The Trump Economic Paradox is at question: low unemployment combined with very low inflation. In this part of the series, I would like to propose an answer – excessive immigration supported by business and government. The key years are 1986 and 1990 because those are the years of the Immigration Reform and Control Act of 1986 and the Immigration Act of 1990.
- Immigration Reform and Control Act of 1986 – granted amnesty to many of the 3.2 million illegal immigrants living in the United States
- Immigration Act of 1990 – Raised the cap on immigration from 270,000 people annually to 675,000 annually, and 700,000 for the first three years after the Act’s enactment
In the following discussion, the key date is 1990. That is the year that one can see a definite inflection point in the economic statistics of our economy. Let’s take a look.
From 1960 to 1990, wage growth is never negative. After 1990, wage growth has slowed and even hit negative values a few times. Previous to 1990 we were living in the “Leave It To Beaver” years and life was good. I entered a private college in 1979 and wage growth was nearly at its peak. In 1982 my mother got laid-off from Brown and Root after 10 years of employment. In 1990, my parents foreclosed on our family home of 13 years. Economists describe wages after 1990 as “stagnant” but I call them “declining”.
This explains why we are now living in the Trump Economic Paradox. As has been explained already, economists see wages as being the key trigger to inflation. When workers can bid up their wages, that causes prices to inflate. Why cannot workers bid up their wages? We will examine that next.
The figure above shows the rate of legal immigration. Between 1987 and 1991, this rate went sky high. The USA has not seen rates this high since right before the Great Depression. The figure below refers to the total number of illegal immigrants that are living in the USA. Take a good look at that number after 1986. The net effect of legal and illegal immigration is lower wages.
Economist have been talking about this for hundreds of years. Everyone knows that you can drive the price of something down to almost nothing if you increase its supply too much. Thus, our wage and inflation problem. The labor market has simply been torpedoed by over supply of labor.
Just stop and think how excessive immigration has changed the landscape of our American workforce. On the high end, the demographics of medicine, computer science, engineering, university and industrial research, undergraduates and graduates in university STEM programs has changed dramatically. It is claimed that over 50% of our research is done by PhDs that are foreign born. Are the government and industry saying that natural born Americans don’t have brains?
On the low end, excessive immigration has completely changed the fields of hotel management, landscaping, road and housing construction, restaurant employment, food services, convenient stores; and even slaughter houses and industrial fabrication plants. In my neighborhood, it seems that most of the private businesses are owned by those who are foreign born: gas stations, liquor stores, dry cleaning, restaurants, and hair salons.
Employment and Unemployment
The figure below indicates that more and more Americans are starting to move back home to live with parents because they cannot support themselves in this economy – wages are simply too low, and inflation never stops rising completely. The only thing that can explain this is that Americans are being replaced by foreigners who are willing to work for less. Some economist say that these folks have fallen so far down that the employment statistics cannot reflect their number. They are simply living empty lives, sitting at home, eclipsed from view, and are barely kept going by the financial support of those who love them.
So, the bottom line is that the Trump Economic Paradox is not real. The labor market has been flooded with cheap foreign labor that has replaced more expensive native labor. This has keep prices and inflation low. However, the economy is no where near full employment. There is still a very large group of Americans living in the underground economy. This not Trump’s fault. Excessive immigration was all set in motion long before he ever had serious thoughts of being president. The problem is rooted in those who came before Trump. Thank you President Reagan, Alan Greenspan, Bush 41, Bush 43, Ted Kennedy, Alan Simpson, and all the rest.