The Lump of Labor Fallacy

 

Paul Krugman is a professor of economics at an Ivy league university, the winner of a Nobel Prize in economics, and a columnist for the New York Times where he tries his best to explain economics to ignorant people like me. Sometimes he tries to explain the economics of immigration. He has written a number of articles on that subject for the New York Times.

He explained in one of those columns that there was a common fallacy among people who commented on immigration. In his colorful way he put it this way:

What did Kurt Vonnegut, the novelist, and François Mitterand, the socialist president of France from 1981 to 1995, have in common with Donald Trump? Both, at some point, believed in what economists call the lump of labor fallacy. This is the view that there is a fixed amount of work to be done and that if someone or something — some group of workers or some kind of machine — is doing some of that work, that means fewer jobs for everyone else.”

 

Donald Trump is a regular contributor to this fallacy. For example, he uses it again to explain why he believes in increasing tariffs at the border. Sometimes, tariffs are warranted, but Trump usually advocates them when they will do the most harm!  He makes the same mistakes when it comes to immigration—calling for restraints on immigration when the US really needs immigrants! Then he gins up his base to  hate the immigrants.

 We all know Trump is hostile to immigration but many of us don’t understand the false economic basis for that position. It is important for us to understand this so we don’t follow Trump’s hatred. Trump’s fallacy is followed by many people who are opposed to legal immigration and therefore it is particularly pernicious. It gives a false economic polish to animus that is very unhelpful in discussing an issue that is permeated with bias.

 

Paul Krugman has a colorful name for this economic mistake: “the lump of labor fallacy.” He also refers to it as a zombie idea. By that he means an idea that has long been discredited but keeps on influencing people anyway “eating people’s brains” along the way. These are ideas we really must get rid of.

 

Another example Krugman frequently lambasts is the trickle-down theory of economics which says giving tax breaks to rich people is better for non-rich people than giving them actual cash. That idea too has long been discredited but clings to life among those people who most benefit from it—i.e. rich people.

Funny how that works. Not.

Such fallacious ideas make it much more difficult to solve problems that are already difficult–problems like immigration.

Side Benefits of More Immigration

 

There is another huge economic benefit to immigration that is often forgotten by my American friends, as Paul Krugman pointed out:

 

immigration appears to have been a big plus for U.S. economic growth, among other things expanding our productive capacity in a way that reduced the inflationary impact of Biden’s spending programs.”

 

In other words, if it were not for immigration inflation in the US would probably have been worse!

There is another added bonus caused by immigration: If immigration is not squelched by a new Trump administration or something similar, or deportation is not radically increased, those immigrants will help pay for Social Security and Medicare in the US.  The independent and non-partisan Congressional Budget Office .B.O expects that 91% of new adult immigrants between 2022 and 2034 will be under 55 compared with 62% for the overall population.  Those are people that pay into those social programs. The rest are more like what Hitler called useless eaters. People like me. Seriously, that means there will be a lot of additional workers contributing to these programs without drawing from them for many years.

Paul Krugman had an interesting conclusion about all of this:

 “The bottom line is that while America’s immigration system is dysfunctional and really needs more resources — resources it would be getting if Republicans, pushed by Trump, hadn’t turned their backs on a bill they helped devise — the recent surge in immigration has actually been good for the economy so far, and gives us reason to be more optimistic about the future.”

 

I think my American friends should take a closer look at the economics of immigration.

 

 

Economic Reality at the Border

 

The American economy in the post-pandemic has been amazingly strong to the surprise of many—particularly the American right and their supporters. Of course, it doesn’t help that the Republicans have a strong interest in persuading the American public how bad the American economy is working. It is in their interest to deny that the economy is doing well, just as it is in the interest of the Democrats to say the economy is doing swimmingly. Added to that, the Republicans are interested in proving the weak economy is very much the fault of immigrants. In fact, they blame nearly everything on immigrants, their favourite scapegoat.

So where does the truth lie? Let’s take a look.

According to Paul Krugman the Nobel prize-wining economics professor the American economy is doing surprisingly well and not only that, but the cause of the buoyancy is also surprising. Immigrants are driving the economic boom.  According to him, “immigration is helping the U.S. economy — indeed, that it may be a major reason for our surprising economic success.”

