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Archive for the ‘Immigration’ Category

While the overall issue of immigration is highly controversial and emotional, I’ve explained before that everyone should be able to agree that it’s a very good idea to bring in people who can be expected to increase per-capita economic output.

The good news is that we have some policies designed to make this happen, including the H-1B visa for skilled workers and the EB-5 visa for job-creating investors. And if the data on median income for certain immigrant groups is any indication, we’re getting some good results.

Today, motivated in part by the fact that I’ll be participating next month in a conference in London on the topic of “economic citizenship” and therefore having to prepare for that discussion,  let’s take a closer look at the EB-5 policy and why it’s a smart approach (by the way, I’m allowed to share a few discounted registrations since I’m a speaker, so contact me if you’re interested in the London event).

To put things in context, we’ll begin by reviewing a four-author study published by the National Bureau of Economic Research that looks at the growing effort by many nations to attract highly productive and capable immigrants.

Highly skilled workers play a central and starring role in today’s knowledge economy. Talented individuals make exceptional direct contributions—including breakthrough innovations and scientific discoveries—and coordinate and guide the actions of many others, propelling the knowledge frontier and spurring economic growth. In this process, the mobility of skilled workers becomes critical to enhancing productivity. …In the 2013 World Population Policies report, 40 percent of countries reported policies to raise immigration of high-skilled workers, a large increase from 22 percent in 2005. …For recipient countries, high-skilled immigration is often linked to clusters of technology and knowledge production that are certainly important for local economies and are plausibly important at the national level. …When it comes to talented foreigners, a number of countries…implement recruiting programs. …Canada has been very active in targeting skilled migrants who are denied or frustrated by the H-1B visa system in the United States, even taking out ads on billboards in the United States to attract such migrants.

By the way, I can’t resist observing that the authors recognize that highly talented (and therefore highly compensated) people are very important for economic growth. Based on the tax policies they advocate, that’s something politicians such as Hillary Clinton have a hard time understanding. Heck, upper-income taxpayers are the ones who finance the lion’s share of big government, so you’d think leftist politicians would be slapping them on their backs rather than across their faces.

But I digress. Let’s look at what the study says about migration by those most capable of producing growth.

Observed migration flows are the result of a complex tangle of multinational firms and other employers pursuing scarce talent, governments and other gatekeepers trying to manage these flows with policies, and individuals seeking their best options given the constraints imposed upon them. …The number of migrants with a tertiary degree rose nearly 130 percent from 1990 to 2010, while low skilled (primary educated) migrants increased by only 40 percent during that time. A pattern is emerging in which these high-skilled migrants are departing from a broader range of countries and heading to a narrower range of countries—in particular, the United States, the United Kingdom, Canada, and Australia. …More than half of the high-skilled technology workers and entrepreneurs in Silicon Valley are foreign-born. …host countries may end up with high concentrations of high-skilled immigrants in particular occupations. For example, immigrants account for some 57 percent of scientists residing in Switzerland, 45 percent in Australia, and 38 percent in the United States (Franzoni et al. 2012). In the United States, 27 percent of all physicians and surgeons and over 35 percent of current medical residents were foreign born in 2010. Immigrants also accounted for over 35 percent of recent enrollments in STEM fields, with very high proportions in specific areas like Electrical Engineering (70 percent), Computer Science (63 percent) and Economics (55 percent)… The global migration of inventors and the resulting concentration in a handful of countries have been particularly well documented. …the global migration rate of inventors in 2000 stood at 8.6 percent, at least 50 percent greater in share terms than the average for high-skilled workers as a whole. Figure 4 builds on WIPO global patent filings from 2001-2010. The United States has received an enormous net surplus of inventors from abroad.

The authors then consider the policies that different nations adopt in their search for GDP-enhancing immigrants.

…we then review the “gatekeepers” for global talent flows. At the government level, we compare the points-based skilled migration regimes as historically implemented by Canada and Australia with the employment-based policies used in the United States through mechanisms like the H-1B visa program. …The exceptional rise in the number of high-skilled migrants to OECD countries is the result of several forces, including increased efforts to attract them by policymakers as they recognize the central role of human capital in economic growth, positive spillovers generated by skill agglomeration, declines in transportation and communication costs, and rising pursuit of foreign education by young people. Among the resulting effects are the doubling of the share of the tertiary-educated in the labor force and fierce competition among countries hoping to attract talent. …One can explain certain aspects of current high-skilled migration patterns using this model. For example, the United States has a very wide earnings distribution and low tax levels and progressivity, especially compared to most source countries, including many high-income European countries. As a result, we can see why the United States would attract more high-skilled migrants…relative to other high-income countries.

By the way, I can’t resist making one minor correction. While we generally have lower taxes than other developed nations, we actually have a very “progressive” tax system. But US-style progressivity is the result of very low taxes on lower- and middle-income workers (no value-added tax, for instance), not unusually steep taxes on higher-income workers.

Returning to our main topic , the authors explain that developed nations either use a points-based system or an employment-based system when seeking to facilitate more high-skilled immigration.

Here’s how the the points-based system works.

