A Nation of Immigrants? Not Unless the Bondholders Agree.

"If we ever close the door to new Americans, our leadership in the world would soon be lost." -- President Ronald Reagan

America has always claimed it is a nation of immigrants, but we are discovering it is a nation of immigrants when it needs them--especially ones with technical skills--and hostile to them when convenient.  Is America's openness to immigrants based on whether it can exploit their labor? 

Over 150 years ago, America needed immigrants to farm and work in the fields, so it got them--illegally.  Their legal status didn't matter. America needed railroads, too, but when the Chinese proved to be better than the natives, America decided it disliked competition and passed the Chinese Exclusion Act of 1882 restricting immigration.  

Today, America is restricting immigration directly by spending more on immigration enforcement, even against law-abiding residents with American children, and indirectly by restricting H1B and other visas. It's true if one country designs its school system around math and science instead of trying to teach all things to all people, it will have an advantage over a Dewey-designed system that prizes social control above practical skills. Yet, America's response to being outgunned, outmaneuvered, and out-educated has always been the same: do anything but change the status quo unless absolutely necessary, demonize the other side, and pass laws restricting their ability to compete.

Before you get too upset, it's useful to realize America has always used the law to defend the status quo, whether it was Buck Leonard playing baseball too well in the Negro Leagues and being excluded from MLB; Muhammad Ali correctly analyzing the Vietnam War better than the so-called experts and having his title taken away; Jackie Robinson getting court-martialed by the military; Swedes and Norwegians in Minnesota discriminating against immigrant Finns; and so on.

The modern American Establishment uses land-use restrictions to prevent building mosques while allowing churches with political connections an easier process; restricts H1B visas but does little to reform K-12 educational outcomes; sends PhD graduates back to their home country even if their skills are useful and their character good; protects government teachers, mostly native-born, from accountability; attacks charter schools, Uber, and Airbnb because they take revenue away from existing players with political connections; and does not adequately audit tax exempt entities that claim charitable works. (How many students could afford to pay for colleges, which are nonprofits even if public or private, without receiving government-backed student loans? How many churches could show they spend most of their funds on charitable services serving the public rather than their own members?) 

Ironically, Americans able to effectively protest and change existing rules were often protected by the police or the military--the same Establishment upholding those same rules. Muhammad Ali discovered boxing after a white police officer introduced him to the sport, which later put him under the protection of Louisville's most established lawyers. Baseball's #42, Jackie Robinson, was drafted by the Army in 1942.  Malcolm X? Murdered. MLK? Killed.

Edward Snowden, the whistleblower who exposed the NSA? Ex-military, from a military family, and ex-intelligence. He's having fun with his girlfriend in Moscow. Daniel Ellsberg, the whistleblower who brought down President Nixon and helped end the Vietnam War? Marine Corps officer (First lieutenant). Still alive and very much an activist.

No matter what, the Establishment prevails, which always favors insiders rather than outsiders such as immigrants. Today, barriers are systemic, and the Establishment prevails through legal loopholes, legal restrictions, and high prices. Resistance to change is a feature, not a bug, of America's debt-soaked system. It prioritizes bondholders getting paid in order to continue to keep taxes lower than otherwise possible and government employment relatively constant or growing. When your economic system depends on ensuring bondholders are paid every three months or every month, openness to outsiders who cannot contribute immediately to the tax base becomes more difficult, long-term thinking be damned.

Let's take a more personal example.  Want to be a politician and help society? First you have to go to law school.  How much is law school? 40,000 USD a year, including room and board? You're going to need lots of loans. Once you're saddled with six figures in student loans, are you going to protest your professor or government official, who may be able to assist you with job placement? Even if you wanted to protest, how would you first gain the relevant experience necessary to determine which ideas weaken accountability and which ones might work? If one day, your professor or government official decides fewer rather than more immigrants are ideal, what can you really do?  You're in debt, and student loans are non-chargeable in bankruptcy. You may want to assist immigrants, but what if that immigrant is going to compete against you for a job or divert revenue that might otherwise help subsidize your loans? Having debt automatically limits options because it forces you to prioritize your own financial interests rather than the public good or long-term outcomes. When your entire society runs on debt, the Establishment will accept outsiders only if it benefits the insiders--and their ability to pay off accumulated debt. 

Slavery was wrong in America even when some slaves were allowed freedom and the ability to migrate. Slave-mastering is wrong today, even if its form and shape have been modified to resemble the smiling faces of a college admissions employee, a bank's mortgage officer, and a retail employee asking to open a credit card account. 

