PR releases new data. Deaths 1400, not 4600

On Friday afternoon, as a result of the controversy surrounding the publication of Mortality in Puerto Rico after Hurricane Maria (the ‘MPR Study’) by a Harvard-led team, the government of Puerto Rico released island death statistics as of May 31, 2018.

These statistics, which can now be taken as materially final through year end, indicate 1,397 excess deaths following Hurricane Maria for the Sept. 20 - Dec. 31, 2017 period covered by the MPR Study.  By contrast, the MPR Study indicated 4,654 excess deaths as its central estimate for the period.  As we discuss below, the official numbers are unlikely to change materially at this point, implying that the MPR central estimate was approximately 3,250 above the observed number representing an error of 232% over the actual figure. 

For Official Deaths, Puerto Rico Institute of Statistics via Latino USA as of January 2, 2018;  via David Begnaud for May 31, 2018 release; for MPR excess deaths, Mortality in Puerto Rico after Hurricane Maria, with Princeton Policy monthly interpolations to MPR year-end total.

Conceptually, government agencies and other organizations release their data on three separate bases: 'as of', 'preliminary' and 'final'.

When data is released as of a given date, this represents the data available in the database as of that date.  It does not necessarily reflect the total number expected for the month or an official final count.  The difference between an 'as of' figure and a final official tally could be 30-40%.

Data presented as 'preliminary' usually represents an early estimate of the final count, but could be revised by, say, +/- 8% to the final value. 

'Final' numbers may still be revised, but generally fall within 1-2% of their ultimate value.

Some agencies release only 'preliminary' and 'final' numbers, but it comes down the the specific practices of the agency involved.  In the field of oil production, for example, Texas crude output as officially recorded by the Railroad Commission is materially unreliable until the sixth month revision following the initial publication.  By contrast, North Dakota output as published by the state's Department of Mineral Resources can be considered materially accurate when initially released.  It comes down to the practices of the institutions involved.

Puerto Rican authorities appear to release death statistics on an 'as of' basis.  Thus, data released on January 2nd and published by Latino USA and on May 31 published by David Begnaud of CBS should be considered 'as of' versions which may be subject to material revision.  For example, the December death count was revised up from 2168 in the January report to 2820 in the May report, a revision of 30%.  

On the other hand, the November numbers were revised up only 5%, and the September and October numbers less than 1%, from the January to May release of death statistics.  Consequently, the vintages of data available to us suggest that data from the third month prior and earlier may be considered 'final' and unlikely to vary more than 1% in future releases.  That is, data through March 2018 may be treated as 'final'.  Thus, the year-end excess death toll of 1,400 may be treated as a firm number in practice.  It is nowhere near the 4,600 central estimate of the MPR study and relayed by virtually the entire mass market media in the US.  The Harvard study was wrong, and by a wide margin.  Therefore, as we wrote earlier, unless the Study authors can point to where 3,000 bodies undiscovered through March 2018 may literally be buried, we are left to conclude that they simply do not exist, and the Study must be judged as wildly inaccurate and a gross exaggeration of the true impact of Hurricane Maria in Puerto Rico. 

Source: Puerto Rico Institute of Statistics via Latino USA as of January 2, 2018 release;  via David Begnaud for May 31, 2018 release; Princeton Policy designation of data as 'as of', 'Preliminary' and 'Final'

The data subsequent to year-end 2017 suggest that excess deaths continued to rise through Q1 2018, reaching approximately 1600 in March 2018.  Preliminary data from April suggest this number may decline, but it is too early to make such a judgement with any confidence.  On the other hand, Q1 data strongly suggests that there was no reservoir of 3,000+ undiscovered bodies at year-end 2017.

We had earlier stated that we believed excess deaths would settle around 200-400 at the one year event horizon, that is, as of Oct. 1, 2018.  This was based on a misinterpretation of the December tally issued on January 2nd as 'preliminary' rather than 'as of' -- a classic analyst mistake for which the responsibility is entirely ours.  As a result, the December figure was revised higher than we expected.   It is not yet impossible that deaths settle in our expected range, but given that a firm peak is not yet visible, excess deaths are likely to be higher than our expectation, and possibly materially so.

Reports of Death in Puerto Rico are Wildly Exaggerated

A study by a Harvard-led team, published in The New England Journal of Medicine, claims that mortality in Puerto Rico following Hurricane Maria has been far higher than previously thought.  Their study, Mortality in Puerto Rico after Hurricane Maria (the ‘MPR Study’) claims 4,645 excess deaths occurred in on the island from September 20 through December 31, 2017.

How plausible is this?  Not even remotely.

Deaths on the island are reported by the Demographic Registry of Puerto Rico.  Recorded deaths from January to August 2017, the month prior to the hurricane, were essentially flat year on year.  Without additional information, we would expect the count to be flat for the remainder of the 2017 as well.  Notwithstanding, counts were elevated from the September hurricane through November. Based on the latest registry numbers available to us, in September, these excess deaths numbered 540 more than the previous year; October was up 650.  November deaths, however, were up only 113 on the previous year.  In December, the difference was actually negative, a decrease of 649 compared to 2016.   All in, deaths reported by the registry were up 654 for the period covered by the MPR Study.

What caused these excess deaths?  Those persons who were included in the elevated count did not die, for the most part, as a direct result of the hurricane.  That is, they did not drown, were hit by debris or crushed in a building collapse.  That count was reported as 64, and although it could be light, is probably directionally correct.  Rather, excess deaths came from a vulnerable, and principally elderly, population stressed chiefly by a lack of electricity, leading to an inability to access dialysis, respirators and air conditioners.  In addition, some people were unable to reach medical facilities, which may have also been closed for a lack of power.  Finally, some probably succumbed to issues associated with compromised food or water supplies, again related to a loss of power.  In other words, those who were already ill and close to death were pushed over the edge, mostly due to a sustained power outage. 

During any given year, deaths tend to be elevated in December and January.  December 2017 was the exception, almost certainly because many of those who would have died then had died a few months earlier due to the effects of Hurricane Maria.  This explains the surge in deaths in the autumn and the reduction in deaths in December.  Hurricane Maria did not so much kill people outright as accelerate their deaths. 

How can we reconcile 654 excess registry deaths with MPR Study estimates of 4,645 through year-end?

Source:

For Official Deaths, Puerto Rico Institute of Statistics via Latino USA; for MPR excess deaths, Mortality in Puerto Rico after Hurricane Maria, with Princeton Policy monthly interpolations to MPR year-end total.

Perhaps the registry failed administratively to record deaths.  They may have been overwhelmed by work after the hurricane.  Alas, this seems unlikely, because we can see that registry ex-post adjustments are typically 30 or fewer deaths, that is, only about 1% from the original value.  Therefore, recording and reporting are unlikely to be the principal cause of the discrepancy.

Alternatively, perhaps some of the elderly left and died in the US.  The Study’s own numbers suggest this is not the case.  Many young people left the island.  The elderly stayed at home.

We are left with the possibility that the Puerto Rican authorities may have simply overlooked 4,000 bodies.  This is quite a large number to miss.

Imagine, for example, an earthquake hit Los Angeles, a metro area four times the population of Puerto Rico.  Now imagine that many died in the event, with 4,000 people unaccounted for.  What would we expect to see?  First, we would expect most of them to be reported as missing.  As of mid-December, though, only 45 people were still reported as missing in Puerto Rico in the wake of Hurricane Maria.

We would expect to see massive efforts, by both the public and private sector, to locate and identify the bodies.  And we would expect to see on-going news stories about the missing and recovered bodies.  But we see none of that in Puerto Rico.

Thus, we are left with almost 4,000 unaccounted-for persons not recorded as missing, prompting virtually no efforts at recovery of remains, and with no coverage in the media.  This must be considered as highly unusual -- and improbable.

Therefore, unless the Study authors can point to where these bodies may literally be buried, we are left to conclude that they simply do not exist, and the Study must be judged as wildly inaccurate and a gross exaggeration of the true impact of Hurricane Maria in Puerto Rico. 

Instead, total excess deaths may well continue to decline when January numbers come in.  At the year horizon, excess deaths seem likely to settle in the 200-400 range.  This is still a substantial number and a tragedy in its own right.  Most of the fatalities can be attributed to the sustained loss of power experienced by the island. 

This loss was largely of Puerto Rico’s own doing.  The island’s power system is state-owned, and state-owned utilities face political pressures to keep electricity prices low, so low in fact, that they fail to cover needed capital maintenance.  Puerto Rico held its base rate — the part of the electric bill meant to cover operating costs and capital maintenance — unchanged from 1989 to January 2017—nearly thirty years!  Over time, neglected infrastructure becomes vulnerable to unplanned outages.  When incidents occur – as during Hurricane Maria – power generation revenues are inadequate to pay for capital repairs.  That’s why the utility signed a suspect and ultimately stillborn contract with the tiny firm of Whitefish to repair the island’s infrastructure.  That is all the money and credit the utility could muster. 

No matter who owned Puerto Rico’s power utility, given the island’s geography and the massive hit it sustained from Hurricane Maria, power would have been lost for a while.  That the damage was so extensive and repair so delayed is directly attributable to the state ownership of Puerto Rico’s power system and the unrealistically low electricity rates which under-pinned local political popularity not for years, but for decades.

