From my Productivity Guy:
Jonah
I agree with the main points you were making in the “immigrants and markets” post but, at the risk of being accused of demanding proctological exactitude, I think it’s worth clarifying the issue “of externalities” and their possible relationship to immigration. I think you may have stumbled onto something that is critical to the entire debate.
As I’m sure you know, externalities arise when there are spillovers from private actions to society as a whole. Negative externalities (e.g. pollution) mean the social costs associated with an activity are greater than the private costs borne by the people undertaking that activity. Positive externalities arise when the benefits that people retain from a given transaction (e.g. further education) are less than the benefits that are created for the entire society. Immigration can give rise to either positive or negative externalities. The positive externalities depend in large part on who the immigrants are and what type of skills/attitudes/human capital they bring with them – i.e. the positive, spillover benefits from a new computer scientist are likely to be much greater than those from a day laborer. Negative externalities can also result from anti-social or unproductive habits, such as criminality, welfare dependency and similar factors that impose social costs. Both positive and negative externalities depend in part on the institutional environment of the host country i.e. Milton Friedman’s point that the development of the welfare state means that the potential costs associated with unrestricted immigration are much different now than they were a century ago.
While simplifying somewhat, the immigration debate revolves largely around the nature of the externalities. The “pro” side sees immigrants as a source of dynamism, energy and positive change. The “anti” side sees immigrants (especially illegals) as imposing costs that in our current environment are borne by the public (education, health care, welfare, etc.). Both sides have a point. But in terms of appropriate immigration policy, the trick is to identify reforms that maximize the positive spillover benefits and minimize the spillover costs.
Me: I don’t dispute any of this and I’m grateful for the clarification. However, I think there’s one problem. Until you control the number and rate of immigrants coming into the country, the debate over externalities is academic. The point is you need to have a policy first, before you can debate how it should be changed. If you refuse to enforce the immigration laws or the border you’re in effect saying you’re preferred policy is chaos.