Canada and Australia are prominent examples of countries that implement points-based systems for skilled migration. These programs select individuals based upon their observable education, language skills, work experience, and existing employment arrangements. …In the Canadian example, migrants need to collect 67 points across six categories. In terms of education, for example, 15 points are awarded for one-year post-secondary diploma, trade certificate or apprenticeship, compared to 25 for a doctorate degree. With regards work experience, six or more years of applicable experience receive 15 points, compared to 9 points for just one year of experience.

And here’s information on the employment-based approach, with the US being an obvious example.

The United States is the most cited example of a country that uses an employer-driven program for highskilled immigration, with the H-1B and L1 visas as primary categories (Kerr et al. 2015a). The H-1B visa allows US companies to temporarily employ skilled foreigners in “specialty occupations,” defined to be those demanding application of specialized knowledge like engineering or accounting. …Virtually all H-1B holders have a bachelor’s degree or higher and about 70% of the visas in recent years went to STEM-related occupations. India is by far the largest source country, accounting for about two-thirds of H-1B recipients in recent years. …most real-world regimes combine different features of points-based and employment-driven systems.

But the study notes that America also has a special system for bringing in ostensible superstars. Sort of a points system for the super talented.

Superstar talent rarely competes for H-1B visas, for example, but instead gains direct access to the United States through O1 temporary visas for extraordinary ability and direct green card applications of the EB-1 level for those with even more exceptional talent. …In effect, the US operates a points system for individuals with truly exceptional talents such as Nobel Prize winners, superstar athletes and musicians.

Now let’s turn the EB-5 program, which is another way that the United States seeks to attract those capable of making big economic contributions.

In part because the natural inefficiency of government creates opportunities for corruption in implementation, the EB-5 program has become very controversial. Some lawmakers even want the entire program to lapse when its authorization expires in December.

At the risk of understatement, I hope they don’t throw the baby out with the bathwater.

The Brookings Institution notes that Senators Chuck Grassley (R-IA) and Patrick Leahy (D-VT) want to impose stricter rules and micro-manage how the investment occurs.

It also raises the minimum investment amount to $800,000 within a [targeted employment area] and $1.2 million otherwise. Most important for reaching the program’s economic development goals, however, are the bill’s new rules on defining TEAs. …The bill would revise the TEA definition to include rural areas, closed military bases, or single census tracts within metro areas with an unemployment rate at 150 percent of the national average. To further increase the effect of EB-5 financing, at least 50 percent of the job creation would have to be within the metro area, or within the county in which a rural TEA is located.

The business community doesn’t object to some stricter standards, as reported by The Hill, but wants the program to remain and wants it made permanent.

A coalition of business groups is pushing Congress to permanently renew a controversial investor visa program before it expires in September. …In a letter shared with The Hill on Thursday, those groups called on lawmakers to renew the EB-5 investor visa program with bolstered security and anti-fraud checks, adjustments to highly criticized investment incentives and streamlined visa processing. “Congress must not let this important job-creating program lapse, in large measure because of the immediate negative consequences to U.S. businesses and projects counting on EB-5 investment to create jobs for Americans,” wrote the groups to the Senate and House Judiciary committees. …The EB-5 program is responsible for more than $15 billion in investment and 100,000 jobs between 2005 and 2010, the coalition says.

Ike Brannon, writing for the Weekly Standard, worries that politicians will undermine the positive impact of the program with some back-door central planning.

That EB-5 program has succeeded at its intended purpose is not in dispute: A Brookings Institution study estimated that the program has created nearly 100,000 jobs along with over $5 billion of new investment since its inception. The current EB-5 program technically consists of two different pieces: The first is the original EB-5 visa program, which Congress enacted in 1990. Its intent was to help American business compete for foreign investment with countries like Canada and Australia, which had similar investor programs in place. …The overriding intent of the program has always been about job creation, anywhere and everywhere. Senator Paul Simon, a sponsor of the original EB-5 program, took care to emphasize that its purpose was first and foremost to attract entrepreneurs and spur job creation, noting that “neither the Senate nor the House bill established any sort of criteria about the type of business investment…As long as the employment goal is met, it is unnecessary to needlessly regulate the type of business or the character of the investment.”

But politicians love the “needlessly regulate,” so the EB-5 system has lots of red tape and Ike fears it may get even more.

Congress nonetheless attempted to spur some sort of geographic balance-cum-urban development with the creation of Target Employment Areas [TEAs], which consist of areas with high unemployment rates or rural areas outside the boundary of any city or town with a population over 20,000. In a TEA, the necessary investment need only be $500,000, so long as it creates the requisite number of jobs. …The problem with a federal top-down approach of this sort is that such a constraint could limit the efficacy of the program. …imposing a new rule that restricts how states designate Targeted Employment Areas will only make EB-5 more of a political football than it already is. Creating a welter of restrictions about where such investment can and cannot go would likely dampen the economic impact of the program.

A columnist for Forbes explains why the program should continue.

The EB-5 immigration visa may be the best immigration program the U.S. has to offer. Foreign investors…are putting up a minimum of $500,000 to renew and rebuild rundown urban areas and create jobs. It’s a legal way in for the kind of immigrant, a fortunate one, that tends to contribute to the neighborhood by bringing in money and jobs. …“EB-5 has economic benefits that doesn’t stop at the five hundred thousand dollars they need to invest to participate,” says Julian Montero, a partner in the Miami law office of Arnstein & Lehr. “It’s just the beginning of a more significant investment that will be made by these families when the come here. They’re going to private schools. They’re making good income. They’re paying taxes. And most of them start other businesses once here.” …The EB-5 has become a way for developers to attract foreign capital at low, project finance-style structured interest rates because the people giving the money are getting a prize: the right to live, work and study in the United States.

