David R. Henderson  

Greenspan: Let Them In

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The PSST Just-So Story... Greenspan on Dodd-Frank: Start...

Alan Greenspan, along with George Shultz and John Cochrane, gave short speeches at a Hoover lunch yesterday and took questions and answers. All the speeches were good: Cochrane's was outstanding.

I'll be posting in the next day or two, mainly on Greenspan's and Cochrane's.

Greenspan went first and surprised me. He had two policy proposals. This post is on the first and it led to my title. Greenspan said that one of the worst U.S. federal government policies is its H1B visa system, the system that allows only 65,000 immigrants a year into specialty occupations. He pointed out that because of this tight restriction on supply, pay for high-income people is even higher than otherwise. This, he said, is helping cause the large income inequality we see today.

Greenspan emphasized a Robert Frank view that what matters to people is their income relative to others, that is, inequality of income and not absolute level of real income. I don't think he's right but that wasn't crucial for his argument.

Greenspan didn't specify however, how he would change the immigration law. So in Q&A, I said:

I'm highly sympathetic to your case for relaxing immigration laws. Would you allow an additional 3 million people a year? 10 million people a year? The higher the number, the better, but what number are you advocating?

Greenspan said that because Americans are worried about losing their culture, there would be a lot of resistance to substantial increases in immigration and so he would allow as large a number as is politically feasible, but couldn't say what the number is.


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COMMENTS (15 to date)
Neal W. writes:

You're both wrong.

Absolute income only matters up to a certain point. If you make a living by picking trash out of a landfill for less than a dollar a day, you don't care if inequality is increasing as long as you are getting absolutely richer.

However, after a certain point where basic needs are more than adequately taken care of, relative wealth has a much bigger affect on happiness than increasing absolute wealth.

David R. Henderson writes:

@Neal W.,
If you’re right, then I’m the one who’s wrong. Greenspan isn’t. He was talking in the U.S. context.

Don Boudreaux writes:

Coming as it did in remarks about immigration, Greenspan's endorsement of Robert Frank's thesis strikes me as odd. Isn't the fact that many poor Hispanics voluntarily emigrate to the U.S. evidence against Frank's thesis?

The U.S. has in it far more very wealthy people than does Mexico and other Latin American countries; and, also, the median income in America is much higher. If people had such a strong aversion to suffering lower relative status (as measured by one's income and material possessions relative to that of other people), it seems that far fewer Hispanics would emigrate to the U.S. - and that far more middle- and lower-income Americans would emigrate to Latin America.

Neal W. writes:

@Don

Perhaps the absolute wealth the Mexican immigrants have has not yet met the threshold where relative status becomes more important.

As far as U.S. citizens moving to Latin America, the costs just outweigh the benefits of their preference for relative status. Moving away from friends and family, not speaking the language, greater political turmoil, difficulties of assimilating into a new culture, ect.

J Oxman writes:

If people feel relevant wealth is important, there is a word to describe that: envy.

If Neal W. is correct, then envy is a systematic component of a wealthy society. Maybe that's the problem we face. Why else would people complain that those who shoulder the burden of taxes aren't 'paying their fair share?'

Don Boudreaux writes:

Neal:

Perhaps you're correct, but if so the force of Frank's thesis is substantially weakened. Few sensible people have ever doubted that each of us cares somewhat about our status and relative standing - and, therefore, that each of us is willing to pay some price to improve our status and relative standing.

Surely Bob Frank is saying more than that people are willing to pay some modest price to have higher income (or greater wealth, or more opportunities for conspicuous consumption) relative to such opportunities that others might have.

joeftansey writes:

Wouldn't letting in a bunch of poor immigrants make americans happier since their income would be way higher than the immigrants'?

chucho writes:

Greenspan's right about H1-B, but for the wrong reasons. It's the worst policy because the overwhelming majority of people who obtain a visa through that program are not highly skilled at all. Take it from someone who has interviewed literally hundreds of them for technical programming jobs. They are on average, borderline incompetents.

brian huntington writes:

That's an interesting way of approaching the problem of inequality. One obvious problem is that for many high-skill jobs with labor shortages (especially doctors, etc) the real problem is licensure restrictions, and skilled foreigners don't necessarily have the right to practice in the United States. So relaxing licensure requirements would be important to actually reduce inequality. Those labor shortages will likely disappear as American workers who couldn't get licenses move in and drive salaries down.

I think an alternative that more people would support would be simply lowering the number of low-skill workers we import. I recommend that we lower the number to zero, since we currently have a massive oversupply of low-skill workers (including the highly-educated but unskilled recent grads).

mike shupp writes:

This is most perplexing, since by and large scientists and engineers don't earn more than middle income wages. If you want to use something like the H1-B program to affect a significant high income level group, we ought to concentrate on admitting MBAs and bank executives.

What's a good number? I'd go for a million a year.

Liam McDonald writes:

I applaud you, David. Asking the hard questions. Immigration should be (in my humble opinion) unlimited. And I don't say that because I am an immigrant in Singapore or because my wife is one in Canada. In both places we add greatly to the economy as do all the hard working immigrants

Jim Rumora writes:

I am unable to find a transcript, video, or audio of this speech. Is it available so that the rest of us can also interpret what Greenspan and others had to say?

Ray Van Dolson writes:

Immigrants coming to America are likely comparing their relative wealth to folks back in their country of origin vs other Americans. At least for a while.

Therefore they probably feel pretty well off comparatively.

David R. Henderson writes:

@Liam McDonald,
Thanks.
@Jim Rumora,
I didn’t see a camera. It might have been audio-ed but I don’t think so. My guess is that, out of about 150 people attending, I took the most comprehensive notes.
@Ray Van Dolson,
Speaking as an immigrant from a poorer country, I had an experience that conforms to what you said. Except that after 39 years of living here, I’m still feeling better off by comparing myself to Canadians. But that’s mainly time-series, not cross-section. If you had told me in 1972 that I would live in a nice house in coastal California, that my wife and I would have 2 nice cars, that I would have traveled to Europe and Asia multiple times, heck, that I would have been to Disneyland even once, I wouldn’t have believed you.

Mike Rulle writes:

Our biggest comparative advantage as a nation has been our ability to assimilate people from other nations in less than a generation.

For example, lets say parents are born in Ecuador (China, India, etc., etc.), move to America at age 30, have children born here. Their children will be indistinguishable from children whose families have been here for, say, a century or more by the time they are in 1st grade. Even if born in another nation, depending on age, they can become Americans, culturally, quickly. My wife's siblings were born in Cuba and came here from ages 3-10. They do have accents--when they speak Spanish that is.

I have seen this up close and personal my entire life, not just my family. One key to faster assimilation is "non-ghettoization"--although that only slows down assimilation by 10-20 years. Can China, France, Germany or Japan say this? So needless to say I am for more immigration--a lot more. Yes, we need laws and process---what else is new? However, if there is one thing that drives me crazy about this issue, it is the Greenspanian style bias in favor of "technicians". I would overwhelmingly prefer some kind of lottery, but if given a choice I would choose against the technicians. From the non-technical class comes the entrepreneurs. Immigration is already "positive selection", we do not need "experts" opining on who is worthy.

This issue of relative versus absolute wealth, while "real" is also absurd. But once it gets down to that issue in national politics (now for example), it reminds me of the quote(Kissinger?)about academia--"the politics are so vicious because the stakes are so small".

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