Yes, it was immigration
Matt Yglesias directed me to a new CBO report, which confirms that immigration explains the recent GDP boom:
In our projections, the deficit is also smaller than it was last year because economic output is greater, partly as a result of more people working. The labor force in 2033 is larger by 5.2 million people, mostly because of higher net immigration. As a result of those changes in the labor force, we estimate that, from 2023 to 2034, GDP will be greater by about $7 trillion and revenues will be greater by about $1 trillion than they would have been otherwise. We are continuing to assess the implications of immigration for revenues and spending.
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10. February 2024 at 09:48
see: https://mishtalk.com/economics/tax-cuts-not-bidenomics-explains-surge-in-consumer-spending-in-2023/
see: https://kevinerdmann.substack.com/p/accidentally-testing-ngdp-level-targeting?utm_source=post-email-title&publication_id=1021975&post_id=141443043&utm_campaign=email-post-title&isFreemail=true&r=g3zwa&utm_medium=email
The FED doesn’t know a debit from a credit, money from mudpie, a bank from a nonbank.
Link: George Garvey:
Deposit Velocity and Its Significance (stlouisfed.org)
“Obviously, velocity of total deposits, including time deposits, is considerably lower than that computed for demand deposits alone. The precise difference between the two sets of ratios would depend on the relative share of time deposits in the total as well as on the respective turnover rates of the two types of deposits.”
Both TMS and Divisia aggregates rates-of-change have already turned negative. But money flows, the proxy for inflation, has yet to fall below zero.
10. February 2024 at 10:25
The pervasive error in economics is the idea that banks are intermediaries in the savings->investment process.
Powell: “When times are good in the economy, banks and other lenders tend to have a lot of money to LEND. And in case you didn’t realize, banks are in the business of making money off of loans. So if they can LEND to more people who they believe will pay them back on time, they’ll make more money.
But right now it’s costing banks more to get the funds they need to make loans. Part of that goes back to the Fed’s interest rate hikes. But the other part comes from the recent bank failures. Since many depositors withdrew money from mid-size and regional banks, these banks have less money to LEND.”
Every time a bank buys securities from, or makes loans to, the nonbank public, it creates new money – demand deposits, somewhere in the payment’s system.
It’s a confusion of microeconomics with macroeconomics.
Link Dr. Richard Werner:
https://www.educatedinlaw.org/2017/03/banks-dont-take-deposits-banks-dont-lend-money/
10. February 2024 at 11:54
Dr. Werner doesn’t go far enough. All bank-held savings have a zero payment’s velocity. It’s stock vs. flow.
Dr. Philip George explains the “demand for money”
http://www.philipji.com/riddle-of-money/
The composition of the money stock has undergone a big change, there are now historically, percentage wise, more transaction’s deposits than gated deposits. This is fueling N-gDp.
10. February 2024 at 11:59
I think that I read a summary of this, or maybe it was a different study. It came to the rather obvious conclusion that immigrants that work in low wage jobs tend to make the fiscal situation of the government worse, and immigrants that work in high wage jobs tend to make the fiscal situation of the government better. It seems obvious to me that Democrats should as a party adopt a policy of greatly restricting immigration of people whose family will consume more in government expenditures than they contribute in taxes, and expanding immigration of people who will earn high wages and pay more in taxes than their families consume in government resources. Conservatives would still complain, but complaining about foreign born doctors, scientists, engineers, etc. seems a lot more like envy and hence petty and embarrassing. Like what kind of loser complains about people who give more than they get?
10. February 2024 at 13:12
Lizard Man, it seems obvious to me that you have no clue what you’re talking about.
10. February 2024 at 14:24
Immigration. You must be talking about the Black Market. Many Mexicans live in shelters and wire their earnings back to their families in their home country.
10. February 2024 at 15:43
How beautiful.
10. February 2024 at 17:02
Looking at the details on immigration in CBOs analysis here https://www.cbo.gov/publication/59899#_idTextAnchor023 it looks like most of the additional immigration is illegal immigrants. My understanding is that illegal immigrants are not allowed to work, but can, of course, work for cash in the black market. Seems like a surge in illegal immigrants would not boost the official labor force.
