Economic Populist Commentary

Economic commentary by a pro-capitalist, economic populist. Demand-Side Economic theory. Consists of author's economic views. Questions & comments appreciated. Dissenting views are VERY welcome and encouraged. Main "agenda" is crafting and advocacy of a "populist" economic agenda. A secondary goal is prevention of an economic Armageddon. Encouraging open discussion of US economy.

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Location: Southern California, California, United States

The author is a physician by profession, and a "student economist" by necessity. The current status of our economy necessitates the latter. The intent of this blog is to explain and discuss economics in layman terms. It is designed to promote thought and discussion. It is written by a layman. Comments and critiques of these theories and letters are welcome and ENCOURAGED. Dissenting comments are also WELCOME! They form the basis for discussion.

Tuesday, August 08, 2006





ILLEGAL IMMIGRATION SUPPRESSES AMERICAN WAGES


The biggest problem created by uncontrolled illegal immigration is wage suppression. According to economics professor George Borjas, immigration reduces the average annual earnings of U.S.-born men by an estimated $1,700, or roughly 4%. (See ABC News article http://abcnews.go.com/Business/wireStory?id=1804778&CMP=OTC-RSSFeeds0312 The actual article by George Borjas can be found at http://ksghome.harvard.edu/~GBorjas/Papers/cis504.pdf ) If that reduction is applied to the roughly 143 million employed Americans, that reduces aggregate annual worker income by $243 billion, or $0.243 trillion. That's roughly 2% of our $12 trillion GDP. That's a loss in consumer spending of $243 billion (less taxes). Given that our entire GDP growth in 2005 was $384 billion, this is a significant amount. Considering that consumer spending is approximately 70% of GDP, that makes the "growth" in consumer spending around $269 billion.

Again, the loss of that $243 billion is no small amount. And it is also $243 billion less money that could have been taxed, costing the Federal government anywhere between $36-61 billion per year. (Increasing the taxable income of a single taxpayer making $42,500/year by $1700 increases Federal income tax by $425. Increasing taxable income of a married taxpayer filing making $42,500/year by $1700 increases Federal income tax by $255. Multiplying these numbers by 143 million amounts to $61 billion and $36 billion, respectively. Thus the income tax revenue lost is somewhere in between.)

Right-wingers will argue that this wage suppression is offset by business profits, and that these profits fuel investment. But investment capital is OVER-abundant at present. Increasing this excess even further will not result in more capital investment. It will result in higher CEO salaries, further overinvestment in the stock market, and further investment in foreign production facilities, the latter of which puts even further downward pressure on American wages.

Furthermore, business profits don't fuel consumer spending. And consumer spending is the engine that drives our economy, not investment. Without consumer spending, there are no returns on investment. And if no returns are anticipated on investment, no investment takes place.

The immigration-fueled reduction in wages does NOT help our economy. It hurts it. It reduces aggregate consumer income and the consumer spending it finances. The reduction in consumer spending reduces consumer production demand, further reducing demand for the labor to provide that production. The reduction in labor demand drives down employment and wages. The resultant labor demand reduction further reduces aggregate consumer income and further reduces consumer purchasing power.

As consumer buying power declines, so do investment opportunities, since those opportunities are created by consumer demand for production. Thus the increased profits resulting from reduction in labor costs create even more excess capital, while reducing investment opportunities still further.

Does anyone really think that wage suppression is "good" for the economy? Doesn't someone have to purchase the goods produced for business to profit? Won't reducing consumer income also reduce consumer goods purchasing? Won't a decline in consumer goods purchasing reduce business revenues and reduce potential profits? Once again, is immigration-fueled reduction in worker/consumer income really "good" for the economy?

----------------------------------

4-30-06

Some are claiming the current GDP report is evidence that "workers" must be doing well, since the economy is doing well. Regardless of the alleged "strength" of the economy, workers' real income continues to decline.

Hourly wages declined 0.24 % in March. Weekly wages declined 0.27%. Below is a copy of hourly and weekly real wages from the U.S. Bureau of Labor Statistics.



Below are links to both weekly and hourly real wages.
BLS-WeeklyWages

BLS-HourlyWages


Below are some recent polls showing the public's sentiment about illegal immigration.










Apparently a lot of people consider illegal immigration a very important issue. And a majority of Democrats want illegal immigration reduced or eliminated.

