Amnesty and Illegal Immigration

A common complaint against giving illegal immigrants “amnesty” (and, by the way, the recent “amnesty” proposals aren’t really amnesty), is that giving immigrants clemency will incentivize more illegal immigration. The logic is appealing: If immigrants aren’t punished for braking the law, others will be encouraged to keep breaking it. If there are no consequences, why not?

But these fears are not borne out in the data. A working paper by American University has concluded Reagans 1986 amnesty reduced the number of border apprehensions (a proxy for illegal migrant crossings).

Even if the conclusion of the report is disbelieved, research generally finds no effect between amnesties and illegal immigrant crossings.

Either way, demographic and economic factors influence the number of incoming migrants much more than any amnesty program ever could.

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You Can Be In The top 1%, Too

Chelsea German, a Cato Institute scholar and editor of their new(ish) project, HumanProgress.org, recently wrote an article about the odds of making it to the top 1% in the United States. Apparently, the odds are pretty good.

German writes,

According to research from Cornell University, over 50 percent of Americans find themselves among the top 10 percent of income-earners for at least one year during their working lives. Over 11 percent of Americans will be counted among the top 1 percent of income-earners (i.e., people making at minimum $332,000) for at least one year.

11% is pretty good odds. Indeed, the reason, she argues, is because social mobility in the U.S. is high and turnover at the top of the income spectrum is also high. As she notes:

Some 94 percent of Americans who reach “top 1 percent” income status will enjoy it for only a single year. Approximately 99 percent will lose their “top 1 percent” status within a decade.

Now consider the top 400 U.S. income-earners — a far more exclusive club than the top 1 percent. Between 1992 and 2013, 72 percent of the top 400 retained that title for no more than a year. Over 97 percent retained it for no more than a decade.

This echoes what American Enterprise Institute scholar Mark J. Perry has said elsewhere.

This also echoes Thomas Sowell’s claim that “people who were in the top 1 percent in 1996 had their incomes fall — repeat, fall — by 26 percent by 2005 … More than half the people who were in the top 1 percent in 1996 were no longer there in 2005.”

So there’s more than what meets the eye when it comes to income inequality. So be careful when pushing tax hikes for the “rich.” One day, you might become the “rich” you once demonized.

The Power of Economic Freedom

Cato economist Dan Mitchell has a new blog post about the power of economic freedom in Europe. The first picture in his post details living standards across Europe, and the leaders wont surprise those who’ve been in favor of free markets.

Just a quick glance would suggest there is a correlation between economic freedom and prosperity. The eastern nations, who for decades languished under communist rule, are the poorest, whereas the wealthiest have had quasi-free markets for decades or, in the case of the Anglo nations, centuries.

Next, Mitchell went to Fraser’s economic freedom index. Here’s the list.

As you can see, the top ten wealthiest nations in Europe also happen to all be in the top 31 nations on Fraser’s economic freedom index. The two wealthiest nations in Europe, Switzerland and Luxembourg, have very low taxes and are tax havens. Mitchell believes all nations should follow their example and strive to have lower tax burdens.

For the other nations, while they have higher than optimal taxation and spending, they make up for it in other areas. These nations generally have open trade, a strong rule of law, and private property protection, for example.

The only nation in the top ten in Europe that is not in the top 31 is Sweden, but as I have noted elsewhere, Sweden is still not a liberal utopia, and has some things we should emulate (like universal school choice, free trade, and low corporate taxation).

The lesson from these images is clear: We need more economic freedom, not less. But we shouldn’t necessarily aim to be more like Switzerland or the UK. We should probably aim to be more like Hong Kong and Singapore. But that’s a discussion for another day.

Economic Theory Demonstrates the Harms of (Most) Regulation

Economist Scott Sumner, who works at the Mercatus Center and Bentley University, has an interesting new blog post up at EconLog (a blog I highly recommend everyone interested in public policy follow. Sumner, Bryan Caplan, David Henderson, and other amazing economists have excellent sub-sections). Sumner’s post is all about demonstrating why most regulations are counterproductive.

Sumner uses a simple example: Imagine if the government were to pass a pro-consumer regulation and ban ATM fees. This, according to Sumner, would be counterproductive.

