Mar 12, 2018

Noah Smith on Immigration and Regional Economic Development

Declining illegal immigration reflects a new trend unfolding at the US border.
David Beckworth Senior Research Fellow , Noah Smith

Hosted by David Beckworth of the Mercatus Center, Macro Musings is a new podcast which pulls back the curtain on the important macroeconomic issues of the past, present, and future.

Noah Smith is a Bloomberg View columnist, a blogger at Noah Opinion, and a former professor of finance at Stony Brook University. Noah joins the Macro Musings podcast to discuss recent trends in immigration and economic development and integration in the United States.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to macromusings@mercatus.gmu.edu

David Beckworth: Noah, welcome to the show.

Noah Smith: Hey, David. Thanks for having me on.

Beckworth: I'm glad to have you on. You are a very active participant in the blogosphere and Twitter. You have lots of things to say on Bloomberg View so it's a real treat to have you on the show. I want to begin as I do with most of my guests and ask you how you got into economics and then into the policy space that you're in right now, writing.

Smith: Right. Well, I didn't major in Econ in undergrad, I did physics. But then I wanted a change in life and so I got really into reading economic blogs, actually, Brad DeLong's blog was my favorite one back in the day. This is in 2005 or something like that. And so then I thought I'd really like to be one of those bloggers and maybe if I went and became an economist, I could eventually write my own blog and people would listen to what I said.

Smith: So I went to economics grad school, actually, with this in mind at the beginning but ironically, I completely forgot about that idea and forgot about that dream for my entire years in grad school because when you're in grad school you're just thinking about the grad school stuff. And I just completely put that aside and forgot about it.

Smith: And then I was very, very depressed with sort of macro economics. I didn't really want to do macro economics. I was in the middle of grad school. And one of my advisors, I think it was Bob Barsky said, "Instead of just quitting grad school, why don't you just do your dissertation on something else like behavioral finance?" which I ended up doing, "And then why don't you just start an angry blog and complain?"

Beckworth: Nice.

Noah’s Blog

Smith: So I did that and I thought absolutely no one would read the blog, and then somehow it got picked up first by Mark Toma and then by I belong, and then by Paul Krugman and then started just quoting my blog all the time. And I have no idea why that happened or why they thought that this random sort of not very unusual, angry grad student was worth quoting constantly in the National Press, but that did happen. And then pretty soon everyone in the economics profession knew me. Some knew me in a positive way and some not so positive, but everyone... I would come into the economics building and everyone would want to talk to me about a blog post I had written the other day and it was kind of creeping me out.

Smith: But then I just went a pretty normal route. I did some behavioral finance stuff, my dissertation and then I applied to academic jobs because I want to give research a try, give being a professor a try. And I ended up landing at Stony Brook. And I love the people at Stony Brook and they were great and I liked the program there, and some of the research I was doing was interesting but I just wasn't that into being a professor. Also, I really didn't like living in Long Island and I'm a person with strong location preferences and that's really not a good fit for academia. But also, I kept having the urge to be more of a generalist and to write about all the kinds of things everyone was doing with their research instead of boring into one hyper specialty.

Smith: And so I kept blogging and then I wrote a few pieces for the Atlantic and for Quartz and some other people. And then someone from Bloomberg View came to me and said, "How about we hire you and you quit being a professor and you come work for us as a pundit instead?" And I said, "Well, let's give it a little trial period. Let's do a year where I just write part-time for you and especially so I can finish up helping some of the people I was advising.

Smith: And so we took one more year and then after that, I left Stony Brook and just went to work for Bloomberg View. And it's been pretty fun and I feel like it was a shortcut, and maybe it's illegitimate. Maybe you should put in your decade of research and get really known in one particular field before you become a pundit. But then again, you look at the other people who are doing this kind of thing and a lot of them are super generalist. You see Tyler Cowen is obviously a huge generalist. He writes very little about economics of art and stuff that he did research on. Paul Krugman doesn't... He thumped on the macro stuff for a long time and occasionally writes a post about trade, but usually it's sort of policy now, so it's Democratic versus Republican policies.

Smith: And so you're a little different because you're very, very focused on your area of expertise in blogging. But I would say that a lot of the people sort of bring economics research and ideas to the masses are generalists and I just wanted to be one of them, and then now I am.

Beckworth: You've had a very interesting journey because unlike many journalists who go to school to be journalists and they have to learn econ, you learned econ first and then became a journalist / pundit. And so I think what's neat about your work is that you can take on some of the heavy paper, some of the heavy studies from the perspective of someone who really understands economics and not having to learn it on the fly. So you talk about maybe you took a shortcut but I would argue you brought something to the table that maybe some of the pundits don't have, and that's the formal training and understanding. But some of your discussions, for example, of macro economics, DSGE models and so forth require some technical know-how. I thought that was interesting.

Beckworth: Going back to grad school, I wanted to ask you this question: If you're a grad student, should you be blogging? You did this but didn't you get some pushback from some of your advisors against it?

Smith: No, I didn't get any pushback from my advisors at all.

Beckworth: Oh really? Okay.

Smith: Really. Miles Kimball, my main advisor, even started his own blog and was inspired by my blogging to do similar things and wrote for Quartz. We're now even thinking of writing a popular book together. So it was the other way; I infected them and they didn't mind at all. There were a couple other professors in the department who took a dim view of it but they-

Beckworth: So there were some who took a dim view. I guess that's the question: If there's a grad student out there right now who's got an urge to blog but he's also working through his field exams. Maybe she has a dissertation to work on. What would you recommend they do?

