Topic: Trade and Immigration

The E-Verify Debate as it Stands in Kansas

Here’s a good article in the Wichita Eagle on the debate over E-Verify, with particular reference to the state of Kansas, where the legislature recently considered requiring employers to use this system for a federal background check on all new hires.

My paper, “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration,” is here.

Myth-Busting Fortunes of the Steel Industry

Today, the Washington Post finally got around to publishing a story about the enviable state of America’s most iconic manufacturing industry – the steel industry.

Steel prices are at record highs, surging more than 70 percent in the past year alone. Industry profits have set new records in recent years. Return on investment has been astronomical. The American Stock Exchange’s Steel Index increased 49 percent per year from 2003 to 2007, as compared to 13 percent per year for the S&P 500. Foreign demand continues to be white hot, while demand from U.S. steel-using industries continues to be stronger-than-expected in a slowing economy.

U.S. steel industry shipments of 106 million tons in 2007 exceeded the industry’s 1970 shipments by 16 percent. Output per worker has soared: in the 1970s producing a ton of steel required 12 man-hours; today it requires 1.2 man-hours. Several billion dollars of new green-field investments are being made by foreign and domestic producers in U.S. production capacity, which is a sure sign that those who know the industry best have faith in America’s manufacturing future.

We at Cato have been reporting about the high-flying steel industry for several years now (here, here, and here), and about the record performance of the U.S. manufacturing sector overall (here and here). But the mainstream media (with a few exceptions) has been silent about these incredible successes, while Barack Obama, Hillary Clinton, the Congressional Steel Caucus, other members of Congress, Lou Dobbs, the United Steelworkers, the AFL-CIO, the Alliance for American Manufacturing, and other entities whose agendas require an environment of public fear have had carte blanche to mislead and deceive the public about trade and manufacturing.

The preference in the media for exceptional doom and gloom stories about job loss and manufacturing ghost towns over factual stories about the real state of manufacturing has definitely taken its toll. Opinion polls show irrational levels of antipathy toward trade and globalization among the American public, which simply belies the facts.

I suppose it would be wrong to blame the media for pursuing a proven formula: fear and drama sell advertising. But maybe the commoditization of fear and drama will lead more news media to discover niche markets, like the market for quaint, factual stories couched in perspective.

De-Debunker: Low-Hanging Fruit

Another day, another debunking.

DHS Assistant Secretary for Policy Stewart Baker has another effort to debunk information about the E-Verify program on DHS’ Leadership Journal blog. In this case, it’s “Debunking the ‘E-Verify Capacity Problem.’”

Critics say that only 60 thousand employers are registered with E-Verify, while there are 6 million employers in the U.S. But this is an example of using an accurate statistic to produce a misleading result. Many of those 6 million employers won’t hire a single worker this year. Others will hire thousands. What counts is how many individual hires the system can handle… . Based on a recent load testing, the system has the capacity to handle 240 million queries a year. That’s three to four times the number of people who are usually hired in a given year.

Fair enough, and frankly I hadn’t been aware of there being an argument about a “capacity” problem with E-Verify’s servers or data systems.

Running a Web search on “E-Verify capacity” to see what the capacity argument is, I found little other than a Government Accountability Office report which says the following:

A mandatory E-Verify program would necessitate an increased capacity at both U.S. Citizenship and Immigration Services (USCIS) and SSA to accommodate the estimated 7.4 million employers in the United States… . Although DHS has not prepared official cost figures, USCIS officials estimated that a mandatory E-Verify program could cost a total of about $765 million for fiscal years 2009 through 2012 if only newly hired employees are queried through the program and about $838 million over the same 4-year period if both newly hired and current employees are queried… . . SSA has estimated that implementation of a mandatory E-Verify program would cost a total of about $281 million and require hiring 700 new employees for a total of 2,325 additional workyears for fiscal years 2009 through 2013.

That’s a very different kind of capacity - and very expensive. I have written here before about a Social Security Administration workers’ union official who pointed out the lacking capacity at SSA to handle national E-Verify.