To blame the Trump administration for 4,645 excess deaths is flat out wrong.  Unless the MPR Study authors can actually locate the bodies, 4,000 of those deaths never occurred.  Those that did were largely attributable to the protracted loss of power on the island, unavoidable in part, but made all the worse by the politicized state ownership of Puerto Rico’s power company.

A Conservative Hierarchy of Needs

Maslow's Hierarchy of Needs

In his 1943 paper, "A Theory of Human Motivation", the psychologist Abraham Maslow posited a hierarchy of human needs starting with base survival and moving towards higher levels of self-realization.  At the most fundamental, the individual requires food, shelter and safety; progressing to family and an intimate relationship; and on to social standing and achievements defined in the individual’s own terms.  Much of Maslow’s model is common sense, but it does help understand how people at different stages of development might react differently to objective circumstances.  The hierarchy is a handy framework for considering human motivation.

Maslow’s framework considers the hierarchy from the liberal – the individual’s – perspective.  We can also use a conservative framework, which considers the individual from the group’s perspective. 

Before we do so, some terminology.  Today, ‘liberal’ in the political sense means egalitarian, progressive or left-leaning.  Historically, however, liberal has meant ‘pertaining to the individual and individual rights'.  'Liberal' was traditionally associated with the liberty or freedom of the individual.  

Under such a system, a person has the right to do what they want, interact and buy and sell their goods and labor with whomever they like.  In economics, the term ‘liberal policies’ retains this meaning.  When we speak of liberalizing a market, we mean that individuals can now freely transact with each other, whereas before this was prevented by government policy.  Thus, when we speak of 'liberal', we are not directly speaking of the political right or left, but as pertaining to the individual and viewing a situation from the individual’s perspective. As a practical matter, though, 'liberal' as we use it largely corresponds to 'fiscally conservative', 'free market' or the much- loathed term 'libertarian'.

In the press, ‘conservative’ is generally taken to mean, in the US, white, Christian, and in some cases, male.  It is also associated with political right and religious fundamentalists like evangelicals.  On the other hand, the government of, say, Saudi Arabia is also described as conservative, although it is neither white nor Christian.  Generally, ‘conservative’ is associated with being resistant to change, backward-looking, illiberal, and hierarchical. 

We are using ‘conservative’ more generally to mean, ‘pertaining to the group and the rights and obligations of the group with respect to the individual.’  In economics terms, conservative means using the group as the unit of analysis.  To use a football analogy, ‘liberal’ means from the perspective of the player, and ‘conservative’ means the perspective of the team.  If we are considering the contract and performance of, say, Tom Brady, the quarterback of the New England Patriots, then the framework of analysis is liberal.  If we are considering Patriots as a team, then we are using a conservative framework.

Thus, we use ‘conservative’ not as ‘the political right’, but as relating to the group.  Note, however, that this does indeed correspond to many of the qualities associated with the political right.  The group is hierarchical, because it needs leadership to operate.  It is illiberal, in the sense that the desires and rights of the individual are subordinate to the rights of the group as a whole.  You can only play quarterback if the coaches let you. 

Thus, ‘conservative’, as we define it, is in fact conservative as the word is generally appreciated.  The difference is that we are speaking of conservative in a generic sense which can be used assess governance in the US, Saudi Arabia, Hungary, IBM, Facebook or your church or family.  It is conservative as a universal term.

In summary, we use ‘liberal’ to mean pertaining to the individual.  We use ‘conservative’ to mean pertaining to the group.

A Conservative Hierarchy of Needs

Conservatism versus Fascism

What does the group – the nation, the club, or the team – want from a prospective member?  As with Maslow, we can use a hierarchy of needs, in this case, a conservative hierarchy of needs.

The conservative hierarchy can be segmented into ordinary conservative and fascist values.  Ordinary conservative (hereafter, just ‘conservative’) values and standards apply universally to the entire group (but not necessarily outside the group).  Thus, in the US, a group member is generally expected to speak English, for example.  Americans greet each other by shaking the right hand.  These sorts of expectations apply in principle to all group members. Thus, anyone who speaks English meets this requirement, regardless of any other demographic characteristic.  Conservatism is therefore primarily about standards.  Conservative expectations are about ‘us’, in the sense that new entrants to the group are expected to conform to the group’s prevailing norms and standards.  It is largely a one-way street, but anyone can use it. 

Fascist values encompass all conservative values, but also include demographic characteristics which are essentially immutable, typically race, tribe, religion, or ethnic origin. Thus, a fascist might exclude Mexicans purely on the basis of their race, and there is nothing a Mexican can do about it.  Therefore, fascism is primarily about demographics and is confrontational by its nature.  It is about ‘us’ and ‘them’. 

All groups have standards – that is implicit in the very concept.  Whether one is sitting in a movie theater or a bus, the group has firm expectations about appropriate behavior.  For example, in a movie theater, one is not allowed to talk, text, use a light, or stand up during the showing of the film.  These rules, as they apply equally to all, are conservative rather than fascist.

At the same time, people tend to feel more comfortable with those who are most like them, which often comes down to race, religion, nationality or ethnic origin.   According to a PRRI poll, for example, three-quarters of US whites have no non-white friends.  When the opportunity for self-governance is presented to a population, they will typically choose based on tribe, religion, or ethnic origin.  Thus, after World War I, the monarchy of the Hapsburg Empire devolved into democratic states—but virtually all based on nationality.  When the British ceded power to a democratic India, Muslims and Hindus in large numbers chose to live in segregated states.  With the fall of communism, democracy allowed the Czechs split from the Slovaks.  At the same time, Yugoslavia dissolved into its ethnic components, accompanied by a good bit of ethnic cleansing – all in ostensibly democratic states.  When the Muslim Brotherhood won democratic elections in Egypt, assaults escalated on Coptic Christians, who had lived in the country for two thousand years.  And of course, self-determination in Iraq brought the de facto secession of Kurdish regions and tensions between Shiites and Sunnis which culminated in the rise of ISIS, perhaps best described as a fascist Sunni organization.  Like it or not, people prefer to live with and be governed by those similar to themselves, usually as defined by race, religion or tribe. Such impulses are ultimately fascist in nature in the sense that they are based on immutable characteristics.

With that, we can turn to the conservative hierarchy of needs, and its conservative and fascist components.

Conservative Needs

Safety

Safety comprises the very foundation of the pyramid of needs.  Does a prospective entrant represent a risk to group members or to the group as a whole?  If an entrant is deemed unsafe, all other considerations are rendered moot.

This question may be decided either on an individual’s track record or, absent individual-specific information, on group characteristics.    Americans have perceived in recent years a tendency for terrorist activities, both in the United States and other countries, to be linked to Muslim extremism.  While the numbers killed – excluding the World Trade Center attack on September 11, 2001 – have been small, from the conservative perspective, the question arises as to why to take the risk at all.  Thus, the issue of safety may be perceived to be linked to a wider prejudice against a given ethnic or religious group.  This consideration, however, is more likely to be driven by perceived risk than specific ethnic animosity.  For example, in the US, only Muslims have been singled out as a terrorist risk.  Mexicans, Indians and Chinese, all of whom are in the US in great numbers – and far greater numbers in terms of undocumented residents — are not treated as a terrorist risk. 

For the conservative, it’s safety first.

Permission

The notion of permission seems so self-evident as to be banal, but it matters.  Group members will want to know if a stranger in their presence is authorized to be there.  This has nothing to do with the entrant’s individual merits.  Rather, it concerns whether an appropriate member of the group has authorized the entrant’s presence.  In a prosaic example, a stranger may be sitting in an office reception area, only to be approached by a suspicious employee who asks, “Can I help you?”  If the answer is, “Your manager, Mr. Smith, told me to wait for him here,” then the entrant will probably be left unmolested without further inquiry.  Importantly therefore, the mere act of providing permission to be present in a given area – a country, a club or an office – will ease the tension of a stranger’s presence, regardless of that person’s individual merits.

In the case of illegal immigration, for example, just the act of legalizing an immigrant will lift his standing in the community and ease the associated stresses from the group’s perspective.

Identity

At some point, the group will want to know the entrant’s particulars, his name and background.  Just knowing a stranger’s name already provides him limited standing in a group.  “This is Mr. Jones.  He is a lawyer with Baker McKenzie.”  The mere documentation of identity and associated particulars will also facilitate the integration of the stranger into the group.  Again, this may seem self-evident, but the most important aspect in group acceptance is knowing a newcomer’s name.  Having a name transforms an individual from an object into a person and almost constitutes the threshold for acceptance into a group by itself.

Again, this is trivial, but when unidentified Mexicans are roaming the countryside, the locals will be uneasy.  If the citizens of a given area have confidence that a Mexican is, in fact, a known quantity with a proper identity card, that alone will make them more comfortable with the stranger's presence.

Resolving just these three factors – safety, permission and identity – would reduce tensions with undocumented migrants by perhaps half.  That is, the mere act of documentation alone would go a long way to mollify conservative concerns.  In the case of illegal Mexican labor, conservatives may well be reacting to the black market in immigrant labor, not to the immigrants per se.  Ending the black market, without any other change, would already represent a huge step forward in the acceptability of Mexican migrants.

More could be achieved with attaining the next steps in the hierarchy of needs.

