Topic: Trade and Immigration

Cato Unbound - Migrating Toward National ID?

The current Cato Unbound, Mexicans in America, is the usual provocative and wide-ranging fare.  There’s no lack of issues - or passion - in the debate about immigration.

One item in the current discussion that piques my interest - indeed, concerns me - is the formative consensus that “internal enforcement” of the immigration laws is a good idea. 

University of Texas at Austin economics professor Stephen Trejo writes:

Given that most illegal immigrants come to the United States to work, why don’t we get serious about workplace enforcement? Retail stores are able to verify in a matter of seconds consumer credit cards used to make purchases. Why couldn’t a similar system be put in place to verify the Social Security numbers of employees before they are hired? …  I suspect that we could do much more to control illegal immigration by directing technology and other enforcement resources toward the workplace rather than toward our porous southern border.

Doug Massey, co-director of the Mexican Migration Project at the Office of Population Research, Princeton University, has interesting information and ideas for reform to which he would adjoin ”a simple employment verification program required of all employers to confirm the right to work.”

It does sound simple - until you step back and realize that the simple idea they’re talking about is giving the federal government the power to approve or reject every Americans’ job application.  Does anyone think that this power, once adopted - and the technology put in place to administer it - will be limited to immigration law enforcement?

To do this, all people - not just immigrants, all people - would have to be able to prove their identity to federal standards, likely using some kind of bullet-proof identity document (even more secure than current law requires).  That will soon be in place thanks to the REAL ID Act.  Once we’re all carrying a bullet-proof identity document, do you think that its use will be limited to proof of identity for new employees?

It’s easy to see how facile acceptance of internal immigration law enforcement adds weight to arguments for expanded government control and tracking of all citizens.  There are plenty of reasons to be concerned with internal enforcement, and the national ID almost certainly required to make that possible.  Many of them are discussed in my book, Identity Crisis: How Identification is Overused and Misunderstood.

How Well Does the Swedish Welfare State Serve Its Poor?

The American Left romanticizes the benefits of Scandinavian welfare states – to the point that one is sometimes reminded of Minnie the Moocher’s dream about the King of Sweden (“he gave her things that she was needin’…”).

Tim Worstall dispels that dream in today’s TCS Daily, pointing out that:

In the USA the poor get 39% of the US median income and in Finland (and Sweden) the poor get 38% of the US median income…. Which is really a rather revealing number don’t you think? All those punitive tax rates, all that redistribution, that blessed egalitarianism, the flatter distribution of income, leads to a change in the living standards of the poor of precisely … nothing.

Not Your Father’s Auto Industry

If you’re tempted to believe the proliferating rhetoric about America’s withering automobile industry, please listen to Dan Griswold’s Cato podcast today or read the paper he and I wrote on the subject before deciding to drink the Kool-Aid.

The declining fortunes of American icons Ford and GM have inspired numerous commentaries about the demise of the U.S. automobile industry. But the top 10 selling cars and top 10 selling light trucks in the United States are all made in America. U.S. output of motor vehicles and parts was also 68 percent higher in 2005 than in 1993, which compares favorably with overall manufacturing output growth of 56 percent over the same period.

How can that be, you might ask, when Ford and GM lost a combined $16.7 billion in 2005 and together plan to eliminate more than 60,000 jobs in the next few years?

Well, this isn’t your father’s automobile industry.

The days when the “Big Three” and the U.S. auto industry were synonymous, and when seeing a foreign car on the street prompted rubbernecking are long gone. Today Honda, Toyota, and Nissan (and other Japanese, German, and Korean companies) are all important and growing players in the U.S. auto industry.

Since the early 1980s, Japanese—followed by German and Korean—automakers have been building production facilities in America. These companies, which employ American workers, pay local and federal taxes, and buy most of their parts and materials from other U.S. suppliers, are every bit as much a part of the domestic auto industry as the Big Three (or “Big Two and a Half,” now that Chrysler is just a division of Daimler-Chrysler). While the Big 2.5 still dominate U.S. production, the foreign-owned share continues to rise, approaching one-third of total domestic production today.

