Restrictions on immigration have created a black market in labor and movement. Currently, the U.S. government issues only 10,000 green cards to workers who lack higher education, special skills or family connections. These restrictions have incented (as opposed to “caused”) desperate workers from around the world to circumvent the legal process and enter or reside in the United States illegally. The lesson of this aspect of immigration policy is: Ignore the market at your own peril.
Policy makers have little respect for this market. Adam Smith famously called the legislator “the man of system” who “seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them.” But human beings are not chess pieces -- they do have principles of motion besides what the legislature would choose to impress upon them.
Unfortunately, as Smith notes, the man of the system “is often so enamoured with the supposed beauty of his own ideal plan of government that he cannot suffer the smallest deviation from any part of it.” Thus, when human beings act in accordance with their own plans -- when they drink alcohol, eat fatty foods, or fail to recycle -- the legislature decides to “double down.” But, again as Smith point out, if the legislature ignores the principle of motion of his subjects, “the game of society will go on miserably, and the society must be at all times in the highest degree of disorder.”
U.S. immigration policy has followed exactly this pattern. Congress sought to engineer the international market for labor, and it failed. Its “chess pieces” acted in accordance with their own principles. Instead of recognizing its mistake, Congress determined it just wasn’t trying hard enough. It decided what it needed was even more control over the pieces, so it built walls, added guards, required surveillance by employers and landlords and spent more and more on detention facilities. Today, America spends $18 billion each year on immigration enforcement. Yet, it is not enough.
Smith argued in The Wealth of Nations the high tariffs have “in many cases, served only to encourage smuggling, and, in all cases, have reduced the revenues of the customs below what more moderate duties would have afforded.” As in the case of immigration policy, Smith argued a high tariff on trade “offers a great temptation to smuggling,” but “the law, contrary to all the ordinary principles of justice, first creates the temptation and then punishes those who yield to it.”
In such cases, Smith recommended smuggling could be eliminated “by diminishing the temptation to smuggle,” which “can be diminished only by the lowering of the tax.” America does not tax immigration, but the effect of the limited numbers issued is the same: People are smuggled into the United States sometimes at great cost and danger to themselves. Smith argued a lower tariff would increase the revenues to government, eliminate smuggling and benefit the country through lower prices.
Smith’s advice is no less relevant today. Instead of the outright ban on immigration above the arbitrary quotas, why not tax immigration? The Competitive Enterprise Institute (CEI) has proposed exactly that: Eliminate quotas and tax immigration. This would increase revenue at a time of great deficits and allow workers an alternative to smuggling. As CEI’s Alex Nowrasteh (now with the Cato Institute) wrote in his 2012 paper “The Conservative Case for Immigration Tariffs,” an "immigration tariff would provide new revenue and increase economic growth by removing the immigration quotas and restrictions that inhibit business creation and legal worker flows.”
Recent estimates show some immigrants pay between $4,000 (from Mexico by land) and $26,000 (from Asia) to enter the country illegally. This money is pure waste. If it was instead paid as a tax to the U.S. Treasury, Nowrasteh estimates that, with 5 million immigrants each year, such a tax could raise $50 billion each year. More importantly, it would almost eliminate illegal immigration and increase legal immigration, which benefits American businesses, lowers prices, raises wages and expands the economy.
For Smith, the hands of “the man of the system” were always in constant tension with the “invisible hand” of the market, which directs people to freely create value for others through voluntary trade. The clash between these two forces inevitably results, Smith saw, in disorder, but when the legislature allows his “chess pieces” to act freely, “the game of human society will go on easily and harmoniously, and is very likely to be happy and successful.”