Sunday, May 14, 2006

Selling Green Cards

Economist Larry Lindsey (former adviser to President Bush and former ec 10 head sectionleader) writes about immigration in the new issue of the Weekly Standard. This passage caught my eye:
Unlike some nations--Canada, for example--we do not "sell" residency to people who promise to bring in investment money and create jobs. As economists would say, if you're not going to ration by price, you're going to ration by queue.
This is correct, of course. But Larry does not then ask the natural next question for an economist: Why not ration by price?

There are two main complaints about increased immigration (beyond mere discrimination against foreigners). First, unskilled immigrants increase U.S. income inequality by depressing wages for Amercian workers with low skills. Second, unskilled immigrants can become a drain on the U.S. social safety net. Rationing by price addresses both concerns. A person willing to pay, say, $100,000 for the right to immigrate to the United States is unlikely to be unskilled and is unlikely to end up on the dole.

Questions for ec 10 students to ponder: Should we sell a limited number of immigration slots to the highest bidder (subject to a minimal background check, such as for a criminal record). Why or why not? If we increased the number of immigrant slots and auctioned them off, the U.S. taxpayer would benefit and the immigrant would benefit, as is typically the case when two people engage in voluntary trade. Is there some externality here? In other words, would anyone else be hurt by such a transaction?

Update: An email correspondent notes that "the U.S. does 'sell' immigration slots to some degree. See here."

This program demonstrates that policymakers prefer well-heeled immigrants. But asking these immigrants to invest in the United States is too indirect to be considered price rationing. A more direct form of price rationing would be to have immigrants pay domestic residents (via Uncle Sam) for the right of entry--like an admission fee to a theme park. It works for Disney!