Standards

Standards refer to an individual’s behavior in following rules and customs.  Language is a primary standard, for it enables communication.  Of course, the history of the US is filled with examples of immigrants without proper English-speaking skills who were still accepted into the community.  At some point, though, the group will want the immigrant, or at least their children, to be fluent in the language of the country. 

Other standards could, in principle, be laid down in law or written rules, but are often observed as a matter of social norms.  For example, one could not let a cow wander loose in a US suburb, as might occur in India; walk around with an AK-47 slung over the shoulder, as in Pakistan; or prevent one’s wife from driving, as in Saudi Arabia.  Most community charters will not, however, have a specific injunction against cows or AK-47s, but neither will be tolerated by the neighbors.

Some mores are flexible.  For example, in the US, Muslim women would typically be allowed to wear a hijab, which covers the head.  On the other hand, a burka, which covers the entire head, face and body, would probably be resisted as incompatible with US traditions.  These social norms are not necessarily promulgated officially, but can still be quite firm in terms of expected behavior.  Again, this has nothing to do with the entrant’s particulars – nationality, religion or income – but rather reflects universal norms applicable to all members of the group.  All group members are expected to conform to certain standards.

Legalization of undocumented migrants would help comportment, because migrants would be able to lead more above-board lives.  For example, migrants are sometimes caught transiting hidden in tractor trailers, one hundred to the container.   Of course, this is part of the migrant’s illicit journey, but it also has a low-life quality which is distasteful to most Americans.  Merely the act of legalizing migrant labor would reduce these sorts of incidents, and raise the status of Mexicans and similar migrants in the US.

Self-Sufficiency

For short-term visitors to a group, self-sufficiency is not of primary interest.  If a day visitor to a country club is not covering his pro rata share of dues, no one will much care.  However, the group will want any permanent or long-term member of the group to carry his own weight. 

Indeed, the principal objection to illegal immigration from think tanks like FAIR and CIS revolves around the fiscal cost of undocumented immigrants.  They are a burden on taxpayers, and this is seen as a primary reason for exclusion from the group.  Migrants will be more acceptable if they are perceived to support themselves.

These five categories – safety, permission, identity, standards and self-sufficiency – exhaust conservative requirements.  It is important to note that, in many ways, this is not a particularly high bar, and comes down to ‘follow the rules’, ‘be respectful’ and ‘support yourself and your family’.  Doing so will not solve every problem, but those meetings these requirements will be tolerated, if not loved, by their neighbors. 

Fascist Needs

Fascist needs come on top of conservative needs.  Conservative needs are universal in character.  Anyone can comply with conservative requirements.  Not so for fascist ones.  The next two categories in the conservative hierarchy may be considered fascist, that is, they pertain to characteristics an individual cannot change, or at least not easily.

Culture

Culture refers to income, education, ethnic or religious practice, political ideology and class identification.  Thus, culture would include the observance of certain holidays, beliefs about desirability of certain political views, and modes of speech, among others.  For example, in the musical, My Fair Lady, Professor Henry Higgins attributes the lower class Eliza Doolittle’s plight to her accent and vocabulary:

Look at her, a prisoner of the gutter, 
Condemned by every syllable she ever uttered. 

Garn! I ask you, sir, what sort of word is that? 
It's "Aoooow" and "Garn" that keep her in her place. 
Not her wretched clothes and dirty face.

While Higgins ultimately manages to transform Eliza using the power of phonetics, from the perspective of the lower class, mastering the niceties of polite society could appear entirely impossible.  In this regard, culture may be viewed as conservative from one perspective, and fascist from another.   Culture is included in the fascist category for purposes of this framework, in the sense that most people prefer their own holidays, spoken accents and food preferences to those of other countries or ethnic groups.  It is not, however, a hard and fast divide, as Eliza Doolittle’s mastering of upper class diction demonstrates.

Income and education are included in culture for purposes of this analysis.  Income creates a different ordering of preferences by class.  For example, a high income individual may prefer to subsidize renewable energy through charges on consumers’ electricity bills, as is the case in states like California and New Jersey.  As these charges may amount to a few hundred dollars per year, they are of little consequence to the wealthy who believe they are enhancing long-term sustainability.  On the other hand, for those who live month-to-month on tight budgets, such charges are a material burden. 

Similarly, strict zoning laws, as exist in California, drive up real estate prices.  This increase is absorbed without excessive stress by the wealthy, but is absolutely crippling to the middle class.

Such restrictions and taxes may be viewed from the top as conservative, in the sense that any wealthy person can afford to live in California.  On the other hand, they may be viewed as fascist for those in lower social strata without hopes of ever earning large incomes.  Such policies may be fascist by effect, rather than intent. 

Thus, culture straddles a divide between the conservative and fascist worlds.  To which camp it belongs depends on the circumstances.

Demographics

The true divide between conservatives and fascists comes over demographics, the inherent characteristics of a given person or group.   These refer to race, ethnicity, tribe and religion.  An individual is generally incapable of changing any of these characteristics (with religion the occasional exception), and thus can be excluded from the group permanently.  ‘Us’ and ‘them’ are clearly defined with no hope of reconciliation.  Such a mindset is unquestionably fascist.

Age, sex and other inherent in-group characteristics can be used as hard dividers as well.  Feminists from time to time decry the male-dominated corporate world as ‘fascist’ in the sense of excluding women based purely on prejudice rather than their underlying capabilities.  History has shown this claim to have merit in many cases, and thus some portion of charges of fascist paternalism may be considered materially true. 

On the other hand, many activities are segregated by gender without social resistance.   For example, no one considers keeping men off the women’s soccer team as fascist.  Nor are, say, single sex schools considered anything more than conservative, because of widely accepted, enduring differences between the sexes.  Therefore, in-group characteristics like sex and age are not typically understood as fascist, if for no other reason than that even the most hardened fascist is unlikely to kick his mother out of the country.

For the true fascist, those from different countries or religious traditions are unacceptable in the group by definition, regardless of their comportment, compliance with the law, or acceptability in cultural terms. 

*****

Understanding both conservative and fascist concepts are helpful in considering public policy.  For example, this framework would have suggested to the administration of George W. Bush that invading Iraq with the intent to democratize would lead to the ethnic cleansing and fragmentation of the country into religious and ethnic enclaves.  This could have been countered by creating incentives in Baghdad to treat all members of the country uniformly and impartially, or by playing midwife to the birth of a Sunni country, just as the US had de facto with the Kurds – albeit with the understanding that this would be accompanied by ethnic cleansing.  Or the US might have chosen not to become involved at all.  Thus, a framework of analysis for conservatism and fascism can help understand and shape policy options.

To sum it up: Conservatism implies universal, group standards to which any person might reasonably be expected and able to conform.  “No shoes, no shirt, no service.”  That’s conservative.

Fascism establishes requirements which specifically exclude certain persons based on their race or religion.  “No Mexicans.”  That’s fascist.

Securing America's Future Act vs Market-based Visas

Market-based visas (MBVs) are a better solution in almost every respect than the the Republicans' Securing America’s Future Act (SAFA)--even for conservatives.  And unlike SAFA, MBVs will garner Democratic support when it’s time to vote.

To recap: Market-based visas would allow background-checked Mexicans and Central Americans to work in the US on demand in return for a market-based fee. 

Below is a link to a feature-by-feature comparison of SAFA v MBVs.  This easy-to-use analysis is recommended for those with deeper interest in immigration policy options.  Academics and policy staff will want to take a look.

Securing America's Future Act vs Market-based Visas

Illegal crossings up 223%, but a relative modest win for Border Patrol and ICE

As forecast, Border Patrol apprehensions and inadmissibles were up sharply for April year on year.  On the other hand, we forecast about 15% higher crossings, given the strength of the US economy.  The lower observed number suggests that increased efforts at the border and vigorous ICE enforcement activities in the US interior are having a modest deterrent effect.

April is likely to mark the worst relative performance year on year, as the month was the absolute low point for crossings last year and therefore established a low base for comparison.

May should see the highest number of crossings for the year in absolute terms, coming in around 58,000 based on recent trends.  The year on year increase in May is likely to come in a bit less than 200%.

The economics of being illegal, and how the wall increased the illegal population

Mexicans come to the US for the money.  

In Mexico, an unskilled laborer can earn $2.50 / hour; in the US, four times as much. 

Of course, the cost of living is higher in the US, and migrants have to be compensated for moving to a foreign country.  All in, Mexicans need about $6.50 / hour -- call it the Relocation Wage – to come work in the US.  If the border were completely open, unskilled wages for the relevant industry sectors would fall to this level as Mexicans moved north to take the jobs.

So how much do Mexicans actually earn in the US, the prevailing unskilled wage of $10 / hour or the Relocation Wage around $6.50 / hour?  Our research suggests it's closer to the latter, principally due to wage theft and poor off-season utilization for seasonal workers trapped in the US.  Add another $1 / hour for hassle factor, including the risk of deportation and the daily inconveniences of living illegally, and the net compensation for Mexicans (including non-cash costs) actually appears to be pretty close to the Relocation Wage of $6.50 / hour on average.

This suggests that the Wall has not actually been a binding constraint on Mexican migrant levels.  Compensation is not much different than if the border were unenforced.

