July 07, 2006

George Borjas vs. David Card's Unworldly Philosophy

By Steve Sailer

The Immigration Equation is an 8,000 word article by journalist Roger Lowenstein in the July 9th New York Times Sunday Magazine on the controversy over immigration within the economics profession. (Through the miracle of the internet, it was available to paying subscribers of Times Select on Thursday.)

It focuses on the rivalry between VDARE.COM contributor George Borjas, professor of economics at Harvard and the "the pre-eminent scholar in his field" according to Lowenstein, and Berkeley economist David Card, who is, well, not the pre-eminent scholar in his field. But Card has gotten lots of publicity recently by telling economists who, for ideological, emotional, or personal reasons favor immigration, but who would prefer not to worry about its effects on America's poor, that, hey, there's nothing to worry about.

Lowenstein's last paragraph sums up his biases:

"The disconnect between Borjas's results and Card's hints that there is an alchemy that occurs when immigrants land ashore; the economy's potential for absorbing and also adapting is mysterious but powerful."

"Alchemy" … "mysterious but powerful" … When you hear those words in a discussion of immigration, you should put your hand on your wallet.

Lowenstein goes on:

"Like any form of economic change, immigration causes distress and disruption to some. But America has always thrived on dynamic transformations that produce winners as well as losers. Such transformations stimulate growth. Other societies (like those in Europe) have opted for more controls, on immigration and on labor markets generally. They have more stability and more equality, but less growth and fewer jobs."

This statement would appear odd to the Chinese and to the smaller Asian Tigers, who have enjoyed the fastest growth in economic history with virtually no immigration.

And that Europe has a shortage of immigrants might seem strange to anyone who recalls the endless car-burning riots by immigrant-stock youth in France last fall, the terrorist bombings by Muslims in Britain last summer, or the Mohammed cartoon riots across the continent last winter.

One might think that any consideration of American immigration would at least cast a glance at the now clearly disastrous European experience with importing foreigners to "do the jobs that Europeans just won't do" and realize that it, too, seemed like a good idea at the time.

"Economists have highlighted these issues, but they cannot decide them. Their resolution depends on a question that Card posed but that the public has not yet come to terms with: "What is it that immigration policy is supposed to achieve?""

That's really not a hard question. A general but powerful answer was provided in the Preamble to the Constitution 219 years ago:

"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity…"

In other words, American policy should be for the benefit of Americans and our descendents, not for the advantage of, say, the five billion potential immigrants who live in countries with average per capita GDPs lower than Mexico.

And we definitely should not make immigration laws based on status competition ploys by people who want to show off their status as "winners" unthreatened by competition from uneducated illegal immigrants, unlike all you losers out there whose jobs could be done by some peasant from Chiapas.

In reality, economists who have closely studied the impact of immigration on the economy have come to a series of unspectacular conclusions about its effects. The overall benefit to the economy is either negligible or nonexistent. In particular, illegal immigrants are not productive enough to make a sizable net difference. There's simply no economic justification for the disruption and long-term risks associated with illegal immigration.

No, immigration is largely just another exercise in cost-shifting. Unlike trade, immigration comes with extensive externalities, such as the direct costs of medical care, education, and policing, estimated by the National Research Council in 1997 at $89,000 more than tax receipts for the average high school dropout immigrant. Moreover, there are the enormous indirect costs of insulating ourselves and, especially, our children geographically and socially from the disorderly and anti-education culture of illegal immigrants and their posterity.

The profits from immigration in general and illegal immigration in particular accrue primarily to lawbreakers and to the wealthy. The costs are imposed on low and moderate income American citizens.

The adulation with which libertarian economists have greeted a couple of studies by Card claiming that the Law of Supply and Demand does not, conveniently enough, apply to the effects of illegal immigration on wages is ironic. Many of the same economists have denigrated Card's other best known study. It alleged that the Law of Supply and Demand does not apply to minimum wage laws either. Consequently, according to Card, the minimum wage can be raised without raising unemployment.