© Matthew Rafat (2017)

Political Posts

See below for older but popular articles if you're interested in American politics:

1.  https://willworkforjustice.blogspot.com/2017/04/credit-and-credibility-in-america.html (Credit and Credibility in America)

What is debt's impact on the average and even above-average American's mobility?

2. https://willworkforjustice.blogspot.com/2017/03/why-wont-someone-think-of-children.html (Why Won't Someone Think of the Children?!)

Why have voters lost faith in government, especially K-12 educational employees?

3. http://willworkforjustice.blogspot.com/2017/05/immigration-and-west-backlash-fueled-by.html (Immigration and the West)

4. https://willworkforjustice.blogspot.com/2017/04/rafats-law-inflation-elasticity.html (Inflation Elasticity)

How do we deal with increasing complexity as size increases, leading to greater reliance on formal norms? 

When at Baidu, Be Sure to Meet the Bear

Baidu (BIDU) is one of China's largest technology companies. Its Bay Area campus is well-designed. I'm saddened by how few international companies get mainstream media attention in America.  Turkey, China, and other countries have major consumer companies but their products don't generally make it to American consumers because of complex trade agreements. Anyone who thinks free trade exists should watch the documentary Black Gold (2006). 

Legal Rights without Economic Access are Worthless

"You can have all the rights in the world, but if you can't enforce them, they're not worth very much." -- Justice Ruth Bader Ginsburg 

Too many people confuse written laws with actual implementation.  If a law is passed saying that men and women must be paid equally, it does not mean men and women will be paid equally.  The person who believes he or she is being paid unequally has to find a lawyer; convince the lawyer to take his or her case; pay the fees to the lawyer and the courthouse; and then wait months or years to get a result, which will--in a best case scenario--most likely be some money minus fees and expenses.  If you're interested in meaningful, lasting change, you should see obvious problems with such a system.

First, if law school tuition is 35,000 USD to 55,000 USD a year, and law graduates have 100,000 USD in student loans, how likely is it that the lawyer can or will help front the costs to the person who believes s/he is suffering illegal discrimination?  Litigation costs even before trial can easily run around 8,000 USD, depending on the number of depositions and motions filed.  In almost all civil cases, the losing party pays the costs of the prevailing party, which may sometimes require payment of the other side's attorneys' fees.  What about nonprofit legal aid centers?  They usually rely on volunteer lawyers, and you're dependent on whether they choose to take your case--which depends a lot on their funding, staffing levels, and random assignment to a particular employee or volunteer of varying skill level. Lesson: at the end of the day, the law needs money to work and even with money, may do little to actually fix underlying problems.

Second, how does the lawyer know whether the plaintiff's belief is objective or subjective? In most cases, the potential plaintiff will not arrive with printouts of everyone else's salaries or benefits, and the lawyer must initially evaluate the plaintiff at his or her word.  Even if the plaintiff is correct, where will the costs and fees come from to file a complaint and get the necessary documents and evidence if the plaintiff has been terminated or does not have enough savings? If the lawyer fronts the costs out of his or her own pocket and realizes the plaintiff is wrong, should the lawyer be able to sue the client for the costs, knowing that doing so will increase the chances of receiving a malpractice or state bar complaint? Lesson: at the end of the day, the law needs money to work and even with money, may do little to actually increase substantive rights.

Third, how does the new lawyer know which judge will be assigned to the case, and whether the judge is inclined to be more open minded or close minded?  Cases are randomly assigned to judges when filed.  The judge may not know the new lawyer, and the new lawyer may be against a lawyer well-known to the court.  Even if the plaintiff is correct, what if the judge doesn't believe the type of evidence presented is sufficient to warrant a jury trial? Lesson: the law is often dependent on randomness.

More examples to ponder:

1.  Many states have the death penalty on the books.  In 2016, however, only 5 states actually executed criminals.  Within those 5 states, 20 people were put to death.  The death penalty in America is now basically a taxpayer-funded lawyer, investigator, and prison guard employment act than a deterrent. The cost to house a death row inmate in California is $90,000 more per year than for other inmates, with much of the cost arising from state legal requirements relating to government-funded lawyers. Lesson: the lawyers always get paid, regardless of results. [Update on June 20, 2017: California has not actually executed anyone since 2006.]

