Will the RAISE Act Hurt America’s Economy? No.
Today, President Donald J Trump endorsed the RAISE Act, a controversial bill sponsored by senators Tom Cotton & David Perdue:
The RAISE Act would not only stop the practice of chain-migration (which opens the door for welfare abuse) but it would also cut the number of immigrants in half over the next decade.
Should the Act eventually get passed, it would be the biggest change to America’s immigration system since the 1965 Immigration and Nationality Act, which opened up the US borders to mass migration from the developing world.
President Trump has this to say about the RAISE Act:
This competitive application process will favor applicants who can speak English, financially support themselves and their families, and demonstrate skills that will contribute to our economy. The RAISE Act prevents new immigrants and new migrants from collecting welfare, and protects U.S. workers from being displaced. And that’s a very big thing. They’re not going to come in and just immediately go and collect welfare. That’s not going to happen under the RAISE Act, they can’t do that.
I wrote last week why cutting immigration would actually be good for America’s economy, but I think this subject deserves extra attention, in light of recent events.
Does Immigration Grow the Economy? No. Technology Does.
The natural argument against the RAISE Act is that it’ll hurt America’s economy. I’ve heard this time and time again—it’s simply false. Immigration has very little to do with real economic growth. Why? Because long-run production (economic) growth is a predicate of productivity, not population.
Let’s revisit how economic growth works: at its heart, economies grow when, and only when, either more stuff is made, or better stuff is made.
For example, America’s economy grows either when it makes more cars or grows more wheat, or when it makes better (faster, more luxurious) cars or more nutritious wheat. This applies to all forms of production, whether they’re goods or services. This point should be obvious.
Next question: how do we make more stuff? We have two options. The first is to work harder. What does this look like? Want more wheat? Plant more fields. More legal research? Work overtime. More bobbleheads? Build another factory. This is the archaic growth paradigm, and it boils down to the maxim: more input, more output.
Historically, growth this way was fueled by conquest, slavery, or immigration. Why? Because economic and population growth were synonymous. The problem with archaic growth is for you to get rich, someone else must become poor. Profit is zero sum.
The second way to make more stuff is to increase productivity; that is, make more stuff in the same amount of time. This is the industrial growth paradigm. This is how countries get rich. Why? Because it snaps the link between population and production.
Take Britain at the dawn of the Industrial Revolution. In centuries prior, if Britain needed more cloth, it needed more weavers. It was that simple. But then something changed: in 1785 a man named Edmund Cartwright invented something called the power loom, which made British weavers 40-times more efficient. Within a few years, textile mills across Britain employed power looms, and churned out more cloth than the rest of Europe combined. This generated exponential economic growth and unprecedented material wealth.
The significance of the power loom cannot be overstated: not only did it usher in the industrial age, it also changed how people thought about economic growth. It switched the paradigm from one that was population-driven to one that was productivity-driven. This continues to be true today.
The question shifts for a final time: how do we improve productivity? In the short run there are many options. We could drink more coffee, organize our labor more efficiently (think Henry Ford), or we could trade with more efficient producers. These work, but only to a point: we can only do things so efficiently with our current technology before we hit a ceiling. For example: no matter how freely the Dutch traded, their textile mills could not compete with Britain’s until they also used power looms. At this point it should be obvious: technology drives long-run productivity, and therefore economic growth.
Better technology is also how we make better stuff. Televisions are a good example. The first TVs were chunky boxes that emitted grainy, monochromatic pictures. Today, TVs are thin, elegant, and can produce more colors than we can imagine. Even if we were no faster at manufacturing TVs than we were in the 1930s, the improvement in quality would still have expanded our economy. Both quantity and quality are elements of economic growth.
The key takeaway here is that long-run economic growth is a predicate of technological growth—which is exogenous to economic models. It cannot be predicted, all we can do is increase the likelihood that innovation will take place.
This is the signal. Everything else—be it free trade or immigration—is noise.
How Will the RAISE Act Impact America’s Economy?
Now that you understand how economic growth works, the rest of the reasoning will fall into place.
Arguments against the RAISE Act are based on the archaic model of economic growth: they conflate production growth with population growth, the idea being that more immigrants means more people, and therefore a bigger economy. This is true, but it’s irrelevant.
Who cares how big the economy is? It doesn’t matter. What matters is how big it is per person—GDP is meaningless, it’s all about GDP per capita. Prosperity matters more than size. This point should be obvious to anyone who gives it a modicum of thought: would you rather live in Denmark or India? Denmark has a tiny economy, but each Dane has a big share, meanwhile India has a massive economy, but each Indian has a tiny share.
I’d pick Denmark. Every time. Any rational person would.
So the real question is this: do immigrants to America add more to GDP than their share? Is there a net benefit to immigration on a per capita basis?
There have been a number of massive studies on the topic, throughout the western world. In America, the National Academies of Sciences, Engineering, and Medicine found (in a 500+ page report) that mass immigration into America does not increase prosperity, it redistributes wealth from workers and the middle class, to corporations, the rich, and immigrants themselves.
How? In many cases it’s simply a case of supply and demand: more workers means more competition in the labor market, which means a lower labor price (wages). This is basic economics right here, and I’m shocked that more people don’t pick up on this fact.
Studies have been done in other western countries as well. For example, a study conducted by Denmark’s Ministry of Finance found that immigrants were a net drain on the Danish government, and consumed 59% of the surplus collected from native Danes. In short, immigration costs Denmark, big time.
The same thing was found in a study by the Fraser Institute in Canada: they found that mass immigration cost Canadian taxpayers a net $24 billion a year.
Again, another study focusing on immigration into the UK, conducted by the University College of London, found that the benefits of immigration into the UK are largely predicated upon the country of origin of said immigrants.
The study examined the impacts of mass immigration under the labor government’s immigration push between 1995 and 2011. What they found is that immigrants from the European Economic Area made a net positive, if small, contribution to the British economy of £4.4 billion. However, during the same period non-European immigrants cost the British economy £120 billion—the type of immigrant matters.
The RAISE Act will Help America’s Economy
And this brings me back to the RAISE Act.
The RAISE Act will be good for the economy because (i) it will lower the overall immigration levels and (ii) better-calibrate the type of immigrant coming to America.
Reducing the overall levels is important because America’s economy does not need additional labor: the labor market is already over-saturated as it is. Basically: unemployment is high and we don’t need to add fuel to the fire. This will help improve working condition and wages here in America (we have already begun to see this in Bar Harbor, Maine).
And, of course, fewer low-skilled immigrants means fewer welfare payments, and a reduced demand for government services.
Also, the RAISE Act will ensure that America gets high-quality, skilled immigrants—the kind of people who are most likely to help grow the economy. We should be bringing inventors into America, not laborers: this will help us grow our economy in the long run.
The RAISE Act will benefit America’s economy enormously. No question about it.