 

Krugman pointed out how during Covid many people were deeply concerned that millions of American workers would lose their jobs and as a result many of those would lose their skills. Many of those might permanently lose skills. Investment and new business did in fact drop, but economists at the American Congressional Budget Office made projections just before Covid struck and then later realized some fascinating things. First the fears many Americans had that because of Covid millions of workers would be laid off and would leave the work force for good. That did not happen.

As Krugman explained

“If we compare the current state of the U.S. economy with Congressional Budget Office projections made just before the pandemic, we find that real G.D.P has risen by about a percentage point more than expected, while employment exceeds its projected level by 2.9 million workers.

How did we do that? American workers and businesses turned out to be more resilient and adaptable than they were given credit for. Also, our policymakers didn’t make the mistakes that followed the 2008 financial crisis, when an underpowered fiscal stimulus was followed by a premature turn to austerity that delayed a full recovery for many years. Instead, the Biden administration went big on spending, probably contributing to a temporary burst of inflation but also helping to ensure rapid recovery — and at this point the inflation has largely faded away while the recovery remains.

 

Instead of driving down the American economy as Trumpsters feared, immigration actually increased the economic potential of the economy. As Paul Krugman said in one of his series of New York Times articles on the subject,

“The budget office recently upgraded its medium-term economic projections, largely because it believes that increased immigration will add to the work force. It estimates that the immigration surge will add about 2 percent to real G.D.P. by 2034.”

 

As a result Krugman concluded, “there is no good evidence that immigrants are taking away jobs from workers born in America.

 

Here is another unjustified common concern: Immigration will put downward pressure on wages because relatively uneducated immigrants will compete with better educate native born Americans. Krugman actually said he once believed that too. So did I. But unlike Krugman I am not a Nobel Prize winning economist.

Krugman says studies have shown that immigration has very little effect on the wages of native-born workers even when they have similar education levels. He says this is because the immigrants often complement the native born workers because they bring different skills to their occupations. They work together well! As Krugman said,

“Have wages for lower-wage workers declined? On the contrary, what we’ve seen recently is a surprising move toward wage equality, with big gains at the bottom.”

 

I was constantly told by friends in the US that immigration was wrecking the economy because the immigrants were taking advantage of the system. I t looks like that was not true.

Can Canada teach the world something?

 

In the last few years I have been shocked by the number of people in my small home town of Steinbach  who don’t look like the people who used to live here. I am used to a community filled with immigrants from Europe, particularly from Russia, Germany, France, Ukraine and the like. But things have changed drastically. Now when I walk through town or go to a restaurant like MacDonalds I am amazed at how many of the people there look like they come from other places—places like Asia. And from all over Asia. Some people are concerned about that. Some people feel threatened by that. I don’t. I love the diversity. There are good people in the world who aren’t Mennonites. What has led to such enormous changes?

Some countries noticed what it was that made America so prosperous. According to Robert Guest, it was the openness to immigration. Welcoming people from all sorts of places was good for the economy. Building walls was bad for the economy.

 Canada was a good example of a country who saw the benefits of immigration. America’s population is 14% foreign born while Canada’s population is now nearly 23% foreign born. Canada has said it wants to bring in 1.5 million new immigrants in the next 5 years.

Now that also brings problems in its train. After all, where can we house these people? And how will this drive inflation? These are major concerns so Canada must be smart about how it admits people into the country. And it hasn’t always been smart.

 Many people in Canada—not everyone—can see that immigration is not a threat to Canada. It is an opportunity for Canada!

 As Fareed Zakaria pointed out,

  “Study after study has shown, immigrants are world class entrepreneurs. Over 40% of Fortune 500 companies were founded by immigrants or their children. Immigrants in America are 3 times more likely to start a business than the native ones, by one count.”

 

Canada is expecting a similar return on investment. Canada has not opened its borders either. It carefully chooses who is allowed into the country. According to Zakaria, “since the 1960s Canada has a forged a unique approach to immigration favouring immigrants with the skills that their country needs.”  Robert Guest says Canada has been cherry-picking by making sure it gets immigrants it really needs. But isn’t that the best for the host country and the immigrants? Zakaria says, “Canada’s merit-based system has become the gold standard, copied by Australia, Singapore, the United Kingdom, and now Germany.” Who would have known?

