Immigration Will Not Make America Great Again

 

Although the "progressive left" fetishizes open borders for its own sake, they nevertheless festoon their arguments with economic ornamentation in an attempt to convince fiscally-minded fence-sitters. Usually, their ploy fails.

But every once in a while a seemingly convincing argument is made.  Ruchir Sharma's piece in the New York Times, entitled "To Be Great Again, America Needs Immigrants," is one such piece.  Not only does Sharma rely on uncontested data, but his logic seems solid.  But looks can be deceiving.  Sharma's argument suffers from two main problems: Sharma misunderstands how economies grow, and he conflates gross domestic product (GDP) with prosperity.

Machines, not men

Sharma claims economic growth depends primarily upon extra population, not productivity:

The underlying growth potential of any economy is shaped not only by productivity, or output per worker, but also by the number of workers entering the labor force. . .What makes America great is, therefore, less about productivity than about population, less about Google and Stanford than about babies and immigrants.

This is wrong. Technology, not population, drives long-run economic growth.  Consider: economic growth occurs when either more stuff or better stuff is made. For example, America's economy grows when it produces more cars or (all else remaining equal) more luxurious or fuel-efficient cars. This applies to all economic output, whether goods or services.

There are two ways to make more stuff. First, work more. Working 60 hours a week will necessarily generate more wealth than working 40; likewise, 110 workers will make more stuff than 100 otherwise equivalent workers. More input, more output.

This maxim neatly sums up the archaic growth paradigm, a model of economic growth linking population and production. Importantly, growth under this model is linear – there is a one-to-one relationship between each additional worker and each additional unit of output. Thus, countries only get richer if they get bigger via natural births, immigration, or conquest. Sharma thinks this is the best way to grow the economy.

The second way to make more stuff is to increase productivity – make more stuff in the same amount of time. This is done by inventing and using better technology. For example, in 1785 an Englishman named Edmund Cartwright invented the power loom. The power loom transformed the textile industry by making English weavers forty-times more productive, and ushered in the Industrial Revolution. By the 1820s Britain wove as much cloth as the rest of Europe combined and British workers were among the richest on earth. Productivity-driven, exponential economic growth falls under the appropriately-named industrial growth paradigm.

Technology is the key to economic growth not only because it makes us more productive, but because it is also the key to making better stuff. Consider how much more useful a steel knife is compared to a copper one, or how much better a 4K UHD television is compared to an old-school cathode ray tube idiot-box. Technology unlocks real wealth. Technology grows the economy.

While Sharma does not deny this, he claims population growth is more important. This is obviously false.

Bigger pies, or bigger slices?

Sharma's main point is that because immigration boosts GDP it is good.  True, populous countries often have large economies, and adding people will grow them.  But bigger is not always better.

Most people would rather live in Monaco than India.  Why?  Although Monaco is tiny, the average Monégasque citizen is wealthy.  Conversely, although India's economy is (relatively) large, most Indians are poor.  GDP does not matter: GDP per person does.  Sharma misses this nuance, and so his argument falls flat.

Now to answer the question Sharma should have asked: does immigration make Americans (not America) richer?

In 2017 the National Academies of Sciences, Engineering, and Medicine released the most detailed study on the economics of immigration to date.  It is over 600 pages long, and was authored by an interdisciplinary team – it is the gold standard of academic papers on the subject.  The report found a number of interesting data.  For example, the researchers found that nearly 100 percent of immigration-driven economic growth accrued to the immigrants themselves – not to American citizens.  Immigration enriched America, but not Americans.

On top of that, the researchers also found that immigration contributes to wage stagnation for American workers.  This point should be obvious to anyone familiar with the law of supply and demand: more workers means lower wages, just as more apples means cheaper apples.  This is consistent with another study conducted by the Center for Immigration Studies, which found that mass immigration is one of the primary reasons wages for black Americans have stagnated over the last few decades.

Most importantly, the Academies' research shows that the economic impact of immigrants follows a non-linear distribution.  That is, a few hyper-productive immigrants generate most of the economic growth, while the majority of immigrants break-even, or are actually a net drain on America's economy. In fact, roughly 47 percent of immigrants are a net drain on public revenue – they consume more in government services than they contribute in taxes.  The study pegs their net present value cost at $170,000.

Net present value (NPV) is a metric that actually underestimates the real costs of non-economic immigrants.  This is because NPV is a measure of how much money the government would need to invest today, at a yield of inflation plus a certain percent (the cost of capital), to pay for said immigrant's tax deficit over the course of their lifetime.  According to an analysis done by the Heritage Foundation, each non-economic immigrant more realistically costs a net of $476,000 in welfare payouts.  As such, the true cost of immigration is higher than even the Academies' research leads us to believe.

In any event, half of all immigrants are actually a drain on America's economy.  As for the other half, most of them give only as much as they take.  In total, only about 15 percent of immigrants to America contribute to the economy in a meaningful way – this small minority of people constitutes the economic engine of immigration.

When Sharma states that immigration grows the economy he is correct – but the statement is misleading. Immigration grows the economy, but it does not enrich the average American citizen. In fact, most Americans have seen their incomes stagnate due to additional labor competition.  Only the rich truly benefit.

A means to an end. . .

Although liberals gleefully sacrifice America's economic growth to protect the environment, promote diversity, or build a social safety net, they all turn into Milton Friedman bobbleheads when it comes to immigration.  This is not only dishonest, it is profoundly unhelpful.  How can America have a genuine debate over immigration when one side refuses to tip its hand?  Until the left admits their immigration obsession, everyone is wasting their breath.

Spencer P Morrison J.D. B.A. is a writer and independent intellectual with a focus on applied philosophy, empirical history, and practical economics. He is the author of Bobbins, Not Gold and the Editor-In-Chief of the National Economics Editorial.

