Immigration – the economics

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Karl Marx called the second branch of his system “political economy’ for a reason. In the totalitarian system he envisioned, there is no difference between political and economic decisions as there is no economy outside the politically managed system. The more statist a political system gets, the more political its economy will become. Talking about the economic aspects of immigration in this post I will inevitably touch on many political problems.
My next post will be more about the political circus around immigration than the structural problems I will address in this one.

The assumptions

When we say that “Immigration is an essential aspect of a growing and prosperous country,” we are relying on intuition and anecdotal evidence. It kind of makes sense to say it. It is commonly accepted wisdom based on the following observations and assumptions:

  • Historically, it has been observed that immigrants were more of an asset than a liability to their host countries. The assumption is that this will always be the case.
  • It has been observed, that labor is an essential component of economic growth and it is assumed that this will remain the case.

Closer examination will show that both of these assumptions are false.
In Canada, according to this Fraser Institute study “in the fiscal year 2005/06 the immigrants on average received an excess of $6,051 in benefits over taxes paid.” I quoted similar numbers in “Immigration Delusions” about Muslims in the UK.
As for the importance of labor as a component of economic growth, it is in constant decline. Capital investment, innovation, automation, favorable tax and regulatory environments are contributing far more to economic growth than the availability of cheap labor. Some even argue that cheap labor retards innovation and the move toward more automation.

The history

The Germans invented the social welfare state. It had a good run, but it is falling apart because it was built on an unsustainable concept of constant growth while failing to account for most of the changes that resulted from that growth. The welfare state does not have the flexibility to accommodate changes in demographics (growing lifespan, declining birth rate and aging population), the economy (automatization, the growth of the knowledge industry and globalization) and culture (the rise of Islam and the moral relativism of the West).

Social security is a Ponzi scheme in most places, but so is the welfare state in general. They are based on the assumption that the inflows into the redistributors’ coffers will always grow faster than the outflows, that there will always be more payers into the system than beneficiaries and that the economy will keep growing to sustain the system. The system that is managed by entrenched, unionized bureaucracies that grew significantly in the past 150 years.
Nobody knows how to stop the growth of this parasite before it kills its host.

The Present

The revolution in information technology resulted in a number of changes in the economy. The very nature of work is changing. Low skill jobs are disappearing while there is a growing shortage of skilled workers.
In order to protect their tax base governments ferociously fight any sign of price deflation and they are trying to prevent any necessary market excess correction.
The most serious problem of Europe is the changes in demographics. As the welfare state took over many of the economic functions of the family, birth rates plummeted exposing the problems with the social security Ponzi scheme. Most developed countries in the world are trying to fill the void with immigration. Cultural Marxism and post-modernist relativism blinded the political elites to the realities of the culture clashes this resulted in.

The country with the lowest birth rate in the World is Germany. It will face some serious labour shortages in the near future.
What Germany really needs is a fundamental, structural reform of the system invented by Bismark. What German (and European) politicians want is to keep the system going the only way they know: by finding new tax payers to support their retirees and workers to keep the economy going.
They are ignoring the most obvious problem with this approach: it is just kicking the can down the road, just postponing the reckoning. The rest of the problems are not that obvious.

Immigrants, especially from different cultures are very likely to develop a dislike of the increasing burden on them supporting an aging generation of Germans and may at some point revolt against it. Buying into a Ponzi scheme is not the same as being forced into it as a late entrant.
Immigrants without deep roots in Germany may simply move to economically more dynamic regions if they feel that the burden in Germany is too heavy.

Immigrants may not have and they may not be able to develop the German work ethic and inventiveness that is now sustaining the economy, but even if they do, even with their best efforts, they cannot make a difference in a system that is structurally flawed.  The idea that immigration can solve the problems of the welfare state is just hopelessly naïve short term thinking. As Andrew Stuttaford puts it in the National review:
“There are many reasons why mass immigration is not the answer to the ‘problem’ of an ageing welfare state, but they include this: The numbers cannot possibly add up. “

I spent several hours trying to find some hard evidence for the benefits if immigration. Anything I found is either speculative or anecdotal evidence. Some, like this UK study, are cherry-picking the data (only looking at immigrants from the EU member countries) to show a positive result; while this OECD study concludes that the overall impact on the economy is insignificant.

“An increase of 50% in net migration of the foreign-born generates less than one tenth of a percentage-point variation in productivity growth”

But not to worry, you can also learn that immigration will benefit host countries through Cuisine diversity and cultural sophistication.

There could be some good reasons to promote immigration and open borders, but the economy is NOT one of them. It’s all politics, which I will discuss next.

This post is part of a series on immigration, you can find the rest here:

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