The American Era is over. This is an increasingly common opinion, and there is much to-do about the end of the “American hegemonic moment” in the media and academia. Be that as it may — hegemony or not — the power of the United States is far from fading, though the cause is less than flashy: demography (admittedly, an otherwise yawn-inducing topic) and the immigration that supports it.
The reality is that the world is getting old. Really old. Populations in the rich and close-to-rich (read China) world are shrinking, and the ripple effects are pervasive. The U.S., however, is a shining exception of high worker productivity, a growing population (thanks to immigration) and the institutions to support it. The astute observer of geopolitics will notice that, in the long run, demographics underwrite American power, and immigration underwrites demographics.
In the long run, fundamentals — institutions and demographics — dictate a nation’s power. Many of America’s peer countries, as well as China and Russia, are plagued by shrinking and graying populations. The reality is that America wields a competitive advantage in the realm of demographics.
In the long run, this can be debilitating. Take Japan as an example: The post-war baby boom and strong state investment in education after World War II created a huge population of productive workers who paid into a pension scheme and borrowed money to buy homes, driving consumption. The rosy picture faded quickly.
As economic gains mounted and fertility rates fell, Japan began to shrink. The economic ills resulting from a shrinking and graying population are numerous. A limited supply of labor by definition limits growth, stalling GDP in the long run if productivity can’t catch up. Abandoned homes drag down real estate prices. For instance, some homes in Italy are now being desperately sold for one euro. Aggregate demand slumps as the consumer base thins out. Government coffers are gutted by expensive pension schemes for the elderly, with fewer youngsters paying in.
This funding gap is filled with taxes or borrowing, neither particularly cheery for growth. The elderly borrow little, sometimes rendering monetary policy useless, and potentially leading to a gloomy liquidity trap. The story is similar in many nations, including China — though there it might indeed be worse, thanks to the effects of the ill-advised One Child Policy.
America’s fertility rate is not stellar, hitting an all-time low of 1.8 children per woman in 2018. The replacement rate is 2.1, at which the population will remain stable. So, population growth in 2018 should have been negative, dooming the country to the same fate of its unfortunate peers, right? Wrong. The population growth rate was in fact slightly positive, at 0.62%. While this number reflects a decline compared to past years, it is positive and far above peer countries’ rates.
What is America’s saving grace? Immigration. According to the Brookings Institution, immigration is an “ever-more-important contributor to national population growth.” As America’s natural increase has fallen, immigration has stepped in to fill the gap, providing the country with much-needed human capital.
Fears about immigration are understandable, but often misguided. A recent report by The Economist points out that migrants are three times more likely than natives to file a patent and twice as likely to start a business. Forty-five percent of America’s Fortune 500 companies were founded by immigrants or their children, including titans like Apple and Google.
Most immigrants indeed pay more into the welfare system than they take out in the short run and have no worse long-run effects on the welfare state than natives do, reports the Federal Reserve Bank of Dallas. While there is some evidence that low-skill migrant labor brings down low-skill native wages, the effects of immigration on overall native wages is in fact positive.
Unsurprisingly, attitudes toward immigration are not strongly correlated with economic circumstance, according to Jens Hainmueller and Daniel J. Hopkins, researchers at Stanford University and Georgetown University, respectively. In other words, the vast majority of Americans benefit from immigration, often in ways they are unaware of, even as they denounce it.
We should not be thinking about immigration as a phenomenon in isolation. Immigration is fundamental to America’s ability to maintain strong demographic fundamentals, which create long-term growth and stability. As pundits argue about immigration policy, it’s worth remembering a critical truth: If the U.S. wishes to maintain a strong population to stave off economic malaise, it may not be a choice of whether to admit more immigrants, but when to do so.