That’s great news for U.S. consumers, whose choices are no longer constrained by the high-priced, low-quality offerings of what was once a domestic oligopoly. Since 1993, the general price level in the United States has risen 38.2 percent, but the price level of a new vehicle has increased by only 4.1 percent.

Certainly, the shifting industry landscape has produced winners and losers within the United States. Most of the foreign nameplate plants have been built in the American South, or otherwise outside of the rust belt states (with a few notable exceptions). But none of these plants, save one (a joint venture involving GM), employ unionized workers, and their market shares have been increasing. Of course, there’s much more to this changing picture than the fact that one group is unionized and the other isn’t, but it is an interesting fact, no?

The state of Michigan has by far been the biggest loser in this transformation. The state has seen a large decline in jobs (and tax revenues), and the auto industry promises to be the marquis issue in this fall’s governor’s race. The Republican nominee, Dick DeVos, recently lambasted the Bush administration for not doing more to arrest the decline of Michigan’s auto producers. Unfortunately, that’s par for the course for Republicans of late, who increasingly seem to have never met a bailout they didn’t like.

The government has no business interfering in the marketplace—particularly one that is working so well for the vast majority of Americans. But if there is any action the Bush administration can and should take—which would incidentally help U.S. auto producers—it would be to revoke some or all of the 160 antidumping measures in place against 21 different types of steel products from 32 different countries. U.S. government intervention on behalf of the domestic steel industry has created a dangerously concentrated market, and without adequate steel imports, steel producers can and have run roughshod over their customers, including the auto producers.

Ultimately, the decisions that brought successful foreign nameplate auto producers to invest in U.S. facilities, as opposed to exporting from production platforms abroad, are based on a variety of factors that are subject to change. Market considerations like transportation costs, labor and materials costs, access to transportation, and access to materials all ultimately contribute to such investment decisions. When access to raw materials is hampered, and thus more costly (as it is with steel in the United States), the benefits of the other considerations are mitigated.

Today, U.S. prices for corrosion-resistant steel (the primary component used in auto bodies) are $100 per ton higher in the United States than in Europe, and $200 per ton higher than in China. At some point, the price differentials will render production of autos abroad for export to the United States more cost-efficient than investment in the United States. If Honda, Toyota, Nissan (and for that matter, Ford and GM) reach that conclusion, then we’ll be witnessing a genuine crisis in the U.S. automobile industry.

Rants vs. Reason

I have received hundreds of incoming emails in response to my articles suggesting that federal civilian workers are overcompensated (see here and here).

Many emails have been rants claiming that I’m an idiot or don’t know what I’m talking about. Very few of those opposed to my arguments expressed any interest or curiosity in the actual underlying government data.

Some emails have been supportive. Here are two that suggest reasons why federal pay has been growing much more quickly than private pay.

This one came from a federal worker in Maryland:

I thoroughly enjoyed reading your 13 August opinion piece in the Washington Post–thanks!! As a senior military officer in a command that employs a large number of civilians, I have become increasingly frustrated at the excesses of the civil service system. Not only have the salaries gone up through the cost of living increases, we’re also paying more because of little control on promotions which has resulted in significant “grade creep.” Until your article, however, I continued to hear the confusing mantra that our civil servants were underpaid. I am grateful because you have provided me with some ammunition for my next command personnel discussion.

Here’s another from a retired federal worker in Virginia:

I would like to offer what I think are contributing explanations for the problem of excessive pay and benefits among the members of the Federal workforce.

