Can the U.S. Economy Grow Without Immigration?

– March 9, 2021 Reading Time: 4 minutes

“I can do things you cannot, you can do things I cannot; together we can do great things.” – Mother Teresa

Imagine 100 people on a wholly deserted, seemingly inaccessible island. Life would be pretty bleak. With only 100 people working, life’s barest necessities would be all that the inhabitants could hope for.

What if a creaky, soon-to-sink ship carrying another 100 people were to accidently bump into this island, only for the passengers to depart the ship? Would the 100 original inhabitants lose their jobs? Obviously not. The arrival of two hundred more “hands” would mean that every island inhabitant would get to specialize his work a little or a lot more. The new “immigrants” would not unreasonably enable exponentially greater economic growth on the island.

If readers doubt this, consider Adam Smith’s pin factory in the Wealth of Nations. While one person working alone might be able to produce one pin per day, several working together could produce tens of thousands. Work divided is the path to productivity that we call economic growth. But before readers click off this write-up as another call for open immigration, please consider another scenario.

Imagine if instead of a shipwreck boosting the island’s productivity, the original inhabitants discover another island populated by 100 people. And what if the inhabitants of the two islands begin trading with one another? The growth scenario would be roughly the same as the one involving “immigration.”

Work divided is work divided. It doesn’t matter if the individuals are next to each other, or separated by thousands of miles. What matters is the ability of people to divide up work with other people.

It’s a reminder that whatever the merits or demerits of immigration, it’s not a prerequisite for economic growth in the U.S. Specialized people are the drivers of economic growth, which means that freedom to produce and trade one’s production is what’s really necessary for progress. So long as free Americans can continue to divide up work with the rest of the world, it doesn’t much matter where the workers are located. The U.S. economy will grow just as much if Americans are connected economically with the rest of the world as it would if the rest of the world’s inhabitants moved to the United States to work.

All of this speaks to how empty the argument has long been about birthrates and demographics. Both sides rant about how people in the developed world aren’t producing enough babies, and that the lower birthrates signal future economic doom. No not at all. For one, the obsession presumes what’s not true; that in terms of productivity, human beings are static. No, they’re not. Thanks to ever-improving technology that we humans are able to rely on when we work, our productivity has skyrocketed, and will continue to.

Furthermore, such a view ignores how connected the world is economically. Technology is at play yet again. Thanks to major advances in communication, a software developer in San Francisco can almost literally work alongside an employee or co-worker in Spokane, Sao Paulo, or Shanghai. Demographic worriers bite their nails as though we live in a world of autarkic island nations, when in fact market goods increasingly move seamlessly around the world.

What matters is that people are free to produce and exchange their production. So long as they are, birthrates and other “crises” manufactured by the pundit class go away. China is instructive in this regard. Way too many on the left and right view its rise from abject poverty to prosperity as some kind of threat to countries not China. They get it backwards. When one country’s people are increasingly free economically, their production lifts the rest of the world. Work divided is once again work divided. China was a much bigger and more perilous millstone around the world’s collective neck when its people lacked economic freedom precisely because they couldn’t work alongside the rest of the world. In short, we were all poorer when China was desperately poor precisely because four billion “hands” in China were to varying degrees handcuffed.

All of which speaks to one obvious problem with the argument made so far. It has to do with all countries not being created equal. The U.S. is happily unequal because Americans have always been free. That’s why it’s long been a lure for the world’s strivers who knew they would erase the poverty that had previously defined their lives if they could just get to the United States. The great American industrialist Andrew Carnegie arguably articulated it best, that “If I had been at Dumfermline working at the loom it’s very likely I would have been a poor weaver all my days, but here, I can surely do something better than that.” Carnegie’s letter to his Scottish relatives about his adopted country vivifies the basic truth that human productivity soars the minute humans step into the United States.

Long a magnet for people seeking personal and economic freedom, the people who made it to the U.S. have proved a magnet for the capital that, when matched with people, authors even greater economic growth. It’s something to think about. The capacity to prosper soars upon arrival in the world’s greatest country.

So while immigration isn’t necessary for U.S. growth so long as the American people are free to exchange with the rest of the world, the rest of the world’s inhabitants would likely be more productive if they worked in the U.S. In short, prosperity made great by work divided globally would be quite a bit greater if more of the work was divided up by those people in the United States. That’s really something to think about.

Reprinted from RealClearMarkets