Smith: I have two recommendations. The first recommendation is yes, absolutely start a blog. The best example here is Matt Rognlie who is now a professor at Northwestern and a really good macro economist, and a better macro economist than I would've been even had I stayed in the field. He's really good, and he had a blog and had very, very productive arguments about a lot of macro stuff that ended up informing his research. And he's a great example.

Smith: My second piece of advise is do not do the kind of blog I did. Do not get up there and say, "Ed Prescott is a nut." Do not get up there and say, "Half the papers in the AER are unscientific and could just be tossed."

Beckworth: Oh really? Don't stir the hornet's nest, huh?

Smith: Right, don't stir the hornet's nest. Just write about research, interesting stuff from a technical point of view. Use it to hone your writing and your communication skills and to meet other people in the field, and discuss things like you would discuss in the hallway of the economics building, or in the macro classroom after class, or in the weekly paper reading group or something. Don't get involved in the blog wars and in partisan politics. Don't spend your time smacking down think-tank people. So yes, blog but don't blog like I blogged.

Smith: Some other great examples are Owen Zidar was a great blogger and also is a really great econ professor. Always kept it very professional. Carola Binder, similar thing. Actually, she helped take over my blog for the first year that I was at Stony Brook when I handed it off to some other people. And they did a great job. Yeah, so there's a lot of successful examples, but just keep it professional and don't do what I did.

Beckworth: So the wise season Noah Smith is talking here to the younger Noah Smith. Of course it worked out for you. And the other-

Smith: No, I'm just special, I'm just special.

Beckworth: You're unique.

Smith: Yeah, I wouldn't give your average econ grad student the advice to follow my life path. It's just a weird life path.

Beckworth: Yeah. The other thing about blogging too, though it's kind of died down. Part of the reason I think blogging picked up was because of the crisis and the weak recovery that followed, and there's a new set of issues. I know there's still blogging that goes on but it seems like a lot of the blogging, many of the bloggers have transitioned into other roles. You're a good example of this. Ryan Avent, we've had him on the show before, he writes for the Economist magazine. Cardiff Garcia, he's been on the show too. He was a blogger at Financial Times. He's now at Planet Money with NPR.

Beckworth: I look around, I see a lot of these bloggers have kind of merged into other areas. And maybe it's because the past or worst part of the great recession, maybe the nature of the blogging industry has changed. Any thoughts on that?

Smith: Absolutely. First of all, the mainstream media came along and hired all the bloggers. And that process happened first in the foreign policy sphere, and you notice this big wave of independent bloggers from the 2000's getting hired as pundits. In fact, not just foreign policy but also policy want kind of stuff we saw as a recline, Matt Yglesias, people like that getting hired. And we were just late to that party and then they hired us, too.

Smith: And the second thing is Twitter because now you'll notice I don't blog at my normal blog much anymore and it's not just because of Bloomberg but it's also because of Twitter with its greater reach and faster turnaround times. The argument is there and if you write a blog post, people are just going to note it and not argue with it on their own blogs anymore like they used to. The actual discussion and argument happens on Twitter a lot more now.

Beckworth: That's a great observation. If I have something to say, there's a burn in my heart, I will go to Twitter to a thread and I know the feedback and the impact will be greater there than if I did it on my blog.

Smith: Right.

Beckworth: Okay.

Smith: Technological, too.

What Does the Flow of Immigration Currently Look Like?

Beckworth: A technological innovation that has displaced blogging. But nonetheless, it was a proven ground for many of us. I count myself as one of those individuals. So now we move along and you've been doing a lot of interesting work at Bloomberg View, and the one that I want to focus on this show is immigration. Later we'll get into a complementary discussion of those folks who at least perceive they're affected by immigration, but for now let's focus on immigration in the United States and let's work our way through some of the facts and the understanding that we know about it. Of course, this conversation's become more topical because of President Trump, because of the general growth in populism around the world but here in the US as well. And there seems to be a lot of confusion about the facts.

Beckworth: Let's work our way through that. You've had several posts on this. Let's begin with one of the first facts that you bring up many times and this is the actual flow of immigration into the US, so speak to that.

Smith: Well, when you talk about the flow of immigration to the US, you're talking about two different parts; the legal flow and the illegal flow.

Beckworth: Okay.

Smith: For many years, the illegal flow was what all the Republicans and Conservatives were worried about stopping. And all of the tension was paid to illegal immigration. What people are now just starting to realize but should've realized years ago is that illegal immigration has effectively halted. Now I can't say it's halted forever because it might pick up again at some point, but there's good reasons to think it won't.

Smith: It halted in 2007, actually, before the great recession. It halted when housing construction really flattened out and the housing bubble started to dissipate because you had a lot of... People came illegally to work day labor to work construction stuff, going back and really the opportunities dried up before the financial crisis actually started.

Smith: And then for the first years of the great recession it was possible to say, "Illegal immigration has halted because the economy's bad." But then, as the economy began to recover in 2012, 2013 and later, you really didn't see any pickup in illegal immigration at all. In fact, you kept seeing modest declines. And there's a couple reasons for that: Number one, Mexico is where we got the bulk of our illegal immigrants because we have this giant land border with them and they can just come across. Although, they also come by sea but it's just proximity, ease of getting in here. And Mexican fertility rates in the '70s and '80s really just fell off a cliff and are now right around a replacement level, whereas before they were having six kids. I don't remember.

