Archives: 09/2018

Lesser-Skilled Immigrants Are Still Important to the U.S. Economy

A common argument employed by those opposed to lesser-skilled immigrants is that they are simply out of place in America’s high-tech economy. We often hear that the only workers we need now are those with advanced degrees. Yet according to the Bureau of Labor Statistics, 115 million Americans—74 percent of the total—were employed in jobs that do not require a Bachelor’s degree in 2016. Moreover, nearly a quarter of all jobs were those without any education requirement.

Share of Employment by Education Requirement

The opponents of lesser-skilled immigrants could respond by claiming that while this is true at the moment, these jobs will quickly disappear in the future. But the Bureau of Labor Statistics disagrees on this point as well. In 2026, the BLS projects that 73 percent of all jobs—123 million—will still not require a Bachelor’s degree—an increase of 7.1 million over 2016. The number of jobs for those without any formal education will still be 24 percent of all jobs—39.6 million—an increase of 2.4 million.

Figure 2: Employment by Education Requirement

BLS projects that 62 percent of all job growth will come from jobs not requiring a college degree. Nearly half of all new jobs will require no postsecondary education at all, and 21 percent of all new jobs will not require any education at all. 

Figure 3: Employment Growth by Education Requirement

It simply isn’t true that the United States needs no lesser-skilled workers right now nor will it be true in the near future. Recent legal immigrants are already far more educated than the U.S. population, and they are as educated as their counterparts in Australia and Canada. But even if this were not the case, the data simply doesn’t support keeping less-educated immigrants out of the country based on the belief that our developed economy doesn’t need them. In any case, the market—not government bureaucrats—should determine which workers are needed.

Build a Wall Between the Branches of Government

The essence of the separation of powers is that Congress may not give another branch the power to do what it alone may do. In Animal Legal Defense Fund v. Department of Homeland Security, several California-based environmental groups are challenging a law allowing the department secretary to waive any and all laws to speed building of the southern border-wall. Denied in the lower courts, the groups filed a petition with the Supreme Court. Cato has filed an amicus brief supporting that petition and arguing that such unlimited discretion violates the separation of powers.

The Constitution vests “all legislative power” in Congress, while the executive branch enforces those laws (rather than making or un-making them). Courts from the early days of the republic have maintained this division by preventing the delegation of the legislative power to the executive. To enforce this non-delegation doctrine the Court established the “intelligible principle” test. For a law to pass, Congress must (1) designate an agent or actor, (2) clearly direct the purpose or goal of the law, and (3) set boundaries to the agent’s powers. But the modern Court has stopped applying this doctrine; the last time it struck down a law on non-delegation grounds was in 1935. Since then it has deferred to larger and larger grants of legislative power to executive agencies.

The weakness of the intelligible-principle test lies in the third prong of imposing boundaries for the delegated powers. There is no definite line for how much discretion or power is “too much.” Even James Madison acknowledged the line between permitted and prohibited sharing of power can get blurry. The Court has long recognized that the branches can coordinate for efficiency, but has declined to find any practical limit to the powers Congress can delegate. The result is that executive agencies are making increasingly complex and restrictive laws, completely insulated from and un-accountable to the people.
In our brief, we argue that the Court must re-establish the non-delegation doctrine, either by refining or reforming the intelligible-principle test. It must make it more than an unenforceable truism. The ability to suspend laws at the secretary’s discretion is tantamount to the ability to enforce or repeal laws at will: an essentially legislative power. Unlimited discretion prevents the Court from having any standard by which it can measure abuses of power. The Court need not adopt a stringent test that would require abolishing years of precedent and many bureaucratic agencies, but if the non-delegation doctrine means anything at all, it must at least mean that unlimited discretion to suspend laws is too much.

M.R.E. Pizza May Seem Trivial, but It’s Not

The New York Times recently reported on a breakthrough at the United States Army’s Combat Feeding Directorate, the group that develops and tests combat field rations or Meals, Ready to Eat (M.R.E.’s). After twenty years of testing, the Army has finally created an M.R.E. pizza that fulfills the stringent requirements to survive extreme weather, pests, and combat conditions with a shelf life of three years. Considering the challenges of meeting these standards, this review from an artisanal pizza chef is quite glowing: “You know, they’re not far off…. It’s familiar. It reminds me of the frozen pizzas I had as a kid.”

As the Times notes, the M.R.E. pizza exemplifies some of the ways that the end of the draft in 1973 has forced the military to find ways to attract and retain the talent required to sustain an all-volunteer force:

But the deployment of M.R.E. pizza is not just a victory for food technologists. It is an indication of how much the military has been forced to change its culture since the draft effectively ended in 1973.

To recruit and retain the volunteers it needs, the military has built up an elaborate social support structure for troops and their families. It now offers child care and family counseling, continuing education benefits, improved base housing, and fitness centers that can rival those in luxury condo complexes. The core mission still includes service under spartan conditions in dangerous lands, but there has been a growing focus on delivering small comforts when possible.

