Debt, Growth and Immigration are Linked

By Karl Reiner

Karl-Reiner-002The Great Recession has sliced through America.  Nearly everyone has been affected by job losses, pay cuts, shrunken stock portfolios, skidding home values or evaporating retirement savings.  After including the complexities of the ongoing wars in Iraq and Afghanistan and the consequences of the oil spill in the Gulf of Mexico in the mix, most people would agree that the times are worrisome at best.

Throughout the 1980s and 90s those who cautioned against the rising U.S. debt levels were dismissed as gloomy crackpots. The answer to all the nation’s troubles seemed to entail the addition of more debt. Business asset prices were rising, the price of housing was climbing.  Everyone’s balance sheet looked healthy so consumers, businesses and governments piled debt higher.  The dilemma politicians faced between supporting an unpopular program of debt control and letting a popular, but dangerous, debt increase policy continue was easy to answer. If you wanted to get reelected, just leave things as they are.

Unfortunately, the build up of debt has come to an end.  The pain inflicted by the jolt has spread across the nation, nicking all classes.  The U.S. economy, along with many others around the world, is reaching the upper limit of its ability to soak up borrowing.  In 1945, consumer credit in America totaled approximately $5.7 billion.  By July 2008, it had climbed to $2.6 trillion.  Between 2001 and 2010, the debt load per household climbed from $27,000 to $44,000.

The president’s debt and deficit commission fears that the current budgetary trends will destroy the country from within. Unfortunately, its unpopular work gets mostly ignored by many politicians and the public.  Its cheerless report is due out later this year.  It will be an unwelcome gift, dumped in the lap of the newly elected congress.

With an aging population and shrinking work force, the U.S. economy will grow more slowly.  This will make it difficult to reduce the debt load while sustaining standards of living.  The Obama Administration and Congress face a big problem.  They will have to decide when to start cutting the deficit and how to distribute the ensuing pain among the reluctant constituencies.  If they fail and the effort becomes politically deadlocked, things will get worse.  The nation will get to face the equally inhospitable alternatives of stagnation or inflation.

When to start the process is a tough question with no clear answer. If the cuts begin too early, they could undermine efforts to counteract the protracted effects of the Great Recession.  On the other hand, if the chancy maneuver is handled properly, the U.S., which has a younger work force than Europe and Japan, has a fair chance to grow the economy out of the deep chasm it has excavated for itself.

It is a fact of life that people want to move from poor countries to rich ones.  As a consequence of ignoring this reality for decades, the U.S. has an expensive immigration control fracas being waged along the Mexican border.  There is also a furious political argument raging over what to do with the 11-12 million illegal immigrants that have already slipped into the U.S.

Allowing people to legally enter a country to work should be a decision based on economic factors not heated political hype.  Working in another country should not necessarily be related to the citizenship process.  Today, people with work visas account for 70% of the legal migrants entering Germany.  In the United States, which touts itself as being the great land of opportunity, the rate is 5.6%.

When the recovery gets rolling, the unemployment rate will drop. If the economy is going to continue to grow enough to support deficit reduction, workers will be needed. Some economists believe our immigration situation is out of whack because there is no price mechanism in place to match supply with demand.  They suggest the government should sell the right to enter by setting a price or auctioning entry visas.  For talented people unable to pay, a loan payback program could be established.  The cost could be repaid out of wages earned.

To grow an economy, a country has to attract go-getters.  The engineers residing in America of Indian or Chinese lineage receive 14% of the patents awarded even though these ethnic groups comprise less than 5 % of the population.  Given the fact that the U.S will face a labor shortage in the future, what is the value of the 11-12 million illegal migrants already here?  How much should they be charged to get a work visa and be allowed to remain in the country?

If the U.S. developed a sliding scale of visa prices based on the income potential of the recipient, the Treasury would net a few sorely needed billion.  Perhaps we need to change the focus of the immigration debate.  Those willing to pay for the privilege of coming here to support an aging population, grow the economy and reduce the national debt should be welcomed.

0 responses to “Debt, Growth and Immigration are Linked



  2. There is plenty of ideas worthy of support in this article. What Arizona candidates support these ideas?