Tax rises vs immigration caps

The 50p tax rate is probably getting more attention than such a minor measure deserves. But there's a point here that's been missed - that there's a parallel between higher taxes on the rich and immigration controls. Both policies, their critics allege, have similar effects: they reduce the supply of skilled workers and entrepreneurs.

Which poses the question: how can one support an immigration cap but oppose higher taxes on the rich, as many Tories do?

The question's acute because a tax rise has a marginal effect on labour supply - and might even have a positive one if income effects outweigh substitution effects - but immigration controls have a direct effect. A 50p tax might at the margin stop some people coming to the UK to start businesses.But immigration controls certainly do.

There's one answer to this puzzle that's obvious gibberish - that the case against higher taxes is a matter not just of economics but of freedom. However, stopping a man hiring whom he wants is probably as much a restriction of his freedom than taxing him more. And stopping someone working here is surely a greater restraint than higher taxes.

Instead, I suppose the argument is that exceptions to the immigration cap can be made for entrepreneurs and skilled staff. This is the Simon Cowell theory of the state - the idea that governments can act as talent-spotters.

This theory runs into problems.

First, it doesn't work now; there's agreement that current immigration controls are so tight as to deprive businesses of some key workers.

Secondly, a cap on poor and unskilled migrants would deprive us of high-quality talent simply because many of these - and their children - go on to become skilled workers and successful entrepreneurs. In the better parts of Leicester you can't throw a brick without hitting a rich man who arrived in England in just the clothes he was stood in. And if we'd excluded poor migrants in the past, we'd have not have had entrepreneurs such as Lew Grade, Isaac Wolfson or Charles Forte,not to mention more Indians than you can shake a stick at, and we'd not have household name firms such as Tesco and Marks & Spencer.

Let's, though, ignore these objections and assume - contrary to everything Hayek thought - that the state does have the knowledge to act like Simon Cowell. This only poses the question: if government is smart enough to spot talented migrants, isn't it also smart enough to do other things Conservatives oppose, such as intervene in or even control large parts of industry?

My point here is simple. It's quite coherent (though perhaps wrong) to support both tax rises and immigration controls - say because you doubt that tax rises have adverse effects or because you think that social cohesion trumps economic efficiency. And it's entirely consistent (though perhaps wrong) to oppose both, as proper libertarians do. What I have a problem with are those Tories who oppose tax rises whilst supporting immigration caps. Doing this requires some considerable mental gymnastics.

Comments

[Luis Enrique]

Classic Tory thinking. The state isn't trying to spot talent. If immigration is restricted to the wealthy and the highly educated, the state doesn't know which of these individuals will make a positive contribution to the economy. But as any Tory will tell you, we do know the only people who make a positive contribution will come from the set of wealthy or well educated individuals. Emphasis on wealthy.

[Dave Timoney]

I don't think this is, as Luis suggests, "classic Tory thinking", but rather an example of the impact of neoliberal thinking on the Conservative Party's culture. The open-arms welcome of "talented entrepreneurs" is a relatively recent development and, like much neoliberal ideology within a Tory context, heavily influenced by American norms.

During the 1972 Uganda crisis, many liberals emphasised the positive potential of immigrants, pointing to the likes of Grade, Wolfson et al as examples of earlier success. The muttered response of many "Classic Tories" was that they had always regretted letting the Jews in as well. (It's worth noting that characterisation of East African Asians as "the Jews of Africa" was common at the time, as it served both pro and anti-immigration lobbies).

[An Alien Visitor (who comes in peace)]

The question is interesting and the answer takes us into the fundamentals of ideology.

But ideology always serves a purpose, which is something libertarians never seem to understand.

[Luis Enrique]

fate, you may be right that xenophobia outranks love of money in classic Tory thinking. Still, letting in the wealthy certainly has a Tory ring to it in my ears.

[Ralph Musgrave]

Louis,

Nice to see you trotting out the tired old bit of thicko leftie logic, namely that anyone who is less than enthusiastic about mass immigration must hate or fear foreigners (“xenophobia”).

Presumably by the same token, anyone (like me) who chooses not to keep a dog or cat in their house must hate dogs or cats.

But I don’t want to be “out-thicked” by lefties. I wish to announce that anyone who favours large scale immigration must be a pedophile.