Perhaps most notably, even the International Monetary Fund recognizes the advantages of this type of program.

…economic residency programs were recently launched across a wide range of (generally much larger) European countries, including Bulgaria, France, Hungary, Ireland, the Netherlands, Portugal, and Spain. Almost half of EU member states now have a dedicated immigrant investor route. Also known as golden visa programs, these arrangements give investors residency rights…some advanced economies, such as Canada, the United Kingdom, and the United States, have had immigrant investor programs since the late 1980s or early 1990s, offering a route to citizenship in exchange for specific investment conditions… The inflows of funds to countries from these programs can be substantial, with far-reaching macroeconomic implications for nearly every sector.

The IMF article includes a helpful summary of nations that have programs to attract investors.

The bottom line is that there are many high-income and high-wealth people in the world (including the “super-entrepreneurs“) who would like to move to places that offer more stability, security, and opportunity. This creates a potential win-win situation for both the people migrating and the recipient nations.

The United States is already a big beneficiary of economic-based migration, but we could reap even greater benefits with a more sensible, streamlined, and expanded EB-5 system.

P.S. Zooming out to the broader issue of immigration and whether people want to come to the United States for the wrong reason, Professor Tyler Cowen of George Mason University has a very intriguing proposal to have open immigration with nations such as Denmark that have bigger welfare states than America.

P.P.S. Today’s column is about economic-based immigration. There’s also the issue of economic-based emigration. Sadly, the United States policy on allowing people to leave is even worse than France’s system.

P.P.P.S. If you want to enjoy some migration-related humor, we have a video about Americans emigrating to Peru and a story about American leftists escaping to Canada.

P.P.P.P.S. Remember to contact me if you’re interested in the London conference.

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As a general rule, I like immigration and I don’t like redistribution.

As such, I share the late Milton Friedman’s concern about the risks of having a welfare state combined with open borders. And based on many conversations all over the country, I think that’s a big reason why many people oppose amnesty (augmented by Republican partisans who fear, probably with some validity, that changing the political landscape of America is the real reason Senator Schumer is a big advocate of amnesty).

So how can we reap the benefits of immigration without the risk of a bigger welfare state?

In part, we should have programs designed to attract people with skills and education.

I’m a big advocate and defender, for instance, of the EB-5 program that gives a preference for foreigners who invest in America’s economy and create jobs.

And if you peruse Mark Perry’s chart, we must be doing something right. Look at all these immigrant groups that are boosting per-capita income for the United States (including people from Lebanon, home of the Princess of the Levant).

I’ve always thought far more Americans would be sympathetic to immigration if they could be convinced that people were coming to America for the right reasons – i.e., to earn money rather than mooch off taxpayers.

With that in mind, Professor Tyler Cowen of George Mason University has a Bloomberg column about Denmark that cites the great work of Nima Sanandaji about how Americans of Nordic descent have much higher incomes than the people remaining in Nordic nations. Tyler’s entire article is worth reading, but I want to focus on a quasi-open-borders proposal that he puts forth in his conclusion.

For all the anti-immigrant sentiment that is circulating at the moment, would it hurt the U.S. to have fully open borders with Denmark? It would boost American gross domestic product and probably also improve American education. History teaches that serious assimilation problems would be unlikely, especially since many Danes already speak English. Open borders wouldn’t attract Danes who want to live off welfare because the benefits are so generous at home. How’s this for a simple rule: Open borders for the residents of any democratic country with more generous transfer payments than Uncle Sam’s.

I can’t think of any reasonable objection to this idea. Everything Tyler says makes sense. People like “Lazy Robert” won’t be lining up to get plane tickets to America. Instead, we’ll get the young and aspirational Danes.

For what it’s worth, I even think he understates the case since the type of people who would migrate to America wouldn’t just boost GDP. They almost surely would do something arguably more important, which is to boost per-capita GDP.

Just think of all the productive entrepreneurs who would take the opportunity to escape over-taxed Denmark and come to the United States. Along with ambitious and skilled people from nations such as Italy, France, and Sweden (though our welfare state is very expensive, so I admit I’m just guessing at nations which would be eligible based on Tyler’s rule about “more generous transfer payments”).

By the way, Denmark apparently has learned a lesson about the risks of being a welfare magnet.

A story from Spiegel Online has the details.

Denmark’s strict immigration laws have saved the country billions in benefits, a government report has claimed. …The extremely strict laws have dramatically reduced the flow of people into Denmark in recent years, and many government figures are delighted with the outcome. “Now that we can see that it does matter who comes into the country, I have no scruples in further restricting those who one can suspect will be a burden on Denmark,” the center-right liberal integration minister, Søren Pind, told the Jyllands Postennewspaper. Pind was talking after the ministry’s report — initiated by the right-wing populist Danish People’s Party (DPP) — came to the conclusion that by tightening immigration laws, Denmark has saved €6.7 billion ($10 billion) over the last 10 years, money which otherwise would supposedly have been spent on social benefits or housing. According to the figures, migrants from non-Western countries who did manage to come to Denmark have cost the state €2.3 billion, while those from the West have actually contributed €295 million to government coffers.

