If You Really Cared About Income Inequality - Tea Party Prescription

I have been stewing about the President's latest "pivot," this time to income inequality, for a while.  First, it isn't necessarily a problem. Second, Obama has no real solutions.  Income inequality is a problem per se, it depends on the source of the inequality.  If it is caused by a privileged class entrenching its grip on a not-so-free economy, like crony capitalist third-world economies, then this is fundamentally unfair.  But if caused by the inevitable winners and losers in a free-market economy, then we shouldn't care so much, in fact, we should rejoice that our system rewards endeavor.

By the way, actual income inequality is NOT increasing.  The welfare state and progressive taxation have vastly reduced the gap between the poor and everyone else.

According to Messrs. Ohanian and Hagopian, once the effect of taxes and transfer payments is taken into account, "inequality actually declined 1.8% during the 16-year period between 1993 and 2009, when the Gini coefficient dropped from .395 to .388."

Unfortunately, government policies are increasing pre-tax/pre-entitlement inequality (as defined as "earned income" inequality for this discussion).  There is some real evil going on that could be addressed to improve actual fairness and improve economic growth.  Here are some liberty movement suggestions.

End the Fed and Return to a Gold Standard.  The Federal Reserve lends Wall Street bands money at below market rates that they use to fund loans.  This is supposed to help the economy, but it just concentrates wealth in Wall Street which then gets bailed out when it makes bad bets.  If you want to really stop the shenanigans that funnel wealth to people who don't produce anything, return to the gold standard and disband the federal reserve system.

The biggest source of income inequality.

Stop Raising the Minimum Wage.  Raising the minimum wage reduces the opportunity for lower skilled and teens to enter the workforce and start making their way up the economic ladder.  Moving people into the workforce begins lifelong upward mobility. By raising the minimum wage, we keep youth out of the labor market.

Introduce Competition into Education. Students are graduating from college and high school without discernible skills that allow them to enter the work force.  This was not alway so.  There was a time when a high school diploma indicated familiarity with basic math, reading and writing skills and at least a rudimentary knowledge of science.  No more.  Employers can no longer count on even college graduates being able to perform basic tasks needed in business.  This is the result of a century of monopoly in education.  Government schools have failed us.  Competition would restore the incentives for parents to be involved in education choices for their kids, and the result would cause employers to start to trust diplomas again.

Fix Immigration Policy to Favor Skilled Immigrants.  Amnesty for unskilled farm laborers is the opposite of this idea.  The United States is still the land of opportunity when compared to the rest of the world, even if our absolute level of opportunity has declined under Obama's leftist policies.  Bringing skilled immigrants to our country allows various tech teams to stay together and provides all sorts of additional jobs for native Americans as well.  However, if we limit immigration to unskilled farm workers, then we are bending the income curve to increase inequality.  If the President really care about income inequality he would have included a vast expansion of H-1B and other avenues to bring the skilled and wealthy, because he is such a smart policy dude.  Unfortunately, he did not.

Repeal the ACA.  There are plenty of incentives for people at the lower end of the income ladder to reduce their income in order to qualify for subsidies, including married couples getting divorced to reduce their household income.  The ACA is contributing to a rise in inequality by reducing the incentives for those in lower to middle income brackets to increase their income.

Of course, the President isn't really serious.  He is just making another speech about something he chose to ignore for five years, much like immigration.  But if we would like a larger middle class and economic growth, then my tea party policies should be considered.

Immigration Insanity

This article is part of a continuing series on the insanity of many of our national policies.  As immigration reform is debated in Congress, one has to wonder how we ended up with a policy whose chief results are:

• Most immigrants come here illegally with low skills and consequently contribute little in taxes for both reasons.
• Difficulty in bringing in skilled immigrants.  
• Border enforcement that funnels the illegals to the most inhospitable climates resulting in many deaths.

Before we think that just changing this policy is easy, we should head the words of Machiavelli:

“It must be remembered that there is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than a new system. For the initiator has the enmity of all who would profit by the preservation of the old institution and merely lukewarm defenders in those who gain by the new ones. ”
― Niccolò Machiavelli

I have analyzed the forces arrayed against border security and immigration reform before.  Fortunately, however, it seems that reform is in sight, but the sticking point is over enforcing the border.  Given that lack of enforcement undermines the rule of law, and results in immigrant deaths, I can see why conservatives and libertarians would be in favor of this as part of any deal.  However, I wonder if it won't be a moot point soon.  First, an expanded guest worker program would reduce the number of laborers who would be finding work when they crossed the border illegally, as more of those jobs would already be filled.  Second, Mexico's fertility rate is plummeting, which should soon be relieving pressure on the border.  