First, the most salient explanation for overgrading in the Federal civil service is the conflict of interest posed by having the personnel function embedded within each Federal agency. Directors of personnel of Federal agencies report directly to their respective agency heads, all of whom have a vested interest in having as high a graded workforce as possible. Reporting to the directors of personnel are specialists called position classifiers. To be cynical about it, the responsibility of the classifiers is to write job descriptions that justify whatever grade levels that their respective managements want the jobs under them to have. In short, classifiers are wordsmiths who rationalize with contrived language raising position grades, almost never lowering grades. The result is that, over time, Federal job grades (and often titles) bear little relation to the real duties and responsibilities of the jobs to which they are applied. (Classifiers are a kind of inside joke among Federal employees.)

The remedy, it is obvious, is to take the personnel function out of the agencies and place it solely in an independent agency responsible to the White House, at least indirectly. Once that is accomplished, all the jobs in the Federal workforce should be reclassified and given realistic and appropriate grade/pay levels.

Read more public comments on my arguments here, here, and here.

Mismeasuring Progress

It is shocking to discover just how much of the debate over politics and policy rests on semi-arbitrary government standards for measuring things. For example, if you believe the Consumer Price Index speaks with absolute authority, then you will believe obviously absurd things, like the idea that real wages have stagnated. Virginia Postrel has a nice short essay in Forbes [free reg. req.] on this aspect of the mismeasurement of economic progress. If Bureau of Labor Statistics true-believers are right, then

… you have to wonder who’s buying all those flat-screen TVs, serving precooked rotisserie chicken for dinner or organizing their closets with Elfa systems. “Anybody who thinks things are getting worse should go to Best Buy and notice the type of people who go to Best Buy,” says economist Robert J. Gordon of Northwestern University.

Gordon is the author of a much-cited study showing that from 1966 to 2001 real income kept up with productivity gains for only the top 10% of earners. What the pessimists who tout his study don’t say is that, while Gordon does find that inequality is increasing, he’s convinced that the picture of middle-class stagnation is false.

“The median person has had steadily improving standards of living,” he says. But real incomes have been understated. The problem lies in how the U.S. Bureau of Labor Statistics calculates the cost of living.

Similarly, the American Enterprise Institute’s Nicolas Eberstadt has a terrific essay on the bizarre and inaccurate method by which the government calculates the poverty rate in the new Policy Review. Eberstadt shows that the official poverty statistics often get things backwards, indicating that poverty is getting worse when it is in fact getting better according to a number of other noncontroversial measures of economic well-being:

The official poverty rate is incapable of representing what it was devised to portray: namely, a constant level of absolute need in American society. The biases and flaws in the poverty rate are so severe that it has depicted a great period of general improvements in living standards — three decades from 1973 onward — as a time of increasing prevalence of absolute poverty. We would discard a statistical measure that claimed life expectancy was falling during a time of ever-increasing longevity, or one that asserted our national finances were balanced in a period of rising budget deficits.

Journalists unfortunately tend to take government numbers as gospel, and therefore end up communicating to the public a badly distorted picture of the state of our economy and society. And far too often intellectually savvy commentators who ought to know better repair to government statistics as if they are pure data, untainted by systematic methodological bias. However, far from a neutral picture of empirical economic reality, we get a funhouse mirror. I don’t think there is any intentional bias in these measurement methods. But there sure is ideological resistance to replacing them with more empirically adequate measures. Things really are getting better all the time, but “reality-based” economic measures might get in the way of some people’s pet policies. And we can’t have that! I think we’ll eventually get better official methods for measuring real income and poverty, but not without a fight.

Exporters as Hostage-takers?

I subscribe to a useful digest of farm policy news called FarmPolicy. It’s a great little news service for those interested in agricultural issues.

Today in FarmPolicy, my attention and pique were raised by an article that included a statement from Sen. Ken Salazar (D-Co), who said that farming should be an integral part of national security. According to Salazar:

I would hate to think of a day where the United States of America becomes hostage to other countries (that export food to the U.S.), in a way that we are held hostage over our energy needs

I know of only two other countries that pursue a policy of total self-sufficiency in food(which seems to be what the senator is advocating): North Korea and Zimbabwe.

