The economic truths of immigration reform

Larry Kudlow
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Posted: Apr 04, 2006 8:05 PM
President George W. Bush just met with Mexican President Vicente Fox in Cancun, and once again Fox and Mexico got a free pass for their role in the economics of the U.S. immigration mess. Why is the U.S. so soft on Mexico?

When Fox took Mexico’s helm six years ago he promised pro-growth policies. But it never happened. Right off the bat he sought a higher value-added tax, and since then has never had the courage to privatize the oil and gas sector. So, Mexico’s vast energy and mineral-wealth base has never developed into a job-producing machine. Meanwhile, small-business credit availability is low and inflation tax-bracket creep is high in the absence of tax reform. No wonder Mexican families seek a better life in America.

Instead of an Asian or Irish Tiger, Mexico has become a poodle-like Chihuahua, with economic growth of less than 2 percent a year and per-capita growth at less than 1 percent. That’s pathetic. In an age when free-market reforms are sweeping emerging economies worldwide, Mexico should be growing at 8 to 10 percent each year.

Over the past fifteen years, according to the World Bank, China and India have surged ahead of Mexico and the gap is widening. Mexico has gone nowhere. And until Mexico’s economic malaise is cured, millions will continue to seek economic opportunity in the United States. Can you blame them?

As long as the American boom beckons, Mexicans in search of prosperity will continue to stream to this country. They have a strong incentive to do so. The only way to reduce illegal immigration, therefore, is to raise the unskilled H-2B visa level and bring it in line with job openings in the United States. This is the only feasible economic solution to the chronic problem of illegal immigration. The idea worked forty years ago with the successful Bracero program for farm workers. It can work again.

Today’s low visa limit of only 140,000 has caused illegal flows to skyrocket. This must be changed. Tamar Jacoby of the Manhattan Institute estimates that U.S. labor-market conditions can absorb about 400,000 Mexican immigrants per year. This would balance labor supply-and-demand conditions and illegal immigration would plummet.

You can build a fence, but desperate Mexicans in search of economic opportunity will climb over it or tunnel under it. This is the reality. And by the way, our H-1B visa program for skilled workers, now at only 65,000, should be unlimited. We need all the scientists and engineers we can get.

Once these immigrants get here they work hard. According to the U.S. Bureau of Labor Statistics, Hispanic unemployment is only 5.5 percent, compared to 4.8 percent overall.

As for the claim that illegal workers don’t pay taxes, Princeton professor Douglas Massey estimates that roughly two-thirds of undocumented immigrants pay the FICA payroll tax. Overall, illegals have fed $7 billion to Social Security and $1.5 billion to Medicare. They are contributing to our wealth, not reducing it.

And what do they take from the system? According to Forbes magazine, only 10 percent of illegal Mexicans have sent a child to an American public school and just 5 percent have received food stamps or unemployment benefits. A U-Cal Davis study also shows that more immigrant workers leads to more economic growth. This is standard economics. Multiply an enlarged workforce times existing productivity and you get more economic growth.

But for some reason, immigration opponents can’t make this connection. They are blinded by fear-mongering, defeatism, and pessimism.

Colorado congressman Tom Tancredo calls illegal immigration “a scourge that threatens the very future of our nation.” Huh? That’s xenophobic nonsense. In economic terms the U.S. has never had it so good. Statistic after statistic says we’re booming, with 175,000 net new jobs created each month and record levels of Americans working. In fact, since the early Reagan 1980s, the U.S. economy has been booming almost uninterrupted, creating 44 million new jobs even during the takeoff of high immigration.

Exactly what are we so afraid of? As Center for Equal Opportunity chairman Linda Chavez has been pointing out, Hispanics are great entrepreneurs, small-business owners, and job creators. According to 2002 Census Bureau data, Hispanics are opening new businesses at a rate that’s three-times faster than the national average.

As a Reagan conservative, I believe in freedom and opportunity. Globalization is here to stay. Proper reform should combine stronger border security with higher visa levels and a path to citizenship. Yes, illegals should pay fines and go to the back of the citizenship line. Yes, employers must aggressively cooperate with the new rules. But compassion must coexist with free-economy principles and the rule of law.

Before he passed away, Pope John Paul II quoted Matthew 25:35: “I was a stranger and you welcomed me.” That is precisely the spirit America should seek when it comes to immigration reform.