We are bombarded daily by all sorts of media that America is about to undergo a crisis due sub-prime loans given by greedy financial institutions to customers who either do not deserve the loans (speculators) or poor people who must not be allowed to lose their homes. The House of Representatives and the White House are even developing a stimulus package for the economy because they misunderstand basic finance and economics. I don't mind receiving extra money so I will not complain.
While there are elements of truth to these beliefs, the real problem for the American economy is unrelated to the loans.
The real problem is the election. At the end of every presidency, especially an 8 year, two term one, there is a recession (whether it is called one or not). This recession is entirely the result of the uncertainty of whether the Democrats or the Republicans will win. Businesses are reluctant to invest if they cannot predict what will happen to their investment.
This election period is particularly difficult since the Democrats have said they will raise taxes on the ‘rich’ – I think this means us although I do not feel particularly rich. Investors prefer environments where taxes are not increasing. For the last 100 or so years everywhere in the world, the lower the taxes, the higher the growth. It is too bad government is full of lawyers and not people who have ever had a job.
The uncertainty is made worse by the close races in both the Democratic and the Republican primary races and the trend to more divisive rhetoric. Whoever is elected will find it much more difficult to govern if the parties are essentially bi-polar. Investors are smart. They can invest anywhere their rate of return versus risk is the highest. If we want a rapidly expanding economy for everyone, we need to understand investing!
Sunday, January 27, 2008
Immigration Debacle
We are shooting ourselves in the foot on this issue. Unfortunately instead of using a single bullet, we are using a machine gun to do so. We should be welcoming immigrants with open arms. America has been a magnet for the best and the brightest people for centuries yet many misguided people now want to stop it. The Patriot Act, while well-intentioned, has changed the immigration issue from misguided into a debacle.
According to the press, there appear to be two reasons to be against immigration: fear of terrorists (a real issue – I guess) and the belief that illegal immigrants are too costly for America. There is no real evidence that illegal immigrants cost America more in services than they give America in productive labor. There is anecdotal evidence that illegal immigrants cost a lot of money but anecdotal evidence is meaningless. Anecdotal evidence is just someone saying they heard about something that was bad. It is not real evidence.
The cost of immigrants issue is nonsense because:
First, cost must be compared to benefits. If there is a true cost, it must be in excess of benefits. So what are the numbers?
Numbers: We don’t know how many illegal immigrants are here. One media source will claim there are 12 million illegal immigrants in America. Another source will state there are 20 million. This is a huge difference. If there is no agreement on a simple thing like counting the people, then how can one say the definitively that they do one thing or another?
Benefits: They cost America too much. Another media source will claim illegal immigrants take jobs Americans will not do. Furthermore the immigrants do not charge very much for their labor. If this is true, they must be quite helpful to America. However no one has yet quantified how much they give to America in terms of productivity.
Costs: On the cost side, no one has yet quantified how much immigrants cost America except in terms of medical care. I think there is not one American, except perhaps a hospital accountant or two, who would trust financial statistics from hospitals. The medical care is great in America but the costs are way out of line for reasons unrelated to immigrants.
In sum no one could possibly do a real cost benefit analysis of the illegal immigrants in America. However the evidence seems to be that there are far more benefits than costs.
The costs to America for the rabid anti-immigration is astronomical. What is the value to America of Silicon Valley? This is the most innovative area in the world. It is the source of most of the high technology we use every day. Every country has tried to copy Silicon Valley with little success thus far. One third of all companies in Silicon Valley were started by someone born in Asia – presumably an immigrant to America.
The Patriot Act also keeps hugely qualified people out of America in at least two nonsensical ways.
Formerly a promising immigrant student would attend one of America’s great universities and stay on after graduation to work for a local company – Silicon Valley and the Boston Technology area are good examples. Now, the immigrant graduate cannot stay on and make America even more productive. After we pay to educate him or her, we now force him to leave. This doesn’t make sense.
Some of the large technology companies are unable to get work visas for foreign scientists. Because the number of H1B visas have been reduced since the Patriot Act was passed, there are never enough available to fit the demand. These visas are routinely taken within minutes of their being made available once each year. The implications are that the high tech firms must redirect their high end R&D overseas because their scientists cannot come here. What are the implications for the long term? In one generation we will see the effect of this misguided policy. We may be a great developer of buggy whips.
You might say that I am confusing illegal immigration with legal immigration – and you would be right! A recent article on immigration in the Economist magazine looked at immigration policies in countries around the world and then compared them with their economic growth. As expected countries with freer immigration policies had higher growth.
We should open immigration considerably – double, triple, quadruple the numbers, whatever number that makes sense! Artificially keeping out the best and the brightest people from all over the world is crazy! We are shooting ourselves in our feet!
According to the press, there appear to be two reasons to be against immigration: fear of terrorists (a real issue – I guess) and the belief that illegal immigrants are too costly for America. There is no real evidence that illegal immigrants cost America more in services than they give America in productive labor. There is anecdotal evidence that illegal immigrants cost a lot of money but anecdotal evidence is meaningless. Anecdotal evidence is just someone saying they heard about something that was bad. It is not real evidence.
The cost of immigrants issue is nonsense because:
First, cost must be compared to benefits. If there is a true cost, it must be in excess of benefits. So what are the numbers?
Numbers: We don’t know how many illegal immigrants are here. One media source will claim there are 12 million illegal immigrants in America. Another source will state there are 20 million. This is a huge difference. If there is no agreement on a simple thing like counting the people, then how can one say the definitively that they do one thing or another?
Benefits: They cost America too much. Another media source will claim illegal immigrants take jobs Americans will not do. Furthermore the immigrants do not charge very much for their labor. If this is true, they must be quite helpful to America. However no one has yet quantified how much they give to America in terms of productivity.
Costs: On the cost side, no one has yet quantified how much immigrants cost America except in terms of medical care. I think there is not one American, except perhaps a hospital accountant or two, who would trust financial statistics from hospitals. The medical care is great in America but the costs are way out of line for reasons unrelated to immigrants.
In sum no one could possibly do a real cost benefit analysis of the illegal immigrants in America. However the evidence seems to be that there are far more benefits than costs.
The costs to America for the rabid anti-immigration is astronomical. What is the value to America of Silicon Valley? This is the most innovative area in the world. It is the source of most of the high technology we use every day. Every country has tried to copy Silicon Valley with little success thus far. One third of all companies in Silicon Valley were started by someone born in Asia – presumably an immigrant to America.
The Patriot Act also keeps hugely qualified people out of America in at least two nonsensical ways.
Formerly a promising immigrant student would attend one of America’s great universities and stay on after graduation to work for a local company – Silicon Valley and the Boston Technology area are good examples. Now, the immigrant graduate cannot stay on and make America even more productive. After we pay to educate him or her, we now force him to leave. This doesn’t make sense.
Some of the large technology companies are unable to get work visas for foreign scientists. Because the number of H1B visas have been reduced since the Patriot Act was passed, there are never enough available to fit the demand. These visas are routinely taken within minutes of their being made available once each year. The implications are that the high tech firms must redirect their high end R&D overseas because their scientists cannot come here. What are the implications for the long term? In one generation we will see the effect of this misguided policy. We may be a great developer of buggy whips.
You might say that I am confusing illegal immigration with legal immigration – and you would be right! A recent article on immigration in the Economist magazine looked at immigration policies in countries around the world and then compared them with their economic growth. As expected countries with freer immigration policies had higher growth.
We should open immigration considerably – double, triple, quadruple the numbers, whatever number that makes sense! Artificially keeping out the best and the brightest people from all over the world is crazy! We are shooting ourselves in our feet!
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