Germany also has a similar labour shortage. It too needs immigrants. Germany has also been working on a merit-based immigration policy so that crucial job openings can be filled.

But, as Zakaria, says, “While other countries are opening its doors, America is falling behind.”  As immigration attorney Rachel Self put it: “These countries are going to be better than us some day, because we aren’t allowing the best to come here anymore!” During the brief, but too long reign of Donald Trump and Stephen Miller America actually refused entry to a lot of proposed immigrants from the tech industry that it very much needed. It even kept people away from its universities. None of this was smart.

Canada should not fall into this trap. We must remember smart immigration is smart economic policy.

 

A New Immigration Crisis

 

Paul Krugman is not the only one who recognizes how important immigrants are for the American economy. Fareed Zakaria also knows that as he explained in his 2023 CNN special report.

 

Zakaria pointed out how Under Trump legal immigration plummeted by 2/3rds. And Trump tried to build a wall to keep out those seeking sanctuary. Trump was no John Kennedy.  As Zakaria said, “those new policies led to a new immigration crisis.” And no one talked about it.

 

This crisis was brought on by a sharp demand for immigrant workers for jobs Americans no longer wanted. There were 2 job openings in the US for every job seeker. As Fareed Zakaria said, “Populist politicians are right. America is facing an immigration crisis.  It was just not the crisis they thought it was.

 

Donald Trump said he would send a message to all the immigration and asylum seekers that “our country is full.” As Zakaria said, “The real crisis is not that too many immigrants have made it to the US, it’s that we aren’t letting in nearly enough.’

 

Part of the reason for this is that American women decided not to have babies. Zakaria said, “America is in the middle of a baby bust.” The American birth-rate had fallen below the replacement level. The Americans being born were less than those dying. That is not good for an economy. Starting during the Trump regime, because the numbers of immigrants dropped so sharply, the country was “cut off from the workers we so desperately need” said Zakaria.

 

This then fanned the flames of inflation. There were too few workers pursuing too many jobs. And this started during the Trump administration partly as a result of declining numbers of immigrants. America, not Mexico was paying a big bill for the wall Trump was building.

 

The author Robert Guest, another person who recognized the importance of immigrants,  said America had 3 options: “you can either have more babies, or you can welcome more immigrants, or you can dwindle and fade into stagnation and irrelevance.” The first option according to experts just won’t happen. The last alternative is not very attractive to Americans who insist on being #1 in everything except justice. That leaves more immigration not less. Otherwise, the labour shortage will continue and social security will become unsustainable. As Fareed Zakaria said, “instead we have chosen the third—stagnation. Refusing to let in more foreign workers according to one estimate could cost the US economy 9 trillion dollars by 2030.

That would make the loss of immigration more expensive than their vaunted military!

For years it has been my belief—an unpopular belief—that the justification for countries to impose barriers to immigration are dubious. After all, what gives us the right here in North America the right to keep others out? Everyone wants to control immigration, but few can give rational justifications for it, other than personal preference. We want the right so we must have the right. But is it really that simple?

Once again Americans, particulars those who follow demagogues, have chosen to vote against their own self-interest, when they voted for Trump.  As Robert Guest said, “If everyone in the world who wanted to move could move, by one estimate the total income of humanity would double!” This would happen as people from less affluent economies moved to more prosperous economies.

The world needs more immigration!

 

 

 

Trump and Miller are wrong-headed about Immigration

 

During my last week in Arizona, I was at a small party where the Americans were complaining that there were a lot of jobs that just weren’t getting done. I spoke up loudly (OK too loudly) that the problem with the United States was that it needed more immigrants.  Everyone was quiet. I think I was right. 

The position of Trump and Miller on immigration was wrong-headed, because it was motivated by resentment against immigrants rather than an honest evaluation of the role they have played in the American economy. As Paul Krugman explained,

 

…negative views of the economics of immigration are all wrong. Far from taking jobs away, foreign-born workers have played a key role in America’s recent success at combining fast growth with a rapid decline in inflation. And foreign-born workers will also be crucial to the effort to deal with our country’s longer-term problems.

 

Many Americans don’t realize how well the United States has done at recovering from the pandemic. The Republicans in particular blame Biden, when really they should be acknowledging that in many respects he was right about how to deal with the consequences of the pandemic. Even though they spent an enormous amount of money trying to recover from the pandemic, the US has managed to stand-out compared to other western countries because it has combined disinflation with remarkably vigorous economic growth. According to Krugman, a stellar economist, the problem is that there has been an extraordinary growth in the American labor force. And where did that growth come from? It came from Immigrants!

