There's Just One Way to Reach 4 Percent Growth

Bloomberg View (Opinion)

By Noah Smith

July 21, 2015

There's Just One Way to Reach 4 Percent Growth 

When the George W. Bush Institute commissioned Nobel-winning economist Edward Prescott to analyze its proposal to generate 4 percent annual growth for the U.S., the famously pro-free-market Prescott replied that a target of 3 percent was better for the long run. Prescott isn't alone in his evaluation; most economists and policy specialists don't believe that the U.S. economy can grow at 4 percent in the long run, no matter what policy steps we take. I've added my voice to that skeptical chorus on more than one occasion after Jeb Bush embraced the 4 percent target.

Here's the thing, though -- it isn't quite true. There actually is one way that 4 percent long-term growth -- or even higher -- is possible. But there's a good reason I haven't mentioned it before now. It has about as much chance of happening as a snowball has of surviving an extended trip to Hades.

The way to get 4 percent growth is open-borders immigration policy.

Swerving Path to Citizenship

Gross domestic product is simply the product of output per person and the number of people. The more people in your country, the higher the output. That's why China, whose output per person is only about a quarter of the U.S.'s, is now the largest economy on the planet. It just has more bodies.

The growth numbers you usually hear about in the news are total GDP growth numbers, not per capita figures. To boost those numbers, get more population. For example, when Great Britain conquered India, the GDP of the British Empire went way up. If the U.S. really wanted to supercharge its GDP numbers, it has a much better option than military conquest -- it could simply invite tons of immigrants to move here.

When I say "tons," I don't mean the 1 million to 1.5 million that the U.S. usually accepts in a year. I mean hundreds of millions. About 630 million people surveyed worldwide between 2010 and 2012 said that they wanted to move to another country. The U.S., unsurprisingly, was the most desired destination. If the U.S. opened its borders and admitted 100 percent of those huddled masses, its population would approximately triple.

Tripling the U.S. population would supercharge growth beyond anything currently imaginable. Yes, most of those immigrants would be poor and low-skilled, so output per person -- and the standard of living of the average American -- would go down. But the standard of living of the hundreds of millions who moved to the U.S. would go way, way up, as it always does for immigrant groups.

Exactly this sort of open borders immigration policy has received enthusiastic support from a dedicated core of libertarian economists, notably Bryan Caplan of George Mason University. These economists believe in relaxed immigration rules not because they want higher GDP growth, but because of principle -- they view national borders themselves as an unacceptable form of government intervention in the economy. The open borders crusaders are so zealous that moderate supporters of increased immigration, such as tech entrepreneur Vivek Wadhwa, are often the targets of their ire. University of Chicago economist John Cochrane has also voiced support for the open borders idea.

The problem with open borders is that it has no chance of ever becoming a reality. Even far more moderate pro-immigration proposals, such President Obama's DREAM Act and its path to citizenship for people brought to the U.S. as young children, have failed due to strong opposition, mostly from Republicans. Open borders would increase immigration by dozens of times more than the DREAM Act or anything else under consideration. At a time when Donald Trump is garnering support by running on a rabidly anti-immigrant platform, the chances of open borders being adopted is somewhere between zero and nothing.

For those of us who aren't libertarian crusaders, there are many reasons to be wary of open borders. A huge influx of mostly poor immigrants would overwhelm the U.S.'s social services, something that non-libertarians believe is essential to the functioning of the country. The education and health-care systems would be in chaos. The transportation system would be overwhelmed. A lack of housing would mean that hundreds of millions would be living in shantytowns for years. Wages for low-skilled Americans would probably take a large hit in the short run, exacerbating inequality. So flinging open the gates is too extreme.

That said, the optimal amount of immigration is almost certainly more than the U.S. now admits. Low-skilled immigrants are fine and good -- they tend to work hard, and their education and wealth levels usually rise strongly over the generations. But even better would be a large increase of high-skilled immigration, which would raise not only total GDP but also output per person, even in the short term. It would also fight against inequality, since high-skilled immigrants compete with wealthier Americans, rather than with poor Americans.

So if Jeb Bush wants to get us to 4 percent growth, he's going to have to open the country up to a lot more immigration. It's a good idea, but it's not going to go over well with the Republican base.

For more information, go to:  www.beverlyhillsimmigrationlaw.com