Bryan Caplan  

Milton Friedman Opposed a Pareto Improvement

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One of Milton Friedman's most famous lines: "You cannot simultaneously have free immigration and a welfare state." He said it in a 1999 ISIL interview, and I've heard it quoted dozens of times. It even inspired me to write a Champions scenario, "The Law of Unintended Consequences." (Want to play it? Email me for an invitation to Capla-Con, July 12&13!)

Actually, I think Friedman's wrong. Yes, the U.S. welfare state pays more than most people on earth earn. But once immigrants arrive here, few of them want to settle for a welfare check; they want to earn some real money. In fact, once you realize that the welfare state is primarily about helping the old, not the poor, it turns out that immigration may be the only way for aging countries to sustain their welfare states.

But I digress. Right or wrong, Friedman's claim about immigration and the welfare state is entirely in character for him. I was shocked, then, to read his response to a followup question in the ISIL interview:

Q: Instead of a green card [resident alien status], can the USA issue a blue card which does not give welfare?

A: If you could do that, that would be fine. But I don't believe you can do that. It's not only that it is not politically feasible, I don't think that it is desirable to have two classes of citizens in a society. We want a free society. We want a society in which every individual is treated as an end in themselves. We don't want a society in which some people are in there under blue conditions, others are in there under red conditions, others are in there under black conditions. We want a free society. So I don't believe such ....

I haven't really ever thought of that system. It's a new question. I very rarely get a new question, but I must admit that's a new question for me. And I haven't really thought about it a great deal, but my initial reaction is that it's a very undesirable proposal.

Granted that Friedman was 87 when he said this, it's still appalling. Normally, Friedman was eager to embrace any marginal measure in the direction of liberty. But on immigration, he bizarrely turned his wish for a "free society" into an argument against a compelling libertarian improvement over the status quo. And how in the world does telling people, "You can't come here because you might collect welfare" an example of treating people "as an end in themselves"?!

My last, best way to rescue my intellectual idol is his admission that he'd never thought about the proposal before. But isn't that bizarre? Friedman, who could run mental circles around lesser geniuses, never asked himself, "What is the least un-libertarian way to deal with the conflict between free immigration and the welfare state?"? The lesson, perhaps, is that what Tim Harford calls "keyhole surgery" (looking for the least intrusive solution to market and/or political failure) is a major intellectual advance - obvious in retrospect, but deeply counter-intuitive nonetheless.


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COMMENTS (24 to date)
Matt writes:

Immigration is primarily within North America. Just allow North Americans to declare their citizenship and stay here for, say four years, until we decide in more detail.

My problem, actually, is that is is not efficient for Mexico, and we need Mexico to come along on the ride. Remittances to Mexico do not do the trick. We need Mexicans and Americans to have economic rights that are similar in both nations, and then we encourage bidirectional economic immigration.

Mexico and Canada should have a special relationship with us.

TGGP writes:

Your point about the welfare state supporting the elderly is irrelevant because the immigrants themselves will get old and then receive welfare. Since they earn less money than non-immigrants they will be a drain on even those targeted forms of welfare.

I'm not so much worried about the immigrants themselves. It's their kids who have the higher crime and welfare rates. As native-born citizens, they will also automatically receive the right to vote. Caplan himself is an expert on why that's not a good thing. I believe the Gulf States avoid that by not granting suffrage so liberally and not permitting their guest workers to have families there.

Kevin Nowell writes:

But TGGP, immigrants typically have children at higher rates so their impact on the producers to SS/Medicare leaches would still be positive.

Blackadder writes:

What I don't understand is, if it's true that you can't have both free immigration and the welfare state, then isn't that a good reason for libertarians to support free immigration. That is, wouldn't free immigration force governments to seriously curtail welfare generally, which is what libertarians want anyway? To me, it seems fairly obvious that part of the reason immigration is more of a problem in, say, California that it is in, say, Texas is that the former has more lavish welfare benefits than does the latter.

shecky writes:

I've often though Friedman was wrong on that too. But of course, that's just little old me. One of the lessons here is the near deification of Friedman, where this one quote is an appeal to authority often used as a way to end discussion.

Koen Deconinck writes:

I agree with Blackadder on this one. The most libertarian thing to do would be neither restricting migration, nor advocating blue cards (or whatever color), but to advocate unrestricted migration, period. This poses a problem for the welfare state - not for the libertarians, who wish to see the welfare state abolished.

I don't agree with the tactics of marginal improvements. The only justified use of small improvements would be if it were temporary solutions which are openly explained as necessary and temporary compromises - stepstones as it were. However, advocating these small improvements as an end in themselves can only lead to a new, even more messed up status-quo.

See this beautiful essay on Gradualism: http://www.wendymcelroy.com/grad.htm

Jay McCarthy writes:

Bryan,

Tell us what we really want to know: What do you think about D&D 4e?