Smith: As that generation came of age, you needed... If you have five kids or something, you can send a couple of them off to America to go work and send money back. But if you have only two kids, you need them to stay and take care of the old people, you need them to take care of the family business, all those things. You need to keep your kids there. And jobs open up, too.

Smith: The second thing is that the Mexican economy has crossed the sort of magic line of $15,000 a year per person, which is kind of the line where you stop seeing big immigrant outflows from a country. We saw this with Puerto Rico when it reached that level. We had had this torrent and all the Puerto Ricans moved to New York and that was a famous thing, West Side Story and all that. And then the Puerto Ricans just sort of stopped coming when they reached that level of income. No one knows exactly why, but that's sort of a comfortable material standard of living. And also, it tends to coincide with lower fertility as well.

Smith: Mexico passed that point sometime within the last decade and has just kept going and is now richer even than that. So for those two reasons, the Mexican immigration boom is over. In fact, even legal Mexican immigration has been negative since the great recession. More Mexicans have left than have come into the country, although lots of the Mexican people who were here have been getting actualized. So if you look at permanent residency, you still see a good chunk from Mexico. The number of people actually coming into the country on net has been down, has been negative since the great recession began, since before. And some of that is illegal and some of that's legal immigration, too, slacking off from Mexico.

Smith: So I don't think that's going to happen again because other than a few Central American countries that can send us illegal immigrants through Mexico, like Guatemala, Honduras and El Salvador are the three, it's really just very hard for us to get a lot of illegal immigrants. Now our illegal immigration is almost all just people who come and overstay their Visas, and those people are probably going to leave, they're going to go back. They're not moving here to stay, they just overstayed their Visa and stayed in the United States too long.

Smith: Really, this mass illegal immigration that we got in the '80s, '90s and 2000s is a thing of the past and people need to understand that. As a result, most of those illegal immigrants were very low educated. Most of them didn't have a high school degree, just laborers. But because of the end of illegal immigration and because of the trailing off of immigration from especially Mexico and other poor countries in Central America, we've had a dramatic rise in the percentage of legal immigrants, and of course of overall immigrants, who are educated. Most legal immigrants and most immigrants overall now have a college degree, and that's a really interesting development.

Smith: So we've seen the increasing education level, and that was without any big change in our immigration system. Obama did deport a whole lot of people, but there was really not much of any change in official policy, and yet just due to natural events we're now getting a bunch of educated people in before getting a lot of poor laborers. Those are some really big changes that people need to understand when they talk about the immigration issue.

Beckworth: That's very interesting. We've had on the show, and I know you've talked about this as well, the China shock. And based on what you've said we've had a Mexico shock, but it's a one time, big shock just like China entering the global economy was a one time shot, this Mexico baby boom and the catch up in income now means this Mexico shock is declining. And we'll talk about it later, but that may be a bad development for us economically but it's happening nonetheless.

Beckworth: And I want to be clear on one thing; we talked about the flows here and you've mentioned the nets. So just to be clear, what you're saying is there are people who still come into the country illegal but compared to the number who are going out, it's less or falling. Is that right?

Smith: That's correct. Or at least in most years there.

Beckworth: In most years. Yeah, okay.

Smith: There have been a couple years where it's a little bit up and a few more years when it's been mostly down and no years where it's been hugely up.

Beckworth: When some TV station focuses on a picture of someone crossing the border, they're completely taking that out of context, right?

Smith: Sure.

Beckworth: They're looking at maybe one person, one incidence of maybe some crime committed by an illegal immigrant. They're not getting the bigger picture which is those numbers are actually flat and were falling in the past.

Beckworth: It's an important point and one that often doesn't get communicated very well. So we have flat flows in terms of illegal migration. Overall, immigrants are increasingly educated. I was looking at the National Academy of Science, they did this study. I think you've cited from it before. Came out last year. And they had this one table in it that showed in the 1970s 51% of the immigrants coming in had less than a high school education level and today it's down to about a quarter, so 25% which is a pretty dramatic fall. Which means, as you mentioned earlier, there's a lot of educated immigrants coming into the United States, which is good for us. We'll come back to that in a minute.

Nativism in the United States

Beckworth: So working our way through the facts and the trends here. Another development that I want to touch on is the feeling towards immigrants. So what's the sentiment? How are Americans viewing immigrants? What are the latest trends in that?

Smith: Well, there have been several polls. There's Gallop, which consistently does a poll about what should happen to levels of immigration. There's Pew, which keeps doing these polls about just opinions of immigrants in general. NBC has done some polls, Harvard did a poll. And there was just a really good polls from I believe Morning Consult that I just tweeted about the other day. So there've been quite a number of polls on this issue. And most of the polls show very positive sentiment towards immigrants and a desire not to change the status quo with regards to legal immigration.

Smith: Republicans in the Senate and Trump are all trying very hard to reduce legal immigration by curbing family reunification immigration substantially. They want to prohibit people from bringing in their parents, their adult children and siblings, all of which you can now sponsor for Green Cards under our family preference system. The Republicans all want to stop this, and of course they've used the name chain migration which used to just refer to the process of using the system repeatedly to bring in a bunch of people. But now they're using the word chain migration for refer to any family reunification. They want to cut this off, which would dramatically reduce our legal immigration, and Republicans want to do that.

