Even people who are otherwise enthusiastic about a free market in labor can get cold feet about immigration once redistribution enters the picture. Some are fond of quoting Milton Friedman, who famously (or infamously) said:

On this view, immigration is fine under fully free market institutions, but in the actual world with its abundant government-provided benefits, immigration restrictions are justified to protect taxpayers from the added expense that could arise if immigrants consume these benefits. But this conclusion is too quick, and even Friedman’s position is more nuanced than people on both sides of the immigration debate tend to realize. 

An initial point, though: the concern about the fiscal cost of immigration is overstated. For one reason, in the United States, most welfare spending goes to the very young or the very old. Immigrants, by contrast, are disproportionately of working age.  

Setting that point aside, Friedman’s own view wasn’t that immigration as such is harmful. He argued that legal immigration is the problem, precisely because it allows immigrants to access government benefits. By contrast, he thought illegal immigration was beneficial. As he put it: “It’s a good thing for the illegal immigrants. It’s a good thing for the United States. It’s a good thing for the citizens of the country. But it’s only good so long as it’s illegal.” Friedman’s reasoning was that illegal immigration enables mutually beneficial market exchange while limiting immigrants’ access to government benefits.

Now, many fiscal conservatives balk at Friedman’s recommendation—namely, if the overconsumption of government resources is the problem with lawful immigration, the solution is to encourage people to break the law. I understand this reaction, but I admit I don’t share it. In my view, whether it’s okay for someone to do something doesn’t depend on whether lawmakers give them written permission. For instance, did you know that it’s against the law to drive on Cape Cod’s National Seashore’s beach if there’s not a tire-pressure gauge in your car?  Nevertheless, I have no moral objection if you drive on the beach gaugelessly. Regardless of whether government officials approve, this is just a peaceful activity that doesn’t violate anyone’s rights.

Maybe you disagree with me. Still, as others have suggested, there’s another way to accommodate Friedman’s general idea: admit immigrants as lawful permanent residents but restrict their access to certain government resources. Economists sometimes call this a “keyhole solution”—if the problem is immigrants’ consumption of benefits, then design a policy that narrowly targets that problem rather than restricts their freedom to immigrate entirely. 

The main objection to this sort of policy seems to be moral rather than economic. Indeed, Friedman himself was asked about it and he replied that he found the proposal unappealing partly because it’s not “desirable to have two classes of citizens in a society.” That’s a good point. It’s unfair for a government to give some citizens taxpayer-financed benefits but not others. If two people live, work, and pay taxes within a country, government officials should treat them equally, which involves giving them both equal access to government resources. 

Notice, though, that a policy of immigration restriction also treats citizens and prospective immigrants differently—it gives citizens, but not immigrants, access to domestic labor markets, private associations, educational opportunities, and more. Consequently, a principle of equal treatment actually seems to imply open borders. Given that Friedman rejects this option, the task becomes that of identifying the second-best solution. (Also, it’s not clear that Friedman can square his objection to keyhole solutions with his endorsement of illegal immigration, which would presumably also create two classes in a society.)

Why think that a policy of open immigration with restricted access to benefits is better than outright exclusion? The reason, in brief, is that admission with conditions treats prospective immigrants betterthan exclusion. A policy of open immigration with restricted benefits at least gives people the option to move, and it’s hard to see how giving someone a new option could make them worse off.

Here’s an analogy. Suppose John is entering the job market. One employer offers him a job with health insurance and a retirement plan. The next day, he receives another offer—this one comes with no benefits, but a much higher salary. Even if you think he should take the first job, it seems perfectly permissible to offer him the second. John is no worse off for having another option. If he doesn’t want to take it, he can simply decline it. And if he does prefer higher pay without benefits, he’s clearly better off for having the option.