10. February 2024 at 17:43
Tim, Illegal is a vague term. Many of them are undocumented workers seeking asylum. They can work while their asylum claims are being processed, which takes years. I sometimes use the term “illegal”, but it doesn’t accurately describe those seeking asylum through the legal process.
10. February 2024 at 20:07
I’m glad to see we’re benefitting substantially from our new guests. It would be very stupid to try to force them to leave someday.
10. February 2024 at 22:10
[…] From Scott Sumner: […]
11. February 2024 at 06:23
Yeah, that’s enough immigrants to bankrupt lots of hospitals.
11. February 2024 at 10:07
Michael, Trump says he wants to expel them. Getting rid of our workers and putting 60% tariffs on imports should help to bring inflation down—right?
12. February 2024 at 00:42
The Trump Recession Plan seems to have these elements:
-A tax increase in the form of that 60% tariff
-A tax cut–presumably broad based to offset the tariffs but with the most impacts on the upper brackets
-More fossil fuel production, with cuts to subsidies for alternative energy systems
-No immigrants–legal or otherwise
-A new Fed chair, presumably one who would do Trump’s bidding (might be hard to pull off, but don’t underestimate the Orange Messiah)
As a thought experiment, here’s how I think things would play out if most of this plan were put into action:
-Major upheaval in markets as investment shifted from multinational manufacturing to domestic sources. If the tariffs apply to Mexico and Canada things will be pretty bad because of those network effects are significant. Even if they are exempted it will be tough for domestic production to make up the slack of reduced inputs from Asian and European sources.
-A sustained period of price inflation in most goods and services because of the pass on effects of tariffs and a diminishment of labor resources because of the immigration crackdowns. Real estate values might continue their path towards some moderation because reduced immigration should temper demand in many regions. Gas prices will be pretty stable because we’re already at max domestic oil production. Major agricultural export prices will collapse but this will probably be offset by cash payments to Midwest farmers because that’s a political no-brainer.
-While this is going on the Fed has slashed rates, which although contrary to the probable trends in wage and price inflation, is consistent with Trump’s desire for low rates.
-The deficit will grow considerably and I think that bond markets will start to demand higher rates. This will probably start to dampen cash availability for the domestic companies that are trying to reshore production with a diminished labor force and higher input costs across the board.
-Demand starts to collapse across a broad array of sectors which leads to a stagflation style recession for a few years. Absent changes to any of these policies, the high inflation could reverse course as the stagnation transitions to a more conventional deflationary recession with sustained price collapses in real estate values and eventually, domestic wages.
So, in general, things would go from bad to worse. I suppose that there would be some massive deregulation which would benefit domestic production. Any relaxation of environmental regulations would be offset by the immigration crackdown. Who will slaughter pigs and pick lettuce? Maybe there will be a guest worker program established like they do in Gulf states to keep a labor pool for dirty jobs. Think of the profits to be made by companies who manage such a system!
12. February 2024 at 13:29
Spencer,
Studies have shown that immigrants, legal or otherwise, are net contributors to the economy and even to government revenue. They add to the labor force and productivity growth. There are no downsides I can see. It’s a win-win.
I’d love to see unrestricted visas. Let as many come here and stay and work as long as they like. We should be very selective about who can become a citizen, but legal residency should be automatic for all non-criminals. That way, their impact on politics will be limited, though any children born here would automatically be citizens.
12. February 2024 at 16:00
Multiculturalism, as Merkel pointed out in Germany, is a fiction. It doesn’t work.
There is a difference between soup and a stew.
A soup is smooth; all of the different components melt together as one. We can think of this as the adoption of values, or simply abiding by the law. Stew, on the other hand, clumps together, rather oddly, sometimes viciously, and thus crime, unrest, and polarization in general begins to increase rather signifcantly.
Now let us take at look at the border situation:
An El Salvadorian illegal entered a Texas church, and fired upon Christians. The gun used in the attack had the inscription ‘free palestine’ on the handle.
A young police officer was stabbed to death on the border by an illegal immigrant from Venezuela.
A ten year old boy was killed in a hit and run by an illegal who was a wanted criminal. He was previously deported five times for assault and battery.