EconomicPatriotForum

13 Comments:

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11:12 AM  
Blogger AnonymousIsAWoman said...

Your post is particularly poignant. In Virginia we have an interesting Senate race shaping up. In the Democratic primary, one of the candidates, Harris Miller, a long time Democratic Party activist, is former President of the Information Technology Association of America, a lobbying organization that supports outsourcing and guest worker legislation.

His opponent, James Webb, is Ronald Reagan's former Secretary of the Navy and a much decorated Vietnam war hero. He's also author of Terms of Engagement and a slew of other novels and most recently the non-fiction book, Born Fighting.

Webb, also a former Marine and an Annapolis graduate, was one of the first former military leaders to speak out against the War in Iraq. He considers himself a "Reagan Democrat" and speaks about his disgust with the Republican Party under George Bush. He also describes himself as an economic populist.

He already has the endorsements of Harry Reid, Chris Dodd, Jack Murtha, Max Cleland and Wes Clarke, among others. He's the odds on favorite to defeat current Senator George Allen, an arch conservative who has voted 96 percent of the time with Bush.

What makes the primary race so interesting is that the major issue has become Miller's support for outsourcing and guest worker programs. So, your post explaining how this hurts the American economy is most timely.

Even though it's not about our local race, it's certainly timely. I'm going to link to it.

Thanks and keep up the good work.

6:59 PM  
Blogger unlawflcombatnt said...

Anonymousisawoman,

Thanks for your comments. Now you've got me interested in the Virginia Democratic Senatorial primary. I'd already heard the spin and infighting about this race, but what you've just desribed puts it in true perspective. I'll have to check out both Democratic candidates. Webb sure sounds like my pick at the moment.

Thanks again for your comments.

3:09 PM  
Anonymous Ragnar Danashold said...

I'm going to take a stab at this...

Economic Populism: Anti-Immigration, anti-Tax, anti-Free Trade/pro-Protectionism, pro-Union, pro-Public Education, pro-Free Healthcare, pro-Higher Wages, anti-Welfare.

Is that about right?

10:27 AM  
Anonymous Anonymous said...

I've been following your web site for several years. "Thank you" for the crash course in economics. I have shared your web site location and contents with many of my friends and my older childrens college buddies. You opinion and fine work on this web site is appreciated.

Also, did you catch the following article by Robert Reich? Both of you are on the same page.

Personally, I think deflation has started ... however, "big triggers" will be a total collapse of housing prices followed by commodities. Then depression will follow.

FYI-

The Real “Flation” Threat
Deflation, not inflation, is what Ben Bernanke should
be worried about.

By Robert B. Reich

June 22, 2006

Each generation responds to its own traumatic memory.
Ben Bernanke and his Federal Reserve remember the
double-digit inflation of the 1970s and are determined
to mount a preemptive strike. That’s why they’re
poised on raising interest rates yet again. Bernanke
and company have no direct memory of the trauma that
haunted the previous generation, the depression of the
1930s.

Each generation, in its determination to avoid the
nightmare it does remember, runs the danger of
over-reacting, and thereby bringing on the opposite
trauma. A generation ago, economic policy makers paid
too little attention to inflationary forces then
building in the American economy. Eventually, Paul
Volcker had to break the back of inflation by raising
interest rates sky high. That put the economy into a
severe recession. Now Bernanke and company are paying
too little attention to deflationary forces building
in America and the global economy.

Bernanke fears that today’s economy resembles the one
that began to overheat the 1970s. But he’s wrong.
Labor unions today don’t have nearly the power they
did then to get wage increases. Big companies don’t
have nearly the power they did then to raise prices.
Global wage competition is keeping a lid on American
wages, just as global price competition is pushing
down on American prices. Meanwhile, fancy computer
software is allowing rivals all over the map to erode
almost anyone’s market share. Who’s going to raise
prices in this environment?

What’s more, there’s no reason to raise prices.
Productivity has been soaring over the last five years
while the median wage has been stuck in the mud.
Wages, remember, constitute about 70 percent of the
cost of doing business. So how can price pressures be
building? Bernanke and company worry the U.S. labor
market is heating up. They’re wrong here, too. Despite
what look like rosy employment numbers, a smaller
proportion of the American labor force is employed
today than it was in 2000. Millions of people don’t
show up on the unemployment rolls because they’re too
discouraged even to look for work.