Sounds like Danish lawmakers don’t want to add even more passengers to the nation’s already-overburdened “party boat.”

And who can blame them. The nation already has a crippling problem of too many people depending on government.

P.S. If you want to enjoy some immigration-related humor, we have a video about Americans migrating to Peru and a story about American leftists escaping to Canada.

P.P.S. For those interested in the issue of birthright citizenship (a.k.a. anchor babies), I’ve shared some interesting analysis from Will Wilkinson and George Will.

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Advocates of limited government favor a small public sector because more resources in the productive sector of the economy translates into faster growth, more job creation, and higher living standards.

Statists, by contrast, favor big government for two main reasons. First, many of them belong to well-connected interest groups that have their snouts in the federal trough. Second, some of them sincerely think government spending “stimulates” an economy and/or “helps” people.

I want to address the latter group of statists, most of whom are well meaning.

I’ve learned over time that such voters generally don’t pay that much attention to economic arguments.

To the extent they sometimes favor small government, it’s because they think Washington wastes money. Indeed, I suspect a majority of voters would agree with P.J. O’Rourke that “giving money and power to government is like giving whiskey and car keys to teenage boys.”

Yet many of those voters (perhaps even including some of the ones that recognize that DC is riddled with waste, fraud, and abuse) can be persuaded to support bigger government. Having engaged in thousands of conversations with such people over several decades, I think they’re motivated by a desire to be part of a society that “cares.” So, regardless of Washington’s track record of exacerbating problems rather than solving them, these folks sometimes think more government is the right approach. Like second weddings, this is a triumph of hope over experience.

Today, at the risk of jumbling my analogies, let’s try to convince such people that you don’t want a second wedding if it means you’re getting hitched to an institution that is unavoidably wasteful and incompetent.

And we have some fresh eye-popping evidence. Here are some excerpts from an exposé published by the Washington Post.

…the government has spent more than $1 billion trying to replace its antiquated approach to managing immigration with a system of digitized records, online applications and a full suite of nearly 100 electronic forms. A decade in, all that officials have to show for the effort is a single form that’s now available for online applications and a single type of fee that immigrants pay electronically. The 94 other forms can be filed only with paper.

Amazing. After 10 years and $1 billion, the net result is a total cluster-you-know-what.

…officials at the Department of Homeland Security, which includes USCIS, were aware that the project was riddled with hundreds of critical software and other defects. …Only three of the agency’s scores of immigration forms have been digitized — and two of these were taken offline after they debuted because nearly all of the software and hardware from the original system had to be junked. ..A report last year from the DHS inspector general’s office said it sometimes took up to 150 clicks for employees to navigate the system’s various complex features and open documents.

So is the incompetent contractor (IBM) getting punished? Are any of the bureaucrats in charge of the project getting fired?

Of course not. This is government! So why you waste some money, that’s merely a prelude to wasting even more money.

This project, run by U.S. Citizenship and Immigration Services, was originally supposed to cost a half-billion dollars and be finished in 2013. Instead, it’s now projected to reach up to $3.1 billion and be done nearly four years from now.

By the way, the incompetence revealed in this story this is not an argument for immigration or against immigration.

My point is simply that governments have long track records of squandering other people’s money, with this story simply being another straw on the camel’s back.

Or maybe it would be better to describe it as another bit of dead weight financed by over-burdened taxpayers.

I don’t know if this will make anyone feel better, but other governments are similarly incompetent and foolish.

Here’s an example of government blundering from overseas. As reported by the UK-based Guardian, the European Commission just admitted that it has successfully process 0.00015 percent of refugees.

EU members states agreed in September to relocate 160,000 people in “clear need of international protection” through a scheme set up to relocate Syrian, Eritrean, and Iraqi refugees from the most affected EU states – such as Italy and Greece – to other EU member states. So far 116 people have been relocated, and only 1,418 places have been made available by 14 member states, according to data released on Tuesday by the European Commission.

Wow. It’s been a while since I was a student, but I remember that you need 70.0 percent for a C and 60.0 percent to avoid failing.

With that in mind, I wonder what sort of grade you get for 0.00015 percent? Is there such as thing as F-, though I guess Z- would be more appropriate.

Here’s a graphic from the article.

By the way, the EU’s incompetence at processing refugees is one issue. Another issue is whether European nations should be granting refugee status to hundreds of thousands (and eventually millions) of people from cultures that don’t assimilate very well.

And I imagine that refugee status in Europe means access to welfare, so the system presumably creates the same perverse incentives we find on the American refugee program.

But for today, I’m simply focused on the fact that government bureaucracies are spectacularly incompetent.

Yet there are still many people who want to give more power and money to politicians.

Let’s close with a serious point.

Unless you’re an anarcho-capitalist, there are some things you want government to do, and you want those things to be done well.

So how, given the natural incompetence of the public sector, can you get good (or at least acceptable) results?

The only feasible answer is to have small government, as Mark Steyn has explained with his usual dose of sarcasm. A bloated public sector guarantees slipshod performance everywhere. But if the federal government concentrates on just a few tasks, oversight and monitoring will be easier and it will be easier to weed out incompetence.

