Pricing the Pottage

Immigration is not my issue. I don’t get enormously exercised by it one way or the other. I’m not terribly worried about our post-American future, and I don’t think we’d betray our promise to the world if we restricted immigration. I don’t think the free movement of labor is vital to economic success (moving capital is generally more efficient anyway) and I don’t think the negative externalities to immigration are quite as large as the restrictionists think they are. It’s just not my issue.

But it’s obviously a big issue to a lot of people, so I try to keep myself informed about the various proposals floating about. Since it’s not my issue, the holy grail for me has not been a policy stance that accords with my own views, but one that would help me to tease out the views of other people, what are the real drivers of the politics of this issue. So when a friend of mine – an immigrant himself, an entrepreneur from Ireland who spent years in H1b limbo before getting his green card – proclaimed that he had a "modest proposal" to solve the immigration question, I was intrigued.

"The solution to immigration," he said, "is to auction the visas."

Now, my initial reaction was to treat the proposal as so much libertarian flapdoodle, "you libertarians know the price of everything and the value of nothing" and so forth. But then I set to thinking. There is a logic to the proposal.

Divide visas into three categories: humanitarian, familial and economic. Humanitarian visas are for people fleeing persecution. Familial visas are for adult parents or guardians of minor citizens, spouses of citizens, children of citizens, and minor siblings of citizens. And economic visas are for anyone coming here for employment who doesn’t fit into either of the previous two categories. Let Congress set the number of visas in each category every two years. Humanitarian and familial visas are handed out on a first-come, first-served basis. Economic visas are distributed to employers (or the self-employed, or, for all I care, speculators and other middlemen) via Dutch auction.

(Just to clarify how a Dutch auction works: in a Dutch auction, a fixed number of units are for sale. Participants in the auction can bid for any number of units up to the full number on offer, for any price above a set minimum. The clearing price is the lowest highest price that results in a sale of all units. Thus, suppose there are ten apples for auction. John wants five apples for himself and his kids, and bids $0.50 per apple. Jane wants two apples for herself, but she really wants them, and bids $1.00 per apple. Fred thinks he could sell apples for $0.50 per apple, and bids $0.35 per apple for eight apples. Shylock bids $0.05 per apple for ten, figuring he’ll pick up apples dirt cheap if nobody else wants them. Nobody else participates. The clearing price is $0.35 per apple because if you set the price higher than $0.35, you only sell seven apples (two to Jane and five to John) and you need to sell all ten. So everyone gets their apples for $0.35. Jane bid the highest, so she gets two; John bid next highest, so he gets five; and Fred, who set the clearing price, gets the remaining three, because that’s all that’s left after filling Jane and John.)

The obvious avantage of an auction as a means of allocating visas is the feedback loop inherent in the price mechanism. In a point system such as is used by Canada or Australia, visas are allocated based on the government’s assessment of the skill needs of the economy and the specific skills that the pool of potential immigrants has to offer. That’s certainly better than random allocation of visas, but it doesn’t provide any kind of feedback mechanism. The government may be very out of date in its assessment of what business needs are; or it may be influenced by the lobbying of particular industries; or it may over- or under-estimate the cost of training citizens already in the labor pool to do the jobs in question. An auction should be much more efficient in allocating visas where demand for labor is greatest. A Dutch auction specifically would reveal the full picture of demand while still pricing all visas the same (which it makes sense to do). Auctioning visas would also force business to weigh the relative costs of training the existing labor force versus raising wages versus bringing in immigrant labor.

There would also be a gain to the treasury, of course. If we assume, say, half a million total visas, of which 3/5 are economic, and a clearing price of $10,000 per visa, that’s $3 billion. That’s not much in the scheme of a federal budget, but it would pay for a good portion of the cost of the INS, or for a good portion of the cost of a fence, or what-have-you.

But the real benefit to such a scheme would be how it changes the incentives related to enforcement of immigration law. Employing an alien who does not have a visa would no longer simply be a violation of the law; it would be a defrauding of the government, because the employer could have purchased a visa at auction, but didn’t. The government certainly doesn’t have a perfect record of policing fraud; Medicaid and the EITC have serious fraud problems, not to mention the problem of counterfeiting. But the Feds certainly try harder to stop fraud than they do to enforce the law against employing illegal immigrants. Moreover, an auction system would pit employers against one another more effectively than does the current system. If contractor A purchases 100 visas at auction to employ masons, and contractor B does not, but employs 100 illegal alien masons nonetheless, contractor A has a pretty powerful incentive to rat out contractor B to the Feds. (Contractor B would, of course, claim to have believed that the masons were citizens. That side of the immigration problem can only be solved with a good national ID card. But even if contractor B beats the rap and doesn’t have to pay a fine, the change in the incentive structure would mean that enforcement would be less spotty than it is now.)

I mentioned the idea of selling visas to an open-borders libertarian friend. His response was to say that it didn’t make any sense to sell visas because immigration is a net-positive to America – we should be paying to get immigrants. Leave aside whether the contention that immigration is a net-positive economically for the receiving country is true (in theory, it should be, but in practice we don’t live in a world of pure free markets, and there are any number of situations where immigration could be a net-negative; moreover, there are a number of studies of immigration economics that suggest that the lion’s share of the aggregate economic benefit of immigration is captured by the immigrants themselves). Even if it is true, it does not follow that the right to live in America should be priced at zero. Take the following example: you own an old couch. You don’t want it. You would happily pay $50 for someone to come to your house and take it away. Your neighbor’s kid is moving into his own place. He needs a couch. He would happily pay $150 for an old couch. Just because you were willing to pay someone to take it away, there is no theoretical reason why the clearing price for the trade where the kid takes your couch should be zero. Indeed, if he pays you $50 for the couch you have precisely split the value of the transaction (he’s bought it for $100 than he would have paid, and you’ve sold it for $100 than you would have demanded). The only way you can say that the proper price of visas is zero is if you believe that visas should be unlimited – that you don’t care how many people move to America. It is very hard for me to believe that even a really libertarian person believes that there should be literally open borders in this sense.

I also mentioned this idea to another friend who is an immigration restrictionist, and he was highly offended at the idea of selling something akin to and which would begin the path to citizenship (hence the title of this post). Which raises the whole question of what being a citizen really means. That probably deserves its own post, but for now, it seems to me that citizenship falls somewhere on a continuum of "belonging" with the family at one end and being a fellow shareholder at the other. It implies equal mutual regard (that’s basically the libertarian conception), but also some degree of mutual responsibility (that’s basically the communitarian conception). It may or may not imply some degree of union in some larger, reified whole; it may or may not imply assent to some set of ideological axioms or cultural norms – there are thick and thin conceptions of citizenship, but any conception of citizenship has some degree thickness, and it is that thickness, that aspect that makes citizenship more than being a shareholder (even a shareholder in a coop) in which inheres the sacredness that was sullied, in my friend’s view, by the idea of selling visas. But I’m not sure he’s right. I have a hard time understanding why it would be acceptable to freely grant a visa to someone because he is likely to increase the national wealth, but not to charge for it. In neither case is membership in this special class called "citizen" being granted through some proof of inherent worth. If a big part of what we talk about when we talk about immigration is economics, is money, then what’s so terrible about putting a price on it?

I’m genuinely interested in hearing from others: what do you think of the idea of selling visas, and of selling green cards. Good idea? Bad idea? Blasphemous? Preposterous? Totally off-point to the real issues at hand? I should go back to reviewing Canadian theater? Very well . . .