John’s case is analogous to the case of a prospective immigrant who expects to earn significantly more by moving to a country where her access to government benefits is limited. If she prefers having access to a wider range of government-provided benefits in her current country to having higher earnings but fewer benefits in a new country, she can decline to move; in this case, she is no worse off for having the option. But if she prefers higher earnings with fewer benefits, the option makes her better off.  Just as it’s permissible—indeed, probably good—to offer John the extra option, so too is it permissible to offer prospective immigrants the extra option. 

It’s also worth highlighting another important aspect of restricting immigrants’ access to benefits rather than restricting their movement entirely. Admitting immigrants as lawful permanent residents removes the threat of deportation, among other consequences, that accompanies undocumented entry into a country. Even if you agree with Friedman (as I do) that the keyhole solution of admitting immigrants with reduced access to benefits isn’t totally fair, it’s still more fair than denying prospective immigrants the option of safely moving at all.

The post Friedman on Immigration: Setting the Record Straight appeared first on Econlib.

Tweet

… is from page 203 of Matthew Hennessey’s superb 2022 book, Visible Hand:

[T]he notion that some petty bureaucrat knows your interests better than you do is both empirically false and philosophically unacceptable.

The post Quotation of the Day… appeared first on Cafe Hayek.

Tweet

… is from pages 178-179 of John Chamberlain‘s 1982 autobiography, A Life with the Printed Word:

But what the experience of my own dissident pilgrimage among the “scribblers” who have set the intellectual fashions of the past half century tells me is that the Left has nothing more going for it beyond its willingness to use force or deception in order to stay in power. It can suppress, but it has never managed to revive the spirit of innovation anywhere.

Jack Kemp has had some sharp words about a Republican Party whose symbol is the elephant. The elephant should remember what happens when it identifies itself with big business whose CEOs, managerial rather than entrepreneurial in psychology, compromise with the spirit of socialism in order to “get along.”….

We did not unsettle the Old World merely to reestablish its repressive ways in the New.

The post Quotation of the Day… appeared first on Cafe Hayek.

Tweet

Wall Street Journal columnist Jason Riley urges Republicans – indeed, all Americans – to again embrace the wisdom that runs throughout the pages of Adam Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations. A slice:

At least since the Reagan era, the GOP has been the main vehicle for popularizing and advancing economic freedom. And though there are similarities between the Trump and Reagan presidencies—both men cut taxes, reduced regulations and connected with traditionally Democratic voters—philosophical comparisons between the two can quickly become strained.

At Mr. Trump’s direction, the federal government has taken an equity stake in Intel, becoming the tech company’s largest shareholder. It has promoted price controls on pharmaceuticals and credit-card interest rates. It has permitted Nvidia to ship advanced semiconductor chips to other countries, but on the condition that Treasury receives a 25% cut of the revenues. In return for allowing Nippon Steel to acquire U.S. Steel, the government demanded veto power over plant closures and layoffs. And it has used tariffs broadly to bludgeon America’s friends and foes alike into economic submission.

This is industrial policy, the antithesis of free-market economics. None of it is reminiscent of Reagan, and all of it has been abetted by Republicans in Congress who spent years lecturing the Biden and Obama administrations about the pitfalls of government meddling in the private sector. As the Journal editorialized recently, our sad situation today is that “both major political parties lack notable champions for free-market principles.”

On March 9, we’ll mark the 250th anniversary of Adam Smith’s “An Inquiry Into the Nature and Causes of the Wealth of Nations,” published a few months before the Declaration of Independence. The book is considered the foundational text of modern classical economics, and it wouldn’t hurt Republican officials to crack open a copy.

Smith’s “Wealth of Nations,” which spawned an entire school of economics, was written to challenge the prevailing mercantilist system in Britain. The mercantilists advocated on behalf of merchants and favored economic protectionism. They equated a nation’s wealth with the amount of gold and silver it possessed and perceived international trade as zero-sum, meaning one nation’s gain was another’s loss. It was essential for a country to export more than it imported. It’s important to “sell more to strangers yearly than wee consume of theirs in value,” wrote the economist Thomas Mun, a prominent 17th-century mercantilist. And nations must produce domestically “things which now we fetch from strangers to our great impoverishing.” Sound familiar?

