The RAISE Act Could Boost U.S. Fortunes. Here’s Why…

By | 2017-08-08T12:37:02+00:00 August 3rd, 2017|
Print Friendly, PDF & Email

President Trump this week provoked yet another media meltdown by endorsing the RAISE Act, an immigration reform bill sponsored by Senators Tom Cotton (R-Ark.) and David Perdue (R-Ind.).

If passed, the bill would cut legal immigration to the United States by up to 50 percent, and break the cycle of chain-migration by giving priority to immigrants with in-demand skills.

Predictably, this has sparked outrage—but not just from the Left. Many economists and businessmen are likewise fretting. For example, Mark Zandi, chief economist at Moody’s Analytics, says “limiting immigration to the U.S. is a grave mistake” and that “the only way to meaningfully increase U.S. economic growth on a sustained basis anytime soon is to increase immigration.”

Of course, this is nothing but exasperated histrionics at best, and contemptible lying at worst. Why? Immigration does not cause real economic growth—not even theoretically. And beyond this, the data overwhelmingly show that mass immigration is actually costing Western nations, including the United States, exorbitant sums of money every year.

Dealing with the first issue: the RAISE Act would not impede America’s economic growth for the simple reason that economic growth is not a predicate of population expansion, but of productivity improvements. This requires a somewhat thorough treatment, because it is not immediately obvious.

Immigration and the Archaic Growth Paradigm
Put simply: economic growth occurs when, and only when, either more stuff is made, or better stuff is made. For example, America’s economy grows when it produces more cars, or (all other things remaining equal) more fuel-efficient cars. This logic applies to all types of production, whether goods or services. This serves as the axiomatic starting point.

Next question: how to make more stuff? There are two options. First, work harder. For example, want more wheat? Plant more fields. Need more legal research? Work overtime. In all cases the common variable is to add more labor. This is known as the archaic growth paradigm, and it boils down to the simple maxim: more input, more output.

The archaic growth paradigm is, unsurprisingly, how ancient civilizations generally understood economic growth. For example: when Roman emperors needed more swords, the only solution was to add labor (train more blacksmiths). Of course, doing so displaced labor from elsewhere in the economy, and this caused a cascade of labor scarcity. To end said scarcity, the Romans, like all ancient societies, ended up waging war to capture slaves and tribute—thereby adding noncitizen labor to supplement their economy. Basically, places like Egypt were forced to ship grain and wine to Rome, so that Romans could focus on war, art, and architecture. This labor made the Romans richer, at their foes’ expense. The problem with the archaic growth paradigm is that it is zero-sum: Rome only got richer if Egypt got poorer.

A much better way to expand the economy instead is to increase productivity; that is, make more stuff in the same amount of time. This is called the industrial growth paradigm. It is how countries truly get rich. Industrial growth breaks the link between population and production, and allows economies to grow exponentially.

The best example of this is what happened at the dawn of the Industrial Revolution. In 1785, Edmund Cartwright invented the power loom, which made British textile workers 40 times as productive. By the 1820s, after power looms were widely adopted in British mills, Britain produced as much cloth as the rest of Europe combined. Not only did this invention make the British exceedingly rich on a per-person basis, but it also changed the way people thought about economic growth: the paradigm switched from being population-driven to productivity-driven. This continues to be true to this day.

Where does immigration fit into all this? For the most part, immigration falls under the archaic growth model: more immigrants mean more people, and therefore more production. Therefore, more immigration will undoubtedly grow the economy, but it will not necessarily make it more productive. Therefore, immigration is theoretically neutral with respect to the industrial growth paradigm: it neither makes Americans richer nor poorer.

But is economic growth for the sake of economic growth a worthwhile goal?

No.

The size of the economy does not matter; what matters is the size of each person’s share of that economy. Think of it this way: would you prefer to live in Denmark or India? Denmark has a tiny economy, but the average Dane is quite rich. Conversely, India has a very large economy, but each Indian is relatively poor. The answer is obvious: you would prefer Denmark. In short: the size of the pie is irrelevant, what matters is how big your piece is.

This observation dovetails with the immigration debate perfectly: immigration is only economically justified if it makes everyone in the nation richer, not the nation itself richer—immigration for immigration’s sake, just like economic growth for growth’s sake, is a vapid justification. It is irrational. Immigration is a policy choice, it is a means to an end, not an end unto itself.

