Recently Donald Trump unveiled a plan to proscribe remittances sent to Mexico. See: http://abcnews.go.com/Politics/wireStory/report-trump-hell-fund-wall-cutting-remittances-38158595 Amazingly, remittances sent to Mexico were characterized by Trump as “de facto welfare”. Pursuant to the Trump calculus, money earned through productive work in the private sector is synonymous with welfare.
The purpose of Trump’s plan is to pressure the Mexican government into taxing its citizens in order to fund a border wall. In other words, Donald Trump wants to implement capital controls in order to get the Mexican government to pay for his cronies to build a border wall, which somehow isn’t considered to be welfare.
If Trump plans to impose capital controls in order to build a border wall, why believe a border wall wouldn’t be used to impose capital controls? With legislation like Foreign Account Tax Compliance Act that passed in 2010, why believe it would be used for anything other than trapping people and capital into the United States? Yet we are supposed to believe that Trump’s capital controls would be used only against immigrants and until the Mexican government ponies up the capital to build a border wall, at which time Trump will cease being a menace.
Supposedly, Trump’s plan will be limited to immigrants (somehow making it a good thing). Arbitrage has a funny way of holding lawless regimes in check. Desperate governments do desperate things, and if we can justify curtailing capital outflow to Mexico in one instance, then why not in every instance? By treating honestly earned money on the free market as “welfare” that the government can seize, this will discourage immigrants from performing honest and productive work. No matter where dollars earned flow, productive work is a benefit to the economy.
I didn’t have to read about Trump’s plan to know that Trump would impose capital controls. As I wrote back in 2010, immigration restrictionism taken to its logical conclusion is capital controls. See: http://libertyeconomics.com/my-problem-with-brian-sandoval-mike-montandon-and-governor-jim-gibbons/ The populist indictment of immigration is that immigrants “drive down wages.” Not true. This argument dovetails with arguments in favor of minimum wage law as an effort to fix wages. The welfare-warfare state drives down wages. The problem is not the immigration, but the welfare-warfare state. Furthermore, let’s take this argument to its logical conclusion: capital controls.
The government could inflict injury upon every employer of Mexican immigrants (legal or illegal). However, this would do absolutely nothing to create or save a job. If employing inexpensive labor at home is curtailed, this begets one of two possibilities: the job is destroyed altogether, or the employer flees the country altogether.
What next? Criminalize capital flight? Pursuant to the statutory case against hiring illegal immigrants, the de jure case for capital controls is already in place. If it’s illegal to hire an illegal immigrant at home, then why is it legal to do business with “undocumented” workers abroad? (In that case, one becomes the de facto employer of foreigners living abroad.) For the sake of logical consistency, outsourcing should be criminalized. All international trade and commerce should be criminalized. If the government should proscribe remittances, then why not proscribe Americans from traveling to Mexico and paying Mexican nationals for goods and services?
Let me remind you that if the government can trap capital in, it can trap people in. Try leaving the country without your capital. If immigrants aren’t permitted to send money to Mexico, then how can they be expected to leave the United States? This means that Trump has, almost paradoxically, devised a scheme to trap immigrants into the country. Coming to the United States will be akin to checking into a roach motel.
We are being told that protectionism and capital controls are used to protect us, to protect our jobs. In reality, capital controls are a makeshift effort to remedy capital outflow engendered by loose monetary policy. Capital naturally gravitates toward cheaper, higher-yielding, more efficient economies. The only way to repatriate capital is for the central bank to stop inflating, forcing up interest rates, and return to sound money. If we pursued the right economic policies, people would voluntarily keep their money in the United States. If the government in Washington seeks to curtail capital flight, then stop fixing prices and stop using the central bank to suppress interest rates.
Not only will capital controls not work, capital controls will beget greater problems. If we reject the free market argument against capital controls today, then the resulting chaos will be met with demands for tighter controls tomorrow. Trump’s plan is to turn the United States into an open air prison. Trump’s plan will actually precipitate an exodus of capital.
How would I approach the matter of immigration? Let property rights prevail. If two people wish to engage in peaceful, voluntary and mutually beneficial exchange, whose right is it to interfere? That somebody is an “illegal alien” is a faux concept constructed by statutory law. Unlike politicians and bureaucrats, most Mexican immigrants hold real jobs. It’s time to legalize immigration. I say we deport politicians and bureaucrats instead.