immigration and the economy

         

In nineteen eighty-six, the two most prosperous decades in the history of the world were set in motion when President Ronald Reagan signed the amnesty for millions of unauthorized immigrants.  A decade later, unauthorized immigration was at an all time high.  Consumer demand exploded.  Who needs more than new immigrants?  Who has more irrational exuberance? 

There were billions of dollars freed by having all the immigrant labor to make and do things for us cheaper than we were willing to make or do them for ourselves.  The situation reeked of huge opportunities for anyone able to envision what all these people might want and a way to provide it.   

While arguing that high levels of illegal immigration caused the low unemployment as rates fell to levels that had once been thought unattainable, might seem counterintuitive, the truth is that for almost two decades even people without immigration status who spoke little or no English could get a job.  Now things are much different.  The big question is what happened?   

After the defeat of comprehensive immigration reform in the summer of 2007, Secretary of Homeland Security Michael Chertoff spoke about an impending crackdown on unauthorized immigrants, especially in the workplace.  He warned there would be economic hardship.  Many people had argued that getting rid of ‘illegal’ workers would make more jobs for legal workers. 

We started e-verifying about three years ago and millions of people self-deported.  Unemployment, however, is almost twice as high as it was just prior to the start of the crackdown four years ago.  The sudden drop in demand for goods and services the exodus of the self-deporting caused resulted in widespread job losses.  The worst damage to the economy was from the way the exodus diminished the array of job skills in our economy.  The loss of millions of hard-to-replace key workers and all of their hard-to-find job skills was a huge jolt to the economy.  The disruption was tremendous.  It turns out that people are not interchangeable.  Many businesses had to cut back or close operations.  Most of the jobs ’illegal’ workers had been doing were eliminated as were many of the jobs legal workers were doing.  That’s why unemployment is so high now. 

Our standard of living has fallen because we are no longer making as much from so little as before.  We suffered a sharp drop in demand for housing causing prices to plummet, especially in regions of the U.S. where most of the unauthorized immigrants had been living. 

Fiat money is a great convenience but a poor substitute for human action, as the Federal Reserve is finding out.  Being a magnet for cheap immigrant labor may be our most valuable comparative advantage.  People are good at coming up with new ways of making things that other people want.  Things that other people want become supply creating new demand for the creator(s).  Something others want is like a leverage to command new demand.  Value is subjective.  With more people, more things have more value.   

The best thing about immigration in particular is the diversity it provides.  That diversity creates a lot of new and different.  More than just stylish fun, new and different is the business model of our nation.  It is a model of making even more from perhaps a bit less.  Making more from less is the hallmark of capitalism.