The root cause for the failure to compromise is that we just don't trust the federal government and the different branches of the federal government have good reason not to trust each other.  One solution to the border control issue was to tie citizenship for current illegals to a certification of border security; but we have seen the administration choose not to enforce provisions of the ACA, so who believes in this option?  Another Republican idea is a "border-surge" which would put additional resources into border security. Since when do more resources equal better results when it comes to the feds.  Ideally, the DHS should be held accountable by the Congress for border enforcement against actual performance measures.  But as we saw in the IRS targeting of tea party and conservative groups, apparently no one can hold any part of the government accountable, it's just too damn big.  At least that's what Obama says.

In fact, government can be held accountable, but the Congress has to do its job and must do so, year after year.  To keep the DHS accountable, if illegal crossings weren't reduced each year, the Congress should cut the budget for the immediate staff of the Secretary of DHS, and impose a hiring freeze on all portions of the DHS budget except border control.  Such ruthless tactics work; I know, because I work for the government.  But the Congress is never willing to hold agencies accountable. And frankly, part of the problem is that government is so huge.  Obviously its size needs to shrink.

In the mean time, we still need to reform immigration policies.  We are going to have to accept a bill that improves border security, but without guarantees.

What You Should Be Reading

• KT at the Scratching Post has the latest in a series of posts about Detroit.  In my view there is a theme of passivity and learned helplessness that permeates each article.  How does that happen to a whole community?
• Dean posts the video clip of the day in which a twelve year old is more articulate than me.  The basic conundrum in Egypt is that the Islamists are unwilling to concede that anyone has rights that cannot be abrogated by Sharia.  Until the Islamists are willing to tolerate freedom of speech and the checks and balances of a constitutional democracy, there will continue to be bloodshed.
• Who knew that social security's disability fund would be the first entitlement account to run out of money?  Apparently Michael Boskin does.  Interestingly, it is benefits per person, not demographics driving this fund to bankruptcy.

Potential for Good in the Senate Immigration Bill

But we have some questions too.  First, why the heck does the dang thing have to be over 800 pages?  My brother rightly excoriated the ACA when it was being passed for its Byzantine complexity.  This bill is only slightly shorter.

A round up of key features pulled from various news sources:

• Provisional residency and a long, long term path to citizenship for those who were here illegally prior to January 1, 2012.  This is my least favorite part. We are going to make citizens out of those broke the law.  I am against deportations, and we need some kind of normalization, but this strikes at the rule of law. There will be a background check and a $500 fine and a fifteen year path, so I can probably live with this.  Also the DREAMers legal status will be codified into law.  
• More money for border security, with specific metrics regarding apprehensions.  I like this a lot more.  Stopping illegal border crossers simultaneously is humane and upholds the rule of law.  I believe that Mexico's declining birth rate will also help with this issue.  There are also provisions to monitor for those overstaying their visas, another key source of illegal immigration.  The downside is that e-Verify is being resurrected and mandated.  I find it ironic that mandate the use of e-Verify got Arizona sued by the feds.

• Expanded H-1B visas and streamlining, hooray, but with new rules about wage rates, boo. A new program for agricultural workers will be put into place, as well as other unskilled labor.  All of this will be accompanied by more federal bureaucracy to monitor labor conditions and wages and whatever.  I am happy for the increased immigration.  I am unhappy about the attendant bureaucracy and inevitable vote buying and corruption that will follow.  There is also provisions for granting visas to foreign born college students getting advanced degrees in Science, Technology, Engineering and Math (STEM). We need more such immigrants to grow our economy.
• The bill will make it easier for spouses, children and parents to be united.  Seems good as well.  

Overall my first impression is that this is good, even if compromises were made.  I would hope that Republicans fight to reduce the number of new bureaucrats that have to be hired and streamline some of the processes that allow employers to bring in foreign workers.

I knew immigration was a done deal a couple of weeks ago when my son's monthly newsletter from UCFW-135 started touting the benefits of immigration reform (sorry, can't find the online newsletter link).  Big labor had always been the big stumbling block in my view.  When I knew they were on board, I knew a deal could get done.  

