Response to Kent Osband's “Rethinking Immigration”

Little evidence that immigrants undermine economies

Kent Osband thoughtfully critiques my book (with Benjamin Powell) Wretched Refuse? The Political Economy of Immigration and Institutions. The tone and the seriousness of his critique are appreciated, it’s quite a compliment to be confronted with a close reader of your work. And especially so when he’s critical. Osband argues that our case studies and other broader statistical work do not apply to the modern United States. He also contends that the libertarian strategy of targeting policy distortions rather than immigration itself is politically unrealistic, since immigrant voting patterns entrench the very distortions libertarians oppose.

Some background. The US is richer because its institutions are freer. Immigrants come from poor countries with lower incomes because their homelands have less capitalism and representative government. The average immigrant in the United States in 2022 comes from a country with an economic freedom score of 6.8, nearly identical to that of Rwanda. Our book explores the fear that immigrants could somehow bring the poorer institutions of their homelands with them to the United States, most likely through politics, which would degrade US institutions and undermine economic prosperity here. In other words, immigrants could kill the goose that lays the golden eggs.

If you convinced me that immigrants would undermine our institutions and the cost of the destruction would overwhelm the other positive economic benefits of immigration, then I would support strict legal controls on the flow of people across borders. However, our research convinced me that this is most likely a non-issue and that there is strong evidence that immigration often leads to better policies and improved institutions.

Osband concedes that our three case studies of Jordan, Israel, and the 19^th-century United States are solid evidence that immigration made host countries freer. His central objection is that these findings depend on context and do not generalize to the contemporary United States. He contends that low-skilled immigrants have fiscally negative effects, that assimilation pressures have weakened, and that the libertarian prescription of targeting policy distortions rather than immigration itself is politically unrealistic. He proposes instead a policy that welcomes high-skilled immigrants while excluding most low-skilled ones. I disagree on the fiscal effects (they’re positive), the pace of cultural assimilation (it’s fast), and whether some measures of cultural assimilation matter (trust doesn’t and most others don’t either).

Osband argues that the Israeli and Jordanian quasi-natural experiments aren’t perfect for our purposes, but the Jordanian one is stronger than he lets on and Israel isn’t bad either. Start with Jordan. 300,000 Palestinians were living and working in Kuwait at the beginning of the first Gulf War. By the end, all had either left or been kicked out to Jordan, where they could go thanks to a complicated legal quirk. The influx increased Jordan’s population by 10 percent and the Jordanian government reacted with a vast campaign of liberalization that strengthened that country’s institutions. Jordan went from having the economic institutions of a typically sclerotic Middle Eastern country in 1990 to being a regional outlier in quality just 15 years later. Immigration increased free markets.

Osband argues that this doesn’t tell us much about how the United States would adapt to a rapid increase in immigration, because the Kuwaiti-Palestinians were so culturally similar to the Jordanians. On the contrary, this migration tells us more than you’d think for several reasons. First, Jordan’s political and economic institutions are not as robust, adaptive, or liberal as those in the United States, so they were less resilient to big shocks.

Second, Palestinians and Jordanians only look culturally similar to outsiders. They are different from each other and there is much political tension between the two groups in Jordan. We didn’t elaborate much on the details of the political tension in our book, but it’s worth doing so here. King Abdullah I of Jordan was assassinated by a Palestinian nationalist when he visited the Al-Aqsa Mosque in 1951. Besides being an early example of the Palestinian nationalist resistance strategy that has come to characterize that movement’s complete failure, it’s also one of the early causes of the long-lasting political enmity between two groups of people in close physical proximity who look about the same to Americans. Palestinian nationalists also tried to assassinate King Abdullah’s successor in June 1970, which led to a Jordanian crackdown, and to Palestinian nationalists assassinating the Jordanian prime minister Wasfi Tal in 1971.

Those events have caused some lasting political rivalry between Palestinians and Jordanians. Add 300,000 Kuwaiti-Palestinian refugees, equal to 10 percent of Jordan’s population, to that volatile mix and how Jordan’s government reacted tells us quite a bit. A large immigration of people into one side of a domestic political disagreement in a country with weak political and economic institutions sounds similar to a large increase of immigration to the United States from, say, south of the border with the difference that the institutions here are better to begin with, more resilient, and the immigrants aren’t part of an ethnic group known for political assassinations, terrorism, and revolution. Jordan’s experience should increase our confidence in America’s institutions’ ability to adapt to immigration-induced demographic change under less harrowing circumstances.

Another case study is when Israel admitted about one million Soviet Jews between 1989 and 2000, which increased its population by about 20 percent. Instead of importing the economic institutions of the original command economy, Israel’s reaction to the immigrants was market liberalization. Osband’s critique of the usefulness of the Israeli case study rests on two observations. Soviet émigrés were highly skilled and they hated the system they came from. Both are true and neither undermines our argument.

The institutional-transfer hypothesis, or the immigrants will kill the goose that lays the golden eggs theory, predicts that immigrants carry the institutional culture of their origin countries. Soviet immigrants spent their lives in a command economy with no private property, no price system, and no democratic tradition. They had no other ideas to bring with them from that closed totalitarian society. Perhaps it was just enough that they didn’t like it, but which immigrant group loves the government and economy of their homeland? Immigrant self-selection is a generalizable feature of immigration.

Have you talked to Mexican, Venezuelan, or Chinese immigrants? The latter may like public safety in Chinese cities (except for the Uighurs), but none of them have much positive to say about the places they came from, except for vague things about the food, traditions, family, and other cultural habits that have little to do with the economy or governance.