Simply put: economic and population growth are not dependent variables, and therefore Americans should be skeptical of arguments justifying immigration on economic grounds.

There is one major caveat worth mentioning: a relatively small proportion of immigrants into America are highly likely to contribute to developing new technologies (scientists, engineers, etc.), and therefore improve U.S. productivity—they make America richer. This caveat is well-attested to in most policy debates, and easily predictable by anyone familiar with the Pareto Principle. But even importing too many skilled workers can be detrimental. For example, America’s medical schools are atrophying due to easy access to foreign physicians.

In short, mass immigration grows America’s economy, but does not necessarily make American citizens richer.

How Immigration Impoverishes the West
Enough of the theory. What do the numbers say?

A number of comprehensive studies have examined the impact of immigration on economic growth. In America, one of the most thorough was a 642-page study by the National Academies of Sciences, Engineering, and Medicine. The study found that immigration held down the wages and undermined employment prospects of American citizens, particularly working-class Americans. This is not surprising, since more workers means more competition for employment, and therefore lower prices (wages). It is basic supply and demand in action.

Despite this, the report concludes that immigration is good for the economy because second-generation immigrants tend to be better off than their peers. This observation has been noted time and time again, and is readily observable in the raw data. But is the conclusion warranted? Probably not.

Today America trains the same number of physicians as it did in the late 1970s, and would likely train them regardless of immigration levels. However, during this period the percentage of second-generation immigrants enrolled in medical schools has increased dramatically. Therefore, it is questionable whether these second-generation immigrants are actually growing the economy, or are simply displacing American students who would otherwise enter medical school—and I say this as a second-generation immigrant myself.

Regardless, studies conducted in other countries have been much more clear-cut.

A recent one by Denmark’s Ministry of Finance found that immigrants, particularly those from beyond Europe, were a net drain on the nation’s economy. In fact, non-European immigrants and their descendants consumed 59 percent of the tax surplus collected from native Danes. This is not surprising, since some 84 percent of all welfare recipients in Denmark were immigrants, or their descendants. The bottom line: immigration is a net burden on Denmark.

Another comprehensive study by the Fraser Institute found that immigration costs Canadian taxpayers some $24 billion per year—and this was using data from nearly a decade ago. The number has since increased significantly, as Canada has one of the highest immigration rates, adjusted for population, of any Western nation. The details are not worth delving into, but suffice it to say that this simply adds more evidence atop the mounting heap.

A final study worth mentioning comes out of the UK, and was conducted by the University College of London. The report found the value of immigration to the economy was contingent upon the immigrants’ country of origin. This may not be politically correct (no fact is), but it conforms to the data from Denmark. The study looked at the labor government’s mass immigration push between 1995 and 2011. Researchers found that immigrants from the European Economic Area made a small, but positive net contribution to the British economy of £4.4 billion (roughly $5.7 billion) during the period. However, during the same period non-European immigrants (primarily from South Asia, the Middle East, and Africa) cost the British economy a net £120 billion (around $157.6 billion). Essentially, the type of immigrant matters.

Taken together, the studies prove the theoretical point: immigration does not cause economic growth. At best, mass immigration is a relatively benign force, while at worst it is devastatingly expensive.

Why the RAISE Act Would Benefit America’s Economy
The RAISE Act would benefit America’s economy in at least two ways. First, the legislation would reduce the overall level of immigration significantly. Second, it would better-calibrate the type of immigrant coming to the United States.

Reducing the overall level of immigration is important because America’s economy does not need additional labor: the labor market is already over-saturated as it is. Real unemployment remains high and there is no sense exacerbating the problem. Furthermore, fewer immigrants would help improve working conditions and wages for U.S. citizens. This has already begun in a few locations (albeit for different reasons)—the logic is sound and empirically valid.

And, of course, fewer low-skilled immigrants means fewer people on welfare.

The RAISE Act also ensures that America gets high-quality, skilled immigrants, by prioritizing people with particular skills. These are the type of immigrants who are most likely to help expand the economy in the long run—immigrants that U.S. policy should have been targeting for decades.

All things considered, the RAISE Act may be precisely what the United States needs. If President Trump were to sign the RAISE Act and do nothing else, he would have done more for America than any president since Dwight Eisenhower.

About the Author:

Spencer P. Morrison
Spencer P. Morrison is a writer and author of Bobbins, Not Gold. He is the editor-in-chief of the National Economics Editorial. Follow him on Twitter @SPMorrison_.