Smith set out to refute these ideas. He argued that a nation’s wealth derived not from the amount of gold it possessed but rather from its production and flow of goods and services. Government intervention on behalf of the merchant class led to cronyism, and trade protectionism hurt consumers by limiting their purchase options and increasing prices. Central planning was inefficient. Economic growth resulted when consumers, producers and investors sought their own self-interests through voluntary exchanges.

Whether or not he realizes it, Mr. Trump is animated by a mercantilist conception of the world. But thanks to Smith, today we judge the performance of an economic system based on how efficiently it allocates resources to satisfy consumers, not merchants. Better to focus on creating wealth, not taking existing wealth from others. Republican officials spend a lot of time these days directing epithets like “Marxist” and “socialist” at their political opponents. But where is their criticism of Mr. Trump’s statist tendencies? And what is their competing approach?

Richard Reinsch rightly criticizes J.D. Vance and other “postliberals” for their misunderstanding of markets and their trust in the state. Two slices:

That is one of the reasons economic mobility matters to Americans and their families. As University of Virginia sociologist Brad Wilcox recently observed, “American families have been migrating from blue states like California, New York, and Minnesota by the hundreds of thousands to red states like Idaho, Tennessee, and Texas.” It’s not just that the red states are more socially welcoming to families and people of faith. Wilcox further explains that these states allow families to support themselves financially “more readily than in blue states” because red states have lower taxes, stronger job growth, and more affordable single-family homes.” A successful conservative alternative for American families would seem to be the revival of a supply-side economic and cultural agenda for families, not Hungarian traditionalism.

…..

Like Democrats of old and of today, who always have a victim group that requires more federal programs and more federal spending because of what the country has unjustifiably done to it, Vance is a grievance-based politician. The small-town white male is no longer the salt of the earth; no, he’s a victim. International trade took his job, he fought in the War on Terror for no purpose, and he fell victim to the opioid crisis that corporations imposed on him. Accordingly, the “new right” government must step forward with tariffs, industrial policy, a harsh anti-immigration posture beyond removing illegal aliens, pro–labor union policies, and progressive antitrust measures to provide for these new aggrieved Americans.

The hidden premise of the Vance right is that we are now living in a post–American Dream era. Reaganites have failed, leaving the vast majority of adults who once aspired to stand on their own, living free and independent lives, unable to survive. According to a new caste of American right-wing leadership, taking its cues from European conservative statists, American citizens should lead lives scripted for them, and leaders should abandon policies rooted in growth, work, and citizenship grounded in freedom and virtue.

Vance has been consistently clear, both before and after entering public life, that drastic government action is warranted on behalf of the American people. He has expressed admiration for Lina Khan—President Biden’s director of the Federal Trade Commission, known for her aggressive and progressive antitrust posture—and has supported the Affordable Care Act, and he can be expected to adopt an accommodating stance toward the means-tested entitlement state. His rhetoric of emergency and of a country in extremis reveals an agenda to increase the size of government “for our own purposes,” as he noted in a 2021 interview on the Jack Murphy Live podcast.

The Washington Post‘s Editorial Board decries Sen. Edward Markey’s (D-MA) Luddite efforts to obstruct the use of driverless automobiles. A slice:

The right question is not whether driverless vehicles have ever made a mistake; it’s whether they make fewer such mistakes than human drivers. Thus far the data suggests that self-driving is a substantial improvement, and consumers in the cities where Waymo operates don’t seem deterred.

The greatest risk to moving forward here isn’t technological but political.

Also from the Editorial Board of the Washington Post is this summary of lessons drawn from “Biden’s failed electric-vehicle push.” A slice:

By pulling EV models from their lineups, repurposing EV battery plants and laying off workers in some EV factories, the automakers are taking $50 billion in combined write-downs on their EV investments. The electric-vehicle investment bubble egged on by the Biden administration reflected a classic disconnect between a government’s lofty policy goals and a public that wasn’t convinced. Biden set the fantastical goal that half of all new vehicles sold by 2030 should be EVs. Currently that number is just six percent and dropping.

