The Case for Immigration

Mapping out the arguments for and against

Housekeeping: My media company Turpentine launched a new podcast today: Econ 102 with Noah Smith. Every week we’ll deep dive into Noah’s pieces. Our first episode discusses American industrial and foreign policy, China’s tech, real estate, and manufacturing situations, and Biden’s term thus far.

In other news on the network, Moment of Zen featured Mike Solana for a deep dive on threads; Media Empires featured Sean Griffey of Industry Dive on building his b2b media juggernaut; and In The Arena featured Nathaniel Whittlemore of FTX about what it was like to be there during the implosion.

Given the launch of our economic show with Noah Smith, I thought it’d be timely to share a piece on immigration that helps explain how to think about it.

Disclaimers: I’m no immigration expert. This is more of a piece on why immigration matters for economic growth than the technical details of how to best bring immigrants in. While I’m pro-immigration, I’m not an open borders person. There is some cap on how many we can take in than today, even if it’s 10x. This piece also didn’t wrestle with the complicated matters between legal and illegal immigrants, nor what to do with the illegal ones already here—clearly we need to make it easier for people to become legal immigrants. I also don’t weigh into cultural concerns around immigration, though I do think some form of assimilation is critical to making American culture work (but perhaps that’s not unique to immigrants).

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We previously discussed how more people is better because a higher population has economic advantages, environmental advantages, and national security advantages.

We discussed how lower population leads to population collapse, specifically if age demographics are out of whack.

Critically, it is not the number of people that matters most, but the ratio of young people to old people. Young people make things and buy things; they stimulate the economy. Old people do neither and take resources from the government. If you don’t have enough young people, you can’t support the old people and your society collapses. 

Short-term, we can’t fix this with increasing birth rates. We can only solve it with immigration. 

And yet. Immigration has been hotly contested in the U.S. The libertarian right used to be pro-immigration since it’s better for businesses. A decade ago Zuckerberg and other tech luminaries supported a pro-immigration effort called FWD.us. But in the last few years, right wing populists have come out strongly against immigration, both in policy and rhetoric, in the name of protecting the working class and American exceptionalism, which actually used to be the left-wing position! Ironically, there seems to be somewhat of a reversal: the working class left used to be skeptical of immigration — Bernie Sanders once called it a Koch right wing policy — but now even though the left is nominally for it, Biden has for the most part kept the Trump regime on the topic, showing that opposition to immigration is bi-partisan.

Given our impending population crisis, what gives? Why the resistance to immigration?

Let’s outline the main critiques against immigration. 

Stealing jobs… or making more of them?

Firstly, the critique that Immigration takes jobs from American workers, and reduce wages by introducing more labor supply—this is a classic lump of labor fallacy. 

Remember: Economics advance through growth of market size on the demand side, and productivity growth on the supply side.

On the demand side, you want more and more customers to sell your stuff to, and you want them to be richer and richer so they can buy more of your stuff. 

On the supply side, you want productivity growth, you want to make more stuff with less inputs, more revenue/lower costs, therefore higher margins, more profit.

How do you get demand growth? First, you need more customers, so constraining immigration cuts your number of customers.

How do you get productivity growth? Through greater specialization and trade. More immigrants means more people can specialize, which means greater productivity.

Immigrants, of course, buy things, so they increase the demand side of the economy, but they also start businesses at twice the rate of native born Americans so they also increase the supply side of the economy and make more jobs. 

So immigrants help both on the demand and the supply side of the economy

In order for immigrants to lower wages, immigrants would have to directly compete with native born American workers. But what we see is that immigrants have radically different skills than native born Americans—they have different language skills, they have different education, so there's not much competition to begin with.

Immigrants are often complimentary, which means they raise wages. A good example of this is restaurants, where immigrants will be dishwashers, cooks, busboys, etc, as opposed to waiters.

A strain on our government?

Another critique is that immigrants are a drain on the government—after all, they don’t pay taxes and then benefit from government services. Well, this argument works in reverse too. We get free labor without having to have paid any of their services from before they entered our country. Once they do enter, many immigrants end up paying more in taxes than they receive in services, especially since many of them end up retiring in their home countries too.

Some people have concerns about assimilation, but what we find is that immigrants who move here within 2-3 generations tend to assimilate pretty well. The right is concerned that this is a ploy by the left to import voters, but it turns out that there’s been a significant shift rightwards from hispanic immigrants, paradoxically, even on the issue of immigration. Immigrants, once they’re here, aren’t as pro immigrant as we’d think! Especially illegal immigration.

Now, there are some examples. If millions of Americans flooded, say, Brazil, so much so that they’re altering the demographics of the country, Brazil would probably worry about colonization. Brazil does have the right to remain Brazil if it wants to. The question is where this applies, and when is it a problem. Christopher Caldwell wrote about some of the cultural problems facing Europe in his great book on the topic. But it’s clear that critics should focus on cultural challenges stemming from immigration, not economic ones—because there aren’t many. People often cloak their cultural concerns (or overpopulation ones) by making economic critiques because they seem less controversial. But they’re untrue.