And this isn’t just theory. The European Central Bank has produced a measure of public sector efficiency and their research shows that smaller governments are much more competent at producing desired results.

P.S. Bizarrely, some folks acknowledge government incompetence but think the right solution is more power for government.

P.P.S. Some of this is common sense. What government do you think is more competent and effective, France with its big government or Switzerland with its medium-sized government? Where do you think government is more effective, Singapore with its small government or the United States with its medium-sized government?

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In most cases, I can understand why immigration is a controversial issue.

Take amnesty, for instance. Opponents make reasonable points about the downside of rewarding folks who cut in line while supporters make reasonable points about deportation being harsh and impractical.

There’s also a fight relating to welfare, with critics (and not just in America) saying that immigrants are more likely to be poor and a burden on taxpayers and advocates pointing out that it makes more sense to wall off the welfare state rather than walling off the country.

The “anchor baby” issue is another emotional topic, with people on both sides of the issue making both legal and practical arguments about whether children born in the United States should automatically become citizens.

And then there’s the biggest question of all, which is deciding on the “right” number of immigrants, with answers ranging from none to completely open borders.

I get why these topics don’t have answers that are satisfactory to all sides.

But there is one immigration controversy that leaves me most puzzled. Why are some people opposed to the “EB-5” program designed to attract rich investors to America?

As I noted when defending Governor Scott Walker’s support for the program, this should be a slam-dunk issue. The program attracts people who will create jobs and won’t be a burden on taxpayers. Isn’t that a win-win situation?

Apparently not. Check out these excerpts from a hostile column by Kenric Ward in Roll Call.

Set to expire by year end, the EB-5 immigration program is up for renewal on Capitol Hill. Can Americans expect the biggest supporters of controversial investor visas to bring them under control? There are ample reasons to scrap the pay-for-play system that has been exposed by numerous government investigations. …Ostensibly, the EB-5 program uses foreign capital to create U.S. jobs. In fact, no one knows how many jobs. No one knows exactly where the money comes from, or where it winds up. Such niggling details don’t matter to lawmakers. They glibly call EB-5 a job-creating tool. That’s their story, and they’re sticking to it. …a visas-for-cash program was ill-conceived and ultimately unenforceable. The American model that uses hundreds of freewheeling middlemen as “job creators” is even more ripe for cronyism and outright fraud.

By the way, Mr. Ward makes a very valid point about cronyism. I’ve also criticized this aspect of the program, which almost seems designed to reward politicians and other insiders.

But I don’t want to throw the baby out with the bathwater.

Other people, however, think the baby is the problem.

This Washington Post story basically says the program is unfair because rich people get to come to America.

…unions and immigrant advocates are focusing attention this week on a federal visa program that they deride as “Immigration Reform for the 1%.” The target of a series of press conferences in a half-dozen cities is the EB-5 immigrant investor program, which allows foreigners to get green cards by investing at least $500,000 in American businesses, as long as the money creates at least 10 jobs. Created by Congress in 1990 as a way to stimulate the U.S. economy, the program is supported by business groups and has increasingly been used in recent years by real estate developers and other firms seeking foreign investors. …“We have this program that gives a pretty fast track to immigrants from the 1 percent and gives incredible advantages to developers,” said Isaac Ontiveros, a research analyst for UNITE HERE, a union that represents nearly 300,000 hotel, casino and food service workers. He estimated that one-third of businesses funded by EB-5 are hotels or casinos.

Though I wonder whether Mr Ontiveros is simply looking to hold up reauthorization of the program in hopes of adding amnesty to the legislation.

Ontiveros added: “How does this help the 11 million people in this country who are stuck in immigration reform limbo?” …some critics saying the program doesn’t do enough to benefit targeted poor areas, especially rural ones… Ontiveros said…“We want those in Congress and at the local level to be aware of the inequities of this program,” he said.

In any event, I actually agree with Ontiveros that the program is inequitable. But that’s precisely the point. Lawmakers in America are picking and choosing who to let in the country and they’re deciding that it’s better to have successful investors.

Now let’s look at the issue from the other side. Why do upper-income people from overseas want to become Americans?

Well, an article in Quartz explains that they often come from nations that have unpalatable policies and that they want greater long-run stability.

The world’s wealthy and super-rich are increasingly on the hunt for second passports as they seek to protect their wealth, optimize their children’s education and move to countries with…greater economic and political stability. A report from New World Wealth reveals the top eight countries that have become popular second citizenship destinations for 264 000 of the world’s millionaires from 2000-2014. …Most countries with large outflows of millionaires have stringent tax regimes, prompting the super-rich to move to countries that are more favourable for their wealth.

This chart shows the countries with the greatest number of departing millionaires.

I imagine that folks escape France and Italy because of excessive taxation, while they leave the other countries because of a desire to redomicile in places where the quality of life is better and rule of law is stronger.

By the way, it’s a good sign when rich people want to come to the United States and a worrisome indicator when they don’t. Indeed, America would attract more really rich people if we didn’t have an onerous worldwide tax system.

P.S. In my humble opinion, the most troubling aspect of our immigration system is the way the refugee program is funding terrorists with welfare checks.

P.P.S. To close on a happier note, here some immigration-themed humor, starting with this amusing video about Americans sneaking into Peru and ending with this satirical column about Americans sneaking into Canada.

