Immigration to solve economic problems?

One has to challenge the idea that rich countries need immigration to improve public finances and to meet the needs of an aging population.  This argument surfaces from time to time in Canada and is now being promoted by the UK’s Office of Budget Responsibility.  The problem is that some people make two major mistakes in economic analysis.  They analyze economic problems in financial terms and they assume economic growth will continue forever.

jetxee_people_near_a_blackboardWhen my economics professors stood at the blackboards they often drew an x-shaped graph.  For the macro economists one line represented the financial aspect of the economy and the other the real or physical aspect.  It is an important distinction and one that is forgotten when we get away from the blackboard.  Ultimately the economy depends upon the resources we use to look after ourselves.  To analyse the economy we need to be aware of what agricultural, energy and mineral resources we have with which to work.

We have problems using financial terms because of the way in which we create money.  It is a sort of Ponzi scheme which collapses from time to time.  Also the purchasing power of any sum of money varies because of inflation or deflation.  Thus it is difficult to use financial terms to evaluate what is happening on the real side of the economy.

Another problem with claims we need immigration to pay our bills is the assumption that economic growth will continue forever and that population drives economic growth.

It is certainly a big mistake to assume economic growth can continue forever.  We have used the most easily accessible agricultural,  energy and mineral resources and it takes more energy to retrieve those remaining.  We see this in increasing prices. (Marginal cost to use the economics term).  As more energy is needed to retrieve the same quantity of resources, the potential for economic growth goes down.

If population were a driver of economies, why aren’t India, China and Africa the richest parts of the world?

Immigration is a difficult issue because it often involves humanitarian and racist issues.  There may be humanitarian reasons for encouraging immigration, but this weblog focuses on economics and it is not clear we should see immigration as a solution to current economic problems.  It could be that immigration will put additional stress on economic resources and make problems worse.

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