2.  After Brown vs. Board of Education (1954) outlawed segregation, many cities and states passed laws trying to evade the impact of the case. To challenge such laws required more lawyers and more lawsuits.  Now, it appears we're back to square one: a 2016 report released by the non-partisan Government Accountability Office "shows that the number of schools segregated along racial and financial lines more than doubled over a 13-year period ending in the 2013-14 school year." Lesson: the teachers, administrators, and lawyers always get paid, regardless of results.

3.  Abortion is legal in America.  In 2011, 94% of abortion procedures, including both surgical and medication, took place in clinics. As of 2015, there were 517 surgical abortion clinics and 213 medication abortion clinics in the entire country, and some states had no clinics.  The cost of an abortion is about 500 to 600 USD.  You are a teenager who has an unplanned pregnancy and want an abortion.  You do not have 500 to 600 USD.  You can apply for indigent healthcare programs, but your ability to get coverage depends on the random assignment of at least one person to assist you.  Lesson: the law, even when it's funded in your favor, makes you dependent on random government or nonprofit employees.

The overall lesson is not to scrap our legal system, but to realize if given a choice, voters should think of taxes as a way to create a certain society.  For example, would you rather your taxes create a society with predictability and higher welfare payments in the event of a job loss, or one where terminated employees experience more randomness with a larger potential payoff? 

American Tragedy

Most Americans consider themselves socially liberal and fiscally conservative, but they're really socially judgmental and fiscally ignorant.

How else is America the most conservative developed country on issues like the death penalty and abortion and unable to understand basic issues like debt's impact on inflation?

A country that runs on debt is a country where politicians can pander to every single group's demands--regardless of merit or long-term consequences.  Furthermore, peace based on cheap debt is not peace at all--it is a slumbering giant waiting for collection day.  

OECD Inflation

Here's a worrying chart from Bloomberg, but it's incomplete.  Can you figure out why?

Without knowing how much of the inflation is organic or due to debt, and what kinds of debt (government, small business, consumer, auto, education, etc.), the chart is only useful as a singular snapshot.

So many problems today arise from people being unable to see data in context.  As economic transactions have become globalized and therefore more complex, data gatherers and writers are still too specialized.  There is almost no one who can put data in proper context, and so we stumble along, convinced that resolving x will be the cure when x is only one part of an ecosystem we generally don't understand.  

Immigration and the West: a Backlash Fueled by Debt

I've written before about why racism will always exist and its interplay with immigration and economic sentiments. (See HERE.)  Today, we are in a curious situation: the best lack practicality, while the worst lack tolerance.

We have learned that absent de jure discrimination, more homogeneous communities do better in terms of trust while more diverse societies tend to fracture and segregate in the absence of perpetually rising job growth. Every society's majority attempts to carve out protections and privileges for their own ways of life and thinking. When secure, they feel more open to outsiders; when less secure, they feel less open to outsiders and non-conformity. Some societies enforce their rules through exclusion, whether social or economic; others through individual violence (think lynchings); and others through the law using the state's resources for the threat of violence and order (think jails or costly litigation). Every single society, over time, diminishes if it resorts to exclusion or violence because not only do such tactics cost money, they also scare off potential entrants.

All over the world, voters are rejecting the status quo. America elected Trump; France may have rejected Le Pen, who defended often brutal colonialism, but she still received about 30% of the vote; Nazis are rising in Scandinavia, as chronicled by journalist Stieg Larsson; the Dutch have Geert Wilders; and even the bohemian Czech Republic has its own non-politically-correct president, Miloš Zeman. All of these so-called populist candidates have risen on the tide of anti-illegal-immigration and anti-refugee sentiments, not because of racism per se, but because voters believe 1) Europe is not a nation of immigrants; 2) a generous welfare state cannot support too many outsiders who have not paid into the system; 3) a generous welfare state cannot avoid higher taxes if it imports poor people, especially when existing taxes are already high; 4) outsiders will not assimilate to their way of life; and 5) outsiders will try to impose their values on the majority (whether true, it matters not as long as voters sincerely believe it).  With respect to #3, people are more concerned about rising prices of essential items like housing than taxes, but feel they cannot personally do much about inflation and so focus on taxes.

In reality, Western democratic institutions are in denial about why their systems are declining and, like most people in denial, seek to find scapegoats. At the extreme, such scapegoating leads to the Holocaust; at a slow boil, it leads to a "soft revolution" like electing Donald Trump and attempting to close borders. What has really happened to cause so many voters to lose faith in their governments and immigration?

