jump to navigation

I-9 Audits and Immigration Policy Failure July 16, 2011

Posted by Afflatus in Economics, immigration, Politics.
Tags: , , ,
add a comment

Last week in the New York Times, there was an article about how the Obama Administration’s immigration policies are affecting small businesses around the country. It explains that while the Bush Administration focused on headline-making raids that resulted in arrests of immigrant workers, the Obama Administration has gone after employers with Immigration and Customs Enforcement’s I-9 audits.” These audits consist of requiring employers to verify the eligibility to work in the United States of all its employees. The theory behind the policy is that employers who hire undocumented workers create the demand that produces the influx of illegal immigrants.

While I certainly applaud the Obama Administration for halting the inhumane practices of raids and deportation of immigrant workers, I don’t think I-9 auditing is a good approach to solving our country’s immigration problem. The article details how burdensome and detrimental to production these requirements are on small businesses. Businesses are forced to fire good employees they otherwise would not fire. Business are also required to complete onerous paperwork.  Many even hire lawyers, further increasing their costs. One business owner said he had reduced his 2011 sales goals by 15% after the disruption caused by ICE’s I-9 audit.

Now, I understand that this “onerous paperwork” is attempting to ensure compliance with the law. It is illegal to hire workers that are ineligible to work in the United States, and the Justice Department should enforce the law. But the program is a abject failure. It’s goal – reducing employer demand for illegal workers – is not being achieved, and long-term progress towards the achievement of this goal seems far-fetched. It’s quite clear from the article that the illegal workers whom ICE requires businesses to fire have found other willing employers to give them jobs. So what is really being achieved besides burdensome regulations that hamper economic growth? Demand for undocumented workers is only reduced marginally, while economic growth is reduced substantially.

To me the I-9 audit program seems like a political tool employed by the Obama Administration to provide itself with cover for its support of immigrant-friendly policies such as the DREAM act. Whether this suspicion is true or not, the I-9 audits are yet another example of how our failure to address immigration reform in a comprehensive and smart way weakens America’s economy.

Debt Ceiling Debate – Politics and Policies July 11, 2011

Posted by Afflatus in Economics, Politics.
Tags: , ,
add a comment

A number of people have engaged me in a discussion about the ongoing debt ceiling negotiations with a great sense of anxiety. While a failure to raise the debt ceiling would be catastrophic for the United States (and the world), it is not yet time to start worrying. In fact, it would be strange if the negotiating parties, which effectively consist of the House Republican leadership and President Obama, reach a compromise deal before the final hour. For the next 10-14 days, the two sides will continue jockeying – through media outlets and face-to-face – in order to improve their respective negotiating positions.

Treasury Secretary Tim Geithner has said August 2 is the final day after which the Treasury can no longer use accounting tricks to avoid defaulting on some of its debt. Yesterday, the President said a deal needs to be agreed upon in 10 days in order to allow time for legislation to pass both houses of Congress to raise the debt limit in time. However, now is not the time to start worrying. In theory, one should not expect either side to compromise until it believes its negotiating position is at its peak strength relative to the other side. Unless one side comes to the humble conclusion that its negotiating position will only weaken in the future, do not expect to see a deal until the final hour. Despite this, I’m optimistic about a compromise deal occurring. Both sides consist of patriots who understand the devastating consequences America would suffer if they failed to raise the debt ceiling. Moreover, neither side wants to suffer the political blame for ruining the country’s financial dominance.

Many of my fellow Democrats have expressed exasperation that the debate has largely been happening on Republican terms. With the exception of the recent and marginal success Democrats have had in pushing the policy idea of closing tax loopholes on jets and yachts, the negotiations have largely taken place on Republican terms. This is especially true if you take a longer view and consider the Fiscal Year 2011 budget debate which culminated in early April. The reason for this right-leaning negotiation is that the Republican House majority, largely unified and highly disciplined, can credibly threaten that they will actually shut the government down (in April) or let the Treasury default on its maturing debt (now). In neither case could the President, or Democrats in Congress, credibly threaten to do the same. Why can the the Republican Party do this? Because it has been content to shirk the responsibilities of governing.

Since January the Republicans have proposed literally only one policy idea to help the fledgling economy: cut spending. Not only does this proposal fail on its own terms (they refuse to cut Defense spending, or subsidies for big businesses), but it is also economically fallacious. Current Republican arguments upend the foundation of modern macroeconomics, Keynesianism, which argues that counter-cyclical spending is required for a healthy economy. Put simply, this means that in times of economic boom (1990’s for example), government spending should be curtailed. In times of economic bust (2007-2009) government spending should be increased. This is based on the fact that during a recession three components of GDP (investment, consumer spending, and net exports) will almost certainly decrease. It follows that the fourth and final component of GDP should be increased. That’s called stimulus. It’s such a mainstream idea that even George W. Bush supported it.

This morning Moody’s Analytics details how government spending (stimulus and unemployment compensation) was crucial throughout the recession to keep the economy on its feet. Now, as it dries up, Moody’s is warning of a weakening of the economy. The June jobs report was poor – only 18,000 jobs were added to the economy. What’s striking is that the public sector lost 39,000 jobs! These are the direct result of federal, state and local budget cuts. Without these budget cuts forced upon government, the jobs situation would not look nearly as bad. Republicans insist on cutting government spending, and then when budget cuts lead to bad jobs reports, they bemoan the lack of jobs. Not only is this economically nonsensical, it is morally wrong. While refusing that rich people pay their fair share of the burden, they insist on cuts which disproportionally affect the poor. This is regressive and wrong. And it’s not the type of society in which I want to live.

So it is not yet time to worry about a the lack of a debt ceiling compromise. However, outrage over Republican economic ideology is long overdue.