December 27, 2007

George Borjas Interview—Part 2: Borjas On Open Border Libertarians: " I Don’t Really Miss Them, Actually"

By Peter Brimelow

[An abridged version of an interview published in Immigration and the American Future. See also Heaven’s Door After A Year, By George Borjas, June 10, 2001]

Peter Brimelow writes: Everyone knows, or concedes, that immigration is good for the economy—except economists. Amazingly, since the early 1990s, a consensus has existed among labor economists that the current unprecedented influx into America is of no particular economic benefit to native-born Americans in aggregate. I reported this consensus in my 1995 immigration book Alien Nation: Common Sense About America’s Immigration Disaster and it was confirmed by the National Research Council’s 1997 study The New Americans, the survey of the technical literature on the economics of immigration done at the behest of the Jordan Immigration Commission. Equally amazingly, this consensus has been totally ignored in the public discourse on immigration—one of the most startling failures of democratic debate of which I am aware.

No-one has more to do with the new consensus about the economics of immigration than Professor George J. Borjas, Professor of Economics and Public Policy at Harvard University’s John F. Kennedy School of Government and a Research Associate at the National Bureau of Economic Research. Borjas first began to depart from the optimistic orthodoxy with his 1990 bookFriends or Strangers: The Impact of Immigrants on the U.S. Economy. His most recent full-length treatment of the subject is his 1999 book Heaven’s Door: Immigration Policy and the American Economy. Borjas, himself a Cuban immigrant, has every emotional reason to favor immigration. That he does not is entirely a function of the data—and his scrupulous scholarship.

I spoke to him in his Cambridge office and began by asking him to summarize the findings of the NRC’s The New Americans.

[See Part One—George Borjas On The Media's Immigration Economics: "People Now Are Getting That It’s Complete Nonsense"]

Brimelow: As I understand it, the data seems to indicate that incomes have stagnated for thirty years.

Borjas: The average real wage in the U.S. hasn’t risen that much. The top has increased a lot. The bottom has decreased a lot. And immigration is part of that. It’s clear that at the bottom end of the distribution, in other words, the high school dropouts, immigration has had an impact.

And, because the immigration in the U.S. is very bi-modal—a lot of low-skilled people and some high-skilled people—you’re starting to see an impact at the upper end too. And at the upper end, immigration, even though it’s lowering wages there, is also fighting the whole trend of the U.S. economy, the increasing payoff for skills. So we don’t quite see the impact as clearly.

Is immigration the only thing that is going on? No. But one thing I’ve noticed in the newspapers recently are statements like "Well, everybody agrees that at the very low end, immigration lowers wages." Well, since when did we agree on that? We were arguing about that six months ago.

Brimelow: Why are we arguing about wages anyway? It’s a very narrow way of looking at immigration. The real issue is: what’s immigrant surplus? How much better-off are the native-born?

Borjas: I agree. And then compare that with the cost of services if you really want to do a cost-benefit analysis.

But suppose that number is zero, which I think is pretty close to being true. Then you still might want to care about the wage impact because of the distributional effect. It’s making the rich richer and the poor poorer.

Brimelow: If the total impact of immigration is a wash, then there is no economic rationale for immigration. What’s America’s need for immigration?

Borjas: No economic rationale in the context of this model. You can see a slight loss if you look at the transfer payments.

I wouldn’t go so far as to say immigration is completely useless. There are loss and gain at specific sectors. In terms of potential benefits, think of Silicon Valley. It may well be the case that the large migration of high-skilled workers into a very clustered geographic region somehow created this energy. Now, nobody has actually proved that.

Brimelow: And revisionists point out all the original founders of Silicon Valley were Midwestern farmboys.

Borjas: Well, I’m willing to believe that, okay? But whatever synergy that exists with high-skilled immigration, you clearly cannot make that argument for low-skilled immigration.

Brimelow: As an economist, do you think immigration is necessary?

Borjas: For what?

Brimelow: Economic growth.

Borjas: For economic growth? Of course, the U.S. can grow without it. But it can be beneficial. A country that pursued a rational immigration policy of selecting the most skilled people could actually do pretty well.

Brimelow: What kind of numbers?

Borjas: Our current immigration policy leads to an immigration surplus of, like, $10 billion a year, right? If you had an immigration policy that was mainly skilled workers, you could easily get a number like 100 billion dollars a year.