The price increases we’re now witnessing are not due
to excess demand over limited productive capacity,
which causes inflation. They come mainly from soaring
prices for energy and raw materials. These commodities
are being bid upward because of China’s rapid growth,
but take a closer look and you see something else
going on. Much of the increase in commodity prices is
being driven by speculators who expect prices to
continue to rise. In other words, part of what we’re
seeing are speculative bubbles. Such bubbles can burst
any time. The fact is, the global market is glutted
with productive capacity, and that’s not chiefly
because of the huge gains in American productivity. If
you really want to see a glut, take a look at China.

If anything, there’s too much capacity relative to
demand. This is a recipe for deflation. Prices can
begin to drop because buyers hold off, expecting
further price decreases. It happened in Japan in the
1990s. It’s already starting to happen in certain
housing markets in the United States that had been
red-hot but are now cooling so fast home prices are
dropping. Deflation is often accompanied by stagnant
or falling wages, which make it harder for consumers
to afford to buy. Look what’s been happening to
American wages.

The Fed and other central bankers around the world are
raising interest rates because they’re fighting the
last war. But they already won that war. Inflation is
no longer our biggest threat. They ought to be worried
about the war before the last one, and the specter of
deflation. They’re in danger of losing that war even
before they know they're in it.
----------------------------------------------------

Robert B. Reich is co-founder of The American
Prospect, professor at Berkley School of Economic's,
teacher, Rhodes Scholar, graduated from Oxford and
Yale. Served as Solicitor General under President Ford,
Secretary of State under Clinton,founder of the
Economic Policy Institute and author of several books
on Economic's.


---------------------------------

Again, thanks-

G.

3:10 PM  
Blogger unlawflcombatnt said...

"Economic Populism: Anti-Immigration, anti-Tax, anti-Free Trade/pro-Protectionism, pro-Union, pro-Public Education, pro-Free Healthcare, pro-Higher Wages, anti-Welfare.
"


That's pretty close. I'm not "anti-tax," however. I think the tax cuts on the rich should be rolled back, and I believe in a progressive tax system. I'm not for "free" health care, though I am for a single-payer system funded by the government. I'm not anti-welfare, either. (However, I am against welfare fraud.)

But I am against "Corporate Welfare."

10:27 PM  
Blogger Dave said...

Dr. Borjas revised his estimate of the effect on wages. His latest estimate http://ksghome.harvard.edu/~GBorjas/Papers/WSJ041806.htm is a negligible effect on wages after capital flows are considered, but high school drop outs are still adversely effected by about 5%. It's interesting that graduating from high school can increase these people's earning potential by 30%.

5:50 AM  
Blogger unlawflcombatnt said...

Dave,

After reading Borjas most recent article at the link you provided, it appears Borjas has adjusted his 4.0% wage suppression from illegal immigration down to 3.3%.

His point is still valid. Illegal immigration does significantly suppress average American wages. It suppresses those at the lower income level more than those at the higher income level.

1:22 AM  
Blogger Dave said...

And the amount is chump change compared to the effects of dropping out of high school

5:30 AM  
Blogger unlawflcombatnt said...

No, Dave, it's not just "chump change." When adjusted for high school graduation, it still depressed wages -2.2%/year. And this study applies only to Mexican immigrants. Again, Borjas's 2004 study showed a 4.3% decrease in wages caused by all immigrants combined.

Did you notice the statement by economist Paul Samuelson in your reference? Let me quote it for you: "By keeping labor supply down, immigration policy tends to keep wages high. Let us underline this basic priciple: Limitation of the supply of any grade of labor relative to all other productive factors can be expected to raise its wage rate: an increase in supply will, other things being equal, tend to depress wage rate." These are the words of Nobel Prize winning economist Paul Samuelson. So apparently Samuelson agrees with Borjas, that increasing the labor supply suppresses wages. And that's after "adjustment" for capital.

There is unquestionably a suppression of American wages by the addition of 7 million illegal immigrants to the American work force and most, if not all, economists fully acknowledge this.

And again, a 4.3% reduction in annual American wages amounts to $1700/worker, or a total American wage loss of $243 billion/year. That's not "chump change."

6:49 PM  
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