And indeed, that’s what Pew Research’s population estimates also suggest.  After peaking at 6.9 million in 2007, the undocumented Mexican population fell to 5.6 million in 2016.   Ironically, this suggests that, during the 2008-2016 period, the Wall succeeded in keeping more undocumented Mexicans in the US than it kept out.  Because re-entering the US can be difficult, risky and expensive, a Mexican would only leave if Mexican wages compensated for the possibility of crossing the border back into the US.   However, if the re-entry cost were zero, the cost of leaving would also be lower, and more Mexicans would have left.  Border enforcement sustained the undocumented Mexican population above its natural level after 2008.

This implies that Mexicans’ compensation was in fact below the Relocation Wage after 2007.  Undocumented migrants suffered as did Americans with the Great Recession, but more so.  Border enforcement exaggerated the effects of the Great Recession and artificially depressed wages and employment levels in the US, at least for undocumented Mexicans.  

I would note that this analysis does not pertain to Central Americans, nor does it suggest that the border should have been unenforced after 2007.  Nor does it claim that the same economic conditions hold today.  We do claim, however, that an approach which fails to treat illegal immigration as a black market problem will yield perverse results, at least some of the time.

Andrassy ut 60 and 100,000 Rapes in the Desert

Andrássy út is one of the grand boulevards of Budapest, lined with stately townhouses and mansions, many of which serve as embassies today.  But one building in this row is not like the rest: Andrássy út 60.  This address sends a shudder through all Hungarians, for it housed the headquarters of the Hungarian Nazi party during WWII and the Russian secret police until 1956.   Today, it serves as Budapest’s Terror Museum, well worth a visit if you’re finding the city a little too charming.

When last I was at the Museum, the exhibit included the personnel photographs of the staff who tortured and killed people in the cellar of the building.  I have looked closely at these images for a clue to the depravity and cruelty of those torturers, but they look no different than bureaucrats anywhere.   They could be postal clerks in Switzerland.

But here’s the interesting thing.  Many of them worked first for the Nazis and then for the Communists.  In the same capacity.  For these people, torture was not a matter of protecting society or ideological conviction. They tortured people because they were good at it, or because they liked it.  It was a perk of the job.

*****

If you check the literature, you will find that most sources estimate the rate of rape of migrant women entering the US illegally at 30-80%, with 60% the most commonly cited number.   About one quarter of the crossers apprehended by Border Patrol are women, on a total attempted crossings we forecast at about 1.1 million in 2018.   Do the math, and that comes out at 164,000 girl and women migrants who will be raped this year trying to enter the US illegally from Mexico.  

I shared this number with the head of a respected think tank, a thoughtful and entirely decent man, who all but called me a liar.   How could there possibly be one hundred thousand rapes annually on the border?  It seems incredible.

According to Princeton University’s Mexican Migration Project, about 80% of illegal crossers use coyote guides, men who are increasingly associated with the Mexican crime cartels.  Crossers are extraordinarily dependent on coyotes during the journey through the desert which can last eight or nine days.  Abandonment by a coyote can mean death or apprehension by US Border Patrol.  Therefore, migrants are vulnerable to demands which coyotes may make en route. 

And what sort of demands might these guides make?

As at Andrássy út 60, sooner or later, the guides will be those who are good at their jobs or value the total compensation package the most – including the perks.  Eight days means eight nights.  That is a long time in the desert.  Sexual predation is not some random criminal event during a crossing.  In many cases, it is literally part of the price of passage.  Indeed, coyotes often advise their female clients to go on birth control prior to the journey.  From PBS:

That was the case for Maria Salinas, a petite 43-year-old who recently tried crossing with her 18-year-old daughter.  Salinas said at first she was confused when a guide at the start of the trip offered her and other women pills he said would prevent pregnancy. Later, it made more sense.

Once Salinas started walking with the group, she couldn’t keep up. One coyote said he’d help – on one condition.

“If I gave him my daughter, then he’d wait for me,” Salinas said. Meaning, if she let him have sex with her daughter. She refused, and he abandoned them. They only survived because they found Border Patrol.

This is not rape in the sense that my think tank friend assumed.  It is not a random criminal event.  This is rape – or coerced sex – as a business proposition, as an industry.  It exists entirely due to the lawlessness of a black market in migrant labor.  If they lacked the opportunity, most of the coyotes would not be rapists, just as most of the interrogators at Andrassy út 60 would not have tortured people as a hobby.  I often sense that my Mexican friends are embarrassed about stories of such malfeasance, because they fear it shows a moral turpitude, that Mexican women are loose and Mexican men are inherently criminal.  Given the opportunity, many men would take advantage of women, as did Harvey Weinstein or Bill Cosby.  There is no moral failing unique to Mexicans or migrants.    

Rather, poor government policy can create a ‘safe space’ for sadistic impulses and sexual aggression, eventually drawing to the activity those who most value such license.  A lawless climate will engender lawless behavior. 

The moral culpability lies with those who know better, with US political, academic and journalistic leadership who have failed to create and maintain order in migrant policy.

This problem cannot be solved by more border enforcement.  That will only further shift the power to the coyotes.  But if you had given Ms. Salinas, the woman mentioned in the story above, the option of paying $4,000 each for herself and her daughter -- the equivalent of the current coyote fee -- for entry into the US, she would have paid it without hesitation.  For then she would not have had to cross the desert, for eight days and nights, at the mercy of the coyote.

Soros' Illegal Immigrant App

George Soros' Open Society Foundation is being taken to task for funding an app which allows immigrants -- both documented and illegal -- to notify family members if they are in the process of being arrested for immigration-related transgressions, among others.

Given that ICE is capable of holding migrants for an indefinite period of time pending proof of status, swift notification of family members appears a reasonable response to perceived uncertainties on the ground.  This is the sort of app an American might want to have, for example, when visiting a foreign country like Russia or Nigeria.  

But again, the story is suggestive of the difficulty of countering a black market -- market participants respond to enforcement efforts with a kind of arms race, almost inevitably escalating violence over time.  This was the experience of Prohibition, for example, and is again visible in rising violence rates in Mexico.

Apps in a Market-based System

Apps can also be used to advance the interests of a well-ordered and transparent market which meets conservative goals.  In the case of market-based visas, below are a few apps we might expect (for the sake of illustration, priced at $16.99 per year and generating $100 million in annual revenues from the six million undocumented working Hispanics in the US).

age theft appears endemic in the migrant community.  A Wage Protection app would summon legal help for those migrants not paid agreed sums.  Employers would soon come to appreciate that migrants are capable of holding their own in these matters, and wage theft should decline significantly.

The value of the app is not in its enforcement, but in its deterrence.  If a sweatshop manager believes that wage infractions will prompt a visit from two Harvard-trained lawyers the next day, he will be less likely to commit them.   

Note also that in the clothing fabrication industry, undocumented immigrants are only about 1/3 of the workforce, with the remainder comprising legal immigrants and unskilled Americans.  The app would also be available to these groups, thereby insuring proper payments for unskilled industry workers more widely.  It would help sustain wage levels more broadly, and not just for migrants.

Such an approach pairs well with bank accounts.  Wage protection works best when payments are electronic and easy to document.  Thus, those seeking wage protection will also have an incentive to be paid electronically above the table--thereby fostering system transparency and curtailing black market activities. 

Other apps could include sexual harassment protection and visa insurance.  Sexual harassment and assault appears to be endemic among undocumented migrant women, which they appear reluctant to report both for societal and immigration enforcement reasons.  Again, the visit of two Harvard-trained lawyers to a California grower would quickly put an end to this kind of abuse of power, typically by field supervisors.  

Wage and sexual harassment protection apps could materially reduce the rates of crime associated with migrant labor.  And note that the migrants themselves -- not the US government -- will take the lead in reducing victimization rates.

Visa insurance could be an extension of the Soros app above, and would summon legal help in the case of detention by ICE.  

A market-based system achieves compliance by offering a suite of services that employers, migrants and other stakeholders like hospitals, schools and police find useful.  The key to compliance is speed, certainty, affordability, and convenience.  Employers in this world would use E-Verify not because of fear of enforcement, but because the system as a whole brings benefits; companies can access qualified, legal labor in unlimited quantities at a known price whenever they want.  That is a valuable service and a reason to comply with system requirements.  Both migrants and employers would want to belong to the system, because it makes their lives easier.  This in turn would create the most transparent and legal labor market in the Americas.  

Right now, the Soros app is serving a need in the black market.  If we legalize and tax this market, then we can create apps which drive compliance and create order, safety, efficiency, fairness and prosperity for all those involved.

How the Wall will turn Phoenix into Chicago

Our proposed approach to illegal immigration has been criticized as being too 'Ayn Rand', 'libertarian' and 'Cato'.   It is not.  Our approach is conservative.  But then again, so are the enforcement-based proposals of, say, the Federation for American Immigration Reform (FAIR) or The Center for Immigration Studies (CIS).

So what's the difference?

FAIR and CIS believe that black markets can be beaten, that with enough effort, the Wall can close off Mexico.  We believe black markets cannot be defeated, certainly not for an extended period of time.