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I can understand why immigration reform is so contentious since it touches on all sorts of hot-button issues, such as jobs, politics, national identity, and the welfare state.

But I don’t understand why there’s a controversy just because Governor Walker of Wisconsin supports a specific part of the immigration system that provides easier access for foreigners who are willing to invest money and create jobs in America.

Seems like a win-win situation, but check out these excerpts from a report in the Milwaukee Journal Sentinel.

We’ll start with a description of the program.

Congress created the EB-5 program in 1990… Under the Citizenship and Immigration Services’ Immigrant Investor Program, foreigners can obtain these visas by investing $500,000 in high unemployment areas — or $1 million elsewhere — in projects generating or saving 10 jobs over two years. According to The New York Times, the federal government puts the green card applications from these foreign investors on the fast track. In general, it takes about two years to obtain legal residency through the program; other visa programs take much longer.

Not let’s get to the controversy over Governor Walker’s support.

…there’s one federal visa program you won’t hear him attack. It’s the controversial and deeply troubled immigrant investor program. The program — known as EB-5 — puts wealthy foreigners on the path to U.S. citizenship if they invest at least $500,000 in an American commercial project that will create or preserve 10 jobs. Critics have called the abuse-riddled program a “scam” that essentially sells green cards to the affluent and their families, with more than 80% of those in the program coming from China. …David North, a fellow with the conservative Center for Immigration Studies, said…the program is flawed in its premise. “I think it’s immoral, fattening and otherwise unattractive to sell visas, which is what we’re doing now,” North said.

By thew way, there are reasons to be unhappy about the EB-5 program, at least in the way it operates.

I’ve already shared examples of how political insiders are manipulating the program for cronyist purposes.

But today let’s look at the concept of whether it’s good to have an “economic citizenship” program.

And we’ll start the very relevant point that any immigration system is going to be arbitrary.

  • A lottery system is arbitrary because you get to come to America because of luck.
  • A family-reunification system is arbitrary because you get to come to America because of your genes.
  • A system based on refugee status is arbitrary because you get to come to America based on geopolitical circumstances.
  • Even an “open borders” system is arbitrary because you don’t get to come to America if you’re a terrorist, criminal, have communicable diseases, etc.

So if a system is going to be based on arbitrary factors, what’s wrong with deciding that one of the criteria is economic benefit to the United States?

Indeed, maybe I’m too myopic because of my background and training, but it seems like economic benefit should be a factor that everyone can support. After all, these won’t be people seeking handouts from the welfare system.

Consider these passages from a recent New York Times story about all the EB-5 money that’s boosting the Empire State’s economy.

Through a federal visa program known as EB-5, foreigners, more than 80 percent of them from China, are investing billions of dollars in hotels, condominiums, office towers and public/private works in the hope it will result in green cards. Twelve-hundred foreigners have poured $600 million into projects at Hudson Yards; 1,154 have invested $577 million in Pacific Park Brooklyn, the development formerly known as Atlantic Yards; and 500 have put $250 million into the Four Seasons hotel and condominium in the financial district. The list of projects involving EB-5 investments also includes the International Gem Tower on West 47th Street and the New York Wheel on Staten Island. …In the last four years, the program’s popularity has surged. In fiscal year 2010, 1,885 visas were issued. But by fiscal year 2013 that figure jumped 354 percent to 8,564, according to government data. Last year, the entire annual allotment of 10,000 visas had been claimed by August — before the end of the fiscal year in October. This year the quota was reached even earlier, on May 1.

As an aside, this program isn’t attractive to those with lots of money because of America’s punitive tax system.

“This program is not for the very rich in China, because the superwealthy do not want to pay U.S. taxes.” Instead, he said, the wealthiest Chinese prefer to have their legal residences in low tax jurisdictions like Hong Kong or Singapore, and then take advantage of 10-year tourist visas to the United States.

While I’m tempted to now explain why we should fix our bad tax system, let’s stick to the topic of immigration and delve further into the issue of whether it’s good to attract economically successful foreigners to America.

Some scholars say the answer is yes, but they think the EB-5 program is inefficient.

Here’s some of what Professor Eric Posner of the University of Chicago Law School wrote for Slate.

The program is a mess. …it’s almost impossible to figure out whether a specific investment generates jobs rather than reshuffles them from one place to another. There have also been examples of outright fraud and political cronyism. Part of the problem is a lack of documentation but the real problem is that the program is misconceived. …the price we charge for citizenship is extraordinarily low. …A shrewd investor will find an investment that pays a couple percentage points below the market rate. If he invests $500,000 in order to obtain, say, a 6 percent return rather than an 8 percent return, then the true price he pays for U.S. citizenship is $10,000 in foregone return.

So what’s the alternative?

Gary Becker, the late University of Chicago economist and Nobel laureate, once proposed that the United States should sell citizenship to foreigners for a flat fee. The EB-5 program approximates Becker’s proposal, albeit in the most inefficient way possible. Becker argued that citizenship is a scarce good just like tomatoes and hula hoops, and is thus subject to the law of supply and demand. America owns visas and should sell them to willing buyers at the market-clearing price. We would attract immigrants who are skilled enough to earn wages that would cover the fee, and we would gain again from the tax on their wages once they began work in this country. These types of immigrants—the ones who could afford the fee—would be least likely to burden the public fisc by needing welfare payments.