Ethnic Austrian writes:

So what about charity? Libertarians frequently argue that charity should take the place of governement based welfare and would actually do a much better job.
Are charity and welfare incompatible too?

Les writes:

Isn't economics about efficiency, rather than equity? Kant's categorical imperative is moral philosophy, not economic efficiency.

Also, if welfare is abolished, the incentive for illegal immigration is reduced. Therefore abolishing welfare is a good step towards solving the illegal immigration problem.

Kevin Nowell writes:

I don't see abolishing welfare as reducing the incentive for illegal immigration by any significant amount.

Publius writes:

A recent Lane Kentworthy article described how surprising immigration and the welfare state has managed to work in Sweden, but I do think they work against each other, and demand a social glue that is rare (though not unattainable).

I tend to support open immigration policies (though not uniformly) because open immigration was not only one of our founding principles, but *THE* driver of our economic dominance.

We created an open environment that allowed the seeds of those persecuted elsewhere to blossom and grow as towering as their inherent quality will allow.

Whether it's Alexander Hamilton, Albert Einstein, or Sergey Brin, the returns on our open door are almost unmeasurable.

I think we have a lot to learn from the Scandinavians, however, because they have isolated another principle that operates as a driver of economic success - labor resiliency - and created institutions to concentrate it's economic impact.

To return to Brin, Google's growth has depended on both attracting individuals and small companies from outside it's organization, *AND* from empowering those within the organization to contribute in a myriad of aways that allows them to capture more value than many of Google's competitors.

The US has the former down pat, while the Nordic states have the latter.

I am not a card-carrying libertarian, so I can't state whether "the collective" should abandon the company motto (the irony just oozes...), but I would like to see all focus a bit more on improving the competitiveness of the United States both through immigration and potential welfare policies, at the very least it will frame the welfare debate not as a responsibility of the state, but as a measure to boost production, with which libertarians may be more comfortable.

Nathan Sharfi writes:
What I don't understand is, if it's true that you can't have both free immigration and the welfare state, then isn't that a good reason for libertarians to support free immigration. That is, wouldn't free immigration force governments to seriously curtail welfare generally, which is what libertarians want anyway?

Decades of Latin American immigration into California doesn't seem to have eroded any support for the welfare state here. Does anyone have any studies handy that actually show a decrease in welfare state support in the face of increasing immigration?

My guess is that most people tend to view the lower-skilled immigrant influx as the new thing, and the cause of the problem rather than the welfare state which enjoyed general support prior to the influx.

Ethnic Austrian writes:
I tend to support open immigration policies (though not uniformly) because open immigration was not only one of our founding principles, but *THE* driver of our economic dominance.
How do you define economic dominance? Given your picking of Sergey Brin, I assume that it has to do with success on world markets. So how do you explain Toyota and the american trade deficit?
Dave writes:

Friedman was asked what was the best policy, not the most libertarian policy. Unless you believe libertarianism is a religion there can be a difference

Steve Sailer writes:

Who is wiser: Milton Friedman at 87 or Bryan at whatever he is?

Tough question!

US writes:

Publius relates to the Scandinavian experience, and several commenters talks about the idea of using free immigration as a means to an end; a more libertarian society. One of the main differences between Denmark and Sweden, most Danes and Swedes would probably be able to agree among each other it is _the_ main difference, is that Denmark has toughnened it's immigration policies during the last 7 years whereas Sweden has not. Denmark has had high growth and all in all done pretty decent, whereas Sweden has not done quite so well. In short, there seems to be a strong indication that Sweden's liberal stance on immigration has been eroding that same homogenous society that kept the welfare state from falling apart in the first place. Some would say this is not directly relevant to the discussion of the optimal US policy, as US is already a relatively heterogenous society; I'd say the impact difference is a difference in degree, not a difference in kind.

As to those who think free immigration is the path to a libertarian society: Don't go down that path. A lot of Danish libertarians thought so 10 years ago, quite a bit fewer do today, let's just say that the Swedish experience suggests otherwise. Maybe immigration will roll back the welfare state. But a more likely scenario seems to be that it will simply destroy it, leading to something completely different. Why would the end of the welfare state lead to a libertarian society - why not a fascist society or a theocratic society? Why would the transition necessarily take place peacefully, we know for a fact that a lot of people are going to get hurt along the way? Costly and necessary political reforms are never easy to implement, and they only get harder the bigger the problem grows - medicare anyone? The idea that policitians will act responsibly, see the error of their ways and dismantle the welfare state 'when the time comes' is, I'm afraid, just wishful thinking. And no, they are not 'forced to do it', as some people claim, there are alternatives: Like mass deportations of immigrants, or worse.

Incidentally, discussing immigration in a pareto framework as Bryan does is dishonest. Free immigration of unskilled labor increases the crime rate and lowers relative demand for native unskilled workers. Some people will be worse off.