The data back us up.  The traditional black markets of alcohol, drugs, prostitution, gambling and migrant labor have never been beaten in the US.  Prohibition brought all sorts of crime without reducing alcohol consumption much, and was repealed.  The closure of backpage.com suggests US prostitution was alive and well just last week.  Gambling has been widely legalized, with the government itself a big player.  Marijuana is moving rapidly towards wide-spread legalization, even as the opioid epidemic tells us we are being crushed in the war on hard drugs.  And despite 17,000 agents on the southern border, March saw a spike (albeit a forecast spike) in illegal border crossings, such that the Trump administration felt it necessary to add National Guard troops there.  We are not winning in migrant labor, either.

If only we try a little harder, argue our friends at FAIR and CIS, we can surely close the border.  That's not what history tells us.  History tells us that a Wall will bring the crime north into the suburbs of Arizona and Texas, as the cartels move on the Border Patrol and state police itself.  If you can't beat the Wall, you can always buy or intimidate those who man it.  That is a lesson of Prohibition.  Al Capone, the Prohibition era gangster, once claimed that half the Chicago police force was on his payroll.   A favorite Prohibition tactic was 'free nights', when bootleggers paid customs agents to be absent for a specific period of time on a specific night. That would work on the Mexican border, too.  Building a Wall, far from keeping Mexicans out, will bring the Mexican border right into the suburbs of Arizona and Texas as the cartels move to flank the barrier.

So, unless FAIR and CIS can convince us that the US can beat a black market, their proposals ring hollow.  Even if the Wall were built, the key achievement will likely be the transformation of Phoenix into 1927 Chicago, just as the Mexican war on drugs has turned the north of that country into a killing zone.  And there is nothing conservative about organized crime, police and political corruption, and the public's fear for its safety.  

By contrast, market-based visas will reduce crime associated with illegal immigration by 90%, close the border, and bring order, safety, and transparency, as well as compensation for labor market access -- all conservative goals.  True, we achieve that using a market mechanism -- because that's the textbook approach, which has been tried and tested.  

So, we'll let the policy cowboys at CIS and FAIR gamble with turning Phoenix into Chicago.  Princeton Policy will stick with solutions grounded in theory and proven in practice.

How Tennessee tells us deporting illegals is hopeless

In the presidential election, Donald Trump beat Hillary Clinton by 26 percentage points in Tennessee.  It is Trump country.  

So what do Tennessee voters say about illegal immigration?  

Incredibly, only 1/3 of Tennessee registered voters think undocumented immigrants in general -- the 11 million of them -- should be required to leave the US.   Even Trump supporters only seek deportation by 1 percentage point.  Notwithstanding ICE raids here or there, the public does not support any large scale removal of undocumented aliens.  And that's in Trump country.

As for those 3.6 million child arrivals (DACA + Dreamer eligible), only 28% of Trump supporters want to deport them, and only 16% of all registered Tennessee voters.

So, to my conservative friends, here's the reality: You don't have the votes.  Not even among Trump supporters.  If conservatives do not come up with a more creative approach, count on the DACA eligible, and very possibly the Dreamers, to be grandfathered in after the November elections, exactly as President Trump recently signed an omnibus bill which he himself disavowed.

The rationale will be exactly the same as in 1986: a granting of amnesty in return for promises of border enforcement which will never come.  So if you're a conservative, you'd better start looking fast for Plan B, something which gets you much of what you want and will still be supported by a broader electoral coalition. 

We are winning the war on Mexican drug smuggling

With all the vitriol expended on illegal immigration and the drug trade, it is worth noting that we are actually winning on an important front: marijuana smuggling from Mexico.

Marijuana has historically constituted more than 99% by weight of drugs smuggled to the US from Mexico away from official crossing points.  

Marijuana smuggling to the US is down by 84% since 2009. 

Why the collapse?  It is not enforcement.  As the graph below shows, Border Patrol seizures of hard drugs have actually risen in recent years, most notably of methamphetamine and of small, but deadly, volumes of fentanyl.

Instead, the collapse of marijuana smuggling can be almost entirely attributed to legalization in the US.  From 1996 to 2012, nineteen states either decriminalized marijuana or permitted it for medical use.  Since 2012, ten states  have legalized recreational cannabis , interestingly, all but Vermont by ballot.

Collectively, these measures have led to the creation of the organized marijuana production and processing industry in the US.  

With it, Mexican producers are being squeezed out.  US marijuana is of greater potency and quality.  As a result, smuggled marijuana volumes from Mexico are declining by 25% per year.  With legal marijuana going on sale in Massachusetts in the coming months and legalization pending in New Jersey, Mexican exports will continue to decline.  They will be finished off when Texas wakes up to the reality that its citizens are generating $100 million of marijuana tax revenues annually to the governments of Colorado and California.  When Texas legalizes marijuana, it will make no more sense to smuggle pot than to buy a case of Corona in Mexico, put it in a backpack and lug it across the border in the hopes of selling it in the parking lot of a Houston Chevron.  Those images of smugglers jumping the wall with backpacks of drugs will be a thing of the past, very possibly before 2025. 

That’s how we close the border to drug smuggling.  Not enforcement.  Not a Wall.  We end smuggling through legalization and taxation.

We can achieve the same result, the same way, with illegal immigration.

Interview with Graham Ledger on One America News

Kopits interview with Graham Ledger

China's Governance Options

Governance form and GDP per capita are closely correlated.  Very few poor countries can sustain democracy, and virtually no rich countries can exist without it.  

On the graph below, we rank countries by GDP / capita and assign to them a form of governance, from 'dictatorship / anarchic' at the low end to 'advanced democracy' at the high end.  Specifically, countries as classed as

• Chaotic countires or Dictatorships like Sudan, Eritrea, Chad, Zimbabwe and Yemen.  
• Authoritarian, including Russia, Vietnam, the 'stans and China. 
• Oil Autocracies, some of which are quite wealthy but are properly classed as dictatorships, even at very high levels of per capita GDP.
• Weak Democracies, like El Salvador, Sri Lanka, Bulgaria, Hungary, Poland, India or Mexico.
• Established Democracies like Chile, Croatia, the Baltics and Slovakia
• Advanced Democracies including Great Britain, the US, Switzerland and other western economies, and
• Asian City States, notably Hong Kong, Macau and Singapore, all of which are wealthy but only weakly democractic at best

If we rank countries by GDP per capita, we can see a pattern emerge.  Almost all very poor countries are chaotic or dictatorial.  Governance is poor to non-existent, human rights are routinely trampled, civil unrest is common.

Around $2,000 of per capita GDP, countries start to take on more formal authoritarian regimes accompanied by greater political stability.  Individual rights are not honored.  Corruption and cronyism are likely to be endemic.

Around $4,000 / capita GDP, we begin to see the emergence of weak democracies characterized by extensive corruption and electoral fraud, weak governance and a penchant for slipping back into non-democratic rule from time to time.  Nevertheless, representatives are chosen by contestable elections.

Source: IMF. Princeton Policy governance classifications

Established democracies begin to appear around $12,000 / capita GDP.  These countries may not have a long experience with democracy -- perhaps a few decades -- but elections are generally clean and fairly contested.  Governance is adequate if not brilliant, and corruption, although present from time to time, is not a fundamental characteristic of the political system.  The Baltics, Slovakia, Uruguay and Chile fall into this category.

Also, around this level, $10,000 / capita, we see autocracies essentially disappear.  Those which remain are principally oil autocracies, whose governments retain power through disbursement of oil revenues to buy public support.

The advanced economies begin around $20,000 / capita GDP.  All these countries have highly functioning democracies, solid governance, and limited or non-existent corruption.  

The exception to the rule are three city states: Singapore, Hong Kong and Macau, all of which have been know recently for low corruption, a high level individual liberty and protected property rights in the economic -- but not political -- sphere.  Governance has been outstanding, certainly in the case of Hong Kong and Singapore.

China now occupies a precarious space.  Even today, its per capita GDP puts it at the high end of the Authoritarian range.  Many countries with similar income are already weak democracies.

At a 6% GDP growth rate, by 2025 China will occupy a governance space where it will be the sole authoritarian regime surrounded by weak and established democracies.  By 2030, at a 6% growth pace, China will be knocking on the door of the advanced economies.

What are the implications for China's governance?

China's options appear to be one of the following:

1. Remain an autocracy.
2. Institute democratic reforms and transform into a weak democracy.
3. Emulate the City States

Source: IMF, Princeton Policy classifications, analysis

In autocratic form, Chinese politics will see increasing stresses, as an ever better educated and prosperous citizenry seeks greater certainty of their property rights and greater freedom to act autonomously.  Remaining an autocracy will likely require slowing the economy, and possibly turning inward, as China has many times in the past.  Whether this can be achieved without a financial crisis and resulting civil unrest remains to be seen. 

In virtually every other country in the region, the ruling party has faced a crisis at some point, and ceded power to democratic forces.  This has to be considered the most likely path of development for China over the long run.

Finally, China could seek to emulate the City States, granting limited political rights but establishing highly developed economic rights.  Whether such a plan could be implemented in a country of China's size is an open question, but if it could be achieved, would represent the Communist Party's best hope to dominate Chinese politics without a societal crisis into the 2030's.

Unlike many other analysts, our view holds that China is coming to a crossroads of governance.  At some point in the coming years, China will face a crisis which will either take it forward towards advanced country governance or turn it back and lead that great nation to withdraw from the world, as it has without fail throughout its long history.