1.  Post 9/11, military and intelligence agencies disregarded the rule of law and used their influence to divert government funding to their interests and friends.  Such tactics range anywhere from government hiring preferences for veterans to increasing jobs in security and security-related agencies (TSA, DHS, etc.).  In the U.S., because debt has been used to sustain the unsustainable, once a job is created within an agency, it is rarely eliminated.  As economist Milton Friedman once remarked, "Nothing is so permanent as a temporary government program."

Reducing accountability and relying on perpetual war or fear to prop up government spending and to set priorities will lead to backlash--but not necessarily against the military, especially if it has become the employer of last resort for men. Yet, when the rule of law weakens, all society suffers because the easiest enforcement method is voluntary compliance, and the fewer people who believe the rule of law is efficient and consistent, the harder it is to have voluntary compliance.

A lack of voluntary compliance usually leads to a greater acceptance of evading the law, whether legally (Panama Papers, applying for disability benefits based on hard-to-measure psychological ailments, etc.) or illegally, which then results in dissatisfaction and increased spending on non-productive jobs, such as compliance and navigating an ever-increasing web of laws designed to combat non-compliance.  As society fractures, governments find it harder to increase the tax base, leading to special interest groups protecting their own jobs through political influence rather than long term results.

By the way, I single out the military's extended influence worldwide because:

1) increased military spending that could have been avoided increases debt, leads to higher taxes, or forces cuts to other government programs. Such spending drains resources for more productive expenditures such as practical education, more efficient healthcare, and better infrastructure or causes countries to limit their future spending flexibility while pitting their older generations vs. their younger ones or insiders vs. outsiders; and

2) increased military spending by one country forces more military spending by allies and enemies alike, leading either to more cooperation, best-case (think NATO or sharing military bases in Djibouti by China and America) or less cooperation and more complexity and therefore unpredictability, worst-case (think Russia not being pleased with so many military bases being placed near its country or the current actions in Syria).

Joshua Ramo on the "security dilemma" in The Age of the Unthinkable.

But don't listen to me--President Eisenhower said it better:

"Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people."

So did James "Jamie" Dimon, CEO of JP Morgan Chase (2016 Annual Report): "Over the last 16 years, we have spent trillions of dollars on wars when we could have been investing that money productively. (I’m not saying that money didn’t need to be spent; but every dollar spent on battle is a dollar that can’t be put to use elsewhere.)"

2.  The largest single factor in voter dissatisfaction is a failure to understand that public institutions aren't doing their jobs and may in fact be working against their own people's long term interests.  In Europe, it's no secret countries are having difficulties assimilating recent immigrants.  Few people realize it's not recent immigrants who are causing problems, but their native-born children, who have been fed a lifetime of "liberté, égalité, fraternité," only to realize they were victims of well-intentioned propaganda.  

Indeed, most of Europe is experiencing widespread job discrimination and a lack of social mobility. In response, European voters can believe their public institutions are not working well, in which case they must admit their own culture and ways of life--into which they are demanding assimilation--are not ideal for everyone or are unable to integrate newcomers sufficiently; or, they can blame everything that isn't like them, such as different religions, different beliefs, and different work ethics.  One doesn't need a psychology degree to understand denial and a lack of self-awareness can apply both to individuals as well as entire societies.

Indeed, not blaming one's own institutions is easy if residents sincerely believe they are hard-working or useful. In such cases, someone else's failure to sacrifice will be the focus of discussion rather than existing institutions' failures to be open in substantive rather than abstract ways. Such phenomena is not unique to Europe, of course. An older American law school professor part of a private institution whose job is protected by an MOU--making it almost impossible to fire her--is not likely to believe problems arise from her own failure to make sacrifices in pay, failure to step aside once her practical experience becomes more attenuated, failure to effectively protest constant tuition increases, and failure to do something to mitigate higher debt loads for students.

Yet, an outsider like myself once part of the same school can easily see the college now exists primarily as a conduit for privileged children from K-12 private schools to gain access to an affluent job network and political influence (almost everyone on the local political councils went to private Catholic schools and the last two mayoral candidates attended the same Catholic high school), with the occasional immigrant or outsider thrown in or promoted to a visible position to give the appearance the entity is doing something other than ensconcing a caste system based on the ability to access certain schools at a young age. (I almost balked at attending the law school when tuition was around 21K annually--I and most people in the middle class wouldn't even look at a school charging 55K a year in tuition when we know our parents are unable to assist financially.)  At the end of the day, as tuition rises, colleges with expensive tuition may continue to attract a small percentage of outsiders, but such persons will gain the privileges accorded to everyone else only if they are spectacular in their skills or if government jobs are left over after being given to the insiders.

