The Statue of Liberty in New York
"The bosom of America is open to receive not only the Opulent and respected Stranger, but the oppressed and persecuted of all Nations and Religions; whom we shall welcome to a participation of all our rights and privileges…" (George Washington)
"Give me your tired, your poor, your huddled masses yearning to breathe free…" (Inscription on Statue of Liberty; Emma Lazarus)
"The one absolutely certain way of bringing this nation to ruin, of preventing all possibility of its continuing to be a nation at all, would be to permit it to become a tangle of squabbling nationalities." (Theodore Roosevelt)
"Our attitude towards immigration reflects our faith in the American ideal." (Robert F. Kennedy)
"I've spoken of the shining city [on the hill] all my political life… a tall, proud city… teeming with people of all kinds living in harmony and peace… and if there had to be city walls, the walls had doors, and the doors were open to anyone with the will and the heart to get here." (Ronald Reagan)
"We don't want an America that is closed to the world. What we want is a world that is open to America." (George H.W. Bush)
"All Americans… are rightly disturbed by the large numbers of illegal aliens entering our country. The jobs they hold might otherwise be held by citizens and legal immigrants. The public services they use impose burdens on our taxpayers. That's why our administration has moved aggressively to secure our borders… We are a nation of immigrants. But we are also a nation of laws." (Bill Clinton)
"Nearly all Americans have ancestors who braved the oceans - liberty-loving risk-takers in search of an ideal… immigration is not just a link to America's past; it is also a bridge to America's future." (George W. Bush)
"Real reform means strong border security, and we can build on the progress my Administration has already made-putting more boots on the southern border than at any time in our history, and reducing illegal crossings to their lowest levels in 40 years." (Barack Obama)
"We have no country if we have no border." (Donald Trump)
The National Academy of Sciences has determined that over 40 million people living in the US were born in a foreign country, and almost as many again have at least one foreign-born parent (National Academy of Sciences, 2017). These are almost certainly minimum estimates. The number of US immigrants has increased over 70% since 1995. Immigration has come in a series of waves, with an early major peak in the period from 1870 to about 1920, and a more recent peak from 1970 to the present (Chart 1). Thus, the total percentage of immigrants in the US population was around 14% in the 1890s, declining sharply to a low of just under 5% in 1970, and then rising again to about 14% in 2017. World immigration has also steadily increased since 1960 for a variety of reasons, and it is estimated that the global number of migrants (including refugees) today numbers almost 250 million (Chart 2). Global immigration is driven mainly by proximity to receiving countries, economic conditions in both the sending and receiving countries, and crises like war or famine. Legal immigrants to the US now number about 1 million people per year, whereas illegal (undocumented, or unauthorized) immigrants presently number only about 400,000 per year. The total number of illegal immigrants reached perhaps 12 million in 2007, but since the Great Financial Crisis, that number has supposedly fallen to about 11 million or so (Chart 3).
Chart 1: Major Waves of US Immigrants (1890s & 2000s)
Chart 2: Global Migrants Have Increased Dramatically Since 1960
Chart 3: Unauthorized Immigrants and Deportation Trends
Under Bush & Obama
However, a recent Yale University study on the size of the illegal immigrant population (using a Monte Carlo modeling approach) virtually doubled this figure to a (95% probability) mean estimate of around 22 million (Chart 4), with a potential range from 16 million to 29 million (Mohammad Fazel-Zarandi et al., 2018). This would suggest that there are really 51 million immigrants living in the US, or over 17% of the population, with fully 43% of all immigrants here illegally. Under a more liberal immigration policy during the Obama Administration, the total number of deportations dropped sharply (Chart 3 above), as did the number of criminal deportations. However, that trend has recently started to reverse under President Trump (Chart 5).
Chart 4: Newly Revised Illegal Immigrant Estimate
Chart 5: Illegal Immigrant Deportation Trends Under Obama & Trump
There has been much debate in recent years over the cost of illegal immigrants to the economy and to society (Pia Orrenius, 2006; Benjamin Powell, 2010; Bob Davis, 2016; George J. Borjas, 2016; Linda Chavez, 2017; David Kelly Crow, 2019). The debate is extremely contentious at times, and many unsubstantiated or exaggerated claims have been made by both sides (which tend to fall conveniently into left-leaning [Democratic] and right-leaning [Republican] political groups). At issue are a whole range of questions, including at least the following: 1) whether immigrants are a drag on the economy; 2) whether immigrants take the jobs of "native" Americans; 3) whether immigrants cause a systematic decrease in the wages of the native-born; 4) whether huge increases in violent crime in border states are attendant upon illegal immigration; 5) whether our more-or-less open borders serve as conduits for terrorists; 6) whether immigration is needed to offset declining birth rates and support the Social Security system; and 7) whether the changing composition of immigrants has placed undue costs on the welfare and healthcare systems.