America's $2 trillion illegal immigrant liability

A Princeton Policy Advisors research note

Much of the focus regarding illegal immigration has centered on those eligible for DACA and the Dream Act.  The qualifications for eligibility are arcane, involving age, education, and date of entry, among others.  

A more simple approach considers only years in residence.  According to  Pew Research data, most undocumented migrants came to the US after the promised enhanced border enforcement of the 1986 Immigration Reform and Control Act--which by itself is probably responsible for 3-4 million of the illegal immigrants in the US today. The strong economy of the Clinton years also drew migrants in large numbers.  In all, most undocumented immigrants came to the US between 1986 and 2000, that is, 18-32 years ago.  Very few have arrived since trough of the Great Recession in 2009.  Thus, the problem in recent years is not surging migrant numbers, but rather migrants who have become entrenched in US society over a very long period of time.

The question is what to do with them.  

According to a Monmouth University poll, Americans believe, by a margin of nearly 4-to-1, that "illegal immigrants who have lived and worked in the U.S. for at least two years...should be given a chance to keep their jobs and eventually apply for legal status."  Market-based visas would allow them to do just this.  Notwithstanding, Americans over time will be far more likely to grant permanent residency status to migrants than to support their deportation--particularly for migrants who have been in the US not two, but twenty, years.  Put another way, sooner or later, long-term undocumented immigrants are going to end up eligible for government programs.  

As these are long-term residents, the benefits in question will be those associated with retirement.  Very few undocumenteds have reached retirement age, but some will by 2025, and a large number will as we enter the 2030s.  And it will be pricey.

In 2018, the average Social Security benefit per retiree will amount to $16,428 for the year.  Of course, migrants granted permanent residency will probably receive far less, in part because their average wages are lower and because they started paying into Social Security later.  On the other hand, the specter of permanent resident migrants facing 18th century levels of destitution is unlikely to be stomached by the US political system.  By one means or another, the government will fork over a sufficient amount to keep retired migrants afloat, and a $6,000 / year subsidy might represent the lower end of what politicians' magnanimity is likely to deliver.

Add to this Medicare costs.  Eligibility is similar to that for Social Security, but again, just one story in the New York Times about a destitute, elderly Hispanic woman with a broken hip may create a climate sufficient to extend generous Medicare benefits to permanent resident migrants.  On average, Medicare spending is around $10,000 / year per Medicare enrollee.  

One might think that undocumented Hispanic migrants with low educational attainment, meager incomes and years of hard physical labor on their bodies would exhibit some fiscal discipline and die young.  But no.  Hispanics actually outlive whites by about eighteen months.  Their life expectancy after the age of 65 is 20.6 years, two decades to receive retirement and healthcare benefits.  On the other hand, older Hispanics, including low income groups, are notably healthier than whites, largely attributable to lower rates of smoking and alcohol use.  

We estimate, based on Pew Research data, that six million undocumented migrants have been resident in the US at least fifteen years, and of those, about 4 million have been here at least twenty years.

Do the math, and 6 million long-term undocumented residents averaging $6,000 / year in Social Security payments and another $10,000 / year in Medicare outlays translates into roughly $2 trillion of government benefits over the balance of their lives, some of which will be offset by Social Security and Medicare taxes paid.  It is a steep bill.

One would like to close a piece like this on a comforting note, but the sobering reality is that, if the government allows undocumented migrants to stay for decades, sooner or later these individuals will become 'common law' citizens, to be formally documented when the political stars align.  Given the progressive nature of taxation in the US and natural human empathy towards those in need, providing for retired migrants will prove a costly exercise indeed.  

Paradoxically, US taxpayers may be better off providing migrants permanent residency sooner, as it would allow a greater period of time for them to pay into Social Security and Medicare before their retirement.  In addition, some costs could possibly be reduced by entering into cooperative agreements with Mexico to pay a lesser amount to those who relocate south of the border.

Be that as it may, a majority of the US public will likely desire -- or at least condone -- granting green cards to long-term resident migrants.  Given the nature of US politics and government programs, it will be an expensive proposition.

Minimum Wage and Pct of Hourly Workers at or below Min Wage

In real terms, the Federal minimum wage has varied within $0.60 / hour of its current level in the last thirty years.  

The percent of hourly workers earning Federal minimum wage or less has steadily declined from 6.5% in 1988 to 2.3% in 2017.  This could drop below 2% in 2018.  

Source: FRED

If terms of number of workers, it looks like this:

There are about 155 million employed persons in the US. Of these, 80 million are hourly workers.

Of all workers, about 2.2 million earn the Federal minimum wage or less.

However, about 1 millon of these are under the age of 24, and half of those are age 19 or less.

Only 882,000 full time workers earn minimum wage or less. And of these, 700,000 earn less than minimum wage, that is, the vast majority of these are in businesses with tips, ie, waiters.

Only 183,000 workers work full time and earn minimum wage. Thus, the notion that there is some large cohort of adult, full time workers not in businesses with tips who earn the minimum wage is simply untrue. Only about 1 in every 1,000 employed persons in the US is both working full time and earning minimum wage without tips.

A market-based solution to the DACA problem

Originally published in The Hill on Feb. 5, 2018

*****

The Republican’s ever-changing plans to deal with illegal immigration are a study in dysfunction. Conservatives, already annoyed at being strong-armed into a DACA deal for 700,000 undocumented immigrants, now have to contemplate President Trump’s plan to extend amnesty to a full 1.8 million Dreamers.

But do not fret, conservatives are told, because amnesty will be traded for the Wall, a wall which will secure our southern border and end illegal immigration forever. This will be the last amnesty.

Just as it was in 1986. At the time, President Reagan offered amnesty to three million undocumented aliens in return for — you guessed it — heightened border security. The result: Those granted amnesty were entirely replaced by new illegals within five years, and the illegal population had doubled its post-amnesty lows within eight years. So much for border control.

A wall will not secure our border. As I pointed out in an earlier article, the incumbent illegal population could theoretically be rebuilt from visa overstays in less than a year. Further, the construction of the Wall would have the effect of sending migrants into the water to cross by boat, just as it has done in Europe. Moreover, migrants can always fly to Canada and simply walk across our currently undefended northern border. And keep in mind that a quarter of illegals come from outside the Americas from places like China, India and the Philippines. If work is on offer, bodies can be recruited from regions for which the Wall is irrelevant.

But perhaps the Republicans can defeat the black market in unskilled labor by creating “a workable agricultural guest worker program to grow our economy,” as proposed in the Securing America’s Future Act. Consider the numbers. In 2017, USDA issued about two hundred thousand H-2A agricultural worker guest visas. To cover the entire market served by H-2A and H-2B (non-agricultural guest worker) visas — essentially the undocumented labor force — the number of such visas would have to be increased by thirty fold, and that is excluding three million non-working dependents. There is no way in hell that conservatives would simply sign off on a freebie of an additional eight million work visas.

Market-based immigration can make all this go away quickly. As I have noted elsewhere, such an approach would allow on-demand access to the U.S. labor market for background-checked migrants from Mexico and Central America in return for a market-based fee. Of course, illegals would like amnesty, a green card, and eventual citizenship. But that’s not what they need. They need status, the right to work unmolested, if unsupported, in the U.S.

To end the black market and all its pathology, we still need enough visas to cover the market. If we expect conservatives to approve, we had better make it worth their while. That means charging a market rate for access to the U.S. Much of the difference between the Mexican and U.S. wages, adjusted for higher costs here, rightly belongs to the U.S. government. If we are to ask conservatives to help create order in the market, we must deliver to them commensurate value.

We need our undocumented workers. They are not just a bit of our service economy. They are about one-third of it at the low end, and almost the entire workforce tackling our "dirty jobs." In 1986, 8.8 percent of U.S. hourly workers earned the Federal minimum wage, in real terms the same as today. By contrast, only 2.7 percent of U.S. workers were at or below Federal minimum wage level in 2016. Despite all the stories of economic gloom, our society has progressed in important ways, notably, that our dirty jobs are struggling to find domestic takers.  Undocumented workers have stepped up to fill the gap. They are here because we need them.

Let’s acknowledge that. But let’s also acknowledge that we need a means to select those migrants to work here. It cannot be done administratively by volume, because the politics are not viable. It can, however, be accomplished by the market using a visa price, which would let in those who work the smartest, the longest, the hardest or are willing to sacrifice the most to be in the U.S. Those people are, after all, the ones we want in our country.

The Republicans need to climb down off the window sill before jumping to their political deaths trying to defend a stillborn approach to illegal immigration. Let’s instead use the market to allocate resources, which it does fairly and efficiently, by and large.

That’s a Republican notion, too, after all.

There is a way to make illegal immigrants pay for Trump's wall

Originally published in The Hill January 16, 2018.

******

The president, and the Republicans in general, continue to twist in the wind on DACA and illegal immigration. Mexico still refuses to pay for the president’s Wall. In its absence, he has been forced to alternative ideas like raising visa fees as funding source. Properly implemented, that idea could be a winner.

Illegal immigration across the Mexican border is really a black market labor problem. Border jumpers can triple their net wages compared to Mexico, and earn almost ten times as much as they would in Guatemala. They come for the money.