Conservatives should be in favor of immigration reform, because of our belief in limited government.  Businesses should be able to hire labor from where ever they can find it.  We must maintain the sovereignty of our borders, but overall we should have a free market in labor.  Adam Ozimek and Sean Rust make this point:

Lost in such pessimism [about immigration reform] is the usual conservative optimism about the benefits of when the government gets out of the way and lets people work and trade together in free markets. Gone is the optimism about how competition helps create a dynamic and growing economy, benefits consumers, and makes all of us, even the employees of Mom & Pop groceries, better off in the long-run. Many Republicans forget that trade and free markets are not a zero sum game; that immigrants pay taxes, buy goods, innovate, start companies, and grow the size of our economic pie. There's empirical evidence backing all this up, but Republicans are often drawn to the most pessimistic studies and interpret all of the evidence in light of strong prior beliefs about a zero sum economy where competition is a bad thing.

It indeed seems an inconsistency to oppose immigration based on static economic models when we object to the use of those models when it comes to determining the benefits of reduced tax rates. Increased legal immigration will expand our economy.  Now, if Obama would just open up federal lands for fracking, we might get a recovery in spite of the ACA and regulatory overload of this administration.

The Deficit and Immigration

Today's U-T is reporting that about 365,000 illegal immigrants evaded border security forces this year, down from a peak of 1.2 million in 2005.  This is either good news that stepped enforcement is working or proof that the border is still porous, depending on your point of view.  This may turn into one of those rare problems that goes away on its own.  The following chart of Mexican fertility rates informs the issue:

As you can see, Mexico's fertility rate had fallen very close to the replacement rate of 2.1 by 2010.  I expect this downward trend to continue and will result in much less economic pressure for Mexicans to desire to immigrate to the United States.  A WSJ article on America's baby bust indicates that a similar pattern is taking place in all of Latin America.  So while we debate how to solve illegal immigration, the problem may be solving itself.

That's not to say there is nothing to fix.  It still behooves us to secure the border, in order to prevent criminals and terrorists from entering.  But if we had a very broad based guest worker program, I think the number of illegal crossings would vastly diminish.  That would also increase the success rate for catching border crossers, because they would be much more rare, and the resources in place would be adequate to the task.

I look forward to reasonable immigration because we need more workers in this country, especially skilled workers.  Expansion of the legal avenues of immigration, such as the H-1B visa program, are unlikely to happen outside of the context of full reform.  But I am also committed to the rule of law, so I demand a secure border and that those who have entered illegally not be permitted citizenship, even if we allow them to stay under some circumstances.

What has this got to do with the Federal budget deficit?  Looming future deficits are a result of the poor shape of our demographic curve.  We don't have enough workers compared to the number of folks drawing medicare and social security.  The graph below shows a bulge of workers peaking in the 50-55 age range, with fewer workers behind them to produce the economic output necessary to sustain them in retirement.  Further, we can predict that the base of the graph will continue to shrink over time, see WSJ article on baby bust.

Certainly, there are other issues exacerbating the deficit.  Federal spending jumped in 2008-2009.   Promised benefits have also grown, and medical cost inflation has exceeded general inflation, but this profile would still spell trouble.  Increased immigration is a stop gap measure to fill in the gaps in this curve.  But that requires reform of the current system.

But in the long term, forces are at work that are slowing the growth of population world wide.  Doom-and-gloomers are now predicting extinction of the human race in 600 years due to falling birth rates, just getting ahead of the curve, I guess.  However, the forces and incentives shaping today's falling birth rates will certainly undergo change themselves.  Who knows what technology will bring to cause that change?  Child rearing robots could be THE key invention of the next century.

Obama Exploits Immigrants and Immigration Issue

The President is running smack about immigration policy but he's got nothing but a bag of hot air. On the campaign trail in Cartegena, Colombia the Obama delivered the following demonstrably false statement:

In his most specific pledge yet to US Hispanics, President Obama said Saturday he would tackle immigration policy in the first year of a second term.

“This is something I care deeply about,’’ he told Univision. “It’s personal to me.’’

Compare that to what he said in July 2007 to the National Council of La Raza:

When I'm president, I will put comprehensive immigration reform back on the nation's agenda. And I will not rest until it is passed once and for all.

In March 2009 here is what he promised Hispanic groups:

According to an immigrant advocacy group in Massachusetts, Obama is to lay out his proposal in May.

"We are pleased that the President met with the Congressional Hispanic Caucus to reiterate his commitment to immigration reform and that he will be laying out his plan for such reform in early May," Eva A. Millona, executive director of the Massachusetts Immigrant and Refugee Advocacy Coalition, said in a statement.

And when May 2009 rolled around? Crickets. So how's all that hype 'n change working out you on the left on this issue? During his first two years in office, with overwhelming Democrat control of both houses of C0ngress, Obama did exactly squat to advance immigration reform. Further, if you go to his website, barackobama.com, you still won't even see mention of immigration reform as an issue, as of today, April 15, 2012.