The Becker plan, which Posner basically supports, certainly would be simpler than the EB-5 program.

And it presumably eliminates the instances of corrupt cronyism that taint that otherwise good system.

Moreover, many of the nations with economic citizenship programs use this approach.

But here’s the downside. If you sell citizenship directly, the money goes to the government rather than to the productive sector of the economy.

That might be acceptable if it meant that the politicians reduced or eliminated some tax. But I fear the real-world impact would be to simply give the crowd in Washington more money to waste.

So perhaps the real challenge is to figure out some smarter way of operating the EB-5 program so we get even more private investment and job creation while also reducing opportunities for cronyist intervention.

P.S. If you want to enjoy some immigration-themed humor, here’s some involving Peru and Canada.

P.P.S. While I don’t like government getting more money, that shouldn’t be the only factor when grading a policy proposal. I fretted, for instance, that pot legalization in Colorado would be a mixed blessing because it would generate more tax revenue. But thanks to Colorado’s Taxpayer Bill of Rights, the politicians haven’t been able to spend all the new money, so it’s unambiguously a win-win situation.

P.P.P.S. The Princess of the Levant is in America because of the immigration lottery, so I certainly won’t be complaining too much about arbitrary systems. [correction: The PoTL has informed me that her U.S. residency is the result of her grandfather’s application and not the lottery]

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As an economist, my primary objection to excessive government is – or at least should be – based on foregone growth. After all, government spending (whether it is financed by taxes or borrowing) diverts resources from the productive sector of society and results in the misallocation of labor and capital.

Based on my blood pressure, though, I get even more upset about the perverse unfairness of Washington. It galls me that well-connected insiders obtain undeserved wealth by using the coercive power of government.

And I get especially agitated when I think about ordinary Americans, most of modest means, who have less income and lower living standards because of DC’s corrupt profligacy.

So when I write about shutting down the Export-Import Bank, closing the Department of Housing and Urban Development, and reforming the tax code, I make the standard economic arguments for smaller government. But I also explain that reform is a way of dealing with political sleaze.

Heck, insider corruption is so pervasive that it even causes problems in those rare instances when government is doing sensible.

Let’s look at the example of the EB-5 program that was set up to attract wealthy foreigners to America if they create jobs.

This should be a feel-good story. After all, everyone presumably agrees that these are best type of immigrants since there’s no danger that they’ll wind up on the welfare rolls.

In theory, the program is very simple. As explained by Wikipedia, “individuals must invest $1,000,000…, creating or preserving at least 10 jobs for U.S. workers.”

In reality, though, the program is a bureaucratic mess because…well, simply because that’s the way government operates.

And that means plenty of opportunities for corrupt insiders to work the system.

Here are some of the unseemly details of one example. As reported by the Washington Post, it involves an Obama appointee, the Governor of Virginia, and the brother of Hillary Clinton.

The now-No. 2 official at the Department of Homeland Security intervened on behalf of politically connected favor seekers — including Democrat Terry McAuliffe not long before he was elected Virginia governor, a new report from the department’s inspector general has found. The intervention, on behalf of McAuliffe’s GreenTech Automotive company, “was unprecedented,” according to the report… The long-anticipated report reviewed Mayorkas’s management of the EB-5 program, which allows foreign nationals who create jobs in the United States to obtain green cards. The report concluded that Mayorkas’ actions “created an appearance of favoritism and special access.’’ …McAuliffe’s company was working Gulf Coast Funds Management, a firm that specializes in obtaining EB-5 visas for investors. Gulf Coast was led by Anthony Rodham, brother of then-Secretary of State Hillary Rodham Clinton. …In addition to the case involving McAuliffe’s car company, the inspector general focused on actions Mayorkas took on behalf of a film project in Los Angeles and construction of a casino in Las Vegas, the latter supported by Nevada Democrat Harry Reid, who was Senate majority leader at the time.

Speaking of Senator Reid, the Washington Free Beacon exposes his sordid – and extended – efforts to use the power of his office to get special treatment for donors…and to line the  pockets of his son.

The Senate’s top Democrat was more deeply involved than previously known in an effort to secure U.S. visas for Chinese investors in a Las Vegas casino despite the concerns of career federal officials, according to an inspector general report released on Tuesday. …Executives at the casino’s parent company, a client of Reid’s son Rory, donated thousands of dollars to Reid’s campaign after he helped speed consideration of its applications for visas for its Chinese investors. That expedited consideration came despite warnings from career USCIS officials that applicants had forged paperwork, tried to conceal the sources of their investment, and, in one case, had ties to a child pornography business. …new details in the inspector general’s report reveal that his involvement was deeper and more prolonged. Reid requested and received regular updates from then-USCIS director Alejandro Mayorkas on the status of SLS’ EB-5 applications, agency employees told the IG. The IG report criticized Mayorkas for creating an “appearance of favoritism” in the EB-5 application process. …the senator also had connections to Stockbridge/SBE Holdings, the company behind the SLS project. His son Rory, then an attorney at Lionel Sawyer & Collins, a Nevada law firm, represented SBE Entertainment, one of its parent companies. …USCIS employees interviewed for the IG report described the process as unfair and overly political.