Black markets are always created by government. They arise when government tries to keep willing sellers from willing buyers, ostensibly for our own good. Drugs are the biggest black market goods, and the banning of alcohol during Prohibition is the most notorious. We have been pursuing the ‘wars on drugs’ for fifty years, and yet today, the street price of a dose of heroin is less than a pack of cigarettes. The war on drugs has been, as was Prohibition, a striking failure. Black markets are almost impossible to eradicate.

So will be the case with illegal immigrants — and why I forecast that illegal immigration would be near ten year highs in 2018. There are many ways to circumvent a wall when jobs are waiting on the other side.

For example, migrants can simply overstay their visas. According to the Center for Migration Studies, 42 percent of all illegal residents over-stayed their visas rather than coming undocumented over the border. For those who came on visas, the wall is irrelevant. Almost 19 million people entered the U.S. from Mexico last year on tourist visas. Even if every illegal Mexican were deported and the wall built a mile high, the entire undocumented Mexican population of 6.7 million could be reconstituted from visa overstays, theoretically, in as little as four months. If there is work and a material wage differential to Mexico, workers will come, on foot, with tourist visas, by water or air. But they will come.

As with tobacco, legalizing the migrant market and taxing it would make more sense. Here’s how it might work. In a market-based approach, an eligible Central American – one with a clean criminal record — could purchase a work visa at a market rate in return for on-demand access to the U.S. labor market. This visa would provide no rights to any social programs in the U.S., but would allow the conduct of daily business, for example, opening bank and mobile phone accounts, renting property and allowing holders to obtain U.S. driver’s licenses. Our estimates put the value of such a permit around $10 per day, representing an effective tax rate of 13 percent for the typical unskilled Central American worker. Fees from such visas would net the federal budget more than $30 billion annually.

The market would be managed by matching the price to the volumes of visas issued. If the price goes down, the number of visas could be reduced. If the value goes up, more visas could be issued. By this means, the government could insure that prevailing U.S. wages are maintained and unemployment among migrants is minimal.

Visas would not be tied to the individual as such. Rather, they would act more like airline tickets. At the market price, anyone can buy a seat. But no seat is reserved for any particular individual. If you want to get on the plane, you have to pay for the ticket. By analogy, a Mexican with a clean record could always work at will in the U.S. if it makes economic sense. If not, that visa will be available for another Mexican to purchase, with the system optimizing the price and revenues much like, say, Southwest Airlines manages its seat capacity.

If visas are always available on demand, Mexicans will have no need to sneak over the border. Why risk your life on an eight day March through the desert and pay a coyote $4,000 when you can pay the U.S. government $3,600 and come and go as you please? Every year, as many as 700 people on the two sides of the border die trying to get to the U.S. These deaths would be all but eliminated.

Sanctuary cities would disappear. If a Central American immigrant can purchase a visa on demand, the ability to stay is simply a matter of money. There is no one to protect. And if a migrant is not eligible for a visa, they are not worth protecting, because they have disqualified themselves through criminal behavior.

Nor would we need a wall or 17,000 border agents to man it. We would need excellent detection and high speed helicopters to intercept those very few trekking across the desert, confident that they are up to no good. The vast majority would enter through official crossing points. If Trump wants to use the visa proceeds to build a wall, go ahead. But with market-based system, we would not need one.

The average middle class voter gets it. They know that illegal immigrants are here because employers need them to do jobs that most Americans reject as too hard, too distasteful or too menial. Even so, the average citizen wants to get control over the immigrant flow, be properly compensated for granting market access, and have the ability to quickly identify and expel problem migrants. A market-based approach does all that.

Only Trump — not Hillary Clinton or Jeb Bush — could even propose market-based immigration. It requires a business mentality not beholden to generations of ossified left and right dogma. If Trump could pull it off, he would be a hero to almost all moderates, many conservatives and Hispanics, and not a few Democrats. It is a huge opportunity for a President looking to make his mark.

Trump can win on deficits, solve the debt ceiling and own Congress forever.

Originally published in The Hill, December 11, 2017.

*****

As the Republican tax plan grinds through Congress, President Trump has an opportunity to offer a few changes which could alter the legislation to make it more acceptable to fiscal conservatives, permanently eliminate recurring debt ceiling debates, and put him firmly in control of the congressional agenda for years to come.

The central problem today is Congress’s propensity to spend money the country does not have, and spend too much of it on favored interests and too little on economic growth. As Jake Novak complains in a recent CNBC op-ed:

It’s becoming more and more clear to that disapproving public that members of Congress from both parties see holding office as a means to control the power of the purse to reward friends and attack enemies. Cutting spending means cutting what they see as their rightful power. So they’ll never really do it. Our money and wealth is theirs to use as they please, even against us.

What can we do? How do we motivate legislators to treat taxpayers’ money with the same care as taxpayers do themselves?

The answer is simple. Align the incentives.

Whether the economy does well or poorly, whether policy initiatives tank the economy or blow out the deficit, the wages of senators and congressmen are the same pitiful, fixed amount — about as much as a first year associate makes at a leading law firm. (Indeed, just to push the point home: NBC’s Megyn Kelly makes more than the entire Senate combined.)

If we instead want legislators to maximize growth and minimize debt, we need to pay them for doing so. That simple. An incentive plan would not necessarily stop the negative effects of the pending tax legislation. It would not prevent legislators from voting for new entitlements or force them to balance the budget. Indeed, no one would be precluded from voting their party or conscience. But members of Congress will incur a real cost to themselves and their families if the underlying policies are profligate or hurt the economy — and that will influence behavior. It is one thing to be generous with the taxpayers’ money, another to be generous with one’s own bonus.

With it, the whole debt ceiling debate would disappear. Increasing debt will mean dwindling bonuses, so if legislators need to increase the debt ceiling, voters will know they really mean it. For the first time, politicians will have some skin in the game, which is far more important than the kabuki theater surrounding regular increases in the federal borrowing limit.

How big a difference could incentives make? As with so many seemingly innovative policies, Singapore shows the way, having successfully implemented performance-based pay decades ago. The results are striking. In 1985, GDP per capita (in purchasing power parity terms) of the US, Germany, Italy and Singapore were all clustered within a narrow range. Singapore held the bottom slot at $26,000, with the US at the top at $34,000. Today, Singapore’s per capita GDP is $83,000, well ahead of the United States at $54,000. Singapore’s output per person is nearly twice that of Germany. Italy is a third world country by comparison. The West has fallen behind. Far behind.

The lesson is clear. If politicians are allowed to use taxpayers’ money for generations without any personal incentive to use it well, over time, government spending will become bloated, inefficient, and drag down GDP growth to pitiful levels. That is exactly how Germany managed to become a woefully second class country in Singaporean terms.

Economists have fretted over low productivity growth and an aging population in the U.S. Perhaps the private sector will rebound with new technologies and save the day. But if it does not, those who follow policy have the sense that the easy reserves of economic growth are to be found in improving the efficiency and effectiveness of government spending and taxation. Incentive-based pay would unlock that potential, paving the wave for a generation of healthy economic growth, and restoring faith in government and confidence in America as a country with a future.

For Trump, it is a unique opportunity. No ordinary politician would ever conceive of suggesting that self-interest could possibly motivate politicians’ behavior. However, Trump has spent decades motivating politicians with cash. He knows better. If you want your bonus, Mr. Representative or senator, get to work and create legislation that puts the country back on a path to solid growth and reduces borrowing at the same time. In such a world, neither conservatives nor liberals would get everything they want, but both would have a huge incentive to work together towards fiscal sanity and prosperity.

This is how to drain the swamp. Steve Bannon is not alone in pinning the hopes for a more effective Congress on a change of personnel. But it is not about people. It is about incentives. Change the incentives, and there is no need to change the people. Without a change in incentives, however, incoming politicians will ultimately be claimed by the swamp, just like their predecessors. Rather than railing against venality, we need to use it as a tool to create faster growth and a more balanced budget.

President Trump has asserted that he “can be more presidential than any president that's ever held [the] office.” Here is an unparalleled opportunity. No other president in history, not one, would have had the guts to change the system at its roots. Here is the chance. Take it, Mr. President.

How Trump can end illegal immigration now -- without a wall

This piece was orginally published by CNBC on Jan. 26, 2017

*****

During his presidential campaign, Donald Trump promised not only to 'build a wall' to seal the southern U.S. border, but to make Mexico pay for it, at a cost of some $10 billion to $38 billion. Mexico on Thursday reiterated it's refusal to foot the bill.

Yet, a market-based immigration policy allowing Central Americans who passed a background check to purchase work visas at market rates (instead of paying thousands to human smugglers) could generate revenues for the federal government in excess of $40 billion, or more than enough to pay for that wall. You can read the details in an earlier article I wrote for CNBC.

But here's the best part: With a market-based visa system, President Trump could materially end illegal immigration within a month or two, even without a wall. Here's how it would work.

Illegal immigration is a variety of black market. Black markets always arise as the direct result of government policy, when governments either cap prices or restrict volumes. For example, during Super Storm Sandy, a number of East Coast governors put price caps on scarce gasoline, creating a black market within a matter of hours.

Young men with gasoline cans would stand in line at gas stations and wait their turn. As soon as they filled up, they would walk around the corner and sell the gasoline to motorists at a 200 percent profit. When governments allowed market prices to prevail again, black market activity disappeared just as fast. The black market existed only because of government policy.