Walter Oi, an economist who passed away in 2013, was a key contributor to the shift away from the draft and towards an all-volunteer military. One of his positions during his impressive career (achieved despite the loss of his sight in 1956) was as a staff economist on President Richard Nixon’s Commission on the All-Volunteer Force, or the Gates Commission. As David R. Henderson recounted in his eulogy for Oi in the spring 2014 issue of Regulation, Oi recognized that the budgetary costs of the draft neglected the hidden costs imposed on draftees.

Based on his research, the Gates Commission’s 1970 report recommending the end of the draft found that eliminating conscription would increase the federal budget by much less than the military estimated. This finding and Oi’s analysis of the impacts of ending conscription were, in the view of the executive director of the Gates Commission, “a watershed in the cause of voluntarism” and helped convince draft supporters that an all-volunteer force was practical.

Even after the draft ended in 1973, Oi continued to fight against any calls to reinstate the draft. In particular, he published two articles in Regulation, in 2003 and 2007, that directly refuted claims that the all-volunteer military unfairly burdens low-income Americans. Oi used data to show that the claims were unfounded and argued that, with the end of the draft, “Military pay was raised to be competitive with wages in the civilian labor market. It was the right thing to do, to eliminate the hidden tax that had been placed on draftees. Members of the [all-volunteer force] enlist to serve their country, to get training and post-service education benefits, and engage in something that is worth their while.”

Walter Oi’s work acknowledged the hidden costs imposed on draftees and the inequality of conscription. Americans who since 1973 have enjoyed the freedom to choose their occupation and the soldiers who enjoy the benefits an all-volunteer force has conferred, including M.R.E. pizzas, owe thanks to his contributions.

Written with research assistance from David Kemp.

PragerU’s “A Nation of Immigrants” Video Has Serious Problems

Prager University (PragerU), founded by radio talk-show host Dennis Prager and Allen Estrin, is a non-profit that makes short videos on political, economic, cultural, and philosophical topics from a conservative perspective.  Last month, PragerU released a video called “A Nation of Immigration” narrated by Michelle Malkin, an individual most famously known for her defense of the internment of Japanese Americans during World War II.  The video is poorly framed, rife with errors and half-truths, leaves out a lot of relevant information, and comes to an anti-legal immigration conclusion that is unsupported by the evidence presented in the rest of the video.  Below are quotes and claims from the video followed by my responses. 

The United States still maintains the most generous [immigration] policies in the world.  Generous to a fault … 

There are two things wrong with the statement.  The first is framing around the word “generous” and the second is the claim that the U.S. has the freest immigration policy in the world.  

Using the word “generous” implies that allowing legal immigration is an act of charity by Americans and that we incur a net-cost from such openness.  On the contrary, the economic evidence is clear that Americans benefit considerably from immigration via higher wages, lower government deficits, more innovation, their greater entrepreneurship, housing prices, and higher returns to capital.  

Most immigrants come here for economic reasons.  In what sense is it generous or charitable on the part of Americans to allow an immigrant to come here voluntarily and to work for an American employer?  Not only do both the employer and the immigrant gain; the consumers, investors, and economy do as well.    

Phillip Cagan’s 1984 Reflections on a Gold-Convertible Currency

Milton Friedman published Studies in the Quantity Theory of Money in 1956, a seminal anthology of papers from five economists, leading with “The Monetary Dynamics of Hyperinflation” –the recent PhD dissertation of Phillip Cagan (1927-2012), which became an instant classic.  So, Cagan was thought to be a “Monetarist” a dozen years before that phrase was even coined by my UCLA teacher, Karl Brunner.

Soon after August 15, 1971 when President Nixon opted to renege on the Bretton Woods pledge to convert foreign official dollar reserves into gold on demand (rather than simply devalue the dollar/gold ratio), we entered a long and painful period of extremely high worldwide inflation.

Even as measured by the gentler “core” CPI (less food and energy), U.S. inflation averaged 9% from 1974 through 1981, reaching 12.2% in 1980.   When President Reagan took office in January 1981, the Fed had pushed the fed funds rate above 19% – up from 9% six months earlier.

We can’t always fix such big problems by thinking small, so the prolonged stagflation of 1968 to 1982 led several economists to propose fundamental, even radical monetary reform, preferably on a global scale.  Such ambitious reform plans commonly involved making dollars convertible in tangible assets, such as gold or a group of commodities.

I was invited to testify before the 1982 Gold Commission, perhaps because of a decade of published and personal connections to Milton Friedman and Karl Brunner.  I had echoed conventional objections to a gold standard before, and was probably expected to do so again.  But that would have been too facile. I instead took the occasion to review periods of long and impressive prosperity when currencies were linked (or re-linked) to gold, invariably followed by instability and crises when they weren’t.

Other economists attempted to replicate some key advantages of being able to convert dollars to gold and vice-versa at a predictable guaranteed rate, yet do so without using gold. In 1983, Greenfield and Yeager proposed the “Black-Fama-Hall” system (melding similar analyses of Fischer Black, Gene Fama and Robert Hall) in which the unit of account would be defined by convertibility into a basket of commodities, rather than just gold and/or silver.

