The optimal immigration policy – just open the borders

My blog is mostly about monetary policy matters. However, if I one day would stop writing about monetary policy I think there are two other topics I would focus on. The one is on the need to end the global war on drugs and the second is immigration reform.

My view on immigration is pretty clear. Free trade is good – whether we talk about goods, capital or labour. It is that simple really.

Given my pro-immigration views I was very happy to read a new blog post by University of Chicago professor John Cochrane on the issue of “The optimal number of immigrants”. Cochrane rightly concludes that there, however, is not such a thing as the optimal number of immigration. This is Cochrane:

What is the optimal number of imported tomatoes? Soviet central planners tried to figure things out this way. Americans shouldn’t. We should decide on the optimal terms on which tomatoes can be imported, and then let the market decide the number. Similarly, we should debate what the optimal terms for immigration are – How will we let people immigrate? What kind of people? – so that the vast majority of such immigrants are a net benefit to the US. Then, let as many come as want to. On the right terms, the number will self-regulate.

Econ 101: Figure out the price, set the rules of the game; don’t decide the quantity, or determine the outcome. When a society sets target quantities, or sets quotas, as the U.S. does now with immigration, the result is generally a calamitous waste. With an immigrant quota, an entrepreneur who could come to the U.S. and start a billion dollar business faces the same restriction as everyone else. The potential Albert Einstein or Sergey Brin has no way to signal just how much his contribution to our society would be.

Cochrane in his post comes up with a number of interesting suggestions for immigration reform. He for example has an interesting suggestion for how to avoid that immigrants misuse social services. Here is Cochrane’s suggestion:

Immigrants would pay a bond at the border, say $5,000. If they run out of money, are convicted of a crime, don’t have health insurance, or whatever, the bond pays for their ticket home. Alternatively, the government could establish an asset and income test: immigrants must show $10,000 in assets and either a job within 6 months or visible business or asset income. 

But the best part of Cochrane’s post is on the impact of immigration on natives’ salaries:

You might fear that immigrants compete for jobs, and drive down American wages. Again, this is not demonstrably a serious problem. If labor does not move in, capital – factories and farms — moves out and wages go down anyway. Immigrants come to work in wide-open industries with lots of jobs, not those where there are few jobs and many workers. Thus, restrictions on immigration do little, in the long run of an open economy such as the US, to “protect” wages. To the extent wage-boosting immigration restrictions can work, the higher wages translate into higher prices to American consumers. The country as a whole – especially low-income consumers who tend to shop at Wal-Mart and benefit the most from low-priced goods – is not better off. 

And this is exactly why economists since the days of Adam Smith and David Ricardo have advocated free trade. And again – that goes for goods, capital and labour.

If you are interested in the economics of immigration then I suggest you take a look at the Open Borders website. My favorite immigration economist is George Borjas – despite the fact that he has been advocating restricting immigration in the US. Read Borjas’ brilliant book Heaven’s Door together with Julian Simon’s The Economic Consequences of Immigration into the United States. Then you will be well-equipt  to understand the main issues in immigration economics.

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  1. I am surprised at the Cochrane view of immigration mostly because I envisioned him as unwilling to take too many steps off of the conservative “reservation, ” so to speak. Now, in addition to adding his name to the list of conservatives who have changed their minds about monetary expansion, he can be added to the list of those who favor less restrictive immigration. This is progress!

    Yet, I am not too keen on requiring posting of a bond for entry. It says something like this on the Statue of Liberty: Give us your tired, your poor huddled masses who yearn to breathe free… And $5000 seems more like having to pay for breathing our air instead. Though, I don’t have a problem with trying to control where and how people come in, sort of like an Ellis Island approach, locations that are strategically placed in order to check the immigrants out for public safety reasons prior to letting them in. It would certainly cut down on the problem of human trafficking and shrink areas of lawlessness where immigrants are regularly enslaved and abused.

    • Dajeeps,I am pretty sure Cochrane is a libertarian rather a conservative. Cochrane has been very wrong on monetary issues, but very right on most other issues in my mind. For example his critique of macroprudential regulation is excellent.