Lowenstein is enormously impressed by Card's first immigration study, which appeared to showed that wages in Miami did not fall after the Mariel boatlift of Cubans of April 1980, which increased the Miami labor supply by seven percent:

"Card's Mariel study hit the cloistered world of labor economists like a thunderbolt. All of 13 pages, it was an aesthetic as well as an academic masterpiece…"

But, of course, the Law of Supply and Demand applies ceteris paribus (all else being equal). So was all else equal between Miami in the early 1980s and the four control cities that Card used for comparison? Could there possibly have been anything else going on in Miami a quarter of a century ago that was driving up wages by injecting uncounted billions into the local economy?

There's a famous book about economists by Robert Heilbroner called The Worldly Philosophers. But I've noticed that economists are strikingly oblivious to the obvious. For example, Steven D. Levitt of Freakonomics fame made himself into a superstar among his fellow economists by arguing that legalizing abortion in the early 1970s cut the crime rate sharply in the mid-1990s. I pointed out in Slate.com in 1999 that he had simply failed to notice that, in direct contradiction of his theory, violent crime among teens born right after legalization had soared during 1987-1994. Apparently, none of the prominent economists to whom he presented his theory before its public unveiling had recalled the crack wars either.

Now, I'm not the world's worldliest man, but I did spend a week in South Florida during that summer of 1980. And even I noticed that in every bar I visited, the locals greeted rapturously a certain annoying [scroll down and click to listen] Eric Clapton recording:

"If you wanna hang out, you've got to take her out; cocaine.
If you wanna get down, down on the ground; cocaine.
She don't lie, she don't lie, she don't lie; cocaine."

Eventually, it dawned on me that Miami was the ultimate cocaine-importing boomtown.

And this fact is not an obscure bit of local economic history—it had a vast impact on popular culture. You might think that economists and economic journalists like Lowenstein would remember the highly memorable 1983 movie  Scarface,  with Al Pacino playing Tony "Say hello to my little friend" Montana, a Mariel boatlift refugee who becomes the kingpin of the Miami cocaine rackets. Scarface has since become the favorite film of gangsta rappers.

Or, if economists don't get out to the movies much, perhaps they saw an episode or two of the enormously influential 1984-1989 television series Miami Vice,  which fetishized the ludicrous amounts of drug money flowing through Miami in the aftermath of the Mariel boatlift.

Card claims that the Mariel influx didn't hurt black economic well-being But local blacks didn't share Card's complacency about the immigrant takeover of Miami.

One month after the beginning of Mariel boatlift, the black Liberty City slum erupted over a police brutality case (with two of six cops charged being Hispanic). Eighteen people died.

Then in 1982, two Hispanic Miami police officers shot a black man in the Overtown neighborhood, setting off another riot. And in 1989, a Latino immigrant cop killed two more black men, with three more days of rioting ensuing.

Over time, many blacks left Cuban-run Miami, with black-run Atlanta being a favorite destination. (This supports George Borjas’ counter to Card: the labor market impact of immigration has to be assessed nationally, because Americans move).

Lowenstein goes on:

"In a recent paper, "Is the New Immigration Really So Bad?", [ PDF] Card took indirect aim at Borjas and, once again, plumbed a labor-market surprise. Despite the recent onslaught of immigrants, he pointed out, U.S. cities still have fewer unskilled workers than they had in 1980. Immigrants may be depriving native dropouts of the scarcity value they might have enjoyed, but at least in a historical sense, unskilled labor is not in surplus. America has become so educated that immigrants merely mitigate some of the decline in the homegrown unskilled population.

"Mitigate" is an odd word choice that reflects the strange mental atmosphere surrounding Card. Why would anyone want to "mitigate" the decline in the percentage of American residents who are uneducated?