I took a screen shot for posterity:


Not a word about this issue, because, clearly he's not resting.

Since the President won't propose a clear path ahead, the I will, and I hope Mitt Romney follows suit.

• Secure the border. This is the down payment expected by a nation that wants respect for the rule of law. No other part of immigration reform is going to matter or get enacted without this happening first, because we've been lied to by Democrats and Republicans alike. When we are sure that people aren't entering the U.S. illegally, we can talk about the rest of this agenda.
  
• A reasonable penalty for those who have come illegally and wish to stay. Top on my list of requirements will be to register as aliens. They would get a valid social security card, to lessen the market for identity theft. Also they must agree never to vote, because you won't become a citizen by breaking our laws.
  
• Expand our guest worker programs and H-1B visa programs. By the way, Senate Democrat Chuck Schumer has led the charge to restrict H-1B visas, with Obama's apparent acquiescence. How does that square with the President's desire to reform immigration. More evidence that Obama is lying. There is a lot of evidence that the more skilled we immigrants we bring to America, the more jobs we create.
• Provide a path for all foreign students who complete an advanced degree to remain in the United States and find work. Give unlimited numbers of visas to these students who do find work.
  

This is a start, Romney could adopt this plan and immediately get Obama on the defensive.

After further research, I find that many of the elements of my plan turn out to be very similar to Newt Gingrich's. I recommend his website to read a more comprehensive treatment of this issue. Even though I didn't support Newt, he really is the smartest guy in the room.

More Obama Fail - Immigration Reform

President Obama discussing immigration reform in June 2009, Official White House Photo by Pete Souza.

In a clear signal that Obama will demagogue any issue to help his re-election chances, we read this from the U-T.

President Barack Obama told about 70 national leaders in a private meeting Tuesday that immigration reform is still one of his priorities despite the failure of the DREAM ACT and the absence of movement on other immigration reform.

The meeting focused on how to engage Americans in a discussion around immigration reform and Obama asked the leaders to use their influence to shape the public conversation.

That would be code for, "accuse the Republicans of being racists so this issue can kept alive as a wedge for the next election cycle." The article goes on to quote Frank Sharry, executive director of America's Voice Education fund, as saying the President is willing to spend his political capital on this cause. Bunk. First, as if he has any. Second, if that was true, the President would have already spent the capital to pass the poorly named DREAM act in the first place. Third, if the President were serious, he would enforce the border.

So what can we do to fill the vacuum left by Obama's leadership on the issue. I think comprehensive immigration reform is too important to let the Democrats take control of the issue. But the American people want the rule of law enforced, so the down payment has to be a real commitment to enforce the border. But the GOP should make this promise, once the border is secured, we will work to establish a guest-worker program of sufficient magnitude to meet the real labor demand in this country. We will provide a path, not to citizenship, but normalcy for those here illegally who are willing to return to their country of origin and enter the country legally. Further, we will be open up the H-1B to millions more workers as part of an effort at reform.

Such an effort would be good for the country and good for the Republican party. Many of these legal guest workers will be Hispanics and Asians, giving the lie to the slander that Republicans are racist. Further, the country needs younger workers to help solve the structural deficit, as I have outlined before.

Note the U.S. baby boomer bulge moving into retirement causing strain on the economy. India, by contrast has a large, young population, facing no such challenge.

Skilled immigrants, like those that come to this country under the H-1B, can help the country compete globally, as discussed here. By advancing a comprehensive agenda that will include respect for the rule of law, but at the same time help solve some of our countries most pressing issues, the GOP will help the country and itself.

What Ails Us - Part II

Would he rather work in America? Does our freedom still attract? Why do we need to import this man?

In his State of the Union speech the President alludes to the challenges facing the nation due to globalization and rightfully calls on our nation to rise to the occasion. He then proceeds to lay out small beer as to how to meet the challenge, with government "investment." He skirts the real issues facing our nation. He share the left's fascination with 19th century technology - trains, as if that's the wave of the future, our "sputnik" moment. The fact is, government investment is not what made this country great, nor will it cause us to meet the current challenges. Our problems are not easy to solve, but they are simple to diagnose.

Education

Our schools are being strangled by 19th century methods of instruction and 20th century unionism. In spite of computers and multimedia technology, little has changed in our schools curricula for over 100 years. We have not applied scientific knowledge about brain function with new technologies to change the way our children learn. Why? Because innovation is stifled by massive government control of our schools and union resistance to any innovation.