[Luis Enrique]

Ralph,

1. I was responding to fate who described classic tories as regretting having let the jews in. I'm going to be kind and call that xenophobia

2. Suggesting that a "classic Tory" is xenophobic is not the same thing as claiming anyone who is less than enthusiastic about mass immigration is xenophobic

so don't worry, you haven't been out thicked

[Luis Enrique]

and beside, I really don't know or care what Classic Tories think, I just meant to suggest that the idea that keeping non-rich non-skilled foreigners out is no loss to the economy is hardly mental gymnastics for your average Tory

[Keith]

Ralph is showing his prejudice again. Immigration restriction is not like keeping or refusing to keep cats and dogs yourself but is the same as refusing to allow other people to keep them. The "dogs" in this case and their prospective employers suffer a loss of liberty. You can indulge your own preferences racist or not but have no right to extend them to others.

More lost deposits for the BNP I fear or what ever the new lot will ne called.

[Matt]

I oppose both. If I had to choose I’d prefer the 50% tax rate to the immigration controls, but I suspect that Labour’s policies on immigration would be as bad or at least not significantly better than those of the Tories. So, in a sense, I prefer the inconsistency.

[Blissex]

«stopping a man hiring whom he wants is probably as much a restriction of his freedom than taxing him more. And stopping someone working here is surely a greater restraint than higher taxes.»

That's the usual grievous propaganda.

There is no loss of *liberty* as long as there is liberty to exit the country.

The UK is a shared club/housing association/purchase group in many ways, and the existing members have every right to decide whom to admit to the club and how much to charge for membership, and as long as membership is not obligatory, existing or prospective members suffer no loss of liberty.

If you don't like 50% taxes or the inability to hire employees from outside the EU, stop paying your membership fees here and purchase membership in some other country, if you can afford it.

It is instead a grave violation of the liberty of the members of the club/housing association/purchase group to impose on them new members or tell them they are not free to decided how much to charge for membership.

And as I often point out if the members of the club adopt, within their wide freedom of how to run the affairs of their club, stupid policies, charging too much or little, restricting membership too much or too little, they are accountable for that, suffering the consequences of their mismanagement of their own club.

[Andrew]

I find it odd that people can oppose immigration controls as restricting the liberty of others, whilst at the same time believing in property rights.

Surely these are the greatest restrictions of liberty for most people.

What the fundamental difference between saying "you can't come and work here" and saying "you can't come and enjoy the resources on this land?"

[Andrew]

As for the 50p tax, bring it on, so long as it is exchanged for the stupid 62% marginal taxation death zone between 100-115 odd k.

[TickyW]

Well of course the predicted flood of Rumanians and Bulgarians did not happen because...because the UK's tax rates are higher than theirs.

Ergo, the Daily Mail should support high tax rates.

Case closed. Next!

[George Carty]

Surely the Daily Mail should be strongly pro-immigration -- won't more people chasing the same number of houses mean higher house prices after all?

[Blissex]

«if the members of the club adopt, [ ... ] restricting membership too much or too little,»

As to this my suggested membership policy is to evaluate every case on the merits, because membership of some Clubs like Club UK or Club France is obviously a valued good, as people are willing to pay membership fees and even risk their life to get it.

And the most obvious merit to evaluate is substantial reciprocity of value: reciprocity as in recognizing membership of other clubs as they recognize yours, and substantial as in the value of the membership is somewhat equivalent.

For example, membership of Club Manchester gives automatic membership of Club Bristol, and viceversa, as members of those clubs obviously find memberships broadly of equivalent value, and the ability to swap memberships is convenient to both.

So for example I cannot understand why Club UK and Club USA and Club Japan still have reciprocal immigration limits, while it is very understandable why Club UK and Club France and Club Germany and Club Spain etc. all recognize each other's membership by jointly belonging to the EU Club federation.

While it is hard for me to understand why Club UK should give automatic membership to any member of Club India for example.

In part because Club India is far from reciprocating the favour: it is exceptionally difficult to get a work visa for India, and Indian security forces routinely round up illegal immigrant and throw them out rather brutally as they steal jobs from Indians.

But in part because Club India membership is not nearly as valuable as Club UK membership, at least so far. While instead 1m members of Club UK live in Club Spain and several hundred thousand in other Clubs in the EU Club federation, because those Clubs are of comparable income, living standards, costs and benefits.

