A CBO report published today says that economic growth over the next decade is likely to be higher than previous projections. Why? Mostly because of the surge in immigration over the past couple of years.
So hooray for immigration? Not really. I suspect CBO's estimates of net immigration are too high, but even if they're dead on here's what they say:
Greater immigration is projected to boost the growth rate of the nation’s real gross domestic product (GDP) by an average of 0.2 percentage points a year from 2024 to 2034, leaving real GDP roughly 2 percent larger in 2034 than it would be otherwise. Real GDP per person, however, would be 0.8 percent smaller in 2034 because of the increase in immigration than it would be otherwise, in CBO’s assessment.
GDP will indeed be higher ten years from now, but only because our population will be bigger. That's meaningless. If raw GDP mattered, tiny Denmark would be poverty stricken and China would be rich.
What matters is GDP per capita, and CBO says the immigration surge will reduce that by 0.8%. That's about $750 per person.
This is hardly something to get too worked up about, especially since the numbers are small and the estimates are rough. That said, CBO doesn't project that the immigration surge will make us richer. Just the opposite.¹
¹Though just for the record, GDP will likely be unchanged for most of us. The per capita number goes down only because a bunch of low wage earners are pulling down the average.
If you believe that GDP is a useful metric, then both total GDP and GDP per person are important. While they do tell you slightly different things, its incorrect and misleading to declare that only one is important.
Both the US and China are good examples of how important total GDP is.
Two different things can be true at the same time. You can be richer as a group, but poorer per individual. Its wrong to say that only one is true, or only one is important.
This post should be rewritten. Its wrong.
“You can be richer as a group, but poorer per individual.”
Yes this is true. But why would most individuals want this to happen in a democracy if they can vote for it not to happen? It’s not like most people enjoy getting personally poorer, as long as their “whole society” (read: “a few rich individuals at the top”) is getting richer, which is the only way under capitalism that “You can be richer as a group, but poorer per individual” seems to actually happen. Most already-comfortable people also don’t enjoy the only way under socialism that “You can be richer as a group, but poorer per individual” happens either, where essentially everyone (except again, the few rich people at the top) ends up the equivalent of lower middle class.
At the extremes, sure, it’s nicer to live as a poor person in a rich country vs as a poor person in a poor country… rich countries tend to have less crime (even in the slums), less risk of invasion, more economic stability, better air and water, more robust responses to disasters, etc, the benefits of which spill over to the poor too… but most voters want to be non-poor themselves and will happily sacrifice the future wellbeing of the country to improve their personal position within it. (This is why nimbyism & anti tax movements exist in local/state politics. We like the trappings of modernity - sewer systems, power plants, airports, etc. - but we don’t want any of them anywhere close to our homes, nor do we want to pay for any of it a minute earlier than we have to.)
> But why would most individuals want this to happen
Because things can cheaper if they are dealt with on a larger scale. If GDP per capita goes down but health care is cheaper per capita that's a win.
I phrased that poorly....
It is absolutely not the case that individuals would be poorer or worse-off if the per capita GDP were to decrease.
This year you make 100 GDPs, your neighbor is at 90. Total GDP is 190, GDP/capita is 95. Note that you arent poorer because of your neighbor.
Next year, you make 103, your old neighbor's at 93, new immigrant is at 83. Total GDP is h8gher at 279, GDP/capita is lower at 93, but everyone is better off both indivually and as a whole.
You might still want to avoid the horror of this 83 GDP person, or perhaps some other quality is so repellent that you must keep him out. But it isnt because it will make you better off financially (in terms of GDP).
This is why Kevins post is so misleading. Its easy to mistakenly assume that immigrants will make you poorer.
Great example and explanation of how this math works.
GDP and per capita GDP don’t “tell you slightly different things”; they tell you very different things.
This post should be rewritten. Its wrong.
Kevin's post makes perfect sense to non-pedants who can grasp the context within which an argument is being advanced.
Also, you should revisit your use of "its" (in your last line). It is wrong.
Lol, grammer police. WAY TO GO!
The post is misleading. The footnote helps, but it also completely changes the way the post is to be interpreted. Burying the clarification at the bottom is bad form.
Most people deploy economic justifications in service of issues they champion for other reasons.
They're not allowed to use numbers which point out that gdp per capita actually increase from immigration because of business formation, but whatevs.
"¹Though just for the record, GDP will likely be unchanged for most of us. The per capita number goes down only because a bunch of low wage earners are pulling down the average."
So basically non-immigrants won't be any poorer, the "poorer" in question is accounted by the immigrants themselves, who I'm sure would still prefer it to deportation.
I'm of the belief that the people who suffer most from the flaws of our immigration policy are immigrants, but that almost everyone wanting to "fix the border" will make their lives worse.
Exactly, Kevin mentions this point as a literal footnote but completely changes the point of the post. GDP per capita going down sounds bad, but if that's only because poor people moved while no individual is actually worse off then who cares? And usually when you run the numbers the effect you have is that GDP per capita increases both for non-immigrants and for immigrants, it's just that those immigrants that previously counted for Guatemala or whatever now count for the US.
At first principle, it is self-evident that immigration increases GDP. Before an immigrant arrives, their income is not part of GDP. After they arrive, it is.
There are small secondary effects on the incomes of people already in the country, but according to both elementary economic theory and sophisticated modern studies, they are positive. Essentially immigration lowers both incomes and prices, but prices drop faster than wages for all but the poorest existing residents, who face the strongest competition from immigrants.
And no, blocking immigration to help the poor is not rational policy, as the benefits to the poor are very small and the costs to everyone else much higher. It’s a wildly inefficient way to transfer wealth downward.
That makes no sense at first glance. You seem to be saying that increasing demand results in lower prices, which is completely contrary to elementary economic theory.