Former Securities and Exchange Commission commissioner Joseph Grundfest argues, in the pages of the Wall Street Journal, for abolishing the SEC’s “Shareholder Access Rule.” Two slices:

Of the thousands of rules and regulations adopted by the Securities and Exchange Commission, none are as divisive as the Shareholder Access Rule. It empowers investors with even minuscule holdings to force shareholder votes on nonbinding proposals—usually on topics including corporate environmental policies, diversity initiatives, political contributions and board composition.

Investors owning as little as $2,000 of a company’s stock—about 16 billionths of the average market capitalization of an S&P 500 company—can force a vote. Average monthly rent for a New York City apartment is roughly $3,500, 75% more than the rule’s minimum. This holding requirement might be the only thing in America not suffering an affordability crisis.

Only 11% of the proposals that proceeded to a vote in the 2025 proxy season gained majority support from voting stockholders. If a proposal is approved, the corporation’s board typically declines to implement it anyway. The Access Rule thus generates toothless, performative votes.

…..

SEC Chairman Paul Atkins has vowed to rededicate the commission to its statutory mission. Repealing the Access Rule should be part of that agenda. The rule’s supporters would likely appeal that decision to the courts. Because of the Supreme Court’s decision in Loper Bright v. Raimondo (2024), the courts will then interpret the statute for themselves. Given the judiciary’s recent trend toward narrowing the reach of the administrative state, the future there looks dim for the rule.

Corporations can craft their own access rules that are better suited to their specific needs. That would restore shareholder voice under state law, which is where the question properly resides. But corporations should still work to fill the gap that would be left by repealing the rule. Guaranteeing proxy access to stockholders with reasonably sized holdings—much more than $2,000—respects investors, even when their views can be uncomfortable for management to address.

This “private ordering” alternative has decades of support from scholars and individual SEC commissioners. It’s the necessary replacement for years of illegal federal intrusion into shareholder meetings. The Access Rule should never have been adopted, and the legally proper response is to repeal it.

Here’s further evidence that immigrants to America do not ‘steal’ American jobs or otherwise reduce Americans’ employment opportunities: (HT Scott Lincicome)

The large increase and subsequent decline of unauthorized immigrant workers in recent years have raised questions about the impact of these changes on local labor markets across the United States. New analysis linking immigration data with employment data for specific areas suggests that the rapid rise in unauthorized immigrant worker flows increased local employment roughly one-for-one. Extending the analysis to the industry level further suggests that the slowdown of net immigration had a large negative impact on local employment, particularly for construction and manufacturing.

Arnold Kling is a guest on a former classmate’s podcast.

The post Some Links appeared first on Cafe Hayek.

Tweet

Here’s a letter to the Wall Street Journal.

Editor:

Jason Riley eloquently decries President Trump and so many other Republicans (and Democrats) today for falling for the zero-sum mercantilist fallacies that were exploded 250 years ago by Adam Smith (“GOP Doesn’t Know Smith From Adam,” February 18).

The most pernicious of these fallacies serves as the explicit justification for Mr. Trump’s “Liberation Day” tariffs – namely, that a country that runs trade deficits necessarily loses wealth to other countries. This fallacy is also the one that Adam Smith spent most time and ink debunking. His conclusion, brilliantly backed by careful reasoning, is powerful and succinct: “Nothing, however, can be more absurd than this whole doctrine of the balance of trade.”

In a more-rational world, we would worry about our so-called “trade balance” with other countries no more than we worry about our trade balance with other towns, counties, and states – or, indeed, our trade balance with people whose hair or eyes are of different colors than ours. As it is, alas, our freedom of commerce is obstructed by our own leaders who are beguiled by this absurd doctrine.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

The post The Absurd Doctrine of the Balance of Trade appeared first on Cafe Hayek.