Banks will see this as a cost increase, and pass the cost on to consumers in other ways. Can I be sure this will occur? No, but it’s very likely. Suppose I told you that Congress passed a 10-cent increase in the gas tax. What would you expect to happen to gas prices at the pump? Most people would expect a 10-cent increase. In fact, the oil industry is perhaps the industry where taxes are least likely to be passed on to consumers. That’s because the supply of oil is less elastic that the supply of almost any other good, including banking services. So if you think gas taxes are passed on to consumers, then you should be even more certain that I’m right about the elimination of bank fees being passed on to consumers in other ways, such as fees on deposits, or lower interest rates on deposits. …

If consumers pay less in one place and more in others, does the regulation actually hurt consumers? Yes it does, because it also hurts bank efficiency. Eliminating ATM fees will reduce the profit maximizing number of ATMs, which will make banks less efficient. Since tellers cost more than ATMs, the cost increase passed on to consumers will be larger than the saving from ATMs.

Now, this logic applies to most regulations. But note the word “most.” Indeed, Sumner concedes that this logic does not apply to regulations that are meant to address market failures, like “monopoly power, externalities, and information asymmetry.” So some regulations are necessary.

But the logic does apply to regulations liberals love, like overtime pay.

Sumner ends with a plan to reduce regulation. He closes with, “We’d be better off passing a law sun-setting all regs, and the entire Federal tax code, in 2025. Then give Congress the next 9 years to set about re-passing all the regs and taxes that actually make sense.”

Interesting idea, but it’s dangerous. I think it puts too much faith in Congress to do the right thing. Not only that, but it assumes members of Congress won’t make the same mistakes they’ve already made. If history serves as any guide, I suspect they would pass new laws that are just as bad, if not worse. But there’s some food for thought.

A New Report On The Economic Impacts of Union

Liberal prognosticators predicted the decline in union membership since the 1960s (which accelerated in the 1980s) would lead to lower wages and make the poor poorer. Today, they blame the decline of the middle class–which is a myth, by the way–on the decline in union membership. A new report by the American Action Forum debunks these claims.

According to the report, the decline in union membership has been associated with four positive economic outcomes:

  1. Increased economic growth.
  2. Faster job creation.
  3. Greater worker earnings.
  4. Greater total labor earnings.

So much for the doom and gloom the left was expecting.

On growth, the report argues, “For every one-percentage point increase in the union membership rate, a state’s real GDP growth rate decreases by 0.25 percentage points. To put this in perspective, in 2013 state real GDP grew 1.28 percent on average. If the average union membership rate increased by one percentage point, then the state average real GDP growth rate would have declined to 1.03 percent.”

Ben Gitis, the author, also writes “the results indicate that a one-percentage point increase in the union membership rate is associated with a 0.11 percentage point decrease in the job growth rate.”

On wages, “the average weekly earnings growth rate for all workers in the state declines by 0.22 percentage points and for workers in businesses with fewer than 5 employees it declines by 0.14 percentage points. Again, these results mirror the raw data: average compounded annual average weekly earnings growth was slightly quicker (0.03 percentage point) in states where union membership declined than in states where it increased.”

And, on total labor earnings, “We find statistically significant evidence that an increase in a state’s union membership rate is associated with a decrease in the growth rate of total wage earnings for all workers in that state and particularly for those in small- and medium-size business establishments. For all workers, we find that a one-percentage point increase in the union membership rate is associated with a 0.20 percentage point decline in the total wage earnings growth rate.”

So, fortunately, the decline in union membership may be a good thing.

P.S. You still think unions gave you things like shorter work days and work weeks? That’s a myth, too. 

P.P.S. I don’t oppose unions in general. I oppose mandatory unions and I support right to work laws. I believe that, in a market system, workers should have the ability to collectivize as long as it is voluntary and as long as they don’t force others to join or pay dues.

R is Likely Not Greater than G

Thomas Pikkety, the famous economist who broke international headlines when his economic treatise, Capital In The 21st Century, became a global best seller, has some things to say about wealth inequality. Pikkety’s argument is simple: The rich are already rich, and will continue to get richer until they have everything that’s left. His thesis is also simple: R, or the rate of return on capital, exceeds G, the growth rate of the economy. In other words, r > g. An important assumption he makes, however–that families will continue to become wealthier and become the modern day equivalent of oligarchs–is just plain wrong.

As a study published in the Cato Journal notes, “this logic holds true only if the wealthy never dissipate their wealth through spending, charitable giving, taxation, ill-advised investments, and splitting bequests among multiple heirs.”