Some people worry about crime. Trump famously quipped “They’re not bringing their best.” But this isn’t true. Immigrants commit half as many crimes as native born population, including property crimes, homicides, or any other crimes. 

This makes sense intuitively. Immigrants are self-selecting to be here. Whether legally or illegally, they’ve faced great adversity getting here. They’re making long-term investments in themselves and their families. They’re not about to give that up by going to jail. 

Immigrants have self-selected to be here

Let’s emphasize this point as a segue to the unique benefits of immigrants: Immigrants are self-selecting to be here, so they’re often a better selection pool. Trump was wrong. Compared to the average American, they are often bringing their best—or at least they’re performing better than native born Americans.

Immigrants are twice as entrepreneurial as Americans. Specifically, there are more immigrant-founded firms, per immigrant in the population, at any given company size. Despite being ~14% of the population, immigrants account for 25% of founders and almost 40% of founding teams have at least one immigrant. 50% of unicorn startups in America have at least one immigrant on their founding team.

Despite immigrants only making up 16% of inventors, they are responsible for 30% of aggregate US innovation since 1976, with their indirect spillover effects accounting for more than twice their direct productivity contribution. A third of Nobel prizes in America are given to immigrants.

High skilled immigration is a trillion dollar check lying on the ground.

The U.S. is particularly good at assimilation. Migrants to the U.S. are up to six times more productive than migrants to other countries—even after accounting for talent during one’s teenage years. 

Immigrants are far more productive in the US than they were at their home country: Economic advancement is why they came here in the first place. 

On average they are four times as productive in the US as they are in their home country, and their quality of life increases 4x, including the increased cost of living. 

This isn’t a redistribution of wealth from poor countries into the US—it’s an increase in the total amount of wealth that is able to be made globally, merely by having people move here.

This is a testament to American economic institutions that we take for granted—our economic freedoms, our property rights, our financial infrastructure.

And it shows what the deadweight loss is of immigration restrictions—trillions of dollars lying on the ground. 

OK, that’s on the high end. What about accepting high-skill and restricting low-skill immigration? Well, low-skill immigration has benefits too, for two reasons: 

1. Immigrants become domestic consumers, they create new domestic demand— most of any country's economy is domestic, so this is pro-growth for the whole country

2. Immigrants reproduce at higher rates than natives, so they keep the average working-age lower, which again is very good for the economy of the whole country

Age and productivity

Here's another thing the immigration restrictionists don't really have an answer for: demographics. One of the main factors that determine the health of a domestic economy is the average working age. If the average working-age is low, you have lots of young productive workers producing societal wealth that can be used in part to take care of old retired people. In our system, Social Security and Medicare.

If the average working age is high, this can tip over, you can have too many old/retired people for every young/productive worker. Now you have to spend an increasing amount of your national wealth taking care of old people, and you can no longer have a high-growth economy that gives young people a lot of opportunities.

By far the #1 thing that is keeping the US average working-age low is... Hispanic immigration. Including illegal Hispanic immigration.

Unless you have some magic formula to get native-born Americans to have more babies...

Some on the new right *do* want to create a magic formula for that, which I think is an interesting idea. But we certainly don't have one now. Countries like Hungary have found it near impossible to raise fertility, despite spending almost 5% of GDP on the problem. 

With the Baby Boomers retiring, without the high rate of immigration we've had over the last 30 years, our economy would be screwed now.

So what do we do?

So. We need immigrants. We’ve slowed down significantly. Since 2016, immigration has fallen from 1m to 250K. In fact, there are now countries in the world where there are more Americans moving to those countries than from them. Whether it’s because of our restrictive policies, our provincial rhetoric, the rise of remote, or just the rise of economies all over the world, we’re not making it easier on ourselves.

Chamath had a great recommendation a while ago somewhere that I’ll close with:

Imagine if immigration policy was like running a professional sports team: 

1. Recruit the world’s best, young players. 

2. Give them the best facilities and coaches. 

3. Help them develop into an All-American or Five star Recruits. Now you have a choice...

Choice 1:

Allow them to enter the draft and allow your favorite team (USA) who happens to have the #1 draft pick, to draft them. 

Choice 2: 

Send them to one of your rivals (China, India, Russia) who gets a little closer to winning b/c of them

Choice 3:

Stop recruiting ITFP

Right now, the US is training the worlds smartest kids and then sending them back to their country of origin to help them win - esp if that country is China. 

We need to stop sending them back and increase Visas for highly educated kids (or stop recruiting them up front?)

Corollary: 40% of the Fortune 500 are companies started by immigrants or their kids.

More people is better. Immigration is the quickest way to bring more and better people.

P.S. My friends Minn Kim and Lisa Wehden started an organization to help talented people navigating immigration challenges, check it out.