The Trouble with Constraining Markets

Economists recognize that restricting labor mobility causes market distortions just as restricting capital mobility does. They also recognize that current U.S. immigration policy does just that. There may be proper reasons for limiting the amount of immigrants allowed into the country. These might include social stability, national security, or predatory usage of our welfare system. But limiting access to U.S. labor markets to foreign workers does a disservice not only to them, but also to domestic producers. This, in turn, does a disservice to all Americans. The NY Times has an illustrative article:

Steve Scaroni, a farmer from California, looked across a luxuriant field of lettuce here in central Mexico and liked what he saw: full-strength crews of Mexican farm workers with no immigration problems.

Farming since he was a teenager, Mr. Scaroni, 50, built a $50 million business growing lettuce and broccoli in the fields of California, relying on the hands of immigrant workers, most of them Mexican and many probably in the United States illegally.

But early last year he began shifting part of his operation to rented fields here. Now some 500 Mexicans tend his crops in Mexico, where they run no risk of deportation.

“I’m as American red-blood as it gets,” Mr. Scaroni said, “but I’m tired of fighting the fight on the immigration issue.”

A sense of crisis prevails among American farmers who rely on immigrant laborers, more so since immigration legislation in the United States Senate failed in June and the authorities announced a crackdown on employers of illegal immigrants. An increasing number of farmers have been testing the alternative of raising crops across the border where there is a stable labor supply, growers and lawmakers in the United States and Mexico said.

The gut reactions of ill-informed observers might be to belittle American producers who move across the border. But this would be disingenuous. The producers are responding as one should expect: they are responding to incentives. The government of United States is to blame for not creating a viable immigration policy that provides "liquidity" to labor markets. The resulting frictions are the result of the market distortion... not the other way around.

Examining NAFTA

Brad DeLong -- one of the architects of NAFTA -- had his belief shaken. He acknowledges the real benefits that had occurred because of NAFTA, but expected much bigger effects. Tyler Cowen points him to a new paper which might re-embolden his faith. The bottom line:

The more globalized parts of Mexico -- most of all the north -- have done extremely well since NAFTA passed. The biggest problems remain in the least globalized parts, most of all the south and big chunks of the interior.

So measuring Mexico in the aggregate will leave a NAFTA-believer disappointed. But properly weighting the measurement shows something very different: NAFTA has been a huge success. And all without a giant sucking sound or even one poisoned strawberry.