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Ben Smith's entertaining Mickey Kaus profile left out the part where Kaus's one idea is totally wrong

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Over the weekend, Ben Smith published an interesting profile of Mickey Kaus, a pioneering blogger and contrarian liberal who over time has evolved into an anti-immigration crank. There's a lot going on in the piece, but one thing you don't really see is analysis of Kaus's policy views about immigration. Smith glosses them this way (emphasis added):

Kaus says he’d always believed that elites were too quick to ignore unskilled American workers whose wages depend on a tight labor market. Immigration reform, in its various forms, was the product of an unusual truce between Chamber of Commerce Republicans and Democrats sympathetic to undocumented immigrants — an issue all right-thinking people could agree on, and thus a perfect one for Kaus to attack.

And so [Kaus] emerged as a leading foe of Bush’s attempt to overhaul immigration, which he referred to in 2007 as "Bush’s domestic Iraq." He took what was once a common labor-Democratic position: That new workers would drive wages down. That position has, though, almost vanished from the political landscape— in part as openly xenophobic voices drowned out legitimate ones and angry outbursts at Mexicans became harder and harder to explain in policy terms.

What this misses is that labor-centric views of immigration policy haven't just vanished from the political landscape because they've been crowded out by xenophobes. They've vanished because they reflect a fundamental misunderstanding of how the national labor market works. Immigration raises incomes for native-born workers. Most people, obviously, care about issues other than economics, and that's why non-economic concerns dominate the immigration debate.

Tight labor markets are created by the Fed

Fundamentally, immigration doesn't determine how many jobs are available for native-born workers. The Federal Reserve does. Lots of different things — plausibly including the volume of immigration — tend to push the unemployment rate up and down. But then the Federal Reserve takes all of this into account and adjusts monetary conditions to try to generate a level of unemployment and inflation that it deems acceptable. Right now the unemployment rate is at 5 percent, and almost everyone expects the Fed to declare on December 16 that this is low enough to start raising interest rates and slowing the pace of job growth.

You can like this idea (as most political and economic elites in the United States seem to), or you can dislike it. But it is what it is, and changing immigration policy wouldn't change it.

In fact, just the opposite. If you tried to make labor markets tighter than the Fed wants them to be by restricting the supply of workers, not only would the Fed offset that with job-killing monetary policy, but it would do so while the economy was at a lower level of per-worker productivity.

If you want tighter labor markets, what you need is a different philosophy from that of the people who run the institution that controls labor markets. That's the Federal Reserve, not the various immigration authorities.

This worked differently in the past

I sometimes see people observe that back in the 1920s, when heavy restrictions on immigration were put into place, the labor movement of that era was strongly restrictionist. This is sometimes offered as a knock on the labor movement, and sometimes offered as a knock on people who favor liberal immigration policy in the 21st century.

But whatever you make of the immigration policy debates of 100 years ago, it's crucial to note that the monetary system worked differently back then.

A century ago, the value of a dollar was defined in terms of a quantity of gold. This meant that the supply of dollars was ultimately driven by the activities of the world's gold mines. Under the circumstances, the ratio of workers to gold — and therefore the wage level — was impacted in an important way by immigration policy. If a shortfall of workers led to rising wages, there was no countervailing monetary force to push wages back down. Conversely, if a shortage of gold led to mass unemployment and falling wages, there was no countervailing monetary force to push the labor market back into equilibrium.

Luckily, we're not on the gold standard anymore, and the Fed has a great deal more power over the unemployment rate. That means the once-real trade-off between immigration and employment has vanished.

Immigration boosts inequality

A different version of a left-wing argument against immigration would be that immigration of unskilled workers boosts inequality. This works through two different channels.

One is that, separately from any impact on the labor market, in the short term immigration (regardless of the skill level of the immigrants) means there are fewer capital goods per person, which makes them more valuable to own and boosts the income of capital owners. That mostly means rich people (who own lots of stock) and, to a lesser, extent middle-class people (who generally own houses) and not at all poor people (who generally have debt, not assets). In the long run, this should theoretically even out as a result of new investment, but that could take a while.

The other, even more powerful mechanism is that when a poor person lives in a poor country, that person's poverty is "off the books" in terms of American income statistics. When he moves to the United States, he goes on the books, and inequality goes up. Annual income per capita in Haiti, for example, is about $400 a year. If an average Haitian family of four moves to the United States, and ends up with one adult working full time at the federal minimum wage of $7.25, the family's income will jump from $1,600 to $15,080, which would be a phenomenal increase. But the family would be very poor by American standards, and their presence in the country would cause measured inequality to go up.

Your mileage may vary as to whether it makes sense to worry about an increase in inequality that doesn't make anyone worse off. Kaus himself wrote a pretty good book arguing that worrying about inequality per se is a bad idea, and I take these considerations about immigration to be an example of the reason why.

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