This is what Paul Krugman said,

How much of that growth was due to foreign-born workers? All of it. The native-born labor force declined slightly over the past four years, reflecting an aging population, while we added three million foreign-born workers.

Did those foreign-born workers take jobs away from Americans — in particular, native-born Americans? No. America in early 2024 has full employment, with consumers who say that jobs are “plentiful,” outnumbering those saying jobs are “hard to get,” by almost five to one. The unemployment rate among native-born workers averaged just under 3.7 percent in 2023, as low as it’s been since the government began collecting the data.

In fact, I’d argue that the influx of foreign-born workers has helped the native born. There’s a large research literature on the economic impact of immigration, which consistently fails to find the often predicted negative effects on employment and wages. Instead, immigrant workers often turn out to be complementary to the native-born work force, bringing different skills that, in effect, help avoid supply bottlenecks and allow faster job creation. Silicon Valley, for instance, hires a lot of foreign-born engineers because they bring something additional to the table; the same is true for workers in many less-glamorous occupations.”

There is no doubt that the pandemic produced enormous stresses on the economy and immigrant workers have helped to resolve those disruptions. This is how

Krugman put it this way:

 Foreign-born workers are crucial to America’s fiscal future. To a first approximation, the federal government is a system that collects taxes from working-age adults and spends much of the proceeds on programs that help seniors, such as Medicare and Social Security. Cut off the flow of immigrants, who are largely working-age adults, our system would become much less sustainable.

So while the mess at the border needs to be fixed — and could be fixed if Republicans would help solve the problem instead of exploiting it for political advantage — don’t let that mess obscure the larger reality that immigration is one of America’s great sources of power and prosperity.”

 

Americans should stop scapegoating immigrants for their imaginary problems and should instead be embracing them for helping Americans get through the pandemic and the economic problems it created. As Krugman said in another Times article:

“There is “growing evidence that immigration is helping the U.S. economy — indeed, that it may be a major reason for our surprising economic success.

America needs immigrants and benefits tremendously from them. Republicans don’t like that message, but it is true.

 

Hostility to Immigrants is exactly counter-productive

 

The fact is that Donald Trump and those he surrounds himself with, like Steven Miller, who drafts most of his immigration policies, such as the “Muslim ban,”  actually don’t like any kind of immigration at all. Or at least any immigration other than immigrants with extraordinary qualification. As economist Paul Krugman said,

“Trump and those around him are profoundly hostile to immigration in general. Partly this is xenophobia, if not outright racism. If you repeatedly declare, as Trump has, that immigrants are “poisoning the blood of our country,” you don’t really care if they came here legally, you’re all but saying that what matters is whether they’re white.”

 

But there is more to it than that. Trump and his minions don’t understand how immigration affects employment and the economy. Neither did I until I read Krugman.  This is what he said, “People close to Trump have a zero-sum view of the economy, in which every job taken by someone born outside the United States is a job taken away from someone born here.” They don’t realize that the work of one immigrant worker can add to the work needed of other Americans.

But Trump and his fellows believe that work done by one immigrant always take away jobs from other Americans. The architect of Trump’s policies, Here is how Trump and Miller screwed things up:

“Back in 2020, Stephen Miller, one of the architects of Trump’s immigration policies, told Trump supporters that one of the goals was to “turn off the faucet of new immigrant labor.” Remarkably, Trump issued an executive order meant to deny visas to highly skilled foreigners, many working in the tech sector. Miller and his boss apparently believed that this would mean more plum jobs for Americans, when what it would actually do was undermine American competitiveness in advanced technology.

 

America needs a lot of those workers it is trying to keep out of the country.By relentlessly attacking immigrants, Trump was making things worse for American workers!

Myths and Realities about Immigrants

 

Immigration issues are top and center in the current America election cycle. Talk to anyone here and they have opinions about immigration or the crisis at the border.

A Recent PBS poll showed immigration was the number one issue in the current political races for the US Senate, House of Representatives, and Presidency. This is particularly true in a border state like Arizona where we have been living. Everyone is willing to opine about immigration even people like me who know little about it. I have been trying to learn more while I have been here.

