Do you remember the movie Castaway where Tom Hanks is marooned on an island? Now let’s change the scenario a little. Suppose that Tom Hanks was marooned on that same island with $10 million in hard cash. Would he be better off? The obvious answer is no, for there would be nothing for him to buy with his $10 million. Money is simply a means of exchange, and it is useless if you cannot buy much with it.
Suppose he finds his way to another island with his stash. He finds that the island has one inhabitant — another marooned victim — who has built a nice little farm and is adept at hunting wild animals. He offers this person a huge amount of cash for the food that he needs. The farmer-hunter demands even higher prices (inflation) because he is the only supplier of food (labor shortage) on the island, and Tom has a lot of cash (excessive liquidity). Both hope that they will be rescued eventually, making the cash valuable.
American couples are having, on average, 1.7 kids, significantly lower than the 2.1 needed to keep the population the same. Making matters worse, the number of Americans 65 and older is projected to increase from 54 million in 2019 to 95 million by 2060, and their share of the total population will rise from 17 percent to 23 percent. These shifts from a demographic and economic viewpoint are huge — relatively fewer workers and many, many more dependents.
It is great news for employees and bad news for employers, who are increasingly find it difficult to recruit workers. We are seeing this scenario play out currently, and the problem will only worsen over time. In August, a staggering 4.3 million workers, or about 2.9 percent of the American workforce, quit their jobs, knowing that better and higher-paying jobs are and will be available.
Employers are having to pay employees higher wages, leading to higher inflation in service sectors of the economy where there is little to no threat of external competition. So, we might see cost-push inflation in the coming years in service-oriented industries Some citizens who avail themselves of these services might be priced out of the market for say health care and travel, the domain of retirees.
Economics teaches us that there is no such thing as a free lunch. A severe shortage of truckers is preventing ships from unloading their cargo in California, leading to shortages and inflation. Just recently a headline in this paper read “Nurse deficit is seen rising.”
Solutions would be to increase the retirement age, “employ” more robots and maintain immigration at a healthy level. Good luck with increasing the retirement age for service and blue-collar workers, many of whom are physically worn out by the time they are in their early 60s.
Immigration should be part of the solution to alleviating this problem. To those who are against all immigration, there is no such thing as an “American way of life.” Their way of life has very little in common with coastal liberals, whom many of them resent. They have very little in common with a techie or a rocket scientist performing cutting-edge research. The list can go on and on. The point? There are many “American ways of life.”
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The children of immigrants are pretty much “Americanized” because all they have known is the United States. Let’s say you are driving a bus with 10 kids in it, half who are born to immigrants and the other half to parents born here. Based upon what they are chatting about and their accents, you will likely find it impossible to differentiate between the two. But you might be able to if you turned around and took a look. If darker skin tones bother you, then you — not they — are the problem.
According to the Census Bureau 2020 count, the number of white people in this country has fallen for the first time since the first Census in 1790. This is not a percentage of the white population. It is white as an absolute number. Americans who identify as white alone shrank by 5.1 million, a decrease of 2.6 percent. We’re seeing a demographic shift that terrifies some because of a loss of privilege and power.
So, we have a choice here. Try to keep a white majority by decimating immigration and see America become like Japan, which because of low fertility and negligible immigration, has a shrinking population. It has been able to maintain full employment only through massive economic stimulus and significant budget deficits that have pushed the national debt to above 200 percent of GDP. Negative population growth means there is little demand for durable and consumer goods. So, Japan is in a deflationary trend, which is made worse by delayed consumer spending because of declining prices.
The alternative is to adopt a needs-based immigration system — like Canada — that allows immigration of workers and their immediate families (spouses and kids, not extended) based upon the needs of employers. If there is a shortage of nurses, then allow nurses to immigrate to the United States. Hopefully that would slow the population decline that is inevitable.
A declining population will lead to a stagnant economy, leading to less military spending and less international standing and power. The national debt will be more difficult to service, which in turn can lead to a declining dollar and thus even higher inflation.
Those who think that a declining population will not have adverse consequences are in for a rude surprise.
Murad Antia teaches finance at the Muma College of Business of the University of South Florida in Tampa.