 

Although the "progressive left" fetishizes open borders for its own sake, they nevertheless festoon their arguments with economic ornamentation in an attempt to convince fiscally-minded fence-sitters. Usually, their ploy fails.

But every once in a while a seemingly convincing argument is made.  Ruchir Sharma's piece in the New York Times, entitled "To Be Great Again, America Needs Immigrants," is one such piece.  Not only does Sharma rely on uncontested data, but his logic seems solid.  But looks can be deceiving.  Sharma's argument suffers from two main problems: Sharma misunderstands how economies grow, and he conflates gross domestic product (GDP) with prosperity.

Machines, not men

Sharma claims economic growth depends primarily upon extra population, not productivity:

The underlying growth potential of any economy is shaped not only by productivity, or output per worker, but also by the number of workers entering the labor force. . .What makes America great is, therefore, less about productivity than about population, less about Google and Stanford than about babies and immigrants.

This is wrong. Technology, not population, drives long-run economic growth.  Consider: economic growth occurs when either more stuff or better stuff is made. For example, America's economy grows when it produces more cars or (all else remaining equal) more luxurious or fuel-efficient cars. This applies to all economic output, whether goods or services.

There are two ways to make more stuff. First, work more. Working 60 hours a week will necessarily generate more wealth than working 40; likewise, 110 workers will make more stuff than 100 otherwise equivalent workers. More input, more output.

This maxim neatly sums up the archaic growth paradigm, a model of economic growth linking population and production. Importantly, growth under this model is linear – there is a one-to-one relationship between each additional worker and each additional unit of output. Thus, countries only get richer if they get bigger via natural births, immigration, or conquest. Sharma thinks this is the best way to grow the economy.

The second way to make more stuff is to increase productivity – make more stuff in the same amount of time. This is done by inventing and using better technology. For example, in 1785 an Englishman named Edmund Cartwright invented the power loom. The power loom transformed the textile industry by making English weavers forty-times more productive, and ushered in the Industrial Revolution. By the 1820s Britain wove as much cloth as the rest of Europe combined and British workers were among the richest on earth. Productivity-driven, exponential economic growth falls under the appropriately-named industrial growth paradigm.

Technology is the key to economic growth not only because it makes us more productive, but because it is also the key to making better stuff. Consider how much more useful a steel knife is compared to a copper one, or how much better a 4K UHD television is compared to an old-school cathode ray tube idiot-box. Technology unlocks real wealth. Technology grows the economy.

While Sharma does not deny this, he claims population growth is more important. This is obviously false.

Bigger pies, or bigger slices?

Sharma's main point is that because immigration boosts GDP it is good.  True, populous countries often have large economies, and adding people will grow them.  But bigger is not always better.

Most people would rather live in Monaco than India.  Why?  Although Monaco is tiny, the average Monégasque citizen is wealthy.  Conversely, although India's economy is (relatively) large, most Indians are poor.  GDP does not matter: GDP per person does.  Sharma misses this nuance, and so his argument falls flat.

Now to answer the question Sharma should have asked: does immigration make Americans (not America) richer?

In 2017 the National Academies of Sciences, Engineering, and Medicine released the most detailed study on the economics of immigration to date.  It is over 600 pages long, and was authored by an interdisciplinary team – it is the gold standard of academic papers on the subject.  The report found a number of interesting data.  For example, the researchers found that nearly 100 percent of immigration-driven economic growth accrued to the immigrants themselves – not to American citizens.  Immigration enriched America, but not Americans.

On top of that, the researchers also found that immigration contributes to wage stagnation for American workers.  This point should be obvious to anyone familiar with the law of supply and demand: more workers means lower wages, just as more apples means cheaper apples.  This is consistent with another study conducted by the Center for Immigration Studies, which found that mass immigration is one of the primary reasons wages for black Americans have stagnated over the last few decades.

Most importantly, the Academies' research shows that the economic impact of immigrants follows a non-linear distribution.  That is, a few hyper-productive immigrants generate most of the economic growth, while the majority of immigrants break-even, or are actually a net drain on America's economy. In fact, roughly 47 percent of immigrants are a net drain on public revenue – they consume more in government services than they contribute in taxes.  The study pegs their net present value cost at $170,000.

Net present value (NPV) is a metric that actually underestimates the real costs of non-economic immigrants.  This is because NPV is a measure of how much money the government would need to invest today, at a yield of inflation plus a certain percent (the cost of capital), to pay for said immigrant's tax deficit over the course of their lifetime.  According to an analysis done by the Heritage Foundation, each non-economic immigrant more realistically costs a net of $476,000 in welfare payouts.  As such, the true cost of immigration is higher than even the Academies' research leads us to believe.

In any event, half of all immigrants are actually a drain on America's economy.  As for the other half, most of them give only as much as they take.  In total, only about 15 percent of immigrants to America contribute to the economy in a meaningful way – this small minority of people constitutes the economic engine of immigration.

When Sharma states that immigration grows the economy he is correct – but the statement is misleading. Immigration grows the economy, but it does not enrich the average American citizen. In fact, most Americans have seen their incomes stagnate due to additional labor competition.  Only the rich truly benefit.

A means to an end. . .

Although liberals gleefully sacrifice America's economic growth to protect the environment, promote diversity, or build a social safety net, they all turn into Milton Friedman bobbleheads when it comes to immigration.  This is not only dishonest, it is profoundly unhelpful.  How can America have a genuine debate over immigration when one side refuses to tip its hand?  Until the left admits their immigration obsession, everyone is wasting their breath.

Spencer P Morrison J.D. B.A. is a writer and independent intellectual with a focus on applied philosophy, empirical history, and practical economics. He is the author of Bobbins, Not Gold and the Editor-In-Chief of the National Economics Editorial.