Many of the people I have talked to here in Arizona think refugees get all kinds of lavish benefits far beyond anything American citizens get. For example, I was told by a good friend here that they are entitled to a car!  My research indicates that is not true. Added to that, many Americans think refugee claimants are taking jobs away from Americans so they harm the poor in America.

Moreover,  many of Americans are convinced that the immigrants are responsible for a “crime wave’ in the country. Remember Trump called Immigrants rapists and murderers on the first day of his campaign in 2015! That continues to be Trump’s view and we must also remember that to many people—I call them Trumpsters—whatever Trump says on the issue is “gospel” truth whether there is any evidence to support them or not.  I choose that word advisedly because they treat him like a religious leader. Many of them nearly worship Trump. Trump himself has likened himself to God.

I want to consider some of these claims. I may make mistakes in this quest. If so, I urge my readers to correct me.

One of the economists I like to read is Paul Krugman who is Princeton professor of Economics as well as a New York Times columnist and winner of the Nobel Memorial Prize in Economics in 2008. I confess he has a definite left-wing slant. I like him because he writes clearly on economics so a peasant like me can understand much of what he says.

First, he begins with the fairly obvious proposition that almost all modern nations will not tolerate open borders, and contrary to what Republicans in the US say, Democrats don’t advocate for open borders.

Very few people argue in favor of allowing anyone to choose to live in whatever country he or she wants to live. I have never met anyone who says that. As Krugman said, “The good news is that America doesn’t have open borders, and there is no significant faction in our politics saying we should. In fact, immigrating to the United States legally is fairly difficult.”

 Yet, Krugman admits that there is also bad news. That is that America has a very hard time enforcing its current rules.  The main problem though is that the authorities have inadequate resources to deal with the problem. Republicans in particular love to complain, and campaign on the “disaster at the border,” but they don’t want to pay the money to fix the problem however.

 

The most recent example of this reluctance was where the American House of Representatives rejected without even voting on it, the recent bill proposed by a group of non-partisans in the Senate. This group of non-partisans got the Democrats to agree to surprising compromises because they realized the American public was blaming them for the “disaster” at the southern border. That was why Trump instructed his sycophants in the House to reject the proposal which offered the toughest immigration laws in a generation! It also would provide sufficient funds to deal with the problem. At least more than has been allocated in the past. As Krugman said,

The reason they don’t have those resources is that many Republicans in Congress, while fulminating about a border crisis, appear determined to deny the needed funding. Their position is rooted in extraordinary political cynicism, and they aren’t even trying to hide it: Donald Trump has intervened with Republicans to block any immigration deal because he believes that chaos at the border will help his election prospects.

 

That is one of the problems, the Republicans want to rail against the catastrophe at the border but make no proposal to deal with it, reject advancing more money as the non-partisans agree. Instead, they want to rail against the problems because they know their supporters will jump to scapegoating the Democrats for everything that is wrong at the border.

I intend to examine in particular the economic realities at the border, which are very different from the economic myths.

Make America White Again

 

By cutting immigration so drastically, the American Immigration Act of 1924 brought huge changes to the United States. It created a new country. A less welcoming country. It revealed a country riddled with racism. As if there was ever any doubt about that. As Zakaria said, “The country got whiter and more monocultural.”

This is the country many American conservatives want back again when they beg to take America back, or make America great again. They are really saying, they want America to become white again.

Things changed again in the 1960s. As Fareed Zakaria said,

“In 1965 freedom and racial equality were on the march from Selma to Montgomery. Yet in America immigrants were basically allowed on the basis of the color of their skin. Asians, Africans, and other racial groups were severely restricted. The race-based immigration system that began in the 1920s, which Adolf Hitler had admired was still going strong.”

President Lyndon Johnson signed a number of different laws which were designed to establish, he said, that America would be colour blind when voting, going to school, and choosing its immigrants. The new immigration laws would usher in a much more diverse country filled with immigrants from around the world.

According to Zakaria,

“this demographic revolution happened largely by accident, thanks in part to a Congressman who wanted to keep America white. By the 1960s the racist authors of the 1924 Immigration Act got exactly what they wanted. American was overwhelmingly white.”

