Imagine if there were some productive input, say for example a source of energy, that was cheaper than all of the other alternatives and allowed many businesses to operate with lower costs. Say this productive input was also illegal, but did not cause any externalities. Would right now, in the midst of a terrible recession, be a good time to crack down on this illegal input that many businesses depended on? This is what the Obama administration is doing with their crackdown on illegal immigration, and it is hurting businesses.

A recent story from the New York Times highlights how economically damaging this can be to successful businesses. Michel Malecot, a restaurant owner, faces 30 years in prison, $4 million in fines, and the seizure of his assets for hiring illegal immigrants at his restaurant. The governments indictment is causing him serious economic distress:

Since the indictment, Mr. Malecot said, he has lost at least $500,000 in catering jobs. Catering accounts for about 70 percent of the French Gourmet’s revenues, which so far this year amount to roughly $4.5 million, Mr. Malecot said.

In an industry with that employs an estimated 500,000 illegal immigrants, Mr. Malecot is not alone:

In June, the owner of two Maryland restaurants who pleaded guilty to hiring and harboring illegal immigrants was ordered to forfeit to the government more than $700,000 in assets — in addition to his motorcycle — and faces up to 10 years in prison. In November, a restaurateur in Mississippi who had pleaded guilty to hiring illegal immigrants was sentenced to a year in prison and a year of supervised release. Combined fines in the case, shared among several defendants, amount to $600,000.

I understand the rule of law is important and all that, but is there some pressing reason why choose now, of all times, to crack down on illegal economic activity? Note this is not just Obama fighting illegal immigration as previous presidents have, but “[u]nder a policy that went into effect in April 2009, the Obama administration is taking a much tougher stance on employers who hire illegal immigrants than any administration in decades”.

Now would actually be a good time to be really lax with illegal immigration, not crack down on it. People seem to understand that limitations on international flows of capital, aka protectionism, is a bad idea in a recession. This is true of international flows of labor as well: preventing labor from moving to it’s highest use will reduce global economic growth.

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