      Regarding Cochrane bond idea I would say that this is not necessarily about making the moral case for open borders (I think there is a very strong moral case), but rather about reform the present system. So the question is Cochrane’s proposal preferable to the present US immmigration regulation? I think it is and it is certainly a lot better than the policies we have in the European country.

      • That’s just it though. I don’t think making them pay a large bond would improve the system. Payment and trafficking is the result of the current system, and I don’t see how that changes.

  2. Justin Irving

     /  June 27, 2014

    Haha well I for one think it’s madness. Where to begin…

    • Justin,

      I am not sure why you would think it is madness, but I am sure that a lot of people think free trade in goods or capital is madness as well. Economists luckily well understand the benefits of free trade. Unfortunately they are reluctant expressing this clearly when it comes to immigration.

      • brendan

         /  June 30, 2014

        “Economists luckily well understand the benefits of free trade. Unfortunately they are reluctant expressing this clearly when it comes to immigration.”

        Lars, people vary. Chinese immigrants are different than Islamic Arab ones and Mexicans. Persistently so. Jews are different than Somalis. Persistently. These groups are different in ways that obviously affect political outcomes globally, and within countries.

        The approach to these facts among economists is to ignore them. And then blithely pretend that those who oppose open borders don’t understand free trade.

        Maybe open borders is good. But if so, why do its proponents avoid the crux of the thing, and imply that opponents must be either xenophobic or dumb or both?

  3. Today’s Chicago Tribune:
    More than 52,000 unaccompanied youths have been caught along the Southwest’s border with Mexico this fiscal year, almost double the total last year.

  4. Agreed with Cochrane’s supply-side argument on this, I would point that the demand-side will work as well because immigrants need to buy food, clothes and shelters.

  5. Goods and capital don’t vote. (See the Curley Effect.)

    Click to access curley_effect_1.pdf

    The case against open borders is based on failing to treat people as if they were goods, services or capital because they are very much more than that. As are the connections between them.

    • Lorenzo,

      First of all there is no reason to give immigrants the right to vote. Second, is there any evidence that “immigrant countries” such as Cananda, Australia or the US have worse “political outcome” than “closed nations”?

      • Ole Smidth

         /  July 2, 2014

        Immigrants children will probably have the right to vote though. Suppose they vote anti-freetrade.

  6. brendan

     /  June 30, 2014

    Lars, one more critique. You call the immigration issue “simple”, like FT in goods. But immigration’s long-term effects are enormously complicated and multi-disciplinary. The folks with the deepest insights here aren’t specialist econo-theorists, but generalists who’ve integrated the big ideas from behavioral genetics, sociobiology, psychometrics, history, politics, and economics. The idea that the basic logic of free trade is sufficient for open borders is crazy.

  7. Lars, Australia and Canada do not have “open borders”. Australia in particular cherry-picks its migrants (quite successfully, I might add). Arguing for a relatively generous immigration policy is not the same as arguing for open borders.

  8. am

     /  July 1, 2014

    Old Blighty is forecast to become the largest economy in Europe in a few years. This means the largest national economy rather than larger than the combined nations of the eurozone. Considering this will mean overtaking the mighty Germans it is no mean feat. But a major factor in this leap forward is increased immigration.

    But this forecast is highly unlikely to be fulfilled if the mark is back before then. And then the Germans will be full steam ahead and there will be no catching up with them.

    I have not forgotten about the article on Zambia but I can understand you would like things to settle down there before putting pen to paper.