We will discuss all of these issues under four main headings. First, we will look at the long history of US immigration. Second, we will evaluate available empirical data on the economics of immigration. Third, we will examine various economic theories with regard to immigration's effects. Fourth and finally, we will explore the reasons for the current political impasse and some solutions that might be put in place to resolve it. The first two subjects will be handled in this article as Part I; the second two subjects will be handled in Part II. As the quotes at the top of this article suggest, leaders from both parties have long endorsed the important role played by immigration in the economic and cultural history of America, and the great benefits that immigrants continue to bring to the country today. Leaders from both parties have also long endorsed the notion that immigration should be allowed only under controlled conditions, and that some regulation of the border itself is necessary.
Yet we find ourselves in a situation in which: 1) as many as 22 million illegal immigrants have come into the country, and those who are deserving have no pathway to citizenship; 2) many native-born workers are fearful of the impacts on wages and employment of relatively unfettered and ever-increasing mass immigration; 3) the widespread public perception (but apparently not the reality) that violent crime has increased significantly due to illegal immigration; 4) the immigration system is wildly inefficient and therefore completely bogged down, with a court backlog of over 750,000 cases (Adam Isacson, 2018); and 5) the political system is so dysfunctional that nothing significant has been accomplished by Congress in addressing these concerns since 1990 (cf. Howard F. Chang, 2018; Wikipedia, 2019a).
For investors, there are several issues worth paying attention to in the immigration debate. Foremost amongst these is the need for continued immigration to keep population growth on track. This is critical because the only two drivers for GDP growth are population increase and productivity growth, and both will have to improve for growth to rise above (and stay above) the rather tame levels of the recent recovery (i.e., the weakest one ever observed). Both have exhibited secular declines in their growth rates (with productivity growth nearing zero) in recent decades (Kevin Wilson, 2016a; Kevin Wilson, 2016b; E. Wesley F. Peterson, 2017). One of the main reasons the US economy has outperformed Europe over the last few decades has been the strong immigration advantage enjoyed by the US over that time period.
Another issue worth our notice is the apparently huge benefit accruing to the US economy from the legal immigration of highly skilled and/or highly educated workers. Perhaps our policy should be to open up many more (a doubling or tripling?) slots for annual H-1B visas so we can attract even more immigrant talent. This might have a very wonderful effect on the competitiveness and profitability of the technology sector. Finally, the apparent fiscal cost of immigration with respect to welfare and healthcare benefits for poor immigrants in the early years of their US residency appears to be a significant factor in the short run, and it behooves us to bring such costs under better control, given our huge level of deficit spending. This might be done in a variety of ways, but in any case, it is not a trivial expense and should be a matter of concern for those who care about the level of indebtedness taxpayers must pony up to cover.
The History of US Immigration
A study published in 2013 estimated that the US is the number one immigrant-receiving country, taking almost 20% of global migrants (Chart 6). The maximum number of annual immigrants has fluctuated widely over time, with major peaks occurring as a series of waves (as mentioned above) in the late 1800s to early 1900s, dropping to an extreme low around 1940, and then soaring back up to historic levels in recent decades (Chart 7). Note that the big spike in the early 1990s was due to the amnesty program that was part of the immigration reform signed by President Reagan in 1986. In any case, the distribution pattern (country of origin) of the various immigrant waves has changed dramatically over time (Chart 8).
Chart 7: The Waves of Legal US Immigration Since 1820
Along with this change in the relative importance of different nationalities of immigrants over time, there has also been a change in the educational backgrounds of new immigrants. Newer immigrants are increasingly better educated than they were in the 1970s. Perhaps not that surprisingly, the educational backgrounds of newer immigrants show a bi-modal distribution (Chart 9), with immigrants less likely than the native-born to have a high school education; yet newer immigrants are also more likely to have a bachelor's degree than the native-born (Richard Fry, 2015). In fact, newer immigrants are the best-educated cohort to arrive since 1970, and probably ever (Chart 10). Newer immigrants and their second-generation offspring are also more likely to have master's degrees and doctorates than the native-born population (Chart 11). More than 75% of all new patents generated at American universities have involved migrant inventors, and migrants are twice as likely to start a business as the native-born (Philippe Legrain, 2018).
