If generals are always fighting the last war, politicians and pundits are constantly debating the last political crisis.
Earlier this year we had what passes for a national debate about immigration policy. As you may recall, that debated ended in a stalemate and preserved the mutually unsatisfactory status quo. (We regard the immense frustration of the political class at our current situation as a point in its favor.) A central talking point of those who advocate more open borders and legalization of illegal aliens was the concept of "jobs Americans won't do." This always struck us as largely economically ignorant nonsense—anyone who has watched the Discovery's Channel's "Dirty Jobs" know that Americans will do some pretty tough, disgusting and crazy work if the pay is good enough—but with a little fudging we could kind of understand the point: getting some things done would be far more expensive if we didn't import disenfranchised laborers from the third-world to do them. Construction was one of these things, and the flow of cheap labor is one of the things that kept the home construction boom going. Illegal immigration was the subprime loan of the labor side of the equation.
But now that the housing boom has deflated and the credit market is in the midst of a retrenchment, those "jobs Americans won't do for illegal alien wages" are vanishing. But the people who were imported to do those jobs are not. In yesterday's City Section of the New York Times, we learned that many of those immigrant workers are now virtually homeless, congregating most days hoping to land a $10 per hour day laborer gig. But those are few and far between, with the supply of men looking to do them far outstripping the demand. Most days, the best these guys can hope for is a warm meal from a charitable Colombian immigrant who spends his evening feeding them.
One difference between subprime loans and subprime labor is that unlike the loans, the financial institutions, home buyers and home builders who together helped create the demand for illegal immigrant labor don't find themselves now burdened by that legacy. These guys are out of work but no-one other than themselves and the general public pays the price. The profits from their labor were privatized but the costs of their unemployment will be shared by the broader public in the form of urban blight, higher crime and welfare.
In a sense, this is classic credit boom and bust economics. Loose credit terms urged by the Federal Reserve leads to malinvestment in low skilled laborers. But unlike buying the wrong equipment, importing too many of the wrong kind of workers doesn't create long term burdens for the companies that employed them. The initial investment was cheap to non-existent, and once the demand is gone the workers can just be fired. So the incentives to over-invest in imported labor during a credit driven boom are even more extreme than most other kinds of malinvestment that occur during booms, because the firms don't pay the downside costs. But, as this article makes clear, getting them off the books just puts them on the streets.
The Chicken And Rice Man [New York Times]