Smith: And polls show that people are against this, mainly. One poll by Harvard did show that people's optimal desire level of immigration was about half what it is right now. So that poll sort of agreed with the overall priorities of the Republicans. The other polls have shown the opposite. They've shown that people mostly say they want to keep immigration at the same level it is now. Essentially, the system isn't broke so don't fix it for the status quo of what's happening right now. I agree with that majority.

Smith: There's things we could do to make our immigration system a lot better, but it's not really broken. And the Republicans certainly aren't going to fix it. All except for that one poll have shown that people agree with me, though there is that one poll that show people agreeing with the Republicans.

Beckworth: Yeah, so overall there's still great sentiment towards immigrants having them come in, not reducing the overall levels. With that said, though, there has been a lot of anti-immigrant fervor. Maybe that's with certain groups. The election of Trump and Europe you see some of the similar patterns. Do you view that as just a residual of the great recession, the weak recovery or something else?

Smith: No, I think that there's two things and neither of the thing's economic. I think the first thing is that whereas in the past we saw the Asian and Hispanic vote, the vote that was neither black nor white, in American reasonably split between the parties. Asians used to vote a bit Republican and Hispanics used to vote a bit Democrat. But they were pretty evenly split and a lot of people thought, for example, George W. Bush would get 40% support from Hispanics or something and so the issue of voting wasn't very racialized. However, since the failure of Bush's attempted amnesty, and since the sort of anti-immigrant revolt within the Republican party that happened in the 2000s we've seen a dramatic increase in anti-immigrant agitation by a portion of the Republican party.

Smith: So while overall the country remains very favorably disposed toward immigrants and immigration, there's been this anti-immigrant fringe... Not even a fringe, just a chunk, a minority, 25% of Americans (I don't know, something like that) that's just really, really upset about immigration. And partly because of that, we've seen voting patterns start to racialize. Now you see 70% of Hispanics vote Democratic in presidential elections, 70% of Asians who used to vote Republican on average now vote Democratic. And part of that could be just a composition of who comes in. We're getting less Asian people from countries that suffered from communism and we're getting more from China or something, and India.

Smith: So it could be composition effect, but I think that if you dive into some of the details of it you see that it's really just that Asian people have been shifting toward the Democratic party, Hispanic people have been shifting toward the Democratic party, and I think it's as a result of this anti-immigrant group within the Republican party gaining some power and prominence there. And that racializes they overall voting pattern, so now Republicans think... You had these Democratic strategists like John Judis and Roy Tizerra (I don't actually know how to pronounce his name) say that all Democrats have to do is essentially wait and immigration will change the racial composition of the United States in a way that makes Democrats just win all the time. And that was an incredibly dangerous, incredibly irresponsible thing to say.

Smith: You had the book Brown is the New White, which envisioned a coalition of black, Hispanic and Asian people along with a few liberal white people to sort of out-vote white people. And that was a very scary thing for a lot of people because even people who had welcomed immigrants individually even in large numbers are scared at the idea of racialized block voting and I think that scared a lot of people. And in the 2012 election, Obama lost the white vote pretty solidly and yet won the election because especially Hispanics turned out so strongly for Obama in that election and I think that scared a lot of people. And they thought that another immigrant is another Democratic vote. You see echoes of the way Republicans thought about this 100 years ago when immigrants also voted very strongly Democratic.

Smith: The second thing that happened, of course, was Europe. And you had this inflow of refugees into Europe. And some of the refugees didn't really fit into European culture. European culture's very different than America. It's much more based on not just race and ethnicity but also this sort of shared sense of history and lineage and tradition and blah, blah, blah, blah, blah. And then you had the newcomers and Europeans I think were not as welcoming to newcomers as us. Their economies were less flexible, their labor markets were less flexible, there were just fewer jobs that immigrants could get, and so you had more problems with immigration. And you had a lot of people who said, "Oh my God, it's the Muslim hoards. They're conquering Europe. Europe is falling to the Muslims, blah, blah, blah. America is the last bastion of the West." And you had this idea being promoted very heavily in rightist circles in America. And they looked over at Europe and they said, "Oh my God, we can't let it happen here," and that's been the second shock.

Smith: So there the electoral sort of perception of racialized block voting and there's also this perception that Europe and the Christian west and blah, blah, blah are falling to the Muslim hoards. And those two things have scared the heck out of people in the Republican party who otherwise might be very favorably disposed to immigration.

Beckworth: Yeah, you mentioned a book by John Hickham. Is that his name?

Smith: I think it's Higham, I think. Yeah.

Beckworth: Okay, Higham. I'm sorry. The book is called Strangers in the Land: Patterns of American Nativism 1860 to 1925. It was interesting, though, you went through that there's been similar cycles before. An early kind of revolt or Nativism on religious grounds against the Catholics, against radicalism, communism coming, and then racial grounds. And you suggest this current balance of nativism as what flavor? The religious one or racial?

Smith: It's both, actually.

Beckworth: A bit of both? Okay.

Smith: So first, there've been two really big nativist waves in America before. And the first was in the 1840s and '50s; you saw this big anti-Catholic panic and people said that the Pope is going to control the country. And it was especially over Irish and south German immigrants. And these were the Catholics coming into the north of the country. And people in the Midwest, in New York, all over the north part of America freaked out. Catholic churches were burned and Catholics were murdered. It was much, much more violent than Nativism today. Natives in today you have some guy snatches off a woman's hijab on the train somewhere, or spray paints some nasty, racist slogan on a wall. Then you had killings and burnings and… we had this event in Philadelphia, the nativist riots in Philadelphia where a bunch of Protestant guys got together and rampaged through Irish Catholic neighborhoods just burning and killing. And the police tried to stop them and they started killing the police, too. Eventually the police beat the mob back.It was much more violent. It was a more violent age where you just, that was what you did and it was violent.