  9. Lars,
    Does this sound “optimal”?

    Buses carrying migrant families arrived at the U.S.-Mexican border station of San Ysidro after being blocked by protesters in Murrieta. Protesters waving American flags blocked the buses Tuesday afternoon. The undocumented immigrants were on federal buses and were being transferred to the Riverside County city at a U.S. Customs and Border Protection facility. The first group out of an estimated 140 total was flown from detention facilities in Texas to San Diego, then taken by bus to Murrieta, where some local residents camped out to protest beginning early in the morning.
    A vocal group of protesters blocked the buses, filled with families detained after entering the country illegally in Texas. The three buses turned around and headed south on the 15 Freeway to the San Ysidro border station. The plan was for the immigrants to be be given background checks before being reunited with family members across the country while their cases are processed. Authorities said most of the immigrants are families, and the move is designed to ease overcrowding at border facilities strained by an influx of unaccompanied children that have flooded the system.
    City leaders in Murrieta oppose the transfers, saying they are burdens on their town and raise safety concerns. Mayor Alan Long said on his Facebook page Monday that he continues to oppose the use of Murrieta’s facilities to handle the transfers, and that he and other city officials have put together a system of checks to ensure the community’s safety. “This decision was made by the federal government and is not within our local authority to change. Clearly, this is a failed system that is spreading the cost and needed resources to handle these situations on the backs of local communities. Nevertheless, we must react and put a plan in place,” he said in the statement.
    Randon Lane, a Murrieta city councilman, stressed that the families arriving will be reunited with relatives already in the U.S. “They have to know the person, so (officials) are calling them up and verifying the information, and that’s where they’re sending them,” he said. After leaving the processing center, the immigrants will be taken to transportation centers. Nonprofits and several Central American consulates are expected to help fund the last leg of transport.
    Some local residents have loudly opposed the use of Murrieta’s facilities. In addition to the protest outside the facility to coincide with the buses’ arrival, the Tuesday night Murrieta City Council meeting is also expected to be full of opponents of the plan. “What’s going to happen to our schools? What’s going to happen to the community in general?” asked resident Jim Pace.
    The move comes amid a massive increase in the number of children and adolescents making the dangerous desert trek alone, without family, officials say, sparking what President Barack Obama has deemed an “urgent humanitarian crisis.” Last year, the federal government housed about 25,000 minors who were going through deportation proceedings alone. This year, that number is expected to swell to 60,000. The president has asked Congress for more than $2 billion in emergency funding to deal with the situation, and has said the crisis is forcing the hand of legislators to move on immigration reform, lest he take executive action to ease the pressure on the borders.
    Immigrants rights advocates in Los Angeles have called on the president and local leaders to move swiftly on immigration reform. “There is no logical reason why this backlog exists. It exists because they keep denying people their due process and their ability to reunite with their families,” Xiomara Corpeno, lead organizer for the nonprofit Coalition for Humane Immigrant Rights Los Angeles, said at a press conference Monday. A second wave of immigrants is expected to be transported to Murrieta on Friday.

    • Chris,

      What you are describing is PRESENT US immigration policies. In recent years we have seen a gradual militarization of the US border. That is hardly what I am advocating.

      • Lars,
        You have one border: with Germany. If Denmark bordered on Central America, you might think differently about open borders.

  10. Chris,

    My view on immigration is a result of being an economist. In regard my nationality or where I live is not relevant. However, Denmark might actually give some insights to the benefits of immigration.

    Since the EU enlargement in 2004 Central and Eastern Europeans have had free access to the Danish labour market. Luckily a lot of particularly Polish and Baltic workers have come to work. That by any measure have been a massive success. While Poland and the Baltic States are not bordering Denmark – yet are surely neighbouring countries. The flight to Copenhagen to Warsaw is cheap and take a bit more than an hour. That is probably shorter time than it takes to cross the US-Mexican border these days.

    And if we want to talk about personal experience – I have presently Polish guys doing repair work on my house in Copenhagen. They work within Danish regulation and are paying taxes in Denmark. Despite of that they work at a wage considerably below what Danish workers would demand. I benefit directly from this.

    So yes, my personal experience very much tells me that immigration is a great thing.

    Where we in Denmark have problems with immigration is not labour immigration, but people who mostly came 30-40 years back and who have been living on social welfare for decades. That, however, is a welfare state problem rather than an immigration problem.

    PS writing this while sitting in Copenhagen airport waiting to fly to London. Most of the service personal I have encountered in the airport have been speaking Swedish to me as (Southern) Swedish youngsters tend to come to work in Copenhagen. The bridge between Copenhagen and South Sweden means that great Copenhagen and South Sweden today essentially is ONE labour market. That is extremely positive for the Swedish and the Danish economy alike.

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