Sure, the ability of the rich members of Club UK to employ members of Club India at much lower wages than other members of Club UK (or Club Germany or Club Spain) is of benefit to them, but not to other members of Club UK, who don't have the substantial reciprocal opportunity to find well paid employment in Club India.

Conversely, the labour markets of CLub UK and Club France are broadly similar, just like the labour markets of club Manchester and Club Bristol, so there is no grossly unfair advantage to employers from one Club hiring from the other Club, as the employees of that Club can also find jobs in the other Club, at least in a broad balance; sure at any one time one market may favour one or another side, but broadly they are of equal opportunity to both.

Nothing like that parity of opportunity between Club UK and Club India, or Club USA and Club Mexico (who also have ferocious immigration controls and throw out very brutally illegal immigrants who steal jobs from Mexicans).

Reciprocity, both within and among Clubs, is an important concept. For example it makes markets more competitive...

[George Hallam]

Jack Cohen was born in London.
Was T. E. Stockwell an immigrant?

[Blissex]

«more people chasing the same number of houses mean higher house prices after all?»

As to the "economic" dimensin, there is an old paper by Prof. Mankiw (1989, "The Baby Boom, The Baby Bust, and the Housing Market") who predicted that without policy changes house prices in the USA would collapse because of the end of the baby boom generation and their downsizing as their children left the home.

Of course two things were engineeered to counter that, and he wrote another paper later: politicians endorsed a massive wave of Mexican illegal immigration. There was another factor, that home-equity loans (remortgaging) allowed empty-nester baby boomers to "downsize" without actually selling their half-empty houses.

And "baby boomer" above usually means "middle class, middle aged or older. female, often divorced or widowed".

PS: of course there have been other techniques than opening the floodgates to immigration to boost house prices, most notably the debt-collateral spiral which has generated high inflation in the prices of assets like houses and in the incomes of asset owners.

The debt-house prices spiral, which has been one of the major policy aims of central banks and governments in most anglo-american countries since the Thatcher/Reagan revolution, works like this:

* Easy credit reduces the monthly cost of buying houses and makes buying more attractive by giving the prospect of highly leveraged tax-free (or low tax) capital gains.
* More people want to buy more houses.
* House prices/valuations *in general*, not just those of houses that have been bought and sold, go up.
* Higher house prices mean that they can be used as collateral for more debt, without requiring more capital from lenders, boosting their return on capital, making them keen to sell more debt.
* More debt also means more remortages on existing houses, which means that home owners don't need to sell to realize their tax-free capital gains, restricting supply.
* Houses prices go up, justifying more easy credit, backed by their increased value as safe collateral.
* Repeat for 30-35 years.

[Socialism In One Bedroom]

Blissex obviously doesn’t pay much attention to who owns what in the UK if he feels he can use the club analogy.

A more appropriate one might be Britain as a stately home. You have the lords of the manor, their domestic servants, those out in the fields working to maintain their privilege etc etc.

To maintain their rule the lords divide their servants along lines of race, gender etc, playing one section off against the other. The lord’s try to play a dangerous balancing act, they talk of only having white servants and not those scary looking dark people, who look like criminals and beggars but their white staff are lazy and expensive so while they talk against the dark people they continue to employ them, here and there but usually out of view of most of the other servants.

But while ever the servants bicker among themselves the lords can sip their port and retain their smug expressions.

[bill40]

With freedom of movement of capital comes people moving to where that capital is. You'll never have one without the other. Further conservatives would argue that business does the talent spotting not the state. This debate is more distraction from the shift of power towards capital.

[Blissex]

«To maintain their rule the lords divide their servants along lines of race, gender etc, playing one section off against the other.»

Those servants are independent adults with the power and responsibility of voting, one person one vote, when it comes to manage Club UK's affairs.

If some or a majority of these independent adults get themselves all too easily seduced by the specious suggestions of other Club UK members who are spivs and knaves, they can only blame themselves.

People like you (and Brad deLong and Lenin and ...) who use the argument that democracy does not work because the stupid masses can't think properly for themselves must eventually end up arguing for replacing the vote of the dumb masses with the rule of the philosopher-kings, who know what is just and good, and enact it on their behalf.

