It is why they may be doing it. That’s my take on the recent controversy in Arizona. Recall that in the early 1990s recession, when the U.S. and its states faced a fiscal crisis and the economy was down, the blame was cast on the poor, Blacks, Latinos, Immigrants, and those living in older central cities, their problems and burdens. The "Republican Revolution" consisted in cuts in funding for services for such people — and massive funding increases on everything else combined with tax cuts. Well with crime and the welfare rolls down, I thought that wouldn't be so easy to blame the same people this time around. But if you are desperate to find a scapegoat, anything is possible.
Arizona, after decades of economic prosperity that produced a belief they were the chosen people, is in the middle of a shocking, horrific economic and fiscal disaster comparable to older U.S. cities in the 1970s. The public schools are being gutted. Nearly 10% of the jobs disappeared in one year. Crime is increasing. Huge areas are abandoned. And no one knows when it will end.
The housing bubble was at its most extreme there. Housing prices in metro Phoenix nearly doubled in little more than a year. Speculation and flipping were rampant. Unlike NYC, developers have not difficulty responding to excess demand with excess supply, and massive subdivisions — whole towns — were built out in the desert.
In the 1980s housing bubble, which was confined to the Northeast and California in terms of extreme pricing, those who bought at the peak, particularly coops and condos, spent years trapped in housing units they couldn’t sell, just to save up enough money to pay off their mortgage and start over with nothing. Fortunately the number of such people was relatively small (mostly people about my age), with long time homeowners unaffected.
But this time something else, something worse, happened. Millions of people responded to soaring housing prices to borrow against the rising value of their homes and live large, running up debts they could never repay. I wrote about what was coming nationwide in mid-2007, and wondered where it would lead. As I noted at the time
A recent Reuters article captures how it is possible that Americans, collectively, have been able to spend about six percent more than they earned each year over the past half-decade. “Between 2001 and 2006, the Moorheads refinanced their three-bedroom San Diego home at least nine times, county records show…Moorhead and her husband now owe $603,000, up from $196,000 when they started, and more than $10,000 over what their house is worth, according to one online estimate. They're likely to lose it soon if they can't somehow make payments greater than their monthly income.” This couple somehow borrowed and spent (and paid in refinancing fees) $400,000 more than they earned in five years, or $80,000 per year. Multiply that by a few million similar middle-income families, and as many lower income households with sub-prime loans, and you have the intermediate-term direction of our economy. This has already gone on longer than I thought it could, but things that cannot go on forever won’t.
Now Americans are facing a drastically lower standard of living. Since during the same era governments ran up massive debts, retroactively enhanced pensions, underfunded pensions, and handed out a permanent increase in the compensation of public employees to be paid for in the future by those who have become permanently poorer, the party was bigger but the result will be catastrophe of soaring taxes and collapsing public services. The public disaster is worse in the most irresponsible states that sold out the future the most, such as New York, and in low tax states that refuse to raise taxes, such as Arizona.
So who is to blame? An ideological liberal might blame rising income inequality, which forced people to borrow to achieve the middle class American dream. An ideological conservative might blame personal self-indulgence, and the replacement of values such as faith, family, and thrift by excess consumerism. Some might blame the finance industry, which pushed all those debts on people and profited from the transactions. But the first two alternatives would point the finger at millions of people, which is not a good way to sell newspapers to attract votes. The third would point the finger at millions of dollars in campaign contributions. For those looking to deflect blame and perhaps profit from rising discontent, perhaps it is better to blame the Mexicans.
My view of immigration is as follows. As long as the labor market can absorb it, immigration brings huge benefits to the United States in talent, energy and ideas. But unlimited immigration from poorer countries, still the majority of countries, would overwhelm the labor market and make everyone worse off. So whether immigration is good or bad is a question of numbers. And if the numbers are to be limited, I do not agree that the immigrants given first priority should be those who are willing to break the law. We have enough of that sort of people among the native born already.
The reason immigration reform is hard is because people’s response to it is rationally irrational. Too many immigrants in general makes people worse off, so people want ever more draconian restrictions. But each individual immigrant makes people better off, so no one wants the person they can see – the person who just wants to work and support their family, who is doing things for you and improving your life, – harmed. The biggest losers from illegal immigration are far away or unsympathetic to most Americans in comparison. The foreigner waiting patiently for a chance to immigrate legally. And the less skilled U.S. worker, less motivated and grateful for the job than the immigrant but expecting more in return, having grown up in a richer country. So it’s a difficult issue.
The situation in Arizona, however, is not really about this issue – it is about the emotional response to our diminished circumstances. The direct analogy is California in the Great Depression, which tried to close its borders to desperate Okies seeking work. It reminds me of the scene in Ironweed, where the desperate people of Albany invade a camp and beat the Hoboes, shouting “get out there is no work here.” America’s situation is not nearly as desperate as it was in the 1930s, but its sense of entitlement is greater. The worst case social scenarios are worse than the worst case economic scenarios.