In the case of immigration, the sorry truth is that the government provides only about one third as many visas as needed by U.S. businesses, primarily in agriculture and construction, even as these businesses are unable to find Americans to fill these jobs.

President Trump argues that Americans want 'good jobs'.  Well, illegal immigrants do not get 'good jobs'. They are taking the jobs no one else wants. This includes almost anything outdoors (not involving a football), for example picking fruits and vegetables, dairy and other agriculture, construction, lawn work, and indoors, house cleaning. Most of these jobs pay around the minimum wage, and often involve travel and difficult working conditions. Very few Americans aspire to these jobs anymore—that's how we know we're a rich country.

"The system does not have to be perfect. As long as Central Americans can buy visas at will and U.S. employers can obtain low-end labor on demand—even if it may be a bit costly at some times—both Mexicans and the U.S. businesses sectors would have an incentive to use the system."

But the need for labor hasn't gone away. Indeed, about half of the farm workers in California are undocumented. Illegals are not a nice-to-have, they are an essential component of the agricultural business model in the U.S.

Now, Mexicans have no love manual outdoor labor, either. But the reality is that US farm work pays about four times as much as those Mexicans could make in Mexico. If lawyers or investment bankers in New York could earn four times their wage picking strawberries in Guadalajara, there would be no shortage of recruits.

The black market in labor therefore exists because certain businesses in the U.S. are desperate for low-end labor and because unskilled Mexican workers can earn multiplies of their income by coming to the U.S. The U.S. government has, for decades, actively tried to prevent these two sides from coming together by enforcing the border. After all, if the border were open, conservatives argue, we would be inundated with Mexicans. And that's absolutely true.

However, if we issued an appropriate number of visas, then we would cover domestic needs and Mexicans would no longer have an incentive to jump the border. We could do that by selling visas at market rates to eligible Mexicans and other Central Americans and monitoring the prices of visas and field wages to get the number more or less right.

The system does not have to be perfect. As long as Central Americans can buy visas at will and U.S. employers can obtain low-end labor on demand—even if it may be a bit costly at some times—both Mexicans and the U.S. businesses sectors would have an incentive to use the system.

This would eliminate the need to jump the border. The decision to come to the U.S. would come down to economics. An eligible Mexican could go online—in Mexico—and check available U.S. jobs and the cost of a visa. If the numbers work, they could apply for the job and buy a visa. If not, they stay home.

If entering the U.S. legally is easy—as long as the applicant has passed a background check and has the money to pay for the visa—then virtually every Central American migrant will be using a visa. Why risk your life in the desert if you can pay a fee and hop on a bus? It is the ease of complying with the law—not enforcement—which guarantees compliance. But once compliance is universal, companies will not hire workers who fail to comply. If employers can obtain documented labor, they will avoid illegals.

Undocumented immigrants will find their situation untenable. Not only will employers will shun them, President Trump can declare that any immigrant caught crossing the border illegally will be ineligible to purchase a visa in the future. Border jumping will be quickly transformed into the single worst way to enter the U.S.

If legal entry for a fee is easy and border jumping disqualifies an applicant from the legal labor market, then illegal entry by economic migrants will all but cease. A wall will not be necessary. To make it all happen, Trump needs only signal his credible support for a fee-based visa system and tweet that crossing illegally will disqualify an applicant from obtaining a visa. If Mexicans believe a reasonable market-based visa system is coming in relatively short order, many will defer a difficult, risky and illegal desert crossing. It's that simple.

Many Americans regard President Trump with a mixture of hope and fear. If the President chooses to focus on making deals, on applying business principles to policy problems, he could be a great success. He has the flexibility to look at programs in terms beyond the sterile left-right vocabulary which has ossified the Washington political class.

Want to work in my backyard? You've got to pay an entry fee. Any businessman could understand that. So can any immigrant. A market-based visa program could generate $33 bn in net revenues, and create value for U.S. business, migrant labor and social conservatives at the same time. It could be a spectacular win for the Trump administration.

Forget Mexico -- Here's who should pay for the Wall

The piece was orginally published by CNBC on Jan. 25, 2017

*****

During his presidential campaign, Donald Trump promised not only to 'build a wall' to seal the southern US border, but to make Mexico pay for it. Mexico has demurred for now, and in the meantime, the President-elect has instructed Congress to find the funds to build the wall, estimated to cost $10-38 billion.

Nevertheless, a better source of funding is available: the illegal immigrants themselves.

Most undocumented immigrants come to the U.S. to work, and for a simple reason. Wages are higher here. Farm work in the U.S. typically pays $10-12 per hour, while a gardener in Mexico might earn $2-3 per hour, only a quarter of U.S. wages. The differential is even higher in places like Guatemala or Nicaragua, which are substantially poorer than Mexico. For a Guatemalan border jumper, the pay differential can be a factor of 10 or more. That serves as an enormous inducement to come to the U.S.

We can value the size of the inducement through the price of an illegal border crossing. Havoscope, a group tracking black market prices, estimates that human smugglers charge $4,000 to bring a Mexican to the U.S. and $7,000 for a Guatemalan. This corresponds to anecdotal evidence, for example, from a 2010 VOA article:

One [undocumented immigrant] says he paid a Mexican smuggler two thousand dollars to transport him across the U.S.- Mexico border. He walked across the desert for eight nights and slept by day before making his way to Virginia.

If we allow this worker traveled for two weeks to reach his U.S. destination, and that his daily value in the U.S. is about $100, then his total travel cost exceeded $3,000. Crossing the border has substantial value.

We can compare the cost of border crossings with Federal tax revenues actually received from undocumented immigrants. According to the PEW Research Center, about 11 million undocumented aliens reside in the U.S., of which 8 million are in the workforce. A study by the Federation for American Immigration Reform (FAIR) calculates that undocumented workers in 2010 generated approximately $5.3 billion in Federal tax revenues, excluding Medicare contributions.

Thus, the average undocumented working immigrant generated less than $700 per year in Federal revenue. At the same time, the typical immigrant works 60 hours per week and earns perhaps $28,000 per year. Do the math, and the effective Federal tax rate for undocumented immigrants is 2.5 percent.

The current system –and we do have a current system—is the cause. Today, the system works like this. An undocumented immigrant with an appetite for risk tries to jump the border. If he succeeds, he gets a free pass in the U.S. Employers will not require documentation because they desperately need the help.

Municipalities do not ask for papers, because Mexicans are backbones of the service economy in places like New Jersey and California, and because mayors fear that driving illegals underground just creates more crime. Consequently, many Americans today accept a de facto system which holds that, if a Mexican can get over the border, he can live and work in the U.S. without paying taxes, as long as he keeps his nose clean. The unfortunate implication is, however, that almost all the taxable value of illegal immigrants is lost at the border.

If the border were treated not as a fence, but as a gate, then we might expect undocumented immigrants to be willing to pay to the U.S. government that which they otherwise would pay to human smugglers and lose in travel time, that is, about $4,000 per year in visa fees and related taxes. If all undocumented workers did so, Federal revenues would increase by $33 billion. Even so, this would constitute an effective tax rate of only 14 percent for the typical working immigrant.

And government revenues could be higher still. The lack of legality has many hidden costs. For example, an illegal immigrant could be robbed or die in the desert. They may fail at entering the U.S. and have to try again. They may be cheated out of wages by U.S. employers. They may become sick without coverage.

They can be deported at any time, or may be unable to return to see their families for long stretches. Conducting daily business—opening bank accounts, obtaining a mobile phone, renting an apartment—is a challenge. Further, a lack of papers disqualifies immigrants from higher value-added jobs in management or the trades. Valuing the benefits of legality is inherently tricky, but it is probably worth $2,000-$4,000 per year per worker beyond the value of actual border crossing itself.

Thus, undocumented immigrants might be willing to pay $6,000-$8,000 in visa fees and taxes per year if they could enter the U.S. on short notice at will. Even at the higher end, the effective tax rate would only average around 30 percent. Put it all together, and the Federal government is probably leaving revenues in excess of $40 billion on the table every year.

And that's not all. Dealing with illegal immigrants is actually quite expensive. FAIR estimated the annual cost in 2010, excluding healthcare expenditures, at $22 billion. Much of it is spent on enforcement at the border. If Mexican immigrants with clean criminal records could enter at will for a fee, then the entire need for a wall disappears.

Our analysis suggests that Federal outlays could therefore be reduced, perhaps by as much as $10 billion per year. Thus, the total swing in the Federal budget could be as much as $50 billion per year. That's a lot, enough not only to pay for the wall, but with a good bit left over to make a dent on Obamacare reforms.

Many Americans are understandably fed up with illegal immigration. We can try to solve it with a wall and deportation. Nevertheless, this has many downsides, including the potential collapse of the U.S. agricultural sector; the risk of shutting seasonal workers in the U.S., rather than shutting them out; spending vast sums on an initiative which proves no more successful than the war on drugs; and precipitating extraordinary social tensions at a time when illegal immigration is not the only priority on the Trump administration's plate.

Alternatively, we can consider a market-based approach which not only addresses most of the concerns about illegal immigration, but generates substantial funds for the U.S. government. There is a better way.