But just like telecommunications innovation didn't really start until the AT&T monopoly was broken up, so education must be freed of government control. But without government standards, we can't guarantee a quality education for our kids, some argue. Really? The inner city schools of our country have already lost a generation that we may never retrieve. Internationally, kids taught with the same techniques that we have used for decades, but with more intensity, are of course doing better on standardized tests. I don't think those tests necessarily prove that any particular group is more ready to face new challenges, because the tests are necessarily backwards looking. But if they are the only measure, what does it mean that we are falling behind? Innovation will only come from competition. Time to make huge changes to our school system.

Human Capital and Freedom (Personal and Regulatory)

Traditionally, many of our greatest innovators have been immigrants. Why do they come to this country? It isn't because of our love of diversity, but because our way of life, with its greater freedom that so many foreigners have come to call Americans home. Further, the immigrants are much more likely to start up new businesses than the native born. Even now, our nation is still much less regulated and less corrupt than most of the rest of the world. It means that entrepreneurs can keep the fruits of their labors. It means that immigrants won't be jailed for criticizing the President, unlike Russia for instance. Immigrants with drive and education are a source of strength.

To continue to attract immigrants, our regulatory regime must be simple and understandable. This administration is moving in the wrong direction, granting the Secretary of HHS vast new law-making powers under Obamacare, for instance. I grant that some regulation is desirable to prevent harm from coming to individuals, but our approach is out of control. We opt for the complex when the simple will do. Some easy examples:

• To deal with the less than 15% uninsured, we overhaul everyone's health insurance, rather than just dealing with that group.
• We perform elaborate "stress tests" rather than just saying the larger the bank, the larger its required capital reserves.
• We license professions, like those who braid hair, for which there is no rational basis.
• We propose an elaborate cap and trade system, rife with potential fraud (or actual fraud in Europe) rather than a straightforward carbon tax.

Immigration Policy

We desperately need skilled immigrants to counter the deficiencies in our education system and to balance our demographic profile. But because we haven't secured the border we actually have large numbers of unskilled workers as our actual immigrant population. You can argue whether low skilled illegal immigrants a net positive or not, but who would argue that we wouldn't be better off if those were replaced with engineers with advanced degrees or doctors?

The failure of our immigration policy prevents a rational discussion about opening up programs like H-1B, that would increase the inflow of accomplished individuals. Further, by increasing these inflows, we would halt outflows of jobs due to offshoring, because it makes more sense for the other members of project teams to be colocated with the most productive members of the team.

That's most of it. I also agree with KT that lack of intact families is an even more fundamental cause of our problems, but that isn't tractable by government policy. But the President didn't really address any of it. Judging by the snoozefest, no one was excited by trains either.

After We Secure the Border

Some day, a President is going to enforce the laws of our country and take the action needed to slow cross-border flows of illegal immigrants to a trickle. It might involve completing the fence and use of technology, but will eventually get done. It will never be 100%, because we will always have creative people, overstay of visa, and other means by which persons gain residence illegally. However, the problem will be reduced by two orders of magnitude.

When that happens, we still need a serious debate about immigration policy, because the cost of maintaining such a state of border security will be burdensome and because we need immigrants to strengthen our economy. Here are B-Daddy's fearless proposals for a new immigration policy for the United States.

1. Vastly expand the H-1B visa program for skilled workers. Bringing skilled workers to the United States has multiple benefits. It reduces the temptation to outsource work. Also, the skilled workers also help keep U.S. workers employed, because businesses know that work groups are more effective when teams are geographically co-located. There is a fear that the foreign workers will displace native Americans, but in fact, there presence will increase the overall number of jobs here in America. Currently the cap is 65,000 per year. A Heritage Foundation review concludes these are highly skilled workers that are an asset to the nation.
   
2. Vastly increase the investor immigrant category of visa (EB-5). Immigrant investors are far more likely to start up new companies than native born Americans, and start ups create jobs. Lowering the threshold for this category, to anyone who could show they have $250,000 in venture capital would also be a pro-growth and pro-jobs policy. More on this idea in the WSJ.
3. Increase the guest worker program for low skilled occupations in agriculture, food services and janitorial services. I think we also need a sub-minimum wage for these guest workers and a requirement to return to their country of origin when they are not employed. The lower labor costs would benefit those who employ them, freeing up wealth for other uses including job creation. This is not exploitation, these workers will be far better off than they would be in their home countries such as Mexico. Meanwhile, we economically benefit from their labor.

Once the labor markets were normalized with these reforms, the pressure at the border would certainly subside, making it easier to patrol. We should continue to have security controls for entry, to prevent terrorists from coming to the United States, but the effort to protect the border would be made much easier with a reduction of economic pressure.

The other reduction in pressure for cross-border flows would be to end the drug war, but that is an article for another day.