Smith: And we had the American Party, which originally kind of humorously called itself the Know Nothing Party, running in a presidential election and actually doing pretty well in the 1850s. And so you had this nativist eruption and it was quelled by something much bigger that came along and essentially smashed it which was the Civil War. In the Civil War, in the Union Army, was very large percent, almost half composed of people who were not born in the United States. So you can say that the Union really beat the confederacy down with a bunch of ringers.

Beckworth: Interesting.

Smith: With a bunch of the Irish and German folks. And were it not for them and were it not for the immigrants that've been coming in that had doubled the North's population and really done nothing for the South's population, the South would've won the Civil War. It was immigrants that won it.

Smith: So that was the first nativist thing, and then of course when you fight along side some Irish and German guy and they save your life, and they wear the blue uniform, they fly the American flag and blah, blah, blah, blah, blah, well then, that gets rid of nativist concerns for awhile.

Smith: And then they started flaring up again in the 1880s, you had some anti-Catholic stuff, and then you had this big wave of immigration from east and south Europe. So Italy was the biggest and you had also quite a lot from Poland, from Russia, you had Jewish immigrants from Russia, you had Hungarians and Greeks and a bunch of people like that coming in and that got really big in the 1890s. In the 1880s you had the Asian Exclusion Acts because California people didn't want Asian people coming and taking their jobs. It was sort of economic exclusion. And then a decade later, kind of similar to America where you had this sort of nativist freakout in the 1990s in California. We'll get to that.

Smith: Anyway, you had this increasing nativist freakout and at first it was sort of anti-Catholic stuff again. And even in the late 1800s and early 1900s there were people in the Midwest preparing for genocidal war by Catholics against Protestants, carry guns with them all the time and just sharing all this fake news about Catholic plots to genocide Protestants. And it was extreme. And there were anti-Catholic defense leagues that were well armed, these militias. It's almost inconceivable now. You also had economic concerns-

Beckworth: It was like Northern Ireland here in the US.

Smith: It was not that bad, but it was-

Beckworth: Okay.

Smith: But there was much fear. But then it sort of shifted to racial concerns, and you had these concerns that Italians are not really white. You had this big campaign to say Italians aren't really white. Of course, they didn't use the word white. There were two sort of strands of racism; you had the Anglo-Saxon stuff, which sort of excluded Germans, and you had these theories that Germans were worse because they came from the Alps, they were Alpine peoples and blah, blah. And then you had Nordic racism, which of course appealed more to German Americans because it sort of combined English and Irish and Dutch and German and Scandinavian and maybe even French people and said, "We are the Nordic races and we're better than these southern European races." So you had these two forms of racism that excluded some of the people that we'd now call white. And before that no one had really stopped to think about whether those people are white very hard because it just wasn't that salient of a question.

Smith: But now they sort of said, "Okay, you're not white. We need to keep you out," so they designed a law that said basically immigration should be proportional to who was living here in 1880. Or was it 1890? Actually, now I forget. But that was the law of 1924. And actually, there were debates on when that year should be set, which is why I'm forgetting now. But basically it said that we should close our gates to all the new groups of immigrants and only allow people to come from the Nordic countries: Germany, France, Scandinavia, England, and Ireland. And that legislation was enacted and remains on the books now. It's been amended but that quota system is still at least nominally in place that we enacted in 1924. It was explicit racial engineering. Strangers in the Land, Higham's book will explain all that. But it was very explicit racial engineering and they essentially closed the gates. And-

Beckworth: Okay so-

Smith: Yeah.

Beckworth: Oh, go ahead.

Smith: Oh no, that was that. And then World War II came along and we all fought on the same side, and after that all the sort of intro white racial conflicts sort of evaporated and it just became white versus black became our racial conflict in America.

Beckworth: Okay. Well it's unfortunate that it takes wars to take the edge off of nativism in the US. But I-

Smith: Not always. We had California. We had this big nativist eruption in California and after Steve Miller and Steve Bannon and some of these guys came out of 1990s, they were this... And '80s and '90s there was a huge backlash against Mexican and Asian immigration in California and it was defeated, it was crushed and California became the multi-racial state it is today without any war.

Beckworth: That's a good point. You mentioned Texas as well would fit that story, right?

Smith: Mm-hmm (affirmative). That's right. Texas is minority white now and people don't know that.

Beckworth: Yeah.

Smith: But it is.

Beckworth: I know you're from Texas. I lived there for five years. So there are success stories, it's not the end of the world. Actually, it can flourish in an environment like that.

Beckworth: But I want to step back and push back against the non-economic version of this. I accept all these stories that you've told me but I want to play a counter factual out for you.

Smith: Go for it.

Beckworth: Imagine it's 2007, 2008 and our policy makers both in Europe and in the United States do a much better job than they did. They miraculously are able to prevent the sharp collapse. Yeah, there's some industries that hit hard, housing has contractions but other industries continue to grow so that at best we had... At worst, excuse me, we had a mild recession. We go through this period without a great recession, no sharp contraction. Something similar to, say, 2001. Would the world have been different? Would there have been as much nativism as we see today had that happened?

Smith: I believe that you would, there would be. And I can explain why.

