Against Open Borders: Building America's Human Capital Portfolio

The US immigration system has almost everything entirely backwards. As such, one can propose countless policies that would be Pareto improvements over the status quo. However, advocating for ‘open borders’ is not one of them. Open borders is - at best - a fantasy contingent on fixing myriad other problems first or - more likely - akin to playing Russian Roulette with the ingredients that make America the world’s innovation factory. 

Open Borders advocates often start with the premise that it’s immoral to keep people stuck in terrible places when they are willing to move to our country of immigrants and want to contribute to the American experiment. A worker from Country X can be 6x as productive in the United States. We shouldn’t force him to stay poor and deny our fellow citizens of his contribution. But this isn’t an argument for open borders. It’s an argument for holding America, its institutions and culture constant (not to mention the characteristics of its typical immigrant), while increasing its working age population by one. 

If 'open borders' is just a rhetorical device, a way of arguing for more immigration broadly, or an attempt to widen the Overton window, my only issue is with the political wisdom of using the term 'open borders.'. But presumably, open borders advocacy implies support for letting in far more people than most western countries currently do or have historically, and support for a new paradigm in which the default is to accept new arrivals unless one has a very good reason not to (eg. is on a terrorism watchlist)

If you’ve already drunk the open borders kool-aid, you’d be forgiven for thinking there’s a magical cloud that hangs over the geographical boundaries of rich countries that makes everyone within them hyper-productive. You can thus arbitrarily swap out significant chunks of the populace, and the country would remain just as productive, progressive and pristine. Almost by definition, a paradigm shift does mean we should re-evaluate the assumption of holding constant America, given such a paradigm shift implies significantly changing a key variable that we know shapes culture and institutions: demographics.

Admittedly,

Bryan Caplan

(or anyone else I can hope to rationally engage on this topic) probably won’t refute the premise of endogenous growth theory. Caplan would concede that it’s America’s institutions that make it a special place. He’d probably concede that culture does shape institutions, and that institutions can in fact deteriorate. But he’d insist that American institutions will be fine, since “a billion people won’t move here overnight” and “western civilization is a hardy weed”. Moreover, he’d claim that there’s no reason to think immigrants pose any specific threat to institutional quality that natives do not. 

The extent to which this is persuasive depends on the expected scale and quality of immigration in the wake of such a policy shift. I’ll attempt to paint a picture of Caplan’s world and answer the question: Should we be worried?

How many would come and how fast would they come?

Consider the Diversity Visa lottery, one path to residence in the United States. The Diversity Visa program is open to applicants from countries with ‘historically low rates of immigration to the United States’. Staying true to the spirit of a lottery, this process offers each applicant a truly abysmal ~0.3% chance (varies with country or origin) of obtaining a green card. 

But the stipulations of the DV path, without the “diversity” or “lottery” parts to constrain it, is close to what libertarian proponents of open borders want. DV applicants are told that “the U.S. government will not pay for your airfare, find you a place to live or find you work. As part of your visa application, you will have to prove that you are unlikely to become dependent on the U.S. government for your living expenses.” (Note that the requirement to prove financial independence to the US government seems at odds with the spirit of open borders and would be impractical if all applicants, rather than just lottery winners, needed vetting.) This strikes me as a reasonable proxy to estimate the potential demand for immigration into America under an open borders style immigration policy.

 The Diversity Visa (DV) program receives over 20 million applicants annually, all competing for approximately 50,000 green cards. Since there is no limit on reapplying in subsequent years, we should expect a significant proportion of these to be repeat applications. Let’s assume only 50% of applications every year are new unique applicants - which amounts to an inflow of 10 million immigrants from these countries with historically low rates of immigration. (Note: The unique applicant rate could plausibly be much lower but we should also expect increasing the odds from 0.3% to something like 90% to drive much more demand) 

However, the DV program explicitly disallows applicants from 7 of the world’s 10 most populous countries - India, China, Bangladesh, Pakistan, Brazil, Nigeria and Mexico. It also excludes the United Kingdom and Canada, cultural cousins of the United States with significant potential for migration flows.

It’s difficult to estimate the latent demand from these countries into the United States because even a college degree and a job offer from a US employer leave you with less than even odds of residing in the United States (let alone getting on a path to permanent residency). If anyone who wanted to move and could afford a plane ticket could move here, we should expect annual demand of at least as many applicants from these countries as the US receives from underrepresented DV visa countries. Many of these countries also have English as one of the official languages.