And we all know how well that’s going…

If you are interested in agricultural policy, Cato will be holding a forum next week to discuss the new Farm Bill. The forum will feature the secretary of agriculture, Mike Johanns, as well as Cal Dooley of the Food Products Association and Robert Thompson, one of America’s most respected experts on U.S. farm policy. Please join us.

Happy Birthday, Welfare Reform

Ten years ago today, Bill Clinton signed welfare reform into law. As we look back on the results of those 10 years, it’s worth reflecting on just how wrong the critics were.

At the time the bill was signed, the welfare rights lobby warned that “wages will go down, families will fracture, millions of children will be made more miserable than ever.” One frequently cited study predicted that more than a million children would be thrown into poverty. 

Rep. Jim McDermott wasn’t satisfied with that prediction — he raised the estimate to 2.5 million starving children. Welfare advocates painted vivid pictures of families sleeping on grates in our cities, widespread starvation, and worse.

The New York Times claimed “the effect on our cities will be devastating.” Sen. Frank Lautenberg  (D-NJ) predicted “Hungry and homeless children” would be walking our streets “begging for money, begging for food, even…engaging in prostitution.”  The Nation warned bluntly, “people will die, businesses will close, infant mortality will soar.”

If one listened to the welfare lobbies, you would have expected to be stepping over bodies in the streets every time you left your house.

Now, with 10 years of experience, we can see that those claims were about as correct as claims of weapons of mass destruction in Iraq. Welfare rolls are down. Roughly 2.5 million families have left the program, a 57 percent decline. Undoubtedly, some of this was due to a growing economy, especially in the late 1990s, but welfare rolls remain down despite the post-9/11 economic slowdown.

At the same time, poverty rates today are below the rates before welfare reform was enacted. Child poverty rates declined from more than 20 percent in 1996 to 17.8 percent today. Roughly 1.6 million children were lifted out of poverty. Perhaps even more impressively, the poverty rate among black children has fallen at the fastest rate since figures have been recorded. 

Dependent single mothers, the group most heavily affected by welfare reform, account heavily for this decline. Since the enactment of welfare reform, the poverty rate for female-headed families with children has fallen from 46 to 28.4 percent. The decline in poverty among female-headed households has been greater than for any other demographic group.

Most of those who left welfare found work, and the vast majority of them work full-time.  It is true that most first jobs found by those leaving welfare are entry-level positions — on average, they earn about $16,000 per year. That’s not much, but for many it leaves them better off than they were before. Moreover, studies show that as these former welfare recipients increase their work experience, their earnings and benefits increase. And, for better or worse, many continue to receive other forms of government assistance.

Surveys of former welfare recipients indicate that they believe their quality of life has improved since leaving welfare. And they are optimistic about the future. A majority of former welfare recipients believe that their lives will be even better in one to five years. Many of the former recipients actually praise welfare reform as a stimulus for their beginning to look for work and as an opportunity for a fresh start, and a chance to make things better for themselves and their children. Both the women and their children appear to benefit psychologically from the dignity of working.

Certainly, I’ve had my own criticisms of welfare reform. It didn’t go far enough toward making people truly independent of government. It is too prescriptive, setting too many detailed rules for states to follow. The recent reauthorization of the reform added a worthless $1.7 billion program to encourage marriage. And, Congress has failed to build on welfare reform to restructure other federal anti-poverty programs.

Still, by almost any measure you can think of, it is clear that the critics of welfare reform were quite simply wrong.

That’s worth keeping in mind when those same Chicken Littles raise similar scare stories about the proposed reform of other government programs, from Medicare and Medicaid to Social Security. Once again, we are hearing that any changes, reductions, or “privatization” of these programs will lead to widespread poverty, suffering, and other disasters. For example, they claim that allowing younger workers to privately invest a portion of their Social Security taxes through personal accounts will leave seniors eating cat food. But given their track record, maybe we should be a little bit skeptical the next time they predict the sky is falling.