Chart 9: Newer Immigrants Have a Bi-modal Education Distribution
Chart 10: Newer Immigrants More Educated Than Ever
Chart 11: Newer Immigrants Have More Advanced Degrees Than the Native-Born
At numerous points in America's immigration history, restrictive laws were passed to limit both legal and illegal immigration (National Academy of Sciences, 2017; Op. cit.). Nevertheless, most of our 327 million-strong population can trace their history directly back to either voluntary first-generation immigrants, or African slaves. Whatever the original relative population of Native Americans was, it is now only about 2% of the total. My own family (father's side) landed in North Carolina in the late 1700s. My mother's side of the family landed in Canada and Pennsylvania in the mid-1800s. The drivers of my family's immigration decisions were much the same as many immigrants experience now: poverty, famine, war, or religious intolerance in the sending country, and perceived economic opportunity and enhanced freedom in America. To date, some 74-85 million immigrants have arrived in the US since 1820. At the peak immigration flow in 1910 (Charts 1 & 7 above), new arrivals were equivalent to an addition of about 1.4% per year to the then-current population; today, new arrivals amount to an addition of only about 0.43% per year to the current population.
One of the first anti-immigration or nativist political reactions was that of the "Know-Nothing" movement in 1854. Six governors and 75 members of Congress were elected that year on a Know-Nothing party platform of ending all immigration. This was mainly directed against Irish Catholics fleeing the potato famine. In 1882, the first US law restricting immigration by an ethnic group, the Chinese Exclusion Act, was passed by Congress and signed by President Chester A. Arthur (Wikipedia, 2019b). When the focus of immigration changed to sending countries primarily located in SE Europe during the period from 1880 to 1930 (cf. Chart 8 above), it was met with a nativist backlash that morphed first into Social Darwinism, and eventually into eugenics (Charles Hirschman, 2007). A weird coalition of the Ku Klux Klan, Midwestern Progressives, and Boston Brahmins joined the anti-immigrant hysteria around then. Congress even appointed the Dillingham Commission in 1910, which issued a 42-volume report supposedly demonstrating that the new immigrants from Southern and Eastern Europe were racially inferior.
Restrictive laws were passed by Congress in 1921, 1924, and 1929 (National Academy of Sciences, 2017; Op. cit.). A "Red Scare" in 1919-1920 led to mass arrests and deportations of presumed Communists and Socialists. During the Great Depression (1930-1932) President Hoover authorized the deportation of Mexicans without due process in order to reduce welfare rolls and open up jobs for "native-born" Americans. The Franklin D. Roosevelt Administration restricted the admittance of Jewish refugees from Europe in the 1930s based on obvious State Department anti-Semitism. The Roosevelt Administration also interned 117,000 Japanese Americans in 1942 based solely on race, and without due process (National Archives, 2017). Between 1942 and 1964, the US authorized the entry of about 5 million Mexicans ("Braceros") as temporary workers; virtually, all of them returned to Mexico. The most recent immigrant wave (Charts 1, 3, 4, and 7 above) has generated a great deal of angst as the composition of new immigrants has become dominantly Latin American and Asian (Chart 8 above), and the number of illegal immigrants has increased sharply (Charts 3 & 4 above). There are allegations that illegal immigrants have increased violent crime, spread communicable diseases, created congestion in schools and other public facilities, taken jobs from native-born Americans, and put huge burdens on the welfare and healthcare systems. What are the facts regarding these allegations?
Empirical Data on the Economics of Immigration
One of the politically strongest arguments against immigration has historically been the notion (and widespread belief) that new immigrants take jobs from native-born Americans. Census Bureau and "BLS" data indicate however that years with higher immigration do not coincide with those years characterized by higher unemployment (Chart 12; cf. David Bier, 2016). In fact, since 1890, unemployment is generally highest when immigration is relatively low. Note, however, that the two biggest spikes in unemployment occurred during depressions before 1950. During more normal times, and certainly since 1950, the relationship is less clear cut. Zooming in on the 1990-2004 period (Chart 13), there still seems to be a mildly inverse correlation between unemployment and immigration rates.