Ironically, by promoting certain people based on personal traits such as race or background to give the appearance of inclusion, governments and other entities are reducing morale within their own ranks as well as fueling voters' beliefs that elites care more about newcomers/immigrants and arbitrary personal traits rather than merit and accountability. This belief occurs despite the fact that most employees within government agencies tend to reflect connections built over decades and therefore represent jobs unavailable to most immigrants and newcomers.

The lesson? Reducing accountability will lead to backlash, even against deserving persons within an agency or entity.

3.  A society filled with hypocrisy cannot survive--at least not without miserable or angry people.  As fewer elites admitted to themselves that their positions and benefits were unsustainable if applied to the entire population or without cheap debt, they became disconnected from the most important sustainability project of all: economic sustainability. Within a country where physical segregation has been the norm, the combination of growing inequality, higher living costs, and D.C. disconnectedness with non-elites has caused political combustion.

When the elites responded with scorn and name-calling rather than an acceptance they were party to laws and legal agreements favoring them under separate or unequal employment and compensation systems, the powder keg was lit. If Langston Hughes were alive today, he would ask, "When does it explode?"

4.  A country with a "middle class" soaked in debt has a middle class in name only.  Debt makes people expect certain returns and increases expectations.  Someone who buys a taxi medallion--a license that allows him or her to be part of an established cab fleet--isn't going to support Uber, even if Uber increases economic diversity as well as convenience for the disabled and able-bodied. That same person who takes out a loan to buy the medallion/license won't limit defiance to protesting Uber--s/he will do whatever it takes to demonize Uber, regardless of the facts.

Countries and people in debt must prioritize debt payments first, and customer service and the public good second.  Debt causes people not to empathize and therefore not to understand differing points of view to the extent such views are held by persons interfering with plans to pay off their debt and/or expectations of return.

How do so many so-called "poor" nations still manage to have social cohesion despite high levels of wealth inequality?  It's simple--they don't force their poor people to go in debt for the basics, they don't usually tax small businesses (e.g., Cuba doesn't have a sales tax--Dunhill cigarette packs are 1.75 USD), and they don't have as much physical segregation, usually because they have cheaper or better public transportation.

Also, because loans in developing nations aren't available except for the rich, automatic inflation everywhere doesn't occur. and it's possible to live in areas--like Jakarta--where an upscale Starbucks is across the street from delicious street food costing one dollar a plate. In short, segregation exists everywhere, but in most non-American and non-European cities, it's not the kind that makes you despise your neighbor.

In Thailand, I once ate at a sit-down restaurant and saw laborers and suits in the same place. A picture of the award-winning chef hung on the wall of the otherwise unassuming restaurant, located next to a convenience store. How many local award-winning chefs can afford to open their restaurant in a major city in America without a loan?

In the Philippines, poor and rich Filipinos admire President Duterte, a lawyer, while left-leaning American media outlets castigate him whenever possible--even though their own lawyer-politician, Hillary Clinton, is disliked by most Americans. A world soaked in debt becomes hypocritical and epithet-seeking almost by default.  I weep for the future of developed countries. Places where debtors accept their financial slavery and rely even partly on prescription drugs for happiness or health are poor, regardless of GDP.

Debt leads to inflation, and unrestrained debt leads to a political class that can forestall accountability by refusing to make hard choices on behalf of its citizenry. To sum up,

1.  Reducing accountability will lead to backlash.
2.  Reducing accountability for some workers but not others while paying less accountable workers more benefits will lead to more segregation as residents attempt to create or find more accountable entities or loopholes to avoid being ensnared in the general public's inability to avoid reduced accountability.
3.  Reducing accountability while increasing debt and segregation will lead to lower trust among all groups, which will seek to justify their segregation from the goods and services available to the public.
4.  Reducing accountability and trust while increasing debt and segregation will generally fracture society by making it less empathetic, leading residents to search for scapegoats, which tend to be immigrants, outsiders, or minorities.

The future of the political class depends on which systems will provide cost-effective and streamlined healthcare, public safety, and public education for all. If an authoritarian government is able to best deliver results, it will gain more popularity than a democratic government unable to reverse debt-fueled inflation in essential items running higher than wage or job growth.