Tuesday, May 16, 2006

Why stopping the flow of immigration has the potential to wreck the U.S. economy:

When it comes to immigration it appears a good part of this country just doesn’t get it. They view the immigrants coming into this country as a liability not the asset they are. Here is some realities that Washington and the general public are ignoring with their plan that if successful will hurt the U.S. economy for years to come.

The problem is not immigration but our country’s failure to believe in the power of market labor demand: The reason why we have thousands of immigrants crossing the boarder to come into America is because our labor market needs them. We seem to forget that unemployment in this country is currently less than 5%. To not have these 12 million immigrants working unskilled jobs in this country would be an economic disaster. Without this labor force companies from factories to farmers would be forced to search for labor among an already tight labor pool that consists mainly of workers who don’t want the jobs these companies are looking to employ. It would take a dramatic increase in wages to attract regular Americans to start filling these jobs leading to a dramatic increase in the cost of goods that we use everyday. If you’re upset over oil being $3 now how will you feel when your weekly food bill skyrockets.

What immigration is telling us is that the U.S. market demands these people in order to operate efficiently, giving the U.S. a comparative advantage over the rest of the developed world. This advantage is one of the main reasons our economy currently is growing at close to 4% while the rest of the developed world struggles at just over 1% growth.

Babies, Babies, Babies: The next big asset immigration gives the U.S. that Washington and Americans ignore is the ability to keep our fertility rates above sustainability. On of the most important things for any country is to ensure that its population can sustain itself. Currently the entire developed world has a fertility rate below the sustainability level of 2.1. The number is 2.1 because each women needs to replace herself and one male. The .1 is because unfortunately some people die young and they too need to be replaced. Shrinking populations in the developed world are very concerning and are leading to the potential collapse of nations. Japan last year became the first of all developed nations to see its population have negative growth thanks to fertility rates of 1.3. A smaller population leads to less consumption and an excess of people in the population who are considered seniors. This excess of seniors relies on the State to survive with healthcare and pensions, both which are jeopardized without a younger workforce to takeover its funding.

The issue of having fertility rates below sustainability is wrecking havoc on Europe as countries like Italy are expected to have less than half their population by 2050. Some countries are already trying to save themselves like Portugal who is considering a plan that would force people who have less then two children to pay more into the pension system. Economists have said for years that the countries that accept immigration will be the ones who survive the fertility problem.

With our own social programs like Social Security, Medicare and now the new Prescription Drug Plan growing as a percentage of GDP every year, keeping fertility rates above sustainability will be the difference between being able to afford these programs and watching them go bankrupt. Further the nation will also need a stable population to sustain the home prices we enjoy today. If the population starts to decline the value of homes will drop, as the supply of homes will be more than the population can demand. Immigration currently is what’s keeping us just at sustainable population, as without them our fertility rates would look more like Europe.

These are just some of the reasons why our country is currently looking at the immigration debate all-wrong. The immigrants of today do not jeopardize the employment of the rest of the country and most importantly will be the savior of our nation tomorrow. If the reason truly is a matter of national security then we should definitely protect our boarders but not ignore what the market is telling us at the same time.

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