Chart 12: Immigration Rates and Unemployment
Chart 13: Immigration Rates Mildly Inversely Correlated To Unemployment, 1990-2004
One obvious problem is that if the total number of illegal immigrants really is double what was thought (cf. Chart 4 above), and the miscounting has lasted for decades (as claimed), then the plot of immigrants vs. unemployment is quite possibly so woefully inaccurate as to be useless. However, if we look at apprehensions of illegal immigrants versus unemployment from 2000 to 2012 (Chart 14), we observe at least some confirmation of an inverse correlation between unemployment and immigration. Surprisingly though, during the period from 1940 to 1982, there appears to be a long-term positive correlation between unemployment and immigration (Chart 15). Thus, it would appear that the correlation between immigration and unemployment is episodic in nature and highly variable, for unknown reasons. Another issue in the analysis of unemployment (and all other economic data related to immigration) is the fact that the distribution of immigrants across the country is quite patchy, with some states receiving huge influxes and others almost none (Chart 16). California, New York, New Jersey, Texas, Florida, Nevada, Massachusetts, and Delaware received the bulk of immigrants during 2010-2012. Texas is a big border state with big illegal immigration problems, as well as having plenty of legal immigration due to its strong economy and large, well-funded universities. For the period from 2007 to 2011 (recession and early recovery), immigrants comprised 29% of population growth in Texas but took an 81% share of job growth (Chart 17). This may simply reflect the temporary economic situation associated with the Great Recession, or it may be of more general application; it's hard to say based on the limited data available.
Chart 14: Illegal Immigrant Apprehensions Inversely Correlated to US Unemployment (2000-2012)
Chart 15: Unemployment and Immigration Positively Correlated, 1940-1982
Chart 16: Immigration Impacts Fall Mainly on Just A Few States
Chart 17: Newer Immigrants in Texas Enjoyed Most of the State's Job Growth, 2007-2011
In any case, some have claimed that there may be times and places where immigrants do in fact take jobs away from certain types of American workers. National data from a study done by a special interest group called the Center for Immigration Studies (Steven A. Camarota, 2013) appears to show that between 2000 and 2013, virtually, all net employment gains went to immigrants (Chart 18), despite the fact that the native-born accounted for the majority of the increase in the working-age population. A separate Brookings Institution study (Chart 19) indicated that immigrants gained an increased share in the available labor force from 1970 to 2010, and this would appear at first glance to have come at the expense of the native-born. Yet another study, this time by the Cato Institute (Chart 20) has suggested that the number of foreign-born workers actually employed has essentially remained unchanged in the period from 2005 to 2014, at a time when all forms of immigration were climbing (Charts 1 & 3 above). Note the subtle difference between the data sets in Charts 19 and 20. The first is measuring the available work force, and the second is measuring those in that work force who're actually employed. While these two charts appear to contradict each other, in fact they do not, because they are measuring different things. More foreign labor is available then, but it does not appear to be (in these data sets) fully employed. This is almost certainly because the supply of unskilled labor in some locations has exceeded demand, forcing many immigrants onto the welfare rolls initially upon arrival, as discussed below.
Chart 18: Some National Data Suggest Immigrants Took All the Employment Gains, 2000-2013
Chart 19: Immigrants Have Gained Share in the Labor Force Since 1970
Chart 20: Almost No Change in Actual Employed Work Force Composition, 2005-2014
Even if the claims by the "CIS" group turn out to be true, there are economic and social explanations for why it could be so, and these might help to alleviate some of the angst over competition from immigrants. For example, immigrants are heavily employed in the service, construction, extraction, professional, and management sectors of the economy (Chart 21). The first three of these sectors attract many unskilled and semi-skilled workers, as well as some highly skilled workers; the last two sectors attract mainly highly skilled and more highly educated workers. Most illegal immigrants work in the first three sectors. So, if jobs in the service, construction, and extraction sectors are more in supply at times than jobs in other sectors, immigrants will tend to preferentially benefit. Indeed, it does seem that service sector jobs are the main ones available in recent years anyway (Chart 22).