Conservatively, let’s assume the US receives 20M petitions annually under an open borders regime (most of whom Caplan would want to let in). An inflow of 20M represents 6.67% of the US population or 66 new immigrants per 1000 US residents. Bryan Caplan cites the example of Puerto Rico to argue why the ramp up in immigration flows is more gradual than you’d expect in an open borders regime. 

So the best example we have of this in practice is Puerto Rico. In 1902, the US gets open borders with Puerto Rico, and at first there are only a few thousand Puerto Ricans that want to move. And you might say, “Hey, well they just don’t like the weather here. They don’t like it.” But the next decade, then it’s tens of thousands — then the decade after that, it’s a lot more. It falls off during the Depression, then it revives.

Notice how this argument works for fewer and fewer countries every year, and I wonder if it works at all now. The Diversity Visa lottery has ensured that almost every nationality has built up a diaspora in the United States. The “dipping my toes in” bit is done. If 20M people are ready to spend weeks of their life applying to a disheartening lottery, you’d bet they’d take the next flight to the US if the doors were open. 

America never had effectively “open borders”

Open borders advocates find solace in America’s immigration history. Quoting Caplan again: 

the US had open borders for centuries. The US population today is about 100 times what it was when the country first started. A great deal of that is due to immigration, and yet the country remains recognizably American when you’re multiplying population 100 times 

This is misleading. In the decades that saw the most immigration into the United States, 1847-1854 and 1900-1914, the rate of immigration did not exceed 1% (10 per 1,000 of the population). 1907 was the busiest year at Ellis Island, during which 1.29M immigrants resettled into a country of ~85M - representing a rate of 1.5% or 15 immigrants per 1,000 residents.  

Even when America had no legal barriers to immigration, it had a gigantic natural barrier to immigration: the Atlantic Ocean. In the 1850s, America had even fewer legal barriers to immigration than in the early 20th century, but received only about a tenth as many immigrants. Timothy Hatton explains why: 

Over these six decades the average time on the crossing fell by 80 percent—from around 40 days to 8 days. Perhaps equally important, uncertainty about the length of voyage also diminished—the standard deviation of voyage durations fell from 7.6 days in 1853 to just 1.5 days in 1913. It seems very likely that the upward trend in outward migration from Europe to the United States and Canada, and especially the growth in return migration (Bandiera et al. 2013), owes something to the steep decline in the time component of the costs of migration and the increase in reliability. In 1853 the opportunity cost of the emigrant’s time, valued at average UK earnings for all wage earners, was approximately equal to the cost of a ticket but by 1913 it was just a fifth of the fare.

Basically, immigration from anywhere other than Europe was near impossible and even immigration from Europe was quite expensive when you factor in opportunity cost. It also carried significant physical risks. As that constraint eased, the flow of immigrants increased dramatically and America quickly turned more restrictionist. Today, the United States is at most two inconvenient flights away from Sanaa’, Lahore or Colombo. The risk of death on a commercial flight is 1 in 13 million , not 1 in 1000 as it was in the early 20th century. 

American history won’t tell you much about what would happen if the US were to welcome unlimited numbers of immigrants from the world over, including from countries at significant physical and cultural distance from the United States. Immigration to America has always involved significant selection. After the first wave of English speakers from the Old World, “the second wave was dominated by Irish and German catholics.” The third wave brought southern and eastern European (including Jewish) immigrants to the US. You can call it what you want - but this looks a lot like accidental selection for cultural closeness, even if it was driven primarily by geography. America also explicitly restricted non-European immigration for much of the early 20th century, right up till 1965, when the Immigration and Nationality Act was passed. In the latter half of the 20th century, if you were born anywhere outside the Americas, immigration to America has been very challenging for high-skilled immigrants and near impossible for anyone else.

In the Short to Medium term - Housing, Crime and Backlash

For the last few years, Canada has been accepting immigrants at an unprecedented rate. Last year, Canada accepted roughly 15 immigrants per 1,000 residents (~1.5%), This is well below what we should expect under Caplan’s immigration regime. Yet, the short term effects have been far from stellar. Good old NIMBYism has joined forces with an acute increase in demand to send housing prices skyrocketing in Canada’s cities. Caplan seems to have noticed that it’s not exactly easy to build in America. In fact, I can almost hear Caplan say “ just build more housing”, as if he hadn’t just written a whole book to persuade people to get started on that project. In response I’d say “Yes, but can we focus on your last book first?” Here’s a general theme worth pre-empting, most of which I’ll come back to later:

Me: “Massive spike in immigration will push up housing prices”

Caplan: “Yes, let’s build more housing”

Me: “But, zoning laws?”