Crime on the border is a daily occurrence. These are just a few examples. Each day brings more crime.
So even if you cling to the false idea that all immigration leads to an increase in GDP (disputed by other commenters), one ought to remember that there is more to a society than GDP. Humans are not numbers.
History shows that multiculturalism leads to polarization and civil wars. Look at Africa. Look at what is happening in places like Nigeria, where Christians have been hunted and slaughtered. These are black people killing black people, simply because they have different values.
America has a history of immigration, but up until now it’s been carefully measured immigration. The Irish who came here had jobs waiting for them. They were not housed in hotels with taxpayer money. They lived in boarder housing funded by the company they worked for.
In other words, they had work permits when they got off the boat. They had to reside in Ireland until they got the paperwork.
The crazies who only see skin color, like Scott, will scream ‘you just don’t like them because their brown’.
Um, no.
We are talking about culture here. You have to move past the skin-color for a moment, a difficult ask for some bimbos, and look at the culture.
Not all people can assimilate.
As such, the U.S. would be advised to take the approach of other countries who allow workers, but don’t allow permanent citizenship.
For obvious practical reasons, Asylum was meant for political dissidents, not economic migrants. If everyone could pack their bag and move to a rich country, everyone would be in Singapore or Luxembourg.
12. February 2024 at 17:08
“My understanding is that illegal immigrants are not allowed to work, but can, of course, work for cash in the black market. Seems like a surge in illegal immigrants would not boost the official labor force.”
Yes. Exactly.
“Tim, Illegal is a vague term.”
Wrong! It’s not a vague term. There is nothing ‘vague’ about being illegal. If you enter without going through a port of entry, then you are an illegal.
“I sometimes use the term “illegal”, but it doesn’t accurately describe those seeking asylum through the legal process.”
I could care less about your PC virtue signaling. Trump should deport all of them. If you want to work in America, get sponsored by a company, go to the embassy and show them the sponsorship papers.
“Many of them are undocumented workers seeking asylum. They can work while their asylum claims are being processed, which takes years.”
Incorrect! You just received a failing grade. Under the Immigration Reform and Control Act of 1986, it is illegal for employers to knowingly employ undocumented workers.
12. February 2024 at 17:48
Edward,
You’re simply wrong about the term “illegal” when it comes to immigrants. Most of the “crisis” at the border involves immigrants legally using ports of entry and filing for asylum though most of them won’t meet the criteria for that status. Due to a shortage of judges to render decisions on such claims, such filers are able to remain in the US for years while awaiting final determination.
Also, not all laws are just and should be followed. Jim Crow laws were unjust and almost no one today opposes the resistance to these laws by those in the civil rights movement. Similarly, few think it was a bad thing to ignore Prohibition.
13. February 2024 at 05:33
The illegals in Denver are ransacking the outlying small towns at night. There has been lots of crime. It’s out of control.
13. February 2024 at 07:27
spencer,
Even if that were true, it represents an anecdote around a single city. It doesn’t warrant restricting immigration. Your bias is showing.
13. February 2024 at 20:50
Edward, You said:
“Incorrect! You just received a failing grade. Under the Immigration Reform and Control Act of 1986, it is illegal for employers to knowingly employ undocumented workers.”
Wrong again:
https://www.uscis.gov/humanitarian/refugees-and-asylum/asylum
They must wait 180 days to get a work permit.
Perhaps you should spend less time with creepy searches of my twitter history and find out something about the world.
14. February 2024 at 06:48
@Michael Sandifer:
Yeah, I’ve seen the figures. Immigrants filled the employment gap after 2019.
Not only do the illegals work hard, but they are largely very polite.
But my father, an endocrinologist, was CEO of Long Beach Hosp. The illegals going through the ER almost broke the Hosp. The fact is the U.S. cannot afford the volume of illegals entering this country.
14. February 2024 at 08:08
spencer,
You replied with another anecdote. Immigrants, even when illegal, which many coming into the country currently are not, are net contributors tax-wise, so any problems with hospital financing have nothing to do with immigration itself. Have to look beyond seeming proximate causes.