But there’s no free lunch in immigration. There are gains, but somebody has to pay the cost of those gains. Immigration doesn’t happen and then all of a sudden everybody gets manna from heaven. People are displaced. Not everybody’s better off.

Brimelow: At the moment, native-born Americans of all races have apparently decided that there are enough Americans. Their birth rates are down to replacement levels and the population is spontaneously stabilizing. But it’s being driven upward dramatically through government policy. Is there any economic reason to have a growing population?

Borjas: No. I’ve wondered why people worry about this. Assuming constant returns—if you double input, you double output—it wouldn’t really matter what population level we’re at. What matters for an economy’s wealth is not the number of people, but the kind of people we have.

In Europe, people worry about that a lot. But I don’t quite understand why cutting the population by 10% would imply that they are 10% poorer. Per capita income needn’t fall at all.

Brimelow: What about the argument that there’s a demographic structure problem and the Baby Boomers need immigrants to pay for their retirement?

Borjas: That’s a different issue. That problem exists because of the way that we have built our insurance system for the elderly. We have a security system that is basically a Ponzi scheme. We need more people to pay the benefits.

But immigration is still not a solution for two reasons: One, the kind of immigrants we get on average need government services. So even if the immigrants provide for retirement costs, we have to support their social assistance programs.

Two, what’s going to happen when the immigrants retire? Do we have to let more immigrants in to pay for them too? It’s not a viable long-run solution. Laurence Kotlikoff wrote a paper with a simulation about the European Union and Japan that shows it’s just impossible for immigration to do very much about it.[ Will China Eat Our Lunch or Take Us to Dinner?—Simulating the Transition Paths
of the U.S., EU, Japan, and China (with Hans Fehr and Sabine Jokisch) March 2007.]

Brimelow: There are really two issues, aren’t there? One is we don’t actually know how long the Baby Boomer generation can work, health care has changed so much. The second is mechanization, robotics.

Borjas: The Japanese are very interesting. They basically had a choice between low-skill immigration and mechanization. And they did not choose low-skill immigration. Which is better for economy in the long run? That’s a paper waiting to be written. It will be a very important paper. My gut reaction would be that mechanization is probably not a bad idea because it would lead to more discoveries and economic growth, but I could be completely wrong. I’m willing to be completely open until I see the data coming in.

Brimelow: Does economics give an answer as to how big population should be?

Borjas: No. Economics to this day has not given an answer to even simpler questions, such as how many immigrants should there be. Economics gives an answer to which kind of immigrants we should get, if we have a choice: skilled immigrants. Economics does not give an answer as to how many skilled immigrants we should have.

Brimelow: But Tamar Jacoby would tell you that we need immigrants, that’s why they’re coming in. She would say the market is telling us we need immigrants.

Borjas: That’s ridiculous. The U.S. has a wage level that is many times higher than that faced by four billion people in the world at least. That means Jacoby would continue to admit immigrants until the wage in the U.S. is the same as the wage where those 4 billion people live. That’s completely nonsensical definition of the market.

Brimelow: Well, I can see why that would be unfortunate for Americans, particularly working Americans. But why is it nonsensical from an economic standpoint? Say to a libertarian, who doesn’t accept the legitimacy of the national community anyway?

Borjas: I think that the answer is the following: we have an economic answer and we have a political answer—and they’re intertwined. Who should U.S. policymakers care about when they decide immigration policy? If the answer to that is we should care about the 4 billion poor in the rest of the world, then by all means we should open the borders. But if we should care about the 300 million people who are here already, then letting in 4 billion people is not in their interest.

Brimelow: You don’t have a lot of libertarians around here, do you? You must miss them.

Borjas: I—no. I don’t really miss them, actually. They’re crazy. They have no definition of what a country is!

Brimelow: Even if we were to open the borders to try to maximize the wealth of the world, there’s a prudential question of whether it would work.

Borjas: Of course. It assumes no cultural conflict of any kind, only economics. It requires a movement of 4-5 billion people to three parts of the world: Japan, parts of North America and Western Europe You have to consider the cost of that kind of mobility. I don’t mean just the plane, I mean the whole notion of what it entails to the culture, to the people themselves. So it’s not actually clear that it’s better off for the world as a whole to have no borders. I mean it’s true that world GDP will go up, but what about mobility costs? Those could be even greater.