Chart 21: Occupations of Immigrants and Their Children
Chart 22: Service Sector Jobs Dominate Employment Data
Furthermore, it is widely believed that illegal immigrants have mainly taken jobs Americans don't want (Pew Research Center, 2010). Certainly, this seems to be confirmed by statistics on hazardous jobs and job-related fatalities (Chart 23). And if foreign-born workers are taking jobs that Americans actually want in significant quantities, why do their unemployment rates so closely track those of the native-born (Chart 24)? Additional confirmation of the findings on job losses to immigrants (Charts 18 & 19 above) has thus been hard to find. It appears that immigrants take mainly service, construction, and extraction sector jobs that Americans don't want, or at least don't prefer. The skill sets of native-born and illegal immigrant workers do not closely align, and thus they do not appear to be competing for the same jobs in many cases (Chart 25). Finally, it is important to realize that the number of native-born Americans not in the labor force has grown significantly in recent years, and for prime-age workers this number includes about 19% of the work force (Chart 26). This seems to be due to both a large increase in the number of disabled, and a significant number of eligible workers who have given up looking for work (Chart 27).
Chart 23: Foreign-Born Workers Increasingly More Likely To Be Killed on the Job
Chart 24: Unemployment Rate for Foreign-Born Workers Closely Tracks That for the Native-Born
Chart 25: Illegal Immigrants Do Not Compete Proportionally for the Same Jobs as Those Sought by Native-Born Workers
Chart 26: About 19% of Prime-Aged Workers Are No Longer in the Work Force
Chart 27: There Are Structural Reasons That Explain Why So Many Are Out of the Work Force
With respect to the widespread claims made that immigrants cause the wages of native-born workers to be depressed, there is at least some supporting evidence. For example, empirical data from a whole series of studies show that although there is indeed a loss of wages for the native-born who are low-skilled (Chart 28), it amounts to only -1% or even less than that (Ryan Nunn et al., 2018). Almost all of that negative wage differential falls on those without a high school diploma (Chart 29), who actually appear as a cohort to lose almost 5% in wages. Indeed, one well-known researcher has concluded that the lost wage effect is far bigger than the -1% loss most studies have reported (e.g., George J. Borjas, 2016; Op. cit.). In fact, it could amount to as much as $500 billion per year on a national scale, by some estimations. And if low-skilled native-born workers are losing significant wages, then that money is in effect transferred to their employers, who gain directly from lower wages. Offsetting this lower wage effect somewhat is the fact that immigrant workers help boost GDP because they buy goods and services, which of course benefits everyone to some extent. Also, over half of illegal immigrants are actually working "on the books," and therefore paying income and payroll taxes (Pia Orrenius, 2006; Op. cit.).
Chart 28: Some Studies Suggest Low-Skilled Native-Born Workers Have Lost Only About 1% in Wages Due to Immigration Impacts
Chart 29: Native-Born Workers with No High School Diploma Are the Hardest Hit by Immigration
The issue of immigrants putting a strain on the welfare and healthcare systems is a serious one. National studies by academics have long maintained that foreign-born residents have little long-term (lifetime) cost (i.e., negative fiscal impact) to native taxpayers (Chart 30) unless these immigrants lack a high school education (Jean-Christophe Dumont & Thomas Liebig, 2014; Scott A. Wolla, 2014; Francine D. Blau & Gretchen Donehower, 2017). However, the well-respected economist George Borjas has presented recent data indicating that new immigrants and naturalized citizens use far more social services as a percentage (Chart 31) than the native-born do (George Borjas, 2017). This is probably mainly due to the relative poverty and lack of education of many illegal immigrants when they first arrive. Indeed, there is a life-cycle pattern to the fiscal contribution of both natives and immigrants that is age dependent (Chart 32), so immigrants actually make a positive fiscal contribution over time as they obtain better education, language skills, and employment experience. Borjas estimates that the annual fiscal cost of immigration due to the federal and state services immigrants use and the lower taxes they pay (based on lower income) amounts to about $50 billion per year; note however that this is offset by the long term (lifetime or generational) fiscal surplus of $50 billion which immigrants produce to the benefit of natives due to their effect on the wealth of employers (George J. Borjas, 2016; Op. cit.).