Immigrant-inundated California is leading the way in “mitigating” the horrors of learning. The 2005 National Assessment of Educational Progress scores are now out for eighth grade Science, and the cutting edge state of California, home to Silicon Valley and Cal Tech but also of millions of illegal aliens, ranks second worst out of the 44 states measured, ahead of only Mississippi. America's future is looking dumberer.

Further, Card is using another bit of sleight of hand here that Lowenstein doesn't recognize. Illegal immigrants don't compete just with other high school dropouts as Card implies. They compete with blue-collar workers in general. There are plenty of high school graduates who would like to work with their hands, such as in construction. But their wages are hammered down by illegal immigration.

The average Hispanic IQ in America is around 90 (on a scale in which Asians average 105, non-Hispanic whites 100, and African-Americans 85). About one-quarter of our fellow American citizens score below 90, but their troubles are of little concern to economists (as indicated by how infrequently economists ever mention the dread letters "IQ").

So Hispanic immigration hurts our least fortunate citizens, while slowly driving down the average productive capacity of Americans.

Lowenstein mentions another argument made by Card:

"In the U.S., wages in cities where immigrants have clustered, like New York, have tended to be higher, not lower. Mississippi, on the other hand, which has the lowest per-capita income of any state, has had very few immigrants."

Fortunately, Lowenstein at least has the good sense to caveat:

"That doesn't necessarily mean that immigrants caused or even contributed to high wages; it could be they simply go where the demand is greatest."

Indeed.

Unfortunately, Lowenstein overlooks the even more serious problem with Card's latest argument. In the words of a recent New York Times article by Eduardo Porter called "Cost of Illegal Immigration May Be Less Than Meets the Eye:"

"In a study published last year that compared cities that have lots of less educated immigrants with cities that have very few, Mr. Card found no wage differences that could be attributed to the presence of immigrants."

An accompanying graphic shows that a high school dropout in California, where supposedly 6.9% of the population are illegal immigrants, averages $8.71 per hour in wages versus merely $8.37 in Ohio, where only 1.0% are illegal immigrants.

Case closed!

Well, no, not exactly. What about the cost of living difference between California and Ohio? Don't they tell you in Econ 101 (and for that matter in Journalism 101) always to adjust for the cost of living?

According to the data gathered by the nonprofit organization ACCRA, which measures cost of living so corporations can fairly adjust the salaries of employees they relocate, at the time California had the highest cost of living in the country with an index of 150.8 (where 100 is the national norm). Ohio was below average at 95.4. So, relative to the national average cost of living, high school dropouts in Ohio average $8.77 versus $5.78 for the equivalent in California. That means they are 52% better off in Ohio.

So, the Law of Supply and Demand hasn't been repealed after all...

What Card doesn't grasp is that illegal immigration is denying Americans the traditional wage premium for undergoing the pain of moving to a boomtown. Lowenstein can't see it either, as he writes: "Immigrants do help the economy; they are fuel for growth cities like Las Vegas …"

Imagine you are an American blue-collar worker in Cleveland, making $10 per hour. You know the local economy is stagnant, so you're thinking about relocating to fast-growing Las Vegas. But your mom would miss you; and you're not a teenager anymore so you don't make new friends as fast as you once did; and you really like the wooded Ohio countryside you grew up around and the fall colors and the deer hunting; and there's this girl that maybe you could get serious about, but her whole family is in Cleveland and she'd never leave.

So, you decide, you'll leave home behind if you can make 50 percent more in Las Vegas, adjusted for cost of living. That seems fair.

But, then you look through the Las Vegas want ads and discover you'd be lucky to make 10 or 20 percent more because the town is full of illegal aliens. They're moving from another country, so it's not much skin off their nose to move to Las Vegas rather than some place slower-growing.

Well, forget that, you say. I'll stay in Cleveland.

Unfortunately, too many economists forget that too. They can’t—or won’t—put themselves in other people's shoes and see how the world really works.