Beckworth: Okay.

Smith: The first reason is because of California. We saw this giant backlash in California in the late 1980s and 1990s at times... When we had that recession in the early '90s, it was pretty mild. At times when the economy was essentially doing as well as we can expect the economy to ever do. And we had this big boom. And during this boom we had this boom in nativist sentiment out in California, and some other places like Arizona. And you had Proposition 187, you had Pete Wilson getting elected. And maybe they used the small recession of 1990, 1991 to justify on economic grounds that nativist ground swell.

Smith: The second time, during 2005, 2006 when everyone thought the economy was doing pretty well it was the so-called Bush boom, that was when nativist sentiment really started to gain power in their public and party nationally as a whole. And you had the defeat of Bush's amnesty and the rise of people like Tom who really thumped on immigration as this big boogeyman. You had their rise to prominence within the Republican party and defeat of the old Reaganite, pro-immigration Republicans. So during all these economic good times in America, you had these swelling nativist sentiment, first in California and then nationwide during the early, mid 2000s.

Smith: And so I think it's pretty clear that a good economy doesn't save us from nativist sentiment. In addition, the nativist sentiment has really blossomed and mushroomed in the nationwide Republican party since the recovery began. And when you're in the depths of the great recession, in 2009, 2010 you didn't see all these calls to boot immigrants. Immigration was not the focus at all of Republican stuff. It was only after wages started growing and people started thinking about other stuff that this nativism really exploded. And so the correlations, the timing of this is all wrong for the story that the great recession is motivating this.

Beckworth: We're going to have to move on, but I do want to just throw this out there, that you would agree the recovery's been really weak, right?

Smith: The recovery has been fairly slow, yeah. Typical recovery-

Beckworth: Relative to historical. And there's arguments that have been made that we're potential. I guess I can-

Smith: It was no weaker than the 2001 recession or the 1991 recession. Those recessions were at about the same speed, they just didn't have as big a drop at the beginning.

Beckworth: Right, and-

Smith: So the speed of recovery was about the same which was not great. They were all sort of these jobless, slow recoveries.

Beckworth: But the difference being this one was such a sharp drop, right?

Smith: It was big, yeah.

Beckworth: And then the bounce back that should've been there wasn't, and therefore there's been a really slow, sluggish... And so I guess I think it's conceivable that this natural nativism could've been irritated by the fact that almost a decade later you still have anemic, weak growth.

Beckworth: And I've sent you that article. We can maybe discuss this more in depth some other time, but there was this article in the European Economic Group, you going to extremes, politics after financial crisis 1870 to 2014. And they make the argument that if you have a sharp financial crisis, not just a regular garden variety recession, that you do tend to see a polarization that's shook to the right. And maybe it doesn't apply to this particular period, but I wonder, I guess, just because we've had some wage growth, just because we've had positive growth, it doesn't mean that people still don't feel angst, they feel something's wrong, they're not getting ahead. And maybe it's more structural than that. But let's move on-

Smith: You took the words out of my mouth right there. I was about to say I do buy a longer term explanation; stagnating wages, deteriorating communities. You see some of the biggest nativism in the Midwest, which has suffered from the rest belt for a long time. I buy a longer term economic explanation. It's the short-term economic explanation I don't buy.

The Impact of Immigration on Native Wages

Beckworth: You don't buy. All right, well let's move on for the sake of time here. We've documented the trends, some of the developments. Two more things we need to quickly touch on. Number one, and try to summarize this in a succinct way. What is the impact of immigrants on native wages? What has the evidence shown us?

Smith: Basically pretty small.

Beckworth: Okay.

Smith: The best evidence that we get comes from refugee waves because, as you know, there's a correlation causation issue here. If you see immigrants coming in and you see wages going up, it could be because immigrants don't hurt wages or it could be because places where wages are going up just naturally tend to attract a lot of newcomers. So it's really hard to sort of tell that difference.

Smith: But with refugee waves, it's good because the refugee waves come because there was a war somewhere. So the reason why refugees from Syria went into Turkey and Jordan is not because Turkey and Jordan are great places to live. It's because Syria was just apocalyptic. So you use these refugee waves, and there's a lot of papers with these refugee waves. The Mariel boatlift was a famous one to America. The people from Cuba, all these poor people from Cuba came in to Miami because Miami is the only place they could get to with those boats, you know?

Beckworth: Right.

Smith: They couldn't go to Seattle. And so we had the Mariel boatlift. And with these refugee waves every single one of them... People do studies on them and they show essentially no impact on native born wages or employment levels. And one researcher, George Borjas of Harvard's Kennedy School of Government, actually, not the econ department. George Borjas had been very vocal, very aggressive in claiming that everybody else is wrong and that that immigrants lower wages. I feel that most of his stuff has been effectively debunked by people like Giovanni Peri and David Card who've really gone over his methods and found a lot of problems with it.

Smith: But even if you don't believe that debunking as I do, you look at the preponderance of evidence and that a ton of different economists have studied, a ton of different refugee waves and you see very little impact on native labor markets. You've got some negative point estimates. You've got some very small, negative elasticities where you see very low education or very low income native people being hurt maybe a little bit by some of these refugee waves, but really almost no action at all. While that doesn't mean that it's good for the economy to get a wave of refugees necessarily, it does mean that really it's just not a big danger, labor market wise.

Beckworth: All right, so wages aren't effected in any meaningful sense. What about fiscal costs? That's another argument that's often thrown out. What happens to the fiscal cost of immigrants?