Chart 30: Net Fiscal Contribution of Immigrant And Native-Born Cohorts
Chart 31: New Immigrants and Naturalized Citizens Use Social Services at Higher Rates Than Natives Do
Chart 32: Immigrant and Native Fiscal Impact Varies with Age
One important question that should be addressed using empirical data is whether violent crime has been increased by the passage of illegal immigrants, gang members, and assorted criminals across our porous southern border (e.g., Alex Nowrasteh, 2018). Surprisingly, out of the numerous states receiving illegal immigrants, only the State of Texas keeps annual crime statistics that can distinguish between native-born and foreign-born criminal activity. Nevertheless, national violent crime statistics do not show any relationship between increased numbers of immigrants and rates of violent crime (excluding rape, which could not be included in the study because of FBI data problems), as shown in Chart 33. Reverting to the data from Texas (which do include sexual assaults), there were apparently lower violent crime conviction rates in 2015 for the immigrant population than for the native-born population (Charts 34, 35, & 36). The results for the period from 2011 through 2017 are nearly identical to those shown for 2015 alone. Although there are many horrifying anecdotes of late regarding crimes by illegal immigrants, the full data set does not support the notion that immigration has caused a serious increase in the amount of violent crime, or even larceny, except locally.
Chart 33: Violent Crime (Excluding Rape) Has Fallen Since 1980 Despite An Ever-Rising Immigrant Population
Chart 34: Texas Criminal Conviction Rates (All Crimes) in 2015 by Nativity and Legal Status
Chart 35: Texas Homicide Conviction Rates in 2015 By Nativity and Legal Status
Chart 36: Texas Sexual Assault Conviction Rates in 2015 By Nativity and Legal Status
A final question for empirical evaluation is whether our relatively porous, 1,954 mile-long southern border may serve as a conduit for terrorists who may have blended in with all of the illegal immigrants trying to cross. It does not appear to be a major problem so far (Chart 37). Only a handful of terrorists have been caught at the border, and there are no documented cases of a terrorist act having been perpetrated by an illegal immigrant in all the years since the 9/11 attack (Niall McCarthy, 2017). The only attacks by Islamic extremists, including that on 9/11, have involved those who entered legally as tourists, workers, or students, and those who were actually radicalized US legal residents or citizens (Jessica Zuckerman et al., 2013). In any case, out of 60 confirmed terrorist plots in the period from September 2001 to July 2013, only four were successful, with the remaining 56 being foiled by law enforcement or bad luck (Chart 38). Of course, that says nothing about the future, but it does provide some perspective.
Chart 37: Illegal Immigrant Terrorists Are Rare (2001-2017)
Chart 38: Almost All Terror Plots Have Failed (2001-2013)
Conclusions for Part I
The history of US immigration and the empirical data on the economics of immigration provide a whole series of surprises. Popular partisan ideas on the right and the left regarding the fiscal costs of immigration (especially the impacts of immigration on the welfare and healthcare systems), the effect of immigration on unemployment rates and workers' wages, and the supposed surge in violent crime at the hands of illegal immigrants are based on analyses that are either inaccurate, misguided, distorted, exaggerated, or completely wrong. The US Congress has steadily increased the number of authorized Border Patrol officers (Chart 39) and also their annual budgets (Chart 40) in the aftermath of the late 1990s-early 2000s surge in illegal immigrant apprehensions. However, it appears that the problem is not what it was a few years ago, as total border apprehensions decreased from about 1.6 million in 2000 to a more reasonable 396,000 in 2018 (Chart 41).
Chart 39: Rising Numbers of Border Patrol Officers Since 1992
Chart 40: Steadily Increasing Border Patrol Budget Since 1990
The empirical data do not appear to support the notion that illegal immigration is out of control at the southern border, although that does not imply that the current situation is acceptable. There is no question that children crossing the border illegally are at great risk, or that there is a humanitarian crisis of no little dimensions on the Mexican border. The 750,000 case backlog in the immigration courts is a complete travesty. We still have no clear pathway to citizenship for millions of immigrants already resident in this country, and millions more who would like to come and could make a contribution to our growth and culture. Comprehensive reforms that would have ameliorated this terrible state of affairs have gone down to defeat under House Republicans during both the George W. Bush and Barack Obama administrations. Proposals from Democrats uniformly seek to increase the incentives for illegal immigration and to facilitate a continuation of the cross-border flows. Given this huge partisan divide, little is expected to change in the foreseeable future.