Caplan: “Yes, we need to deregulate housing completely”

Me: “With our current welfare system, low-skilled immigrants are a net fiscal drain”

Caplan: “No welfare for immigrants. In fact, let’s cut welfare in general” 

Me: “Uh..okay.. What if people won’t leave if they can’t find a job? We already have a homelessness problem.”

Caplan: “Well, we can be stricter about homelessness and deport people that break the law, including sleeping on public land”

Me: “How about we work on the housing deregulation, get homelessness under control and in the meantime deport people who break immigration law, before we roll the dice with 20M immigrants?”

Concerns about housing have much more to do with the pace of immigration than with the specific demographic mix of immigrants. But a host of other issues are contingent on the type of immigration over which you basically lose control under an open borders regime. If we want to understand the potential consequences of open borders, we should look at circumstances in which countries, for some period of time, didn’t exercise much discretion over the immigrants’ skill level or cultural background, apart from verifying they had some national identification. 

Angela Merkel's decision to open Germany's doors to approximately 600,000 Syrian refugees during the civil war serves as a case study. Between 2020 and 2023, Germany also roughly doubled its Afghan-born population. The consequences of these policies have become increasingly apparent, even to the most ardent supporters of open immigration.

The writing was on the wall on New Year's Eve in Cologne, when 1,000 women reported being sexually assaulted. Since then, the prospects for successful assimilation have grown increasingly dim. Over half of the gang rapes in Germany were attributed to foreign-born suspects. While asylum seekers constitute only 2.5% of the population, they account for 13.1% of all sexual assault suspects.

Regardless of how one interprets these statistics, German public opinion clearly reflects growing unease. This year marked a significant shift in German politics, with the AfD becoming the first far-right party to win a state election since 1945. Even more telling, the not-so-right-wing Social Democrats, took the unprecedented step of deporting 24 Afghan refugees back to Taliban-controlled Afghanistan. You might have noticed the pattern: perceived lack of control over borders emboldens far right parties who don’t pussyfoot around problems of assimilation; those far right parties tend to have crazy ideas on a whole host of other issues, including immigration, but some significant part of the populace is understandably inclined to give them a chance, since mainstream parties have categorically failed them on an issue that potentially threatens the fabric of the nation.

Caplan: “This is crazy. America is not Europe. We have an exceptionally well integrated immigrant population”

Me: “Yes, and the difference between American immigration policy and German or Scandinavian immigration policy has been that the American regime is further away from open borders. From the parts of the world that are especially dysfunctional, you have to have a college degree and a lot of luck to even think about moving here. Your policy is unlikely to look like that.” 

Long-Run effects - The Culture Transplant

Open borders — even in its watered down politically defensible form — is a paradigm shift; it is the relinquishment of political control over immigration, allowing instead the global demand for immigration to drive the demographic and economic destiny of a nation.

The global demand for immigration is driven by both opportunities and adversity. The higher the delta between one’s current life and an envisaged life in America, the higher the incentive to move (assuming one can afford a plane ticket). We should thus expect an overrepresentation of countries and cultures with “bad institutions” in the global demand profile, since bad institutions are upstream of both dysfunctional economic conditions and political violence.

While bad institutions trap highly productive and pro-social individuals in bad equilibria, the open borders position argues against explicitly selecting such people , assuming that wanting to come to America automatically qualifies someone as a desirable immigrant. We should thus worry about adverse selection on cultural norms. Under an open borders regime, we might disproportionately select individuals shaped by the institutional and cultural norms they're moving away from.

In "The Culture Transplant", economist

Garett Jones

argues that immigrants import attitudes from their homelands, which persist for generations in their new homes. These cultural traits, shaped by centuries of evolution in diverse ancestral environments, could significantly impact the long-term political culture, national productivity, and institutional quality of the host nation. These considerations seem inconsequential while assessing the impact of the marginal immigrant, whose cultural impact on the new homeland can be rounded down to zero.