14. February 2024 at 10:26
I’ve got lots more. But I’d defer to the disproportionate Latino’s population growth.
14. February 2024 at 14:40
It’s nothing short of an invasion. Just take a trip down to your Family Support Division in your city and observe, firsthand, the makeup of the welfare recipients.
14. February 2024 at 17:55
“Invaders” who come to offer needed labor and increased productivity growth, while being net taxpayers? I would call them “guests” and welcome as many as will come.
14. February 2024 at 23:57
Rubbish. Immigration won’t save the economy from the upcoming collapse and desintegration of the US. One Scott Sumner should hereby ask Steve Keen on why this in inevitable.
15. February 2024 at 06:08
Replacing the skilled with the unskilled.
15. February 2024 at 08:14
My understanding is that immigrants (and their families) working in low wage jobs on net consume more in government resources than then they pay in taxes. Given the cost of health insurance just about anyone who gets marketplace subsidies or Medicaid is getting more in benefits than they pay in taxes. And yes, illegal immigrants aren’t eligible for Medicaid except during medical emergencies, but their children frequently are eligible for those benefits.
15. February 2024 at 10:24
Lizard Man,
It’s a nuanced issue for the lowest wage immigrants. Here’s a detailed Cato perspective, for example:
https://www.cato.org/blog/fiscal-impact-immigration-united-states
It’s much less nuanced when one moves beyond the impact of first generation low wage immigrants, and considers subsequent generations. The net benefit seems undeniable.
Don’t forget that even the least productive immigrant workers improve productivity via comparative advantage, meaning you can’t just look at their productivity alone to assess their impact on economic growth.
15. February 2024 at 10:26
spencer,
“Replacing the skilled with the unskilled.”
What does that even mean? The unskilled are replacing the skilled? Even if true, if the wage savings are large enough, how is this not economically efficient?
Why should you tell employers who they can hire? Are you a communist?
15. February 2024 at 11:15
Lizard, Our budget deficit was reduced by the recent wave of immigration.
15. February 2024 at 11:51
Yes, and let’s not forget that the two kinds of people most opposed to immigration are communists and fascists. That’s literally true.
15. February 2024 at 15:42
The 89 people I hired weren’t indigents.
15. February 2024 at 19:43
I liked Republicans better when they not only understood that immigration was good for American economically, but loved immigrants.
Remember Reagan, anyone?
https://www.youtube.com/watch?v=2R8QxCD6ir8
How about the Bush family?
https://www.youtube.com/watch?v=YsmgPp_nlok
https://www.amazon.com/Out-Many-One-Portraits-Immigrants-ebook/dp/B08681PHBT/ref=sr_1_3?crid=2TVRIXHHMZ0GS&keywords=george+w+bush&qid=1708054871&sprefix=george+w+b%2Caps%2C130&sr=8-3
What happened to Republican and conservative decency?
16. February 2024 at 06:02
re: “considers subsequent generations.”
The base is already in place.
16. February 2024 at 06:48
https://mishtalk.com/economics/over-100-of-the-increase-in-employment-since-2020-is-foreign-born/
16. February 2024 at 07:55
spencer,
So, you’re admitting that immigration has helped boost real GDP and reduce the deficit and debt in terms of GDP. I’m glad we agree that it’s a wonderful situation for the US.
16. February 2024 at 08:04
Yeah, but the numbers aren’t being vetted, as the FBI warned.
16. February 2024 at 08:26
“However, current policies are creating a rush of lower-skilled, uneducated labor that will work for cheaper wages, produce less revenue, and are subsidized by tax-payers through welfare programs.”
read://https_www.zerohedge.com/?url=https%3A%2F%2Fwww.zerohedge.com%2Fpolitical%2Ffed-chair-powell-just-said-quiet-part-out-loud
16. February 2024 at 12:20
spencer,
What does any of that have to do with the fact that GDP growth and the US fiscal situation is better-than-expected due to the immigration boom?
17. February 2024 at 05:36
We need a speedier matching of jobs with skills.
17. February 2024 at 09:03
Seeing is believing. “This higher use of welfare programs by immigrants is attributable to their lower average incomes and larger families.”