The difference in these kinds of capacity reveals an inference in my and others’ criticism of E-Verify that Baker and the folks at DHS may be missing. I may have been too obscure again yesterday when I wrote, “Just because you have a glass coffee table, that doesn’t mean you can build a glass sundeck.”

The class of businesses currently using E-Verify is particularly proactive about not hiring illegal immigrants – either because they are naturally fastidious or because they have been subject to enforcement actions that practically or legally require it. They may self-select against hiring potential illegal immigrants – perhaps avoiding native or fluent Spanish speakers, for example. If their motivation is avoiding trouble with the feds, these employers may not tell workers about tentative nonconfirmations, getting rid of them under other pretenses. Or they may prescreen workers using E-Verify before even hiring them. (Sure, E-Verify fan, tell yourself it’s against the rules - like driving over the speed limit is against the rules.) This all makes it look to folks like Stewart Baker like they’re catching illegal workers.

For what they’re worth, these employers are the low-hanging fruit for the E-Verify program. This is the best E-Verify will get. The rest of the nation’s employers, and the workers they hire, will produce higher error rates and new, more difficult problems.

The capacity of E-Verify’s databases and servers may be fine. The capacity of the various federal agencies to sort out the results of national E-Verify – not so good.

E-Verify Debunking Exposes Debunking Errors

Congratulations are due once again to the Department of Homeland Security for engaging in open dialogue about its programs, even controversial ones like “E-Verify” – a system that Congress may require all U.S. employers to use for running federal background checks on every single new employee.

Openness is healthy, and the comments to a recent post on E-Verify by my old friend DHS Assistant Secretary for Policy Stewart Baker are poking some holes in his somewhat facile analysis. I’ll weigh in with a little more, based mostly on my recent paper “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration.”

Baker says that critics claim the error rate in E-Verify is as high as 4% and will lead to millions of Americans losing their jobs by mistake. To refute this, he points to a study commissioned by the Department of Homeland Security showing that 94.2% of new hires in a sample of 1,000 E-Verify queries were automatically verified, 0.5% resolved a mismatch, and 5.3% received a final nonconfirmation (that is, they either didn’t try or couldn’t challenge the finding that they were ineligible for employment under U.S. immigration law).

Unfortunately, Baker doesn’t point to the actual study. He just links to a picture of a conclusion from it, so we can’t do much to analyze these figures. If these are the results from reviewing only 1,000 new hires by current E-Verify users, that is far too small a sample and too skewed a group to reflect what would happen were the program taken national.

And he concludes: “Of the thousand, 942 are instantly verified. Instant verification of legal workers surely can’t be an error.” Of course it can! Any number of the 942 might have been illegal immigrants who submitted the name and Social Security Number of a legal worker to the employer.

But putting Baker’s glib, erroneous conclusion aside, I believe the 4% figure cited by critics is not about today’s small E-Verify program. It’s the error rate in the Social Security Administration’s Numident database found by the SSA’s own Inspector General (and it’s 4.1%!). Simple math suggests that this would produce a tentative nonconfirmation in 1 out of 25 new hires in the country were E-Verify to go national.

In fairness, that simple math may actually be simplistic – perhaps some cohorts have higher error rates and others lower. We know, for example, that naturalized citizens suffer error rates in the area of 10%. Perhaps older citizens that are leaving the workforce have higher error rates, leaving a lower error rate among current workers. And over time, the error rate would drop as workers were sent from their jobs to Social Security Administration offices trying to get their paperwork in order. (Put aside for now that the SSA takes more than 500 days to issue disability rulings.)

Baker’s conclusion that the 5.3% of workers finally nonconfirmed are illegal workers is without support. The statistic just as easily could show that the 5.3% of law-abiding American-citizen workers are given tentative nonconfirmations, and they find it impossible to get them resolved. More likely, some were dismissed by employers, never informed that there was a problem with E-Verify; some didn’t have the paperwork, the time, or the skills to navigate the bureaucracy; and some were illegal workers who went in search of work elsewhere, including under the table.

