Wednesday, October 10, 2007

What have you done for me lately?

A week ago Saturday I attended a speech by Laura Ingraham, a conservative radio host, at my father’s invitation. I enjoyed the event, but was surprised at the emotional intensity the crowd exhibited towards illegal immigration. I do not feel so passionately about the subject. Given that surprise, I gave the subject some thought and decided to talk about it this week.

I support immigration. It lowers prices for Americans and lifts immigrants out of grinding poverty in their home countries. If we only allowed in the educated and the well-to-do, I’m not sure my ancestors would have made it here. On the other hand, because we have opened our health care, welfare and school systems to illegal immigrants there is an imbalance in the benefits from our current situation.

Who is benefiting the most and paying the least? Illegals pay sales tax and property tax (indirectly through their rent). If they are using phony documents, they still have income tax withholding and Social Security and Medicare taxes. But, because they typically live in small and modest homes, have no health insurance, low and often unreported incomes, American citizens are carrying the bigger load, and not reaping the full benefit. While the anger is directed at illegals, they are not the ones contributing the least.

Those who are benefiting the most and contributing the least are foreign relatives of illegal immigrants and their governments. Illegal immigrants send back billions of dollars to family members in their native countries. The foreign relatives pay nothing in taxes to us.

According to the Federal Reserve, remittances to Mexico in 2006 totaled $23.1 Billion, having increased annually at a rate of 20% since 2000. This is 2.7% of the national economy, and in some Mexican states, such as Michoacan, these cash flows reach 16.1% of their entire state income. According to Inter-American Development Bank, remittances totaled $9.25B during 2006 to El Salvador, Honduras, and Guatemala, which are much smaller countries. In Nicaragua, remittances may be 29% of their entire economy.

Obviously, these areas are dependent on cash from their immigrant workers in the U.S. The knee jerk reaction would be to cut off the cash, but a little more thought reveals that this can be leverage for more valuable goals.

Mexico has been a major oil producer for many decades, but their output has fallen rapidly over the last 10-15 years. Baker and Associates, an Energy Policy consulting firm, discusses in Rethinking Oil Policy in Mexico a number of problems in Mexico’s energy sector. Pemex is a government run monopoly and provides big revenues for the government in Mexico. Their oil production is declining because a lack of reinvestment in oil field exploration, while the government siphons off revenues for budget purposes. Their refinery capacity is so small that even though they export billions of barrels of oil they import gasoline because they lack the technology to expand to meet demand. The same is true for their natural gas industry. The main cause is that American companies, with their newer technologies, are restricted from investing in Mexico’s energy industry.

A threat of crackdown on illegal immigration and remittances could convince Mexico to open its energy industry to American investment. This investment could mean thousands of engineering, construction, and contract employment for Americans to work on projects in Mexico. Expanding oil output in Mexico also secures a safer source of energy for the U.S. outside of the Middle East. Other Central American countries also have a number of restrictions on American investment in their countries and public policies that hinder internal economic growth. Stricter immigration enforcement would help convince these countries to make needed changes.

As countries comply, we would offer large numbers of temporary work visas for sale to their citizens. The greater the compliance, the greater the number of work visas. Part of the price of the work visa should go to a fund to give cash rewards to legal foreign workers who give information that leads to deportations. If we are not serious about stopping illegal immigration, this leverage will be seen as a bluff.

The true source of illegal immigration is poverty in Central America. While many of their economies are beginning to grow more quickly, their failure to adopt more open markets is preventing the kind of growth it takes to lift their citizens out of poverty and into the middle class. This leaves big incentives to come to the United States illegally. Can we really expect a rural farmer from Guatemala making $800 a year to lose interest in coming to U.S. where he can make over $20K a year?

While “Just build the wall!” gets a cheer from the crowd the long-term solution is signing these agreements between the United States, Mexico and the rest of Central America. The benefits from immigration should not be a one-way street. We have to demand that these countries open up their markets to our American companies and American workers. We have to push these countries to pass free market reforms to lift their citizens out of poverty and thus decrease the demand for immigration to the United States. Illegal immigration must be curtailed to give our government the leverage to convince these countries to make these changes.

As always, tell me what you think.

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