Jim writes:

I'm surprised nobody has called Bryan on his misinterpretation of Pareto efficiency. If any individual loses from immigration, which is obviously quite plausible, then it's not a Pareto improvement.

8 writes:

In Italy during the past month, there have been mass attacks on gypsy camps in Naples. In Verona, the government bought land and a building used by Muslims for prayer. It was razed and renamed Piazza Orianna Fallaci.

A better question is how to maximize immigration given democracy. Even the current amount may be too high, given polling data.

Matt writes:

Jim says:

"I'm surprised nobody has called Bryan on his misinterpretation of Pareto efficiency."

I think Brian was comparing the situation of illegal immigrants to the case where these same immigrants have legal blue cards. In that case the losers of immigration lose less with the same immigration.

Stephen W. Stanton writes:

I agree with Friedman on this...

Yes, a red card would be a pareto improvement. However, it comes with a host of unintended consequences. The current system already creates an abuse-able class of employees (e.g., immigrants here on a work visa are beholden to monopolist employers that can unilaterally and instantly revoke their right to stay in the USA) and a class of outlaws (illegals).

The red card would create an inferior class of people... A working class, tantamount to the throngs of immigrant construction workers in Dubai.

It would undermine a basic pillar of society: equality under the law. I think the damage to the culture more than offsets the gainst to welfare economics.

Peter writes:

Actually, Latino immigration has dampened the support for the unqualified welfare state in CA. It was called Prop 187, and it was struck down by a judge.

scottynx writes:

Peter, you are right in the short term. But what about the long term when Latinos in California become a majority, and the even longer term when they become a majority of voters? Rest assured that Latinos themselves are not going to say, "Those darn latinos are getting too much of the welfare money!" and oppose the unqualified welfare state en masse.

Latinos are now 37% of the California population, but were a lot closer to a quarter back around the time of prop 187. Whites have already dropped from 50% to 43% of the population since 2000.

Similar dynamics will later happen to the nation as a whole, but can be mitigated if we are prudent and greatly reduce immigration soon.

Eli writes:

To say that you find Friedman's response "appalling" is baffling. He was honestly trying to deal with the issue. His response, in my opinion and yours, was incorrect. But appalling? Don't be so hyperbolic, Caplan.

cls writes:

In a lecture “What is America” Friedman went into some detail about the relationship between immigration and welfare -- more than I have seen anywhere else. And what he said was interesting and quite different from the quote attributed to him.

The DVD series that includes that lecture is available from Laissez Faire Books, 1 800 326 0996. It was transcribed and quoted at Classically Liberal and can be found here:

Here is a section from that blog with extensive quotes by Friedman.

“If you have free immigration, in the way we had it before 1914, everybody benefited. The people who were here benefited. The people who came benefited. Because nobody would come unless he, or his family, thought he would do better here than he would elsewhere. And, the new immigrants provided additional resources, provided additional possibilities for the people already here. So everybody can mutually benefit.”

“But on the other hand, if you come under circumstances where each person is entitled to a pro-rata share of the pot, to take an extreme example, or even to a low level or the pie, than the effect of that situation is that free immigration, would mean a reduction of everybody to the same, uniform level. Of course, I’m exaggerating, it wouldn’t go quite that far, but it would go in that direction. And it is that perception, that leads people to adopt what at first seems like inconsistent values.”

Now Friedman goes further with his clarification. And pay special attention to what he says here.

http://freestudents.blogspot.com/2008/02/what-milton-friedman-really-said.html

“Look, for example, at the obvious, immediate, practical example of illegal Mexican immigration. Now, that Mexican immigration, over the border, is a good thing. It’s a good thing for the illegal immigrants. It’s a good thing for the United States. It’s a good thing for the citizens of the country. But, it’s only good so long as its illegal.”

There is no question here at all that Milton Friedman said that in the welfare society that “illegal immigration” is precisely the kind of the immigration that country needs. The xenophobes have turned his views inside-out. They will pay lip-service to legal immigration and damn illegal immigration. The fake libertarians, social conservatives, and racists try to make it sound as if Friedman was against illegal Mexican migrants. In reality he said that such immigration is “a good thing” for everybody concerned. And his reasoning is that this is the closest thing to pre-1914 immigration which is possible in today’s welfare state. Friedman says this is the paradox of government intervention. It turns the illegal act into a beneficial one while legal immigration, is a potential problem. Notice that the groups that quote Friedman never quote his saying that illegal Mexican immigration is good.

“That’s an interesting paradox to think about. Make it legal and it’s no good. Why? Because as long as it’s illegal the people who come in do not qualify for welfare, they don’t qualify for social security, they don’t qualify for the other myriad of benefits that we pour out from our left pocket to our right pocket. So long as they don’t qualify they migrate to jobs. They take jobs that most residents of this country are unwilling to take. They provide employers with the kind of workers that they cannot get. They’re hard workers, they’re good workers, and they are clearly better off.

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