The Cato study looks at the Forbes list of the top 400 hyper-wealthy individuals in the world. Their research suggests at least half–and oftentimes more–of the people in the top 400 list are wealthy because of earned income, not inheritance. In fact, according to Forbes itself, the number of earned billionaires on the list has increased over time, and is at an all time high. The wealthy are getting rich because they produce things other people want. As transactions in a market economy are voluntary, any interaction between a producer–say, someone on the top 400 list–and a consumer, like you and me, is mutually beneficial. In other words, their wealth has made them better off, but as no one forces us to consume their products (and we only consume when we feel as though it will make us better off), their wealth has made us better off, too. Greg Mankiw makes a similar argument in his interesting paper, “Defending the One Percent.

The Washington Post also has an intriguing article on this, which states that, in 1992, inherited wealth made up 27% of the wealth the 1% had. Over time, this percentage fell; in 2007, that number was a mere 14.7%. Not only that, but the percentage of households reporting an inheritance transfer fell by 2.7% over the time period between 1989 and 2007.

What is also interesting is that inheritance may have a dampening effect on inequality. As a large percentage of wealth transfers are among middle class households, if we were to eliminate inheritance, inequality would increase. As a study by the BLS notes, “Our simulations show that eliminating inheritances … actually increases overall wealth inequality and, in particular, sharply reduces the share of the bottom 40 percent of the wealth distribution.”

So, in sum, most wealthy families do not inherit their wealth–they earn it, which benefits everyone; inheritance mainly benefits the middle class; and the number of people who earn their wealth as opposed to inherit it has increased over time, which poses a problem for Pikkety’s argument. And one last point: If r > g, and if that means, over time, the rich get richer and the poor get poorer, why is poverty at record lows when inequality has skyrocketed?

The Real Issue with Campaign Finance Reform

Bernie Sanders and Hillary Clinton constantly talk about campaign finance reform and overturning Citizens United, the infamous Supreme Court case that allows individuals and corporations to give unlimited campaign donations as long as it is done indirectly through a Super PAC. But Sanders and Clinton get it all wrong.

Now, there is no doubt that corruption exists in our government. Politicians vote “yes” and “no” on bills all the time in order to placate their donor base. For this reason, the argument for restricting campaign donations are seductive. However, we run into legitimate problems when we attempt to restrict campaign spending, like how Citizens United finally put an end to the two party party duopoly over campaign contributions and how campaign contributions are a form of political speech protected by the 1st amendment.

Beyond those two issues, there are other problems with campaign finance reform, such as the evidence suggesting restrictions on donations benefit incumbents at the expense of the challenger, meaning democracy may be limited after reform (also see the duopoly link, which argues Citizens United increases democratic diversity), and research by the Mercatus Center suggesting campaign finance reform does little to reduce corruption.

Either way, let’s assume Clinton and Sanders have it right: Campaign contributions are pernicious and the Citizens United ruling unjust. Is the case for campaign finance reform strengthened? Not really.

Economist Dan Mitchell has an interesting blog post up which I will excerpt below. I highly recommend readers go and check it out.

Mitchell quotes a NY Times article called the “Conservative Case for Campaign Finance Reform.” Here’s the crux of the argument:

big money in politics encourages big government. Campaign contributions drive spending on earmarks and other wasteful programs — bridges to nowhere, contracts for equipment the military does not need, solar energy companies that go bankrupt on the government’s dime… When politicians are dependent on campaign money from contractors and lobbyists, they’re incapable of holding spending programs to account. Campaign contributions also breed more regulation. Companies in heavily regulated industries such as banking, health care and energy are among the largest contributors. Such companies donate with the hope of winning narrowly tailored exceptions to regulations that help them and disadvantage their competitors

But, as Mitchell argues, the article misses the point. The NY Times article gets it mixed up. As Mitchell writes:

The sun doesn’t rise because roosters crow. It’s the other way around. What Mr. Painter fails to understand is that there’s a lot of money in politics for the simple reason that government has massive powers to tax, spend, and regulate.
Politicians in Washington every year redistribute more than $4 trillion, so interest groups have an incentive to “invest” money in campaigns so they can get some of that loot. Those politicians have created a 75,000-page tax code that is a Byzantine web of special preferences, so interest groups have an incentive to “invest” money in campaigns so they get favorable treatment. And the politicians also have created a massive regulatory morass, so interest groups have an incentive to “invest” so that red tape can be used to create an unlevel playing field for their advantage.

In other words, we don’t need to get money out of politics; we need to get politics out of money. Even assuming every claim Clinton and Sanders have said is true (and, as I noted above, most of them aren’t), the case in favor of campaign finance reform is weak, at best, and at worst, doing little to solve the problem while trampling on the first amendment rights of thousands of Americans.

