Saturday, November 3, 2018

Immigrants Will Not Fund Our Retirement - By Spencer P. Morrison

Ask Democrats why they support open borders, and they will invariably respond: "Because we need immigrants to pay for our pensions."  This argument is a sham.  The data are conclusive: immigration will not save America's welfare system.  It will bleed it dry.
John Cassidy sums up the sham argument in his piece for the New Yorker:
Demographers and economists have been warning that the aging baby-boomer population presents a serious challenge to the nation's finances, as the ratio of seniors to working-age adults – the age-dependency ratio – rises.  The reason is straightforward: Social Security and Medicare are largely financed on a pay-as-you-go basis, which means that some of the taxes paid by current workers are transferred to current retirees.  If the dependency ratio rises, the financial burden on the working-age population also increases.
Cassidy's diagnosis of the problem is correct.  America's population is aging, and this is a problem because America's welfare state is structured like a giant Ponzi scheme.  Although taxpayers contribute to the system throughout their lives, they never see this money.  Instead, they pay for the previous generation's retirement with assurances that the next generation will pay for theirs.  Welfare is a vampire that requires fresh blood to survive.  This is the root of Cassidy's error.
Cassidy proposes three possible solutions.  First, America could "reduce the level of retirement benefits significantly – but that would be very unpopular and difficult to achieve politically."
Second, Cassidy suggests raising the workforce participation rate, which he notes has fallen from 64.6 to 60.4 percent since 2000.  He says this could work temporarily, but it is just a bandage solution – eventually, people will retire.  True.
After dismissing the above options, Cassidy settles upon increasing immigration as the best way forward:
The final option is to welcome more immigrants, particularly younger immigrants, so that, in the coming decades, they and their descendants will find work and contribute to the tax base.  Almost all economists agree that immigration raises G.D.P. and stimulates business development by increasing the supply of workers and entrepreneurs.
Basically, immigrants will replace the sons and daughters Americans never had, thus perpetuating the current system indefinitely.  This is a bizarre conclusion to draw for the simple fact that immigrants are a net burden on the welfare state.

The preponderance of data shows that immigration and socialism are incompatible.
A 2017 study from the National Academies of Sciences, Engineering, and Medicine found that although America's immigrant population is (theoretically) revenue-neutral, most immigrants are actually a drain on the system.  The economic impact of immigrants follows a Pareto distribution.  Commonly known as the 80:20 Rule, this just means that a hyper-productive few immigrants provide most of the economic gains, while the majority of immigrants contribute (less than) nothing.
Specifically, half of all immigrants actually receive more in government handouts than they pay in taxes, while another third contribute roughly as much as they receive.  Only ~15 percent of immigrants contribute to the economy in a meaningful way.  Cassidy overlooks the significance of this non-linear data: if immigration as a whole is revenue-neutral, then increasing the immigration rate will do nothing to save the welfare system.
When it comes to immigration, less is more.
Other major studies reach similar conclusions.  For example, a study conducted by Denmark's Ministry of Finance found that immigrants are a net drain on the nation's welfare state.  In fact, non-E.U. immigrants, and their descendants, consumed 59 percent of the tax surplus collected from native Danes.  This is not surprising, since some 84 percent of all welfare recipients in Denmark are immigrants, or their descendants.
Another major study from the University College of London found that immigrants in the U.K. consumed far more in welfare than they paid in taxes.  The study looked at the Labor government's mass immigration push between 1995 and 2011.  The researchers found that immigrants from the European Economic Area made a small but positive net contribution to the British economy of £4.4 billion during the period.  However, non-European immigrants (primarily from South Asia, the Middle East, and Africa) cost the British economy a net £120 billion.
Together, these studies show that mass immigration undermines domestic welfare systems for the simple fact that most immigrants take more than they give.  Cassidy is clearly wrong.
Finding Narnia
Cassidy's argument is also based on a false dilemma: his three solutions are not the only options.  In fact, none of them is even the best option.
To "pay for our pensions" Americans do not need entitlement reform, a higher workforce participation rate, nor immigration.  America needs economic growth – real, sustained economic growth, the sort driven by the invention and adoption of better technology.
Unlike immigration, which grows the economy in a linear way, technology can cause exponential growth.  Consider the Industrial Revolution: Edmund Cartwright's power loom increased the productivity of British textile weavers by a multiple of 40.  To grow the economy an equal amount via immigration, Britain would have needed to import 39 additional weavers for every British weaver.  Clearly, technology is the better option – yet Cassidy argues in favor of immigration.
If Americans want to save the welfare state, then they need to restrict immigration and grow the economy.  Period.
Spencer P Morrison, J.D., B.A. is a writer and independent intellectual with a focus on applied philosophy, empirical history, and practical economics.  He is the author of Bobbins, Not Gold and the editor-in-chief of the National Economics Editorial.