By the way, notice how both examples feature a relative of a powerful politician. Why is that? Because if you’re related to a DC bigwig, donors and special interest groups figure you have inside access to the favor factory in Washington.

A very odious form of nepotism, I think you’ll agree.

Ugh, I feel like I need to shower after writing about this topic.

But now let’s step back and consider the big picture. In most cases, eliminating an agency or shutting down a program is the simple way to deal with DC corruption.

What’s the right approach, though, when government is actually doing something that’s theoretically useful.

Remember, the underlying theory of the EB-5 program is very admirable. Indeed, many nations have similar “economic citizenship” programs because it makes sense to attract successful investors to your country.

Big nations such as the United Kingdom, Australia, and Spain have policies similar to America’s EB-5 program, as do little countries such as Latvia, St. Kitts and Nevis, Cyprus, Dominica, Malta, and Antigua and Barbuda.

So why is America’s system a mess? In part, the answer is that it’s not a simple system. Unlike other nations, where a simple cash payment or property purchase qualifies an investor for residency, the U.S. system requires the creation of 10 jobs. As you can imagine, it’s not necessarily a simple matter to measure job creation, particularly if an investor is putting money into a business that’s already in operation.

And this means the bureaucrats who oversee the program have a reason to drag their feet. Which means an opportunity for well-connected insiders to manipulate the system to the advantage of their friends, cronies, donors, and clients.

Moreover, all nations require some form of background check to weed out criminals. That’s a good thing, of course, but it also gives bureaucrats another excuse to avoid quick approvals. And this creates an opportunity for lobbyists and other members of the political class to use their political pull to get their clients quick and favorable treatment.

All of which means the rule of law is eroded and replaced by discretionary and arbitrary enforcement.

By the way, I spoke at an economic citizenship conference earlier this month in Dubai. My role was to warn that greedy governments would try to hinder the mobility of investors and entrepreneurs, particularly as the welfare state gets closer to collapse.

But it was also very interesting to hear reports from various nations about the operation of their programs. Most of them have shortcomings, to be sure, but it does appear that politicians in America have made our system one of the least effective.

For further background on the seemingly unbreakable link between big government and corruption, here’s a video I narrated for the Center for Freedom and Prosperity.

P.S. Government corruption is also a problem at the state level.

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Sweden is an odd country, at least from the perspective of public policy.

On the positive side, it has private Social Security accounts. It has an admirable school choice system. And it was a good role model of spending restraint back in the 1990s.

But on the negative side, Sweden has one of the world’s biggest welfare states. Even after the spending restraint of the 1990s, the public sector consumes about 50 percent of economic output. And that necessitates a punitive tax code.

There’s also a truly perverse fixation on equality. And you won’t be surprised to learn that the government-run healthcare system produces some unpleasant outcomes.

Today, let’s build on our understanding of Sweden by looking at how the country’s welfare state interacts with the immigration system.

Writing for CapX, Nima Sanandaji discusses these issues in his adopted country of Sweden.

Sweden has had an unusually open policy towards refugee and family immigrants. The Swedish Migration Agency estimates that around 105,000 individuals will apply for asylum only this year, corresponding to over one percent of Sweden’s entire population.

This openness is admirable, but is it successful? Are immigrants assimilating and contributing to Sweden’s economy?

Unfortunately, the answer in many cases is no.

…the open attitude towards granting immigrants asylum is not matched by good opportunities on the labor market. An in-depth study by the daily paper Dagens Nyheter shows that many migrants struggle to find decent work even ten years after entering the country. …The median income for the refugees in the group was found to be as low as £880 a month. The family immigrants of refugees earned even less. Ten years after arriving in the country, their median income was merely £360 a month. These very low figures suggest that a large segment of the group is still relying on welfare payments. Dagens Nyheter can show that at least four out of ten refugees ten years after arrival are supported by welfare. The paper acknowledges that this is likely an underestimation.

So what’s the problem? Why are immigrants failing to prosper?

Nima suggests that government policies are the problem, creating perverse incentives for long-term dependency.

To be more specific, the country’s extravagant welfare state acts as flypaper, preventing people from climbing in the ladder of opportunity.

The combination of generous benefits, high taxes and rigid labour regulations reduce the incentives and possibilities to find work. Entrapment in welfare dependency is therefore extensive, in particular amongst immigrants. Studies have previously shown that even highly educated groups of foreign descent struggle to become self-dependent in countries such as Norway and Sweden. …The high-spending model is simply not fit to cope with the challenges of integration.

The part about “highly educated groups” is particularly important since it shows that the welfare trap doesn’t just affect low-skilled immigrants (particularly when high tax rates make productive activity relatively unattractive).

So what’s the moral of the story? Well, the one obvious lesson is that a welfare state is harmful to human progress. It hurts taxpayers, of course, but it also has a harmful impact on recipients.

And when the recipients are immigrants, redistribution is especially perverse since it makes it far less likely that newcomers will be net contributors to a nation.

And that then causes native populations to be less sympathetic to immigration, which in unfortunate since new blood – in the absence of bad government policy – can help boost national prosperity.

Though let’s at least give Sweden credit. I’m not aware that its welfare programs are subsidizing terrorism, which can’t be said for the United Kingdom, Australia, France, or the United States.

P.S. Here’s my favorite factoid about Sweden.

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