Prager University Video: Europe More Pro-Life Than The U.S.?

Well, it’s true, according to a new video from Prager University. Here’s the video:

Here are some of the highlights:

In the U.S., all states allow abortions up to 20 weeks, and many states (including New Mexico, where I currently live) have no abortion restrictions.

11 states prohibit abortion after 20 weeks; 20 states prohibit abortions after the point of viability (23-25 weeks); 3 states prohibit abortion after the 28th week; and last, and in my opinion also least, 7 states and Washington DC allow abortions to occur at any point during the pregnancy.

But in Belgium and Germany, abortion is prohibited after 12 weeks unless the life of the mother is in danger; Belgium also has a 6 day waiting period. In Finland, abortion is unrestricted until the 12th week–and even then, women must provide a compelling reason to get an abortion.

The video provides even more examples.

Europe, the continent liberals look up to, has fairly draconian abortion laws (by American pro-choice standards). So, as I said in my post about Sweden, yes, maybe we should copy Europe. Let’s make abortion laws more restrictive.

Immigration Doesn’t Increase Crime

It is often asserted that an open border policy would lead to an increase in crime rates. Indeed, immigration restrictionists always make claims like: “if you let more people in, more of them are bound to be criminals.” Similarly, they claimk in a world full of terrorists and extremists, open borders leave us open for an attack. These claims are unfounded and wrong for a few reasons.

First, the threat of terrorism has been overblown by politicians and the government. Sure, we need to make sure terrorism is restrained and controlled (I consider myself a foreign policy hawk, for example),  but we need to put terrorism into perspective. Indeed, despite the worst terrorist attack in the history of mankind on 9/11/2001, a war being declared on terror, and two wars–and possibly more in the future–in the Middle East, terrorism has only been responsible for 1.5% of wrongful killings in the 21st century.

Second, terrorists already can enter this country easily anyway. According to the World Bank, between 2011 and 2015, 75 million tourists came to the United States. In other words, when it comes to terrorism and criminals, our borders are already fairly open. If foreigners posed such a threat to the United States by committing crime, terrorism, and other mischief, we would have noticed it by now.

Third, there is no connection between illegal immigration, massive crime waves, and terrorism. Despite 11 million illegal immigrants living in the United States, with thousands each year entering and exiting the United States on our porous border, very few cases of terrorists crossing the southern border have been recorded. Turning to the issue of crime, the foreign born population in the United States was a mere 7.9% in 1990; in 2010, that figure had risen to 12.9%. The number of unauthorized immigrants rose from around 3 million in 1990 to 11 million in 2010. Despite the dramatic increase of illegal immigration and the percentage of foreign born in this country, violent crime fell by 45% and property crime fell by 42%.  So much for that crime wave.

There are legitimate topics of debate when it comes to immigration, especially the impact it has on wages (some research says no effect, or even positive effect; other research finds a negative impact). Crime just isn’t one of them.

Australia and Guns

Liberals, when asked to point to a country with successful gun control laws, they often point to Australia. Australia passed very strict gun laws after a massacre in the mid-1990s, and liberals believe we should take the same action as they did. But did Australia’s laws work?

Probably not. A study by Wang-Sheng Lee and Sandy Sauridi, one of the best studies on Australia’s gun laws, concluded that Australia’s”[National Firearms Agreement] did not have any large effects on reducing firearm homicide or suicide rates.”

Another study, using New Zealand as a control variable found Australia’s mass-shooting rate mirrored NZ’s mass shooting rate after Australia’s gun control laws were enacted. However, NZ passed no such laws. Therefore, other factors have reduced Australia’s mass-shooting rate, not stricter gun laws.

Liberals may also turn to domestic research that has found a correlation between higher gun magazine sales (magazine as in paper magazine, not gun magazine) and violent crime. But the research is flawed. The number of guns increases after crime increases, not before, because gun owners buy firearms to defend themselves from a perceived increase in crime. Subsequent research found no link between gun sales and homicide for this reason.

The newest research, using even better methodology (the past studies used one gun magazine as a proxy for firearm ownership–either Handgun magazine or Guns & Ammo–the newer research uses 3 magazines), finds that more firearm sales decrease gun crime.

So, no, Australia does not serve as an example of gun control working. Domestically, the evidence suggests gun control will have little effect on crime as well (and may have an adverse impact).