Smith: Well, that's real because... It's hard to evaluate because you've got not only the immigrants and the social services they consume, you've got their kids, too and the amount that they produce and the amount of social services they consume. So it turns out that the biggest expense that we spend on immigrants is not giving them healthcare or giving them welfare. We don't. It's giving them education for their kids.

Smith: Immigrants come in, send their kids to school, the local community or State pays to educate the kids. That's the biggest expense. But those kids grow up and then they produce stuff, right?

Beckworth: Right.

Smith: If you educate people, you think okay, well then they become productive workers and that's why we educate people in the first place. So you have these people who make all these different assumptions, and they make assumptions about how much immigrants use the infrastructure and how much they wear out the roads by driving out the roads and how much they burden the healthcare system by blah, blah, blah and how much they pay in taxes which goes to support the government provision of public goods which raises our income by this much and blah, blah, blah. You can have all these different assumptions. And so people have done all of these.

Smith: And it turns out that for almost any set of assumptions that you can make, there's a very robust result which is that immigrants without a high school diploma tend to be a net cost even when you look at their kids over time, whereas immigrants who come in with between a high school diploma and some college tend to give us a very small fiscal benefit over time but be a modest benefit.

Smith: But then the immigrants who come in with a college degree provide a huge fiscal benefit and just really pay for the retirements of everybody else and pay for social services for everybody else. So it's really dependent on skill and immigration level which fiscal boost you get. And I know there's a lot of Libertarians, hardcore Libertarians running around out there saying, "We need open borders. Let everybody come," blah, blah, blah. That's incompatible with the welfare state because you're going to just get a lot of... And of course in Europe would have a more robust welfare state, it's going to be even more of an issue. And if you take a whole bunch of people with very low job skills, you're going to get big fiscal costs that's going to overwhelm local State government budgets and blah, blah, blah. And so that is an argument if not for large scale immigration restriction, at least for tilting the mix towards skilled immigrants. Because we know skilled immigrants just pay for everybody else's stuff, essentially.

Beckworth: Yeah, and that was fascinating to read from the National Academy of Science, their studies showing that as you go up the education level, that there's increasingly positive net benefit fiscally to these immigrants. You've touched on this already. What is the optimal amount of immigration? I think what you're saying is it's not open borders but it's more than what we have now. Is that right?

Smith: Well, I don't know the optimal level.

Beckworth: Somewhere between those two, though?

Smith: First of all, it depends on which type of immigrants you're getting. If we were getting almost all high-skilled immigrants or their families who are probably also have pretty good skills like Canada, the optimal rate of immigration would be much, much larger than it is now if we could do what Canada does, if we had a Canadian style system. If we had our system from the 2000s and the 1990s, where we were just getting a whole bunch of low-skilled immigrants partly through illegal immigration and et cetera, the optimal immigration amount would probably be a lot less. So it really depends on which immigrant the optimal level depends on which immigrants you're getting.

Smith: But the educated, high-skilled immigrants are so good for government budges and so good for GDP and for clustering of high tech industries and for keeping American economic dominance here instead of having it move overseas, and all this kind of stuff; entrepreneurialism, starting companies, creating jobs, et cetera, et cetera, et cetera. If we could have a Canadian style system where we prioritize skilled immigration, we could afford to take millions a year.

Beckworth: So you're being a good economist, Noah. You're saying, "Look, there's trade offs in everything including immigration and you've got to look at the mix, the trade offs to make your determination on what the optimal level is."

Smith: Right.

Beckworth: And sometimes Libertarians don't. They go all open borders and you're like, well you quit being an economist that point. You're not looking at trade offs. So you've alluded to some of the benefits. Now, I wanted to save that for now but you've already touched on them; so having these immigrants are important for keeping our labor force well stocked with able bodies, highly educated folks, it pays for government programs. I want to touch on something briefly that someone that we know in common has written on as well and that's Lyman Stone's work on the baby bust that's been going on in the US. Tell us quickly about that and why immigrants might be a partial solution to it.

Smith: Fertility in the United States is relatively low. Not as low as countries like Japan and Germany and places like that, but below the replacement level. And for about a decade or so we were hovering right around the replacement level and we had this higher fertility than other rich countries. And if you looked into the data you saw that it was all Hispanics and mostly recent immigrants, and maybe their kids but especially recent immigrants who are having this high fertility in America. You saw that white fertility had fallen, black fertility had fall and Asian fertility was always around that low level to begin with.So you had basically it was Hispanics propping up our fertility rate.

Smith: And then about 10 to 15 years ago, Hispanic fertility rates started to really plunge in America. Hispanic people went from having more than three children per woman, which is how they measure this stuff, to having just around two, so around the replacement level. And then white and black and Asian fertility rates are a little lower than that. Maybe 1.7, 1.8 kind of range.

Smith: And so with that collapse in Hispanic fertility, you've seen a collapse in overall American fertility because they were the ones keeping up. And that means that we're going to have this aging population problem that Japan and Germany have. We need immigrants to pay for the comfortable retirements of our seniors. To pay for pensions, to pay for social security, to pay for all these promises we've made.

Smith: But even beyond the promises, just to pay for people to have comfortable retirements. If you have just a few young people working to support a whole bunch of old, retired people, it doesn't work. Even if you abstract from the social security programs and the pensions and all the financial stuff and you just look at the real resources, you've got to have these young people producing real resources in order for the old people to be able to live comfortably without working.

