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The Per Capita Recession

Immigration is costing average people their standards of living and pushing populism to protectionism. We need to discuss how this is happening and what we can do about it.

Now before you read any further, I’d like you to Google something. Search, your countries name and the words “GDP Per Capita”.

(So if you’re American it’d be US GDP per capita, or from the UK then UK GDP per capita, or from China then China GDP per capita, and so on and so forth.)

A colourful line graph will appear on your screen and it will show you the national income per person. What it’s really showing is the standards of living in the country. As that line goes up it means the standard of living is improving for the people in the country. When it goes down then quality of life is often getting worse, the times are tougher.

For most of us, life is obviously getting harder and a line graph isn’t really needed to show what we experience everyday. For the U.S., although GDP per capita is going up, it’s unfortunately not improving standards of living for most Americans. The super rich are concentrating more and more wealth at the top so that income never reaches the people. The income and inequality gaps have expanded so much that not only are the fruits of labour not going to the workers but the wealth of America’s poorest is practically unchanged in over 20 years.

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Congressional Budget Office, “Trends in Family Wealth, 1989–2013

Standard of Living

GDP Per Capita is gross domestic product per person, or put simply it’s all the income in the country allocated out to each individual. The more income you have, the more stuff you can buy, and that’s why it’s an indicator for standards of living.

As standards of living improve, life gets easier. You can buy a new TV, or take out food, get a cleaner, go the movies or go shopping. With less income there’s obviously less you can buy, and then life just isn’t anywhere near as good.

GDP Per Capita is not a perfect measure though, it can be skewed and misleading when there are massive amounts of inequality. It can be skewed by lots of reasons but I have to admit, it’s nowhere near as misleading as most politicians.

What Affects Your Standard of Living

There are two key drivers to GDP Per Capita and standards of living.

  1. Population
  2. Innovation

Population is the biggest factor in standard of living. As people immigrate and increase the population they increase the number of people the national income gets divided by. It’s like having $10 shared amongst two people, or having $10 and sharing it amongst five people. The difference is massive.

Now, our politicians love to talk about how GDP (total national income) is going up and up all the time. But… if there’s lots of immigration and population is going up faster than GPD, then aren’t things actually getting worse?

In economics this is referred to as exogenous growth. Which really just means the growth is coming from external sources rather than within.

Innovation is the other driver. It’s the secret behind the success of America, Australia, Switzerland, Sweden, Germany, the UK and others. The nations that master innovation are the truly great nations and often they are also some of the richest.

Innovation is the spark that pushes the nation forward. Thomas Edison, Albert Einstein, Steve Jobs, Henry Bessemer and the countless others. The tinkerers and ideas people that have created opportunities that make an impact. Innovation, is what economists call endogenous growth, it comes from within and will occur as long as their are people within the country. Economists also refer to it as technology or productivity, but really these terms are used to describe how efficient we are at using our resources. With each new technological revolution whether it be the steam engine, the car, or the microchip, they all enable us to get more out of the resources we have.

Capital is the another element to the growth story. Capital is the existing plant, tools, equipment and all the stuff that we use to produce income. Capital is unfortunately subject to diminishing returns as each additional unit is slightly less productive than the unit before it. The equipment ages, suffers wear and tear and it’s output slowly deteriorates or plateaus. The thing with capital is that it takes time to accumulate, and needs constant reinvestment. Buying a house can’t be done over night, there’s time need to save a deposit. Population growth without adequate investment in infrastructure (capital) rings alarm bells and can kill standards of living.

In theory, permanent growth is only be achievable through technological/productivity growth. That means sustainable growth in any country can only happen if we have the means and tools to innovate, to solve problems and to dream big. We need our governments to shape society with innovation architecture and support the broader goals of a healthier, wealthier society that favours upward mobility and equality.

History of it all

You’re probably wondering how population and immigration can be bad if many of history’s great innovators have been immigrants. A huge number of America’s richest and most successful people are self made immigrants or the children of immigrants. Australia was colonised by convicts and free settlers, yet for most of its history has been one of the worlds great innovators and a fantastic story of economic growth.

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It all comes down to the type of immigration. Immigrants that are seeking a land of opportunity typically have that fire inside of them for a better life, a life of success. This is usually because they are coming from a life of hardship, of struggle and only grit, determination and innovation can change their fate.

It’s through the willingness to harbour and accept the down trodden that today’s great nations have found prosperity. Diversity of thought paved the way for entrepreneurs and problem solvers to make all our lives better.

