The Great Migration Deficit

Applying the trade insight of Don Boudreaux

Trade deficits could arise because Americans are living beyond their means, habitually borrowing more than they save. But even good economists habitually overlook a competing story: Trade deficits arise because foreigners think the United States is a fantastic place to do business. So fantastic, in fact, that they would rather invest in the American economy than consume American products. The noble Don Boudreaux has been cogently defending the latter view for years, repeatedly pointing out that — contrary to the “living beyond their means” story — Americans’ net worth has rapidly grown since 1975, the last year the U.S. ran a trade surplus.

If you’re skeptical, consider the fact that the U.S. has another, even more durable, deficit: the migration deficit. Annual immigration has exceeded annual emigration for as long as the country has existed. Emigration spiked during the Great Depression; but even then, two people came for every person who left.

How can we explain this permanent migration deficit? Logically speaking, you could blame differential protectionism, a.k.a. “unfair trade.” Maybe the reason why (Mexicans moving to the U.S.)>(Americans moving to Mexico) is because Mexico has much stricter immigration policies than the U.S.

But this is absolutely absurd. The U.S.-Mexican border is nearly open on the Mexican side, and Americans can travel to Mexico visa-free. If differential protectionism was the fundamental determinant of migration, Mexico would be packed with Americans, rather than the other way around. Nor is Mexico an outlier. For freedom of movement, Americans enjoy reciprocity or better from virtually every country on Earth.

How then can we explain the unbroken U.S. migration deficit? The answer is obvious: immigration to the U.S. exceeds emigration from the U.S. because the U.S. is a fantastic place to live. Americans have the highest living standards of any country with a population over 10M, plus over 150 years of unbroken domestic peace. Immigration exceeds emigration because the economic wonder of moving to the United States overpowers the legal agony. Reagan spoke truly when he called it “a shining city on a hill.” Do not be deceived by the latest scary stories; for in the words of Adam Smith, “There is a great deal of ruin in a nation.”

Once you concede that the U.S. consistently has migration deficits because the U.S. is a fantastic place to live, you can hardly deny the plausibility of Boudreaux’s thesis that the U.S. consistently has trade deficits because the U.S. is a fantastic place to invest. As I often tell my students, economics is all about empathy. If you put yourself in the shoes of a person born outside the U.S., you can readily grasp why so many foreigners want to move here. Similarly, if you put yourself in a shoes of an investor born outside the U.S., you can readily grasp why so many foreign investors want to move their capital here. If you were a wealthy Mexican, Chinese, or Indian about to buy some American imports, wouldn’t you fret, “Maybe I should buy some American assets instead?”

Virtually all Americans, including the vast majority of protectionists, realize that foreign investment is good for America. If protectionists took my thesis to heart, they could do a sudden about-face and conclude that ICE should start raiding foreign-owned businesses to encourage foreign capital to “self-deport.” The rational response, though, is for protectionists to admit that Don Boudreaux is and always has been right about trade deficits. He’s a gracious man, I’m confident he’ll welcome converts with open arms.