Trump Versus Powell: Who Is Right About Immigration?

Immigration, needless to say, is a hot button topic and Fed Chairman Jerome Powell has expressed concern about cutting off the flow of immigrants. He views immigration this way:

From an economic growth standpoint, reduced immigration would result in lower population growth and thus, all else equal, slower trend economic growth.

As for Trump, even after he toyed with the idea of letting more immigrants into the nation based on merit, he seems more concerned with the racial makeup of immigrants.

Governor Powell sees bad economic times coming from isolationism. He knows the workforce is aging. As discussed below, Powell is concerned about the strength of the workforce.

Free Trade and Open Societies

Minneapolis Fed President Neel Kashkari, a registered Republican, has said that immigration is key to economic growth, and Powell agrees with that. Kashkari is a free trade Republican but there are many from both parties who still hold to free trade as key to prosperity.

Free trade is open to abuse and is far from perfect. But the alternative is far worse. I said:

The US set up a system whereby free trade would thrive and nations would improve economically all over the globe. The theory behind that is that the more affluent the consumer, the more they will buy from our corporations.
But the system was seriously abused at times. Three major abuses can be singled out:

• American workers have been abused by jobs moving offshore without adequate compensation by the US government.

• And American consumers have been abused by liar loans and by financial products imported from globalist banking. The Federal Reserve Bank did not bail out the borrowers but rather bailed out the sources of the toxic loans! This has not been pleasantly received by the American public. All that abuse, corporate abuse of consumers included, must be acknowledged and owned. But it still is not fully owned.

• Nations claiming democracy have had their leaders murdered, sometimes at the hands of US forces. Latin America is a poster child for this past US behavior.

But free trade opens each society and creates efficiencies. David Ricardo made the case for free trade:

In the classical definition of free trade espoused by 18th century British economist David Ricardo, trade is generally thought of as goods being shipped from one nation to another to take advantage of what Ricardo termed comparative advantage: nations would benefit by exporting whatever they produced efficiently and importing what they did not produce efficiently. 

Charles Hugh Smith  says that capital is mobile, and that it can own the means of production in the exporting nation, while being owned by people from the importing nation. Components of production flow from various nations to the owners of capital! The purely simplistic notion of Ricardo is made more complex by mobile capital.

Smith quotes a Foreign Affairs article:

If trade numbers more accurately accounted for how products are made, it is possible that the United States would not have any trade deficit at all with China. The problem, in short, is that trade figures are currently calculated based on the assumption that each product has a single country of origin and that the declared value of that product goes to that country...
Every iPhone that Apple sells in the United States adds roughly $200 to the U.S.-Chinese trade deficit, according to the calculations of three economists who looked at the issue in 2010. That means that by 2013, Apple's U.S. iPhone sales alone were adding $6-$8 billion to the trade deficit with China every year, if not more.

This becomes an incredibly important component of free trade, and why it is so important to be included in the supply chains. Donald Trump may want to break up these supply chains and we should know if this is the case by the end of the year.

Of course, Smith rightly sees some negative coming from this arrangement, but it does have some multinational benefit.

After all, if trade is really more balanced than we see on the surface with trade deficits, then there is more good than bad in allowing input of the world's most popular products coming from multiple nations. There is a cooperation working here.

America will suffer unless something can be done to modify trade wars between the two nations. Donald Trump must put business before his racist, xenophobic tendencies.

Immigration and the American Path Forward

But what about immigration? Immigration is deeply related to Free Trade in judging the openness of a society. On that subject, Powell is very right and Trump is very wrong. We also have to understand that the US is not a very large nation compared to total Asian population. We have 4.4 percent of the world's population.

America needs more people, more buyers, more creators. America needs more economic clout. While I do not agree with everything he says, James Pethokoukis, American Enterprise Scholar, makes a forceful argument for more people!

He said:

In a recent Washington Post op-ed, former Trump White House national security spokesperson Michael Anton asked, "Why do we need more people? … For the extra traffic congestion? More crowded classrooms? Higher greenhouse gas emissions?" He argued that in fact America doesn't need more people, and further immigration here benefits only vote-seeking Democrats and cheap-labor-seeking Big Business. President Trump made a facile version of the same point when he reportedly told members of Congress earlier this week that his new immigration proposal is "I'm sorry, you can't come in."

and:

Republican voters have also been told immigrants are bad for the economy, particularly the "low-skill" immigrants who supposedly hurt American wages. But again, the evidence suggests this argument is also weak. A 2016 literature review by The National Academies of Science, Engineering, and Medicine found immigration has an "overall positive impact on long-run economic growth in the United States." Some of America's most important companies were founded by first- or second-generation immigrants. 

At some point, economic power and social mobility has to become more important than this xenophobia, meaning the intense or irrational dislike or fear of people from other countries. 

Immigration is one key to comprehending the greatness of our nation over history. The economic risks of an aging workforce are always enormous! As Pethokoukis says, innovation is crucial to keep America competitive, and much of that innovation comes from immigrants.

Jerome Powell, I believe, fundamentally understands this need for new lifeblood in the workforce. When he was nominated, people thought he only cared about the business side of the economy. They thought he was not like Janet Yellen, who showed a deep concern for workers.

The jury is out on that analysis. It is true that Americans are not job hopping enough! It indicates a basic weakness in the economy.

Forbes contributor Randy Brown notes:

Data from the Federal Reserve Bank of Atlanta shows that job switchers improve their paychecks more than job stayers. And while it has persisted for a while it has been notable since the crisis. The most recent reading shows job switchers receiving a 3.8% wage bump, while job stayers settle for a 2.9% increase. In fact, 15% of job stayers saw no increase over the last year.

In his confirmation hearing, Jerome Powell was very cautious with his words. He was not willing to say much about immigration. He said in response to Keith Ellison's questions about removing large segments of the population from the workforce (as in limiting immigration):

We of course don't do immigration policy at the Fed.

So his more recent comments, quoted at the beginning of this article, about the cutbacks on immigration are significant. He does care about the potential for cutbacks actually slowing the economy going forward. The truth is, it may be the Trump immigration policy and isolation through tariffs, even more than the Fed, at this point, that is causing a wage weakness in a seemingly strong economy.

Workers are not prospering as they have in the past:

The last time that the unemployment rate was this low, during the late Clinton presidency, year-on-year wage growth was roughly 5 percent. It is now just above 3 percent. Moreover, wage growth has not picked up much for the past three years, even as the jobless rate has dropped down to historically low levels.

And:

Economists point to another indicator to help explain the persistence of low wages in a climate of low unemployment: sluggish productivity. American businesses and workers are not getting more dynamic, more innovative, and more efficient—at least not like they were in the 1990s or the 1960s. That has the effect of smothering wage growth.

So is the monopoly power of the leading corporations in each business sector stifling wage growth. Profits are high but wages are not. It isn't just unions, but is also this vice-like grip of the monopolies.

That failure of worker prosperity is a recipe for economic disaster. Powell likely understands all of this. The only hope is for more people to grow the economy coming from outside the nation. New business must be created. More people need to form households and buy things.

It seems lost on the present POTUS that these economic lessons are well understood and tested over time.