Sadly, this type of immigration has given way to the ‘skilled immigrant’. The immigrant that has wealth and is seeking to only grow that wealth. I’m talking about the families that export their children to great nations to become Doctors, Lawyers and take high skilled and high paying jobs in the place of the locals, only to either transfer that wealth back to the home country or to continue to expand the family empire. It is this immigration that kills our spirit. It is this immigration that kills the spark of innovation. It is this immigration that creates the inequality we all loathe and fear. It is this immigration that needs to be stopped.

The theory of convergence states that poorer nations will have more rapid economic growth and eventually catch up to the rich countries. We see that in places like China where there has been extreme growth and standards of living have been rapidly improving. Sadly, that can’t be said about all developing nations. Elsewhere the loss of knowledge, and skills (human capital) means that the countries continue to struggle. The developing natures are subject to the exportation of human capital due to the wealthy sending their kids abroad to study and eventually live. The Chinese Thousand Talents Program is an example of a developing nation that lost it’s human capital and is seeking to regain it and is now reaping the rewards.

The wealthy skilled individuals immigrating from developing nations often don’t increase the diversity of thought in their new home either. They come from the same or similar schools and colleges, they think in similar ways, share similar mentalities and values and fail to add to the diverse fabric of an innovative community.

In the last decade it has become clear that targeting skilled immigration is failing not only our countries but our people. It fails the people of both nations, the nation the person is immigrating to and emigrating from. We must strive to welcome people with a fire in their heart and a willingness to take on risks for opportunities but we can’t do it at the cost of our own people. We can’t promote jobs to international competition and then put our residents on welfare.

What needs to be done

We need to go back to the lessons learnt in the past. The pages of history are clear, the Statue of Liberty is clear.

“Give me your tired, your poor, your huddled masses yearning to breathe free.”

Stop the skilled immigrants and those taking the places of our people in universities. Bring in the poor and the hungry. The people determined to make their lives a success.

If we prevent the doctors, engineers, lawyers and other skilled immigrants from immigrating then there may be hope that they will bring those skills to their countries. That their patriotism may light a fire in their hearts to help improve the GDP Per Capita in their homes. Rather than leaving for greener pastures, they may put their skills to work to heal the sick and wounded, protect the rights of the people and build the bridges, hospitals and schools they desperately need.

Preventing skilled immigration will open up opportunities for the local population to pursue highly skilled work. It will give a chance to the kid next door to pursue their dreams without college expenses being pushed up by international competition, and to find a job easily.

To do that though, we need to invest in our education. We need to give our local kids a chance. Give them the tools to take the jobs that will become available to them.

By doing this, we will be able to improve our standards of living again. Our income will not need to be shared amongst the many. We will welcome the registered hungry, and determined poor so that they can pursue happiness in great nations. We need these immigrants, to keep our spark alive, to continue the diversity of thought and to push for innovation. We don’t need immigrants that already have a leg up, that already have wealth and liberty, that already have opportunity.

The simple measure of changing immigration policy will help make once great nations, great again. But I warn you, these nations will fast fall from greatness if nothing is done.

Immigration policy needs to ensure the availability of jobs to local residents first. International competition for domestic jobs only reduces the number of locals that work, which then increases the number of people on welfare and costs not only the government more, but us, the tax payers more.

That elusive wage growth? Well if there isn’t a global workforce scrambling for positions in developed countries and bidding wages down then wage growth may return. Along with it, a higher skilled local population, stronger economy and happier people.

This is not to say that we need to close our borders. No, we need free trade and open markets so that people and business can prosper. We need open borders for the free trade of goods, services, ideas and the fostering of innovation and friendship.

What this says, is that we need to control immigration so that citizens, locals, neighbours, have first opportunity to a good education and good job. It is to say that, residents should be prioritised to be up-skilled and found employment, before competing against the world for their jobs. It is to say that, we need to know who is coming to the country so our streets are safe, and so that we know the individuals moving from foreign lands are ready to seize the opportunities, and freedoms these great nations offer. Like many of our ancestors we want people to come with a fire in their hearts; a desire to not only make their lives better but to make the lives of their neighbours, their communities and their fellow human better.

If you have any questions then please feel free to comment, and if there is anything you’d like to see analysis on or read about in the future then let me know.

Also, please note that this article does not represent financial advice, or the views of any organisation; it is only the opinion and analysis of the writer.

Thank you for reading.

Chris Leeson

Bringing finance and economics to you with a focus on in-depth analysis and everyday life.

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