American workers pushed out of the workforce by E-Verify – Baker treats it as “common sense” that they’re illegal aliens, and he doesn’t look any further. The E-Verify program does the same - it has no system for contesting or appealing final nonconfirmations.

With his post, Secretary Baker has only raised the question of error rates in E-Verify. There are many sources of error in a system like this, and making it bigger would reveal more. Just because you have a glass coffee table, that doesn’t mean you can build a glass sundeck.

And we shouldn’t take our eye off the ball. “Mission creep” is a governmental law of gravity. Once in place, a national E-Verify system would be used to give the federal government direct regulatory control over law-abiding Americans. Federal authorities would use it to control not just work, but housing, financial services, and access to alcohol, tobacco, and firearms – for starters. Secretary Baker himself recently suggested using a national ID to control our access to cold medicine. The list of things his successors might do is endless.

Obama, McCain Swap Places on Trade with Cuba

During their time in the Senate, John McCain has voted in a free-trade direction on 88 percent of major votes affecting barriers to trade, Barack Obama only 36 percent of the time. But on trade with the pathetic, socialist island of Cuba, the two presumptive presidential nominees swap places.

In a speech yesterday, McCain accused Obama of changing his position on the U.S. government’s almost 50-year-old embargo against Cuba. “Now Senator Obama has shifted positions and says he only favors easing the embargo, not lifting,” Mr. McCain said, according to a story in this morning’s New York Times. “He also wants to sit down unconditionally for a presidential meeting with Raúl Castro. These steps would send the worst possible signal to Cuba’s dictators—there is no need to undertake fundamental reforms, they can simply wait for a unilateral change in U.S. policy.”

Cuba is one of the few trade-related issues where Democrats generally come down on the right side and Republicans on the wrong side, and the two presidential front-runners are true to type.

According to the Cato Institute’s “Free Trade, Free Markets” web feature that tracks congressional votes on trade, Sen. McCain voted in 2003 against ending the ban on Americans traveling to Cuba. In 2005, Sen. Obama voted to defund enforcement of the ban. In their public statements, McCain has supported the comprehensive embargo in place since 1960, while Obama has questioned its usefulness.

The politics behind the embargo are quite straightforward. Florida is a swing state that is home to half a million politically active Cubans who rightly detest the communist regime in Havana. Many of them wrongly see the embargo as a test of America’s resolve to bring an end to the regime. But the embargo’s lack of substance is also equally straightforward. After almost half a century, the embargo has failed to prompt the Cuban government to undertake anything remotely resembling “fundamental reforms.” It has made the Cuban people a bit poorer, while not making them one bit freer.

For a comprehensive argument against the embargo, check out the text of a speech I gave in 2005 at the James A. Baker III Institute at Rice University in Houston. The only thing I would consider changing is the title, which was, “Four Decades of Failure: The U.S. Embargo against Cuba.” My new title would be, “Almost Five Decades of Failure.”

‘The Democrats’ Dangerous Trade Games’

Listening to the Democrats talk about trade on the campaign trail and in Congress, you might conclude that the party is monolithically skeptical about the merits of new trade agreements.

As they campaigned in Ohio and elsewhere, Hillary Clinton and Barack Obama tripped over themselves in competing to see who could denounce NAFTA and other trade initiatives in the harshest terms. Meanwhile, Democratic House Speaker Nancy Pelosi re-wrote established rules on handling proposed trade agreements by shelving the agreement the Bush administration signed with our South American ally Colombia.

In a welcome dissent in this morning’s Wall Street Journal, C. Fred Bergsten, founder and director of the Peterson Institute for International Economics in Washington, sounds a warning against “The Democrats’ Dangerous Trade Games.”

Bergsten has long-standing ties to the Democratic side of the aisle, having served in Jimmy Carter’s administration as assistant secretary for international affairs at the U.S. Treasury during 1977–81.