Supply also increases, so there is no first principle effect. Because of specialization and economies of scale, however, basic economic theory predicts lower overall costs. This is borne out by real world data.
One of the biggest supply constraints at the moment is the housing shortage. Supply of real estate does NOT increase. Mark Twain noted that: "Buy land; they ain't making it any more."
I would also argue that there are very few products on the market that are not already produced in sufficient volume to realize effectively all the economies of scale that can be realized.
Paul Krugman has two posts up at the NY Times analyzing the economic data regarding immigration. He also has several posts on Threads (and Twitter, I assume) describing the economic benefits of recent immigration. Because of widespreadlabor shortages immigration has been particularly important in combating the inflation that usually comes from a strong labor market coupled with a shortage of workers.
Because of the widespread labor shortages, immigration has been particularly important in preventing or limiting the increases in real wages that can be expected from a strong labor market coupled with a shortage of workers.
The OP and commenters need also to be careful to remember that when making comparisons with different population bases, looking at per capita numbers can also mislead.
For example: suppose "Richlandia" has 100 people, with varying levels of an economic good thing -- GDP or some other wealth measure -- that averages to 100 WU. (WU, for "wealth units".) Now suppose 20 new people move in, who previously had 40 WU each, but moving in to Richlandia boosted them up to an average of 50 WU. Suppose also that the economic benefits to of the new residents of Richlandia also increases the wealth of the existing residents by 5%, to an average of 105. Then all these things will be true at once:
* The total wealth of Richlandia will go up by 15% -- from 10,000 to 11,500
* The per capita wealth of Richlandia will go down by about 4%.
* Everyone -- not just some or most, but everyone -- is richer than before. The old residents are richer than before, the new residents are a lot richer. The only reason "per capita" wealth has declined is that you aren't comparing the same populations...
This is not to say that this is what happens with all increases in immigration but it *does* say that decrease in per capita GDP does *not* necessarily mean that anyone is getting poorer.
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A great deal of what gets in the media about immigration is mindless partisanship, on both sides. Trump's campaign is based on racist xenophobia and absurd claims about the nature of immigration, and liberals often make other far-fetched claims to justify immigration.
Of course immigration increases GDP. There are more people who can produce more things. They spend money which increases demand. But if they get lower wages than "natives" the demand per capita is decreased. As Kevin says per capita GDP is presumably more important than total, although economists' detailed projections of these thing have no great record of validity - many as yet unknown factors may influence things.
But one thing that doesn't get much attention is how immigration affects different classes of people in the US. By reducing wages it makes thing cheaper for the mostly upper-income people who don't compete directly on wages with immigrants. Keeping prices down doesn't make things better for those whose wages don't increase. Business people benefit from the increased demand as well as lower wages. The people who do compete with immigrants for the lowest-paying jobs are disproportionately non-white, including blacks and recent legal immigrants. Immigration is probably a factor in the failure to close the racial wage gaps. Is this OK if the immigrants are better off than they were in their native countries? Bringing in masses of low-wage workers certainly contributes to economic stratification in the country.
Having more people of working age adds to the tax base of Social Security (under current law, which should be changed) and makes the economics of the program itself better. But it should also be realized that there are direct and tax burdens pertaining to children, the number of which is increased by immigration. They have to have schools and other services. When wages are not sufficient to keep families above poverty, which is the case for many immigrants, then there are various welfare expenditures especially for children.
The economics of immigration are not simple and there is no one formula or measure which would determine how much immigration is "good" for the country - or good for the world, if Americans are concerned about that. Different people are affected in different ways. Saying that the country has always benefited from immigration doesn't answer the question. Through the 19th century the country was essentially empty by European or Asian standards, and the European immigrants took advantage of this by essentially wiping out the actual native population of the time.
One of the things that is consistently ignored in the immigration debate is population policy. The domestic birth rate is low enough that population growth is effectively controlled by the immigration rate. This means that the federal government has complete control over population growth.
A policy on population would seem to be indicated. What is the maximum desirable population of the US? How do we manipulate immigration policy to remain below, or get below, that number?
It seems at this time that there is simply no limit to the national population recognized; growth will continue forever.
The implicit and some explicit policy of the US has always been pro-population increase. There are various tax breaks and subsidies for having children. As far as I know this is true for every country now, after China abandoned its one-child policy.
The US, Europe and some Asian countries apparently do not greatly need a population policy as increase is low or negative. Maybe the countries which are supplying immigrants should have a population containment policy, but they will never agree to it.
US population growth continues to be positive. A policy is needed on when that growth should stop, or even reverse.
Two points:
- Embedded in the GDP assumptions is a guess at the future immigrant mix. For example, the GDP impact, per capita and absolute, from an Indian software engineer is different than a low skilled migrant from Honduras.
- For me, the national level impact, both absolute and relative GDP, is not that significant. However, I would be curious to see a well designed study to see the impact of low skilled immigration, on low skilled Americans: does it really lower wages or employment? Perhaps the economic impact is near zero or even positive....better decisions can be made with more accurate data
Alternatively, the per capita number goes up when we export low-wage jobs or replace them with non-human (re robotic) labor. Is that your ideal domestic economic policy?
Who has the vastly larger military? That raw GDP does matter in many ways.
Anyone who thinks that globalization and immigration have not limited wage growth in the US should provide convincing alternate explanations for the stagnation of real wages since around 1970. Immigration in the US was low through most of the 20th century until then. GDP and wage growth were very good through that period, even including the Depression.
There are other reasons for the stagnation, but they would have a lot of work to do.
BTW, that's also an increase of $1T in federal revenues over the decade.
I wouldn't worry as much about GDP per capita as GDP per capita per hour worked. The US has a huge GDP per capita, but rising GDP per capita hasn't raised the value of an hour of labor.