Two Thought Experiments on Immigration Reform

Abstract

Immigration today presents two distinct but related problems. The first, and most neglected, relates to the money supply and currency values: due to the global availability of Western Union and Moneygram, remittances to home countries have exploded in the last decade, with estimates running into the hundreds of billions per year. While this massive transfer of currency initially helps alleviate poverty in developing countries, remittances have reached a level that can cause stifling inflation and “Dutch disease” (stagnation of exports) in the recipient countries, and deflation or currency instability in the United States. Yet money transfer services remain almost completely unregulated and under-taxed, leaving economies on both sides vulnerable. The second problem with immigration is a tragedy of the commons or collective action problem. Abrupt, large-scale immigration can result in surpluses of workers, social disruption, and other externalities that make migrant workers collectively worse off overall. Nevertheless, each individual stands to gain more personally by migrating than by coordinating or staggering the migration, because the harm of over-immigration is diffuse, spread across the whole population. Left unchecked, the problems simply escalate. This essay, the introduction to a longer work in progress, assumes that there is some optimal level of immigration and remittances, and that we should adopt policies that allow our government to achieve optimal levels rather than taking an all-or-nothing approach to the issue. An adjustable tax on overseas money transfers, one that the Executive Branch could calibrate year to year, would allow the government to monitor and limit the amount of currency leaving our economy, while nudging immigration rates to an optimal level. Evidence shows illegal immigration to be price sensitive, fluctuating with the value the money sent home. Compared to misguided and ineffective tactics of border fences, workplace raids, and deportations, country-specific transfer taxes provide a more rational, measured, and humane way to influence the influx rate of undocumented workers and to moderate the rate of dollar outflows from our financial system.