However, in an open borders paradigm, full assimilation ceases to be a reasonable assumption. Larger diaspora communities are better positioned to preserve distinct cultural norms through increased intra-group interactions. In democracies, even culturally insulated minorities can shape the country’s politics and institutions. In this context, the Spaghetti theory of assimilation offers a more apt model than traditional assimilation theories.

When

Regan Arntz-Gray

and I interviewed Jones on the

Moral Mayhem Podcast

, Jones clarified that his work is not an invitation to filter immigrants simply based on country of origin. But that the persistence of cultural traits warrants a more prudent consideration of the long-run effects of immigration, which may be less legible but the magnitude of which could completely swamp the shorter term economic calculus.

The long-run effects of immigration, including via 'culture transplant', need not be negative. In fact, Jones is a vociferous advocate of poorer countries importing higher productivity cultures through immigration, citing the positive impact that the Chinese diaspora have had in shaping southeast Asian economies like those of Indonesia, Malaysia and Singapore.

However, from a culture transplant perspective, a country like the United States faces a different calculus. As one of the world's most productive and stable nations, America has more to lose and less to gain that almost any other country. Moreover, the world at large has a lot more stake in America’s long run success. Even if the imported cultural norms aren't inherently detrimental, the rapid demographic and cultural change itself carries significant risks.

The difficulty in measuring these risks is not a valid reason to dismiss their potential impact on the future. While we can identify prosperous countries and the institutional features correlated with their success, our understanding of how to build or reform such institutions remains surprisingly limited. We struggle to pinpoint the exact cultural dimensions crucial to institutional excellence, much like we might struggle to articulate the precise ingredients of America's "secret sauce" for success.

However, our inability to fully articulate this "secret sauce" doesn't mean we can arbitrarily alter its components without consequences. This uncertainty, combined with the rarity of highly functional institutions, suggests adopting a stance of cautious stewardship.

America’s immigration policy

Given these risks, it’s rational for Americans to demand higher expected returns on immigrants, compared to nations still developing their institutions or stuck in poverty. America's immigration policy should be treated as an optimization problem, one that primarily serves American interests. However, due to America's role as the world’s innovation factory, we should expect outcomes that are bad for America to be bad for everyone. Moreover, if the public wants to add on more immigration for humanitarian reasons, it's best to view that separately.

One loose analogy (which I hope to expand in more detail in a later piece) would be to constructing an investment portfolio. Immigration can have a few types of impacts - fiscal, economic, social and institutional — think of these as the return streams of immigration. The variance in these (specifically downside variance) returns reflects the risk.

Within the constraints of political feasibility, prioritizing high-skilled immigration offers much higher returns and lower downside risk across the boards. From a fiscal perspective, high-skilled immigrants are overwhelmingly likely to be fiscal net contributors. According to

Daniel Di Martino

at the Manhattan Institute, each immigrant under the age of 35 with a graduate degree reduces the budget deficit by over $1 million in net present value during their lifetime. Martino suggests that number is likely negative for low-skilled immigrants but acknowledges uncertainty.

Perhaps more importantly, given America's comparative advantage at the frontiers of science and technology, the returns to highly skilled labor can be non-linear, with the potential for significant positive spillovers. As Garett Jones notes, America has the privilege of bringing in individuals who can elevate the overall human capital of the nation, potentially boosting productivity and institutional quality. Immigrants like Jensen Huang, Elon Musk, or second-generation immigrant Steve Jobs haven't just helped pay tax bills; they've shaped industries, inspired countless others and created immense and lasting value.

High-skilled immigrants also tend to assimilate more effectively, reducing the risk of cultural backlash. Unlike those who move primarily due to family ties or to escape adverse conditions, high-skilled immigrants often seek out neighborhoods and social circles aligned with their professional aspirations instead of clustering in ethnic enclaves. This tendency promotes intergenerational integration as their children grow up in more integrated environments.

A common counterargument to this approach is that favoring high-skilled immigrants assumes we know exactly what skills the economy needs, falling into a central planning fallacy. However, this misunderstands the proposal. The goal isn't to micromanage specific skill categories or engage in economic forecasting. Instead, it's about using education and professional achievement as proxies for adaptability, innovation potential, and positive externalities.

America could and probably should make it easier for people across skill levels with job offers to secure short-term work visas visas, addressing immediate labor market needs. However, for more flexible visas and longer-term residency, prioritizing high-skill individuals offers significant advantages.