Chicago School monetarists were generally quite critical of any of these ideas, except, as we later learned, Phil Cagan.  

After Brunner moved to the University of Rochester and his star pupil Alan Meltzer to Carnegie-Melon, they held legendary Carnegie-Rochester conferences which I attended.   

After the conference on April 15-16, 1984 I kept the paper by Phillip Cagan of Columbia University, “The Report of the Gold Commission (1982)” later  reprinted in Carnegie-Rochester Conference Series on Public Policy 20 (1984) 247-268.  In it, Cagan flirted with hopeful thoughts about hypothetical hybrid standards, such as Black-Fama-Hall, but not before he said this about gold:

The appeal of the gold standard… is that it solves to problems.  First, if control over the quantity of transactions balances becomes more difficult and discretionary policy is unable to achieve reasonable stability of the price level, convertibility can provide the needed control of the relevant monetary quantities for stabilizing the price level.  Second, even if monetary policy continues to be capable of achieving stability of the price level, discretionary control may still fail to do so, as in the past, because of inadequate determination or inability to pursue polices that are successful (for political or other reasons). Convertibility provides a mechanism for making a commitment to price stability.

I see no escape from the conclusion, inherent in the position of the advocates of gold, that only a convertible monetary system is sufficiently free of discretion to guarantee that it will achieve price stability… If one is looking for some kind of long-last commitment of a constitutional nature, a convertible monetary system seems to be the only practical possibility.

New Economic Freedom Index, U.S. Returns to Top 10

According to the Economic Freedom of the World: 2018 Annual Report—co-published today in the United States by the Fraser Institute (Canada) and the Cato Institute—the United States has returned to the list of the top ten freest economies in the world after an absence of many years and a decline that began around the year 2000. The United States ranks 6th on the index.

“During the 2009–2016 term of President Obama, the US score initially continued to decline as it had under President Bush. From 2013 to 2016, however, the US rating increased from 7.74 to 8.03. This is still well below the high-water mark of 8.62 in 2000 at the end of the Clinton presidency,” note authors James Gwartney, Robert Lawson, Joshua Hall, and Ryan Murphy. In the aftermath of the financial crisis, the five broad areas of freedom that the report measures—size of government, legal system and property rights, monetary policy, trade openness, and regulation—saw falls in their U.S. scores that in recent years have begun to recover.

This year’s report ranks 162 countries and covers data through 2016, the most current year for which internationally comparable data is available. The index continues to find a strong relationship between economic freedom and a host of indicators of human well-being, including prosperity. The top ten countries in order are: Hong Kong, Singapore, New Zealand, Switzerland, Ireland, United States, Georgia, Mauritius, United Kingdom, and, tied at 10th place, Australia and Canada.

As a group, high income industrial countries experienced declines in their level of economic freedom that began last decade. The graph below from the report shows that those levels have improved somewhat in recent years. It also shows that the gap in economic freedom between rich and poor countries has been closing notably since 1980, with most of that gain coming from increases in developing countries’ economic freedom even as developed countries increased their freedom during the same time.

Difference between the Average EFW Summary Ratings

Find out where other countries rank and the relationship between economic freedom and longevity, gender equality, happiness, income and more here.

What If There Were Millions More Illegal Immigrants?

A recent paper published in the journal PLoS ONE claims that the number of illegal immigrants currently residing in the United States is at least 50 percent greater than previously thought and likely to be twice as high.  Researchers Mohammad M. Fazel-Zarandi, Jonathan S. Feinstein, and Edward H. Kaplan write that:

Our conservative estimate is 16.7 million for 2016, nearly fifty percent higher than the most prominent current estimate of 11.3 million, which is based on survey data and thus different sources and methods. The mean estimate based on our simulation analysis is 22.1 million, essentially double the current widely accepted estimate.

That PLos ONE paper levels a serious charge as virtually all demographers and researchers in think-tanks on both sides of the immigration issue and the government think that the real number of illegal immigrants lies somewhere between 11 and 12 million. 

Understandably, much of the media has run with this headline finding but have neglected to cite the substantive and convincing criticism published in PLoS One in the same issue.  There are three major criticisms of the paper by Fazel-Zarandi, Feinstein, and Kaplan.  The first is that their model is highly sensitive to assumptions about return migration in the 1990s.  Merely replacing the authors’ assumptions with those based on Mexican return-migrant survey data brings their estimates down to the commonly accepted level.  The second is that it is very difficult for millions of additional people to hide in the United States without leaving a demographic or statistical trail.  Their children should show up in birth and school records, their deaths should show up in death records, and more of them should be counted in the American Community Survey or U.S. Census.  The third is that they should show up in economic surveys of employment, but they do not.

Researchers, pundits, policy-makers, and members of the media should not support the PLoS ONE findings based on the quality of the criticisms.  Although my doubts line up well with those of the critics cited above, there are some interesting implications if (a very big nearly-impossible if) the results of the PLoS ONE paper turn out to accurately estimate a greater number of illegal immigrants.