Bergsten pulls no punches in his op-ed this morning:

[O]ur venerable House of Representatives, in the context of the Colombia agreement, has recklessly changed the rules for congressional action on trade legislation. By rejecting long-settled procedures that prevented congressional sidetracking of trade deals negotiated by presidents, the House has hamstrung U.S. trade policy and created the gravest threat to the global trading system in decades.

By effectively killing “fast track” procedures that guarantee a yes-or-no vote on trade agreements within 90 days, lawmakers in Washington, led by House Speaker Nancy Pelosi, have destroyed the credibility of the U.S. as a reliable negotiating partner.

The op-ed is well worth a read, especially among Democrats who are feeling uneasy about the direction of their party on trade.

Is Bob Barr a Libertarian? Certainly Not on Trade

Former Georgia congressman Bob Barr announced this week that he wants to be the Libertarian Party’s presidential nominee in 2008. Party members have only another week to kick the tires of this former Republican before they decide at their May 22 convention whether he should be their standard bearer in the fall.

I’ll leave it to others to dissect his overall record, but on international trade Barr is no libertarian.

During his eight years in the House, from 1995 to 2003, Barr voted on 24 major bills and amendments affecting the freedom of Americans to trade and invest in the global economy. He voted in favor of lower trade barriers only four times, voting in favor of higher trade barriers 20 times.

You can check out his trade voting record (or that of any other member of Congress) by using the “Trade Vote Records” search tool on the Cato Institute’s Center for Trade Policy Studies web site.

On the pro-trade side, Barr did vote twice to approve presidential trade promotion authority, to expand visas for foreign-born doctors, and to relax computer export controls. But he also voted:

  • Numerous times to uphold the trade embargo and travel ban against Cuba.
  • Against normal trade relations with China and Vietnam. Denial of NTR would have resulted in drastically higher tariffs on imports from those countries.
  • In favor of mandatory “country of origin” labeling on imported food, a federal mandate aimed at discouraging consumers from buying imported food.
  • Against lower tariffs on imports from Andean countries, including Colombia.
  • Against capping farm subsidy payments to the largest farm operations.
  • Against lower tariffs on goods imported from Caribbean and Sub-Saharan African countries.
  • And in favor of quotas on steel imports.

Barr’s libertarian credentials were solid when it came to trade subsidies such as farm price supports and export promotion. He voted against both versions of the 2002 farm bill, against subsidies for sugar, wool and mohair, and against the Export-Import Bank, Overseas Private Investment Corp. and Market Access Program, which all shovel tax dollars to large multinational corporations.

His votes in favor of trade barriers are easy enough to explain politically. Georgia has lots of cotton farmers who have been protected and subsidized over the years. The state is also home to a small and shrinking textile and apparel industry that has traditionally hid behind trade barriers against lower cost imports from China, Latin America and to a lesser extent Africa.

The Libertarian Party, however, promotes itself as “The Party of Principle,” with those principles being “Smaller Government … Lower Taxes … More Freedom.”

Before Bob Barr becomes the party’s presidential nominee, he needs to explain to delegates why he voted so consistently to impose or maintain high tariff duties on products millions of Americans buy everyday, why he could not bring himself to cap farm subsidy payments, and why he supported trade and travel restrictions against a pathetic Cuba that poses no national security threat to the United States.

Free trade is not just a quirky side issue for libertarians. It is a basic pillar of free-market economics. None other than Adam Smith devoted an entire book of his monumental work The Wealth of Nations to arguing for the freedom of people to trade across international borders. Milton Friedman was an uncompromising advocate of free trade. The same Frederic Bastiat who wrote the libertarian classic The Law also made a career of ridiculing the kind of protectionist measures that so consistently won Bob Barr’s support during his time in Congress.

When he stands before the Libertarian Party convention next week, Bob Barr needs to tell delegates either that he was wrong all along about free trade or that Adam Smith was wrong.