The US immigration debate has implications for financial markets
BARACK Obama, in his State of the Union address tonight, is expected to lay out an ambitious agenda for his final term in office. For now, staving off a growth-killing sequester or government shutdown next month is the main preoccupation of markets. But over the longer term, the President’s push for immigration reform may prove just as important.
Over the decades ahead, the situation the developed world generally faces has neatly been summed up by RBS as “less people, more problems.” Demographics in the US aren’t quite as unfavourable as in Japan or Europe, but population growth is nevertheless slowing. The latest census projections put the US population at 334m in 2020 – down from the 341m estimate four years ago, and just 20m above the population count as of last year. And the bulk of the downgrade, as RBS notes, is owed not to slower population growth but to lower immigration estimates.
The reasons for this are partly economic; growth prospects in the US aren’t as rosy now as they appeared prior to the financial crisis. Should the economy rebound, it is likely that immigration will do the same. It is an age-old truth, of course, that people follow growth. But in today’s world, it can also work the other way around: that growth follows people.
How so? Consider that the total output and size of today’s economies are determined by productivity – that is, units of output per worker or work-hour. How nice it would be if productivity rates were expected to climb rapidly, generating ever-more output and wealth for the same amount of total work. But the opposite is seen in the West today, as productivity rates have generally been in decline.
The combination of an ageing population, falling productivity and weaker growth has spurred a cottage industry of books worried about the “Great Stagnation” and “End of Growth.”
On top of that, ageing populations ultimately need more support from the state – in the form of healthcare and pensions – than they can contribute in taxation. A large and productive younger workforce, therefore, is required to generate enough growth and revenue to keep the system solvent. And yet the US’s ratio of prime working-age adults to those aged 65 and older in 2020 was just revised down to 3.46 from 3.57 in the census’s earlier projections. By 2050, it is seen as falling to nearly 2.6.
The economics, in other words, are increasingly pro-immigration even if the politics waver. It’s still no easy sell to an electorate fearful of others taking their jobs in this era of higher unemployment. But currency wars can only go so far. If the President wants to win over a reluctant public, he would do well to start framing his “path to citizenship” for immigrants as part of America’s broader path to prosperity.
Kelly Evans is a CNBC anchor. You can follow her on Twitter @Kelly_Evans