For me, the lessons of this survey of the evidence should include recognition of the fact that our disorganized and counter-productive immigration policy is costing us a significant amount of GDP growth. This will become very clear in Part II of this series. We need to bring in even more, indeed many more, skilled and educated immigrants, and perhaps we should make an attempt to control our border more effectively. Immigration reform could give millions of people a pathway to citizenship that would eventually boost GDP growth significantly, as both the quality and quantity of our immigrants continues to improve. This will be critical to our avoiding the debt trap we are hurtling towards, and it's probably the only way we will avoid ending up with a Japanese-style economy.
Should President Trump get his wish and build a few hundred more miles of border fence? We already have 650 miles of fence in place (approved by a bipartisan vote), so it's fair to ask, "How has that worked?" Surprisingly well, I would say, based on local sector apprehensions (Chart 42). Some 45% of recent apprehensions occur in the unfenced Rio Grande sector in Texas; meanwhile the fully fenced Tucson, Arizona sector has plummeted from being the worst area in 1998-2012, to a much more limited share in illegal immigrant crossings Chart 43).
Chart 42: Over 650 Miles of Border Fence Already Exist
Chart 43: Border Apprehensions By Sector, 2017
Almost certainly, where readers will come down on these issues will closely resemble their political leanings and opinions already in place. But in the interests of exploring the truth behind all of the claims and counter-claims, I thought it was worth my time (and hopefully that of readers) to examine some of the actual evidence. Immigration issues are even more complex than I was aware, and as a result, I think it will be very difficult for politicians to reach internally consistent or rational conclusions. Nevertheless, it is fair to say that: 1) there are probably almost double the number of illegal immigrants in the country than previously thought; 2) in the short run, illegal immigrants (who are mainly poor) and other poor immigrants are a burden on the welfare and healthcare systems for decades after their arrival; 3) the native-born middle and upper classes pay the taxes to cover these costs; 4) those natives without a high school education are directly harmed by lower wages due to the influx of cheap immigrant labor; 5) unemployment rates do not appear to be affected by immigration currently, although they may have been at times in the past; and 6) crime rates and terrorism have not increased nationally or at the state level so far in response to the illegal immigrant influx, although locally there are sometimes more serious problems with crime. Part II of this series will explore economic theory with respect to immigration and conclude with an analysis of why we are deadlocked now politically, and what might be done to, at long last, accomplish immigration reform.
The current impasse over the funding for border security, which has seen yet another government partial shutdown (the longest ever), is unlikely to be resolved unless one side or the other loses their political courage and gives in to public pressure. I say this because the two sides can't even agree on the facts. This political impasse (the shutdown) is clearly going to have a negative effect on GDP for the First Quarter, and perhaps beyond that (Linda J. Bilmes & W. Scott Gould, 2019). Since there are already indications of an incipient global recession and a pending US slowdown, it would seem prudent to adopt a very defensive portfolio posture if one is an investor, as opposed to a trader. In the end, I believe that those who own long-term Treasuries and gold will make a lot of money in the next 12-36 months, and those holding stocks will writhe in pain at their enormous paper losses. Allowing for human nature, most people will sell closer to the bottom than the top.
A bull market for the US Treasury bond is historically the norm under these circumstances (Eric Hickman, 2018), and a strong one is likely again (Van Hoisington & Lacy Hunt, 2018). Given the current long-term sell-off from the January market high, the renewed sell-off from the October market high, and the state of certain national economies (e.g., China, Europe, Japan), it makes sense to invest some money in a gold fund like SPDR Gold Shares (GLD), but only as a short-term hedging trade, not a buy-and-hold position. The iShares Gold Trust (IAU) is an alternative ETF that may be safer for those who want to hold it for a somewhat longer period of time. But the safest form of gold in the event of a true financial apocalypse is physical gold.
Also, for those discounting a possible near-term recession and bear market, some liquid alternatives like the Otter Creek Prof. Mngd. Long/Short Portfolio (OTCRX) could be held to protect assets in the event of a much sharper market draw-down associated with deteriorating economic data. Those in a more defensive frame of mind because of the expected eventual market slide should also hold some long Treasuries, in spite of bearish arguments to the contrary, as a stock market crash would be hugely supportive of bond prices: examples include the Wasatch-Hoisington Treasury Fund (WHOSX), and the iShares 20+ Yr. Treasury Bond ETF (TLT).
Disclosure: I am/we are long GLD, OTCRX, WHOSX, TLT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks or other securities mentioned or recommended. This post is illustrative and educational and is not a specific recommendation or an offer of products or services. Past performance is not an indicator of future performance.