all foreign produced shoes. Shoemakers in America (are there any left?) would find the move extremely helpful – they’d be the only game in town. The problem is that the shoes are made overseas because it’s cheaper. Consequently, shoe prices would also rise significantly. So, for a nice job-bonus handout to a few thousand shoemaking employees, the entire country would pay a massive markup in shoe prices. The costs significantly outweigh the benefits … but the costs will likely be attributed to “inflation” not the protectionist policies.
The situation is worse though. What will the countries that used to employ shoemakers who exported to the USA do in response? They’ll raise tariffs on something we produce … it’s called a trade war. So, a few thousand US shoemaker employees will get nice paying jobs, a few thousand US appliance manufacturing employees will be out of a job, and the overall net result will be higher shoe prices … and nothing else.
Immigration Protectionism …
The NumbersUSA proposal is much the same. Americans are having trouble finding jobs, so they want to limit legal immigration to reduce the worker pool. It has some logic too it. There are structural problems though.
American workers are having trouble finding work because of the high cost of employment. There are dozens of factors here, but consider just a simple one: an unemployed American who hasn’t exhausted benefits is drawing down around 1/2 of their former salary … for nothing. They won’t go to work for the same amount – they get it for nothing now. The incoming foreign immigrants have no such safety net – they have to work and can take lower wages to do it.
The result? Fewer jobs, higher prices for the things that are produced, and a stiff hit to everybody’s bank account. All this so a few thousand (or even million) unemployed Americans can get jobs over legal immigrants.
It surely won’t end there though. Incoming foreigners often send money overseas to poor family members. Implication? Other countries have a vested interest in having their citizens employed in America, and are just as likely to respond with protectionism of their own.
I’m sympathetic to the argument, I am. It just doesn’t hold up to even the mildest analysis.
I don’t hold that the argument is totally without merit. It is surely a complex issue with reasonable people on all sides. But I would phrase the valid part of the contention this way: “everybody under the sun is benefiting from some sort of protectionism here – and we are going to be forced to pay the higher prices because of it, so we want our own protectionism to prop our wages up.”
All for One …
The whole notion of protectionism sort of throws the prisoner’s dilemma into reverse. The prisoner’s dilemma, of course, is a game theoretic proposition in which two criminals are captured and separated for questioning. If they both stay quiet, the authorities only have enough to put them away for a year. If one confesses and the other doesn’t, the confessor will get six months and the other will get five years. If both confess then both will get two years.
Here’s the issue. If they both keep quiet, they can get out for one year each. However, each prisoner is faced with a problem – no matter what the other person does, he will always have a smaller sentence if he confesses; reducing from five to two years if the other confesses, and one year to six months if the other does not. If they had an iron-clad commitment to each other not to talk then they’ll be fine. If not though, Then they’ll both be going away for two years instead of one.
Economists, political scientists, and even theologians will often proffer scenarios in which we’re all better off if we all behave in a certain way, but individuals can gain extra benefit for themselves. For instance, we’re all better off in a society with no crime. But, if there is no crime other than what I commit (and if I can get away with it) then I have gained something for myself at the expense of others. (Of course, not in the long term, when the Lord will certainly have words for me.) Unless there is an iron-clad social commitment to relent from crime, one can expect some to attempt to gain for themselves via criminal activity.
Protectionism turns this argumentation on its head. Instead of worrying about the whole doing what is best for the whole, and a few seeking their own benefit, protectionism argues that the masses should do what is not in their own interest, for the sole benefit of the few. It is selfish and absurd. We will ask the government (i.e., the people) to enact barriers to freedom that will hurt the masses, but will put money in our pockets … and we often attach a moral flavor to the argument.
I suspect we’ll see more of this as the economic morass continues.