The rule of the philosopher-kings however has some bad practical issues.

[Socialism In One Bedroom]

"who use the argument that democracy does not work because the stupid masses can't think properly for themselves"

I never said anyone was stupid, including servants. Maybe you assumed this because deep down you think they are stupid? If I thought people were stupid what would be the point of being a socialist?

But you need to know more about land ownership etc before you start saying we are a club! You may believe that the concentration of power and wealth is a sign of stupid masses but I don't. Clear?

[Blissex]

«the concentration of power and wealth is a sign of stupid masses but I don't.»

That seems to me a rather peculiarly inconsistent statement, as your argument seemed to be that the "lords of the manor" can "maintain their rule" and "sip their port" simply by using the trick to "divide their servants along lines of race, gender etc, playing one section off against the other". I note that you use the dismissive "servants" to patronize voters who are independent, responsible adults.

Your words seems to me to make up a dismissive portrait of mere "servants" as simpletons who fall for such cheap tricks and thus "bicker among themselves" while their astute "lords retain their smug expressions".

My argument instead is that they are independent adults who have every right and responsibility to make up their own minds on how to vote, even, if they want, by agreeing with what spivs and knaves suggest to them, and will pay the price if they make the wrong decision on taxes or immigration.

«If I thought people were stupid what would be the point of being a socialist?»

Well, you could be or become a Leninist who thinks that while mere "servants" may be easily tricked by their class enemies, yourself as the philosopher-king, the "vanguard of the proletariat", can tell them what is just and good.

Because perhaps I have the wrong impression, but you seem to argue that when "the servants bicker among themselves" and thus the "lords can sip their port and retain their smug expressions" that is is not just and good *in your superior judgement*, even if the mere "servants" quite obviously disagree with you.

[Igor Belanov]

My argument instead is that they are independent adults who have every right and responsibility to make up their own minds on how to vote, even, if they want, by agreeing with what spivs and knaves suggest to them, and will pay the price if they make the wrong decision on taxes or immigration.

This statement is fair enough if you are the Dr Pangloss of liberal democracy.
I would argue that the liberalism bit doesn't work too badly, but the 'democracy' is something of a bad joke. To suggest people 'get what they vote for' is highly misleading, and a best it merely represents a weak form of consent for a section of the political elite.

[Igor Belanov]

The first section of the above comment is a quote from Blissex.

[Socialism In One Bedroom]

Blissex, I am trying to find a better analogy than you club one. If you analyse actual ownership of land, means of production etc etc the idea we are all in a club is pretty ridiculous.

Dividng people is a complex matter and not without sophistication, cultural and historical developments come into play. Nationalism is a very powerful idea, re enforced by granddad fighting in the war etc. People of all educational abilities hold views that I would regard as false consciousness. The right wing would argue that these views are justified, real and concrete beliefs. The left would argue that they are not.

It is called political struggle, the struggle over ideas, it is an ever present struggle, and not because stupid people exist.

Anyone on the left who describes this nation as a club we are all in really should think about jumping over the barricades and seriously think what side they want to be on.

Or better still, if you think everyone is wise, has perfect knowledge and is a free thinking individual then simply stop all political engagement and take up gardening.

[Blissex]

«the idea we are all in a club is pretty ridiculous.»

As far as voting goes, one person one vote has not been repealed yet...

«if you think everyone is wise, has perfect knowledge and is a free thinking individual»

That is irrelevant: what matters is that voters have the right to vote, and to engage in politics, and thus they are accountable for how they exercise those rights.

If they keep electing spivs and knaves, whether because they are too gullible, or because they are themselves spivs and knaves, or any other reason, they fully well deserve the outcome.

Again, voters are independent, responsible adults, whatever the level of their wisdom, knowledge, or freedom of thought.

If you don't agree with that, the alternative is some variant of rule by the philosophers-kings, whether they are called the Inner Party, the Whitehall mandarins, the vanguards of the proletariat, the Establishment, the priests of the Gods...

A lot of people seem to think that the purpose of democracy is good government, when instead it is to ensure that when bad government happens, voters can only blame themselves for choosing that government, and thus are motivated in the long run to be more engaged and alert about politics and voting. If they choose not to do so, too bad for them.

Just like in a Club where the officers are elected by members. If the Club is mismanaged, the members can only blame themselves.