Smith: If we had a magic wand to raise fertility, we could do that. We don't. There are some policies we can do that have a little bit of effect, especially subsidized childcare and parental leave are the most powerful ones. But even those have only a modest effect, and so bringing in immigrants allows us to have grandma and grandpa live comfortably.

Beckworth: That's a great point because you think how do people prepare for retirement? How do they save? And it's a financial asset, or assets that they build up. And those are just assets, they're not actual things, not actual, physical goods or services. Those have to be produced by someone who's young, abled and willing to do that. So it is important to have that transfer between generations.

Beckworth: And so the argument is we need to have these immigrants to help make up for the decline in the fertility rates of women. Will that be a solution in itself? Or do we need other approaches as well?

Smith: Well, so our fertility rate is lower than replacement but it's not as low as Japan and Germany or something like that. We're not into the 1.5, 1.4 range. Now if fertility kept falling and falling and falling then maybe sometime we would have that. It's highly unlikely that a country like Japan will be able to sustain its population through immigration. We can do it because, A, our culture allows us to integrate and assimilate immigrants faster than Japan or Germany or anywhere, other than maybe Canada or Australia, and we can do that.

Smith: But second because our fertility rate isn't that low. It's low but it's not that low and so since we're pretty close, we actually can plug the population whole entirely with immigration. In fact, we have been doing so. The United States population have been growing through immigration despite the baby bust that Lyman likes to talk about. So we've already been doing this and we should keep doing this.

Beckworth: Okay. And the other solution to taking care of grandma and grandpa is to have more rapid productivity growth. So even if labor and supply does shrink, if we could have all those smart robots around doing work for us, that would be another solution but we're still waiting on that to happen.

Smith: You always want more rapid productivity growth. Rapid productivity growth, it's like something you always want no matter what.

Beckworth: Absolutely.

Smith: It's more money in your bank account. It's a free lunch. There is such a thing as a free lunch and it's called productivity growth, you know?

Beckworth: Right. But it would be another way to fill the gap. If you run out of young workers, you could in theory have machines replace them in addition  to the fact it creates more wealth.

Smith: Maybe. If we could raise productivity growth, we should be doing it no matter what.

Beckworth: True.

Smith: People are arguing all day about how to raise productivity growth. So if you talk to very free market hardcore people like John Cochran or whatever then they're going to say, "Just get the sand out of the gears, deregulate, cut taxes," and blah, blah, blah. Other people, I think more level heads know that it's not so easy, it's just a very complex situation to effect productivity growth and there's just a lot of things that go into it and a lot of things we don't know how to effect.

Smith: We don't know how to affect the rate of technological progress. We can invest in research and do all that stuff like Paul Romer would want, but that doesn't always work. Tyler Cowen has flagged some people showing... I think is John Van Reenen who did the research showing that more input gets us... We've hit the point of diminishing marginal returns in research investment so we should do research investments, just not necessarily going to create another productivity miracle unless we discover much better stuff. Now maybe AI or neuro technology, robotics, nano tech, and genetic engineering and the other miracle technologies that are now in development, maybe there'll be a big boom and we'll see another case like the '90s when we had this productivity boom. Or even the '50s and '60s could come back. I'm not ruling that out.

Smith: The energy's really important to productivity because you need some energy to get those robots moving all around and taking care of people, whatever. We've had a very rapid progress in solar power, we've had decent progress in battery technology. And so the energy technologies, when those things get cheaper than oil and cheaper than natural gas, well then we could see another productivity boom in physical technology kind of like we did when we got cheap oil in the '50s and '60s. That's a possibility. And you can't rule anything out but you can't bet on it either.

Smith: And even if we do get those things, it'll be very important to keep immigrants coming in for productivity because keeping population stable is good and important, but even beyond that you want to build up American technology clusters and technology industries and dominance in those industries. And for that, we need a very high density of smart people in the country. So we need to keep those educated immigrants coming in so that the high value industries don't get either out competed by China or flee overseas to, I don't know, Canada, Australia, India, or God knows where else.

Beckworth: Okay. Well in the last few minutes I would like to know are you generally optimistic about the future of the US economy? Both on the immigration front, on the technology front. Do you see a bright future or are you unsure?

Smith: I see a bright future. I think no other country has really figured out a consistently better system than us with the possible exception of Canada, though we're still richer than Canada. But no other country has really figured out a much better system than us so far. And I think that the march of technology and technological improvement will keep going. And I believe that like former waves of nativism, the ones that Higham documents and the California one a few decades ago, will pass. And people realize that these newcomers are actually just normal folks, not scary. They just want to be Americans and work and live life and just... Their kids will marry our kids. Inter marriage rates are absolutely enormous for children of recent immigrants, just absolutely huge. We're talking upwards of 40% here.

Smith: And people will integrate, our culture will change a little to accommodate those people. People are going to have to get used to seeing non-white superhero movies. That's going to happen. And that's a change that people are going to go through and then we'll go through it and then we'll be fine with it. It's happened in California already, it's happening in Texas now. Tomorrow it's going to happen in Minnesota and Wisconsin and Ohio and Michigan and Pennsylvania and Indiana and Maine and North Carolina and all these places. It's going to happen. We'll get over it. We got over it before and America will continue to be America, et cetera.

Beckworth: Well, on that very positive note, we have to end. Our guest today has been Noah Smith. Noah, thank you so much for coming on the show.

Smith: Thanks for having me. Really great.

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