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.

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.

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.