 

As Jia Lynn said, “ They wrote laws to ensure that that would happen. And it worked.” The percentage of foreign-born Americans dropped by nearly 2/3rd. There was no more American melting pot.

However, after seeing what the Nazis did in Germany, many people began to understand that a race-based immigration policy was not only wrong, it was wooden-headed. It made no sense. It excluded too many people America needed. Look what Jews like Einstein and Oppenheimer had done for America. Americans did not want to be like the Germans.

Those race-based immigration laws shut out too many good people. Even war heroes were held back. Even some Holocaust survivors were not allowed into the country while Nazis gained entry. Truman signed a new law allowing many new immigrants to come to America. This law had widespread support. But even Truman, who hated the race-based system was not able to have it ditched.

 

The Dark History of Immigration in America and Canada

 

As Fareed Zakaria, an immigrant himself,  said,

“The Ugliest crusade against immigrants [in America] happened in the 1920s. A huge wave of immigrants was landing in America, the largest wave this country has ever seen. 100,000 people a month arriving on Ellis Island. Italians, Hungarians, Italians, Russians.”

Randall Kennedy noted that this included,

the so-called ‘good Europeans’” Great Britain, France, Scandinavian—those were ‘the real whites’, the good whites, but then you have these Jews from eastern European and Italians from southern Italy, they were actually viewed as different races…”

 

The racial categories were actually elastic so that they could be stretched as circumstances warranted. So, for example, for a while Italians were viewed as non-whites.  Remember, racism is nothing if it is not irrational. There is no scientific basis for concepts of race. We are all homo sapiens.  The racial categories are non-existent and have no basis in science. Racism is about emotions, not facts.

 

As Randall Kennedy pointed out, at times Hungarians are considered a race. At other times Czechoslovakians are considered a race. Jews were a race, Irish were a race. As Kennedy said, “they are viewed as lesser.”

That is really what the concept of race is all about. Labelling some people as less worthy based on bias and only bias.

Many of them ate strange foods, worshipped odd gods, had weird customs, ate distinct foods, dressed differently, spoke unusual languages, and were existentially “the others.” This was all new to America and many were not pleased. As Zakaria said, “All of it horrified America’s wealthy elite. The blue bloods of Park Avenue and Fifth Avenue.”

As Jia Lynn Yang, the author of One Mighty and Irresistible Tide said, “They begin to freak out and say we can’t allow these hordes of immigrants who are so different from us and are going to change our country. These immigrants threaten everything we hold dear about America.” Of course this is exactly what many in America are saying right now. There is nothing quite as scary as the foreign other. Irrational distinctions of race or caste are used as the basis of hierarchies.

A bunch of people who considered themselves as the best and brightest of America got together to come up with a plan about how the country should deal with this invasion of others. Many of them referred to the “scientific study” of so-called “inferior races.”  This dubious science was called eugenics. It was racism under a cloak of pseudo-science. Hitler took these ideas from Americans whom he admired. Whether you were a dependable candidate for immigration or not depended on your racial origin.

As Randal Kennedy said, “We want to basically freeze the racial/ethnic composition of the United States.” Eugenics was referred to as “the self-direction of human evolution.” As Zakaria said, “the eugenicists believed the new immigrants were physically and mentally defective.”

Just like the modern anti-immigrants, they believed the immigrants were largely more susceptible to diseases, more likely to commit crimes, they stank, could not be trusted, were lazy, looking for handouts rather than jobs, and many other ills.

As Zakaria pointed out, “If it looks and sounds like Nazi Germany, Adolf Hitler embraced American eugenics.” He praised Americans and said we can learn from the Americans.

These anti-immigrant Americans showed up in Washington to influence the political leaders. They came with their pseudo-sciences, and their experts ready to testify. As Jia Lynn Yang said, “They came to Congress and said it’s not you being racist or prejudiced, we have science to back this up.”

The politicians bought this and enacted the most restrictive legislation in the history of the country. Congress passed a new Immigration Act in 1924,  [one year after my parents immigrated to Canada where they were also met with some racism]. Racism was everywhere. The result of the new law was to cut immigration sharply from countries around the world. It “put rigid quotas on so-called ‘undesirables’ ”. Or as Randall Kennedy said, “they shut the door. They cut immigration to the United States by 97%.”

It seems that many groups, after they have “made it” to Canada or America want to close the moat behind them.