Osband suggests that the logical extension of our argument is that Israel should have absorbed displaced Palestinians, and he notes that we concede this would change Israel’s character. That concession concerns democratic composition and changes in policies, but that’s not the same as institutional degradation. True, a democratic state that absorbs a large population with different political preferences will produce different electoral outcomes and will lead to some policy changes. Institutional resilience and improvement are about how property rights, the rule of law, and market competition survive or even improve with demographic change. It does not mean that every policy outcome remains frozen in place. For instance, the Soviet Jews likely pushed Israeli foreign policy to be more right-wing.

Immigration to the United States historically slowed the growth of government through either a diversity-induced collective action mechanism or by undermining labor unions when the borders were open. Our central empirical finding is a negative correlation between the immigrant stock as a share of the population and federal expenditures as a share of GDP from 1850 to 2018. During the 45-year restrictionist period (1922-1967), when the borders were closed to most lawful permanent residents, federal spending rose 302 percent as a share of GDP. During the preceding open-immigration period (1876-1921) of the same duration, spending rose 118 percent. During the subsequent liberalization period (1968-2013), spending rose by almost 9 percent.

City-level data are consistent with a one-standard-deviation increase in a city’s immigrant population reducing property tax rates by 13.6 percent in the early 20^th century. State-level regressions with two-way fixed effects show that a one-percentage-point increase in the foreign-born share reduced state-only expenditures by 6.9 percent. The correlations all run in the direction of more immigrants, less growth in government.

There are two related reasons why immigrants slowed government growth in the US. The first is by undermining labor unions. Immigrant-induced ethnic, racial, and linguistic fractionalization increased the transaction costs of worker solidarity, thereby reducing union formation. That’s why unionization rates and immigrant stock are strongly negatively correlated. That matters because unions are some of the most effective lobbying and mobilizing organizations for left-wing economic causes, which was known then. Marx and Engels even complained that immigrant diversity fractured worker solidarity and would delay a socialist revolution in the United States. It’s not often I cite those guys, but their reasoning is sound. Early union leaders seemed to agree, arguing for immigration restriction at every opportunity to support their own efforts at forming unions and to affect economic policy. Mass unionization surged only after Congress closed the border in 1921. The second reason is that less diverse societies tend to favor more welfare. New Deal legislation became politically feasible only after immigration restrictions neutralized the “immigrant welfare queen” counterargument that immigrants would move here to take advantage of welfare.

This doesn’t mean immigrants had no effect on American institutions or policies. The two major policy changes that immigrants accelerated during this time were positive. German immigrants, especially after 1848, were abolitionists and early Republican partisans who supported Abraham Lincoln in the 1860 election in the pivotal states of Illinois, Indiana, and Pennsylvania. Their support was critical for accelerating abolition. Catholic immigration also forced the secularization of public schools by ending Protestant Bible instruction in publicly funded education. We find no evidence that immigrants worsened American economic or political institutions during the period of open immigration. On the contrary, they slowed government growth, frustrated socialist organizing, and expanded individual liberty.

The last chapter is the global impact of immigration on economic freedom across countries. We examined 110 countries between 1990 and 2011 to see whether those that received more immigrants scored higher or lower after a lag on the Economic Freedom of the World Index. We found no evidence that immigration hurts institutions and, if anything, countries that took in more immigrants as a share of their populations tended to see small improvements in their economic freedom scores.

One of Osband’s fears is that immigration is especially bad in an age of DEI and affirmative action. Ignore for a moment that those pernicious policies are in steep decline here, but they are likely in steep decline partly because immigration undermines them. Affirmative action was created by Presidents Kennedy, Johnson, and Nixon when the foreign-born share of the US population was at its lowest point, which should immediately make you question the theory that immigration is somehow responsible for them to begin with. Asian Americans also brought the SFFA case that ended affirmative action in college admissions. Historically, states with more immigration had more bans on affirmative action. Immigration created the constituencies that undermined affirmative action. The correlations run in the opposite direction as Osband’s theory would predict.

Osband’s preferred policy is letting the government choose better immigrants. The labor market already has a mechanism for matching workers to productive opportunities—it’s called wages. Those prices allocate labor more efficiently than any visa category ever will. Osband’s vision of a high-wage, high-tech, Enlightenment-oriented oasis also contradicts his fears about how immigrants affect institutions if you take the effect of ethnic and racial voting patterns in the US on policy seriously. Asian Americans, who are mostly either highly skilled immigrants or their descendants, tend to vote for left-wing politicians and parties, while Hispanics, who are mostly descendants of lower-skilled immigrants, have more mixed political opinions and likely systemically favor Republicans if you consider ethnic attrition. He is perhaps under the misapprehension that skilled workers are right-wing merely because some loud people in tech are, but they are only speaking for themselves. Naturalized immigrants likely barely voted Republican in 2024, although I admit that weakens my argument since Trump is governing as a socialist with strong nationalist tendencies.

Maybe Osband is on to something but probably not what he thought. It’s not a coincidence that as the Republican Party embraces nativism, it also embraces the other policies of prominent 20^th-century Labo(u)r Parties. Nativism is often the gateway drug or vector that infects otherwise reasonable pro-market moderates with the disease of industrial policy, planning, big government welfarism, and dirigisme. If that’s true, nativism is the bad imported idea and it certainly wasn’t brought here by the recent immigrants.

Osband and I agree that there isn’t much evidence that immigrants undermine institutions and plenty to the contrary. We disagree on how far that evidence generalizes. Every quasi-natural experiment, cross-country regression, and case study we have conducted or examined points in the direction that immigration either improves host-country institutions or leaves them unchanged. Our research isn’t foolproof and we’re not done gathering evidence, but he should have more confidence in our conclusions.