El Salvador Lobbies for US Immigration Reform

"We have been negotiating with the U.S. State Department, with the National Security Department, and (El Salvador's) President (Mauricio) Funes has also made specific requests about how our people can benefit from the granting of the Temporary Protected Status (TPS) as part of an integrated immigration reform," he said.

A link to the full story can be found here.

While I want the US to reform its immigration laws to be more favorable to immigrants, I cannot say I have much sympathy for President Funes.  If he would implement capitalism in his own country, his citizens wouldn't have to make the dangerous journey into America in an attempt to survive.

Furthermore, it's certainly in President Funes best interest to ensure that his citizens be allowed to immigrate to the US.  Latin American countries such as El Salvador are "popular destinations for remittances."  Remittances are payments sent from people living and working in the US to family members abroad.

In 2005 approximately $2.5 billion was sent to El Salvador. The amount represented more than 13% of El Salvador’s GDP, or gross domestic product. It is estimated that Latin Americans residing in the United States send $30 billion dollars to their native countries.

How amazing is it that with America's awful mixed-economy, we are able to support not only ourselves, but represent a huge portion of the GDP of other nations as well?  Can you imagine how much more we could produce, how much wealthier we could be and how many more people could be supported in a pure, capitalist environment? 

If President Funes is envious of the productivity and wealth of the US, he should repeal his country's restrictive laws, implement pure capitalism and watch the prosperity unfold.  Not only would he be hailed as a hero, but he'd be rich beyond his wildest dreams.  And so would his people.

I wish President Obama would do the same.

Comments (4)

My friend, Ben, sent me the following question about this post via email:

"Do remittances basically inflate the economy of a country by introducing bill/electronic money without creating any tangible wealth there, similar to the effect of printing fiat currency? (And concurrently, deflate the American dollar, raising its value because there's less currency per actual wealth here?)"

I am unsure how to answer Ben's question, so I've asked around and will post any responses here.

An answer from Kyle Haight:

"I don't think so. Inflation, properly understood, is the creation of new money without the creation of equivalent real wealth. That isn't happening here. Money is transferred from one geographic location to another, not created out of nothing. It isn't literally the case that two nations have separate economies. If they did then nothing that happened in one nation would affect the economy of the other, and that's obviously untrue.

"What happens with remittances is a shift of demand from one area to another. Yes, that will lead to marginally higher prices in the other country and marginally lower prices here in the United States, but price changes are not inflation and it's destructive to think of them as if they are. This is the normal way in which the price system works to coordinate production. There is more demand in the other country because of the remittance, which leads to slightly higher prices, which leads producers to shift more goods to the other country in pursuit of those higher prices, which increases supply in the other country, which drives prices back down. In the end, isn't the point of a remittance to get more actual goods to the other country?

"Fundamentally this is no different than if I were to move from California to Texas and start telecommuting to my old job. I'd be spending my paycheck in Dallas instead of in San Jose -- would we say that Dallas is experiencing inflation and San Jose deflation? No.

"(Note that I'm hardly an economist myself -- this is a 15-minute answer off the top of my head. I can see potential counters, mostly centered around the claim that with remittances there is an actual change in currency in play, say from dollars to pesos, which isn't the case in the San Jose/Dallas analogy. I don't think that changes anything significant, but I didn't have time to address it the first time around.)"

I think many of the countries where these remittances are paid accept dollars and even prefer them to local currency. If anyone can confirm that, please let me know.

Bob Gifford responded to the question as well:

"Remittances are another form of the international movement of money, not a special category. The impact and meaning to an economy will be the same as the impact of any other movement of funds. There is, of course, a difference to the actual people receiving the money and on the people and businesses that do business with the recipients, but the general impact on the economy will be the same, generally (an economist always says "generally" or "all things being equal" or some such).

"So the question is more about how the money is treated at the source and at the receiving country. If the money is real and there is freedom at both ends, then there is little consequence. If the money is recently created, as is the case for outflows of money from the U.S. then there could be some inflationary pressure at the receiving end.

"If the currency represented wealth, real stuff in the country of origin, then it represents real stuff anywhere. In normal cases, the currency would eventually find its way back to its origin by purchasing something (or loaned). For a varity of reasons foreigners have been keeping dollars (some of the reasons are actually rational) and that has added some complexity to local conditions. But basically, the level of inflation within a country is generally the result of the policies of that country's government. Dollars from outside may help along the problem, but won't be a major cause.

"The U.S. has exported almost $9 T (that is trillion) since the late 80's. Notice that there hasn't been any lessening in the inflationary pressure in the U.S. All of this money has been a balance of payments deficit, meaning that the $9T has been kept by foreigners (if the money returns in any considerable portion we will see consumer price inflation at a much higher level than we are use to - I wrote about this somewhat at http://krazyeconomy.blogspot.com/). Possibly most of the remittances are kept in the receiving nation. There is at least one country in the Western Hemisphere that uses American dollars as its currency, maybe two.

"As large as the remittances have become, I don't think that they play a large part in whatever is happening within the country. When you add in international commerce, foreign aid, military aid, and foreign purchases of government debt, remittances are a small portion of the dollars floating around within most Latin American countries."

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