Brimelow: Of course, in fact, everybody would not move.

Borjas: Right. An example: Puerto Rico again. Since 1946 or so, people have been coming freely to the U.S. There’s no legal restrictions of any kind. There are huge wage gaps that haven’t narrowed. Puerto Rico should be empty. Yet only a quarter of Puerto Ricans left. That’s telling me that a big fraction of the world would prefer to live where they are.

Brimelow: The Open Borders people would say that’s an argument why we could have open borders—not all people would move.

Borjas: But what would the U.S. look like if we let in even just 25 million Mexicans and only 250 million Chinese? It would still be the U.S., but it wouldn’t be the U.S. really.

Brimelow: Do you think that there is an answer in economic theory as to what the optimum level of immigration is?

Borjas: One can answer that question using economics.

Brimelow: Why?

Borjas: Because it is really an economic question. How do we allocate resources? How do you allocate people? It is at heart an economic question.

The problem is while it is an economic question, you need an objective function. And you have to work it out logically and consistently and mathematically. And that’s a harder question to address than you think it is.

Brimelow: I don’t think it is an easy question, but I do think it’s an important question. In fact, I think it’s the only important question when it comes right down to it.

Borjas: How many and who. Yeah, I agree. The "who?" we know the answer to–skilled immigrants. "How many?" is a harder question.     

Brimelow: Is there work done on that?

Borjas: No.

Brimelow: Isn’t that odd?

Borjas: It’s odd, but I think it’s a hard problem. It’s an interesting problem, but it’s very hard.

And if you were to do it, very few people would believe you. Because—think about an academic’s career. You have to make sure you do things that are interesting, publishable and have an impact. And you have to be convincing on the way.

To answer the question of how many immigrants there should be, you have to have a model at the very beginning that says, the world should look like this. It’s your own objective function. Well there’s no natural objective function that could be pleasing to a lot of people.

One could imagine the following, and it would be a good place to start: maximize the net gain to natives by having immigrants come in, and subtract out the cost of social assistance programs, right? You maximize that model and say, this is the true number of immigrants we should have. But I suspect that is harder than it sounds.

Brimelow: But it’s astonishing on its face that no-one asking it, when you think about that Congress is on the verge of legislating this tremendous nation-altering public policy—doubling or tripling legal immigration. Americans are spending 3% of GDP on higher education and much of that goes to research, and there is who knows how much spent on research in Washington. So what are they waiting for?

Borjas: [chuckle] Again, there’s an academic’s career to think of. You have to worry about getting tenure, you have to worry about…how many immigrants should there be? I agree. That is a very sensible question to ask. And in theory, in principle, it is an answerable question. Just a very hard question to address. Somebody, someday, will come up with a very clever way of looking at it.

It will not be infinite. It will not be infinity. It will not be zero. There will be some number that is optimal for the U.S. And I can’t tell you, right now, what is the optimal number.

Brimelow: Well, what other research is going on?

Borjas: A lot of young economists, especially in Europe, are working on immigration. Questions like "what’s the wage impact of immigration?" in the European context, "what’s the welfare impact of immigration?"

Brimelow: What’s going on in the U.S.?

Borjas: A lot of people are starting to look more closely at Mexican immigration, because it is so large. There will be a lot of work coming out on the wage impact, which number is closer to the true impact of immigration, is it a short-run impact or a long-run impact?

Brimelow: I continue to regard that as a trivial question, myself.

Borjas: Well, the reason people will look at that is because it is a technically interesting question, which is answerable in theory by looking at data. The whole notion of capital adjustments and how capital adjusted to immigration—that’s an answerable question if you have the data. Again, it’s not the question you want answered, but it’s a specific question that is answerable, given the tools we have.

Brimelow: What about your students?

Borjas: I discourage them from studying immigration.

Brimelow: Why?

Borjas: Because, given that I’m working with them, people will think that I’m doing most of the work, or that I gave them the idea or something.

Brimelow: Normally speaking, academics develop disciples, don’t they?

Borjas: I know, and I don’t have that. I don’t have the need. Let me put it that way.

Brimelow: Would it do them any good?

Borjas: I don’t think it would do them much good.

Brimelow: Even though there is interest in the subject now.

Borjas: Right.