Politics Aside, the US Economy Is Holding Strong
The presidential campaign is viewed as deeply dismaying by most Americans. Even after President Biden bowed out, neither candidate musters strong support. But you should know that presidents do not matter that much for the economy as a whole. Good economic policies allow growth, but we have never had a government that has only made good economic policies. People tend to focus on a policy that they like, or the policy that they do not like. But when you look at it as a big menu, there are both harmful and beneficial economic policies during every administration.
Real GDP growth over my 73 years of life has not been about Democrats or Republicans. The U.S. economy grows, except for relatively rare, short-lived periods. During weak economic periods, people invariably say the economy will not grow again, and then it grows again. Over the long term, the U.S. economy grows regardless of which political party is in charge in D.C.
If there is a difference between candidates in terms of the economic impact, it probably is only 10-20 bps of GDP growth a year. Politics is much more about who wins or loses economically. For example, if the Democrats sweep, it will be bad for fossil fuel and good for alternatives, and vice versa if Republicans sweep. But we are going to use energy either way. We will turn on lights, drive automobiles, and use machines either way. The industry winners and losers will be different, but on net, the economy will be fairly unchanged.
Immigration fuels the economy
From July 2022 to July 2024, the U.S. foreign-born civilian labor force increased by almost 2.9 million, while the total working age (16-plus) foreign-born population increased by 3.4 million. Foreign-born employment increased by 2.3 million over this period, or 81 percent and 67 percent of the foreign-born labor force and population increases, respectively. In comparison, the native-born civilian labor force and population increased by 1.5 million and 696,000, respectively, over the same period. (The native-born labor participation rate rose by about 50 bps over that period resulting in a larger rise in the labor force than the population). Meanwhile, native-born employment rose by 653,000 between July 2022 and July 2024, or about 43 percent and 94 percent of the increase in the U.S.-born labor force and 16-plus population, respectively. Stated differently, 81 percent of new foreign-born labor force participants chose employment, versus just 43 percent of new native-born labor force participants.
As of July 2024, foreign born residents had a higher labor force participation rate (68 percent) than the comparable U.S.-born participation rate (62.6 percent). Historically, the foreign-born labor participation rate outperforms the native-born labor participation rate by 340 bps. Simply stated, immigrants are not do-nothing layabouts. Of course, a small group of immigrants will be criminals, just as were earlier infamous immigrants Carlo Gambino, Meyer Lansky, and Lucky Luciano. But thankfully, the harm created by such gangsters did not stop immigration, as most who came to the U.S. were diligent and hard working.
Migrants enter the economy via relatives and close family friends already (generally legally) living in the U.S. The vast majority of illegal immigrants are good people who are looking for a better life but are frustrated by a broken U.S. immigration system. Once in the country, immigrants (legal and illegal) get in touch with a cousin, aunt, or uncle who owns a laundry service, restaurant, landscaping service, construction subcontractor, etc. seeking employment. These contacts help new immigrants earn a living and integrate into the system. Most simply want the same thing that everyone else in the U.S. wants: a safe life with the hope of opportunity for them and their families.
Occasionally when we speak to a large audience, we conduct the following exercise. Stand, and remain standing, if you trace your ancestors in the U.S. back to 1776. To the start of the Civil War in 1861? The start of WW I in 1914? The start of WW 2 in 1939? The end of the Vietnam War in 1975? To 9/11/01? The onset of COVID? Not surprisingly, the whole room is standing at the end of the exercise, with only a small percentage entering by the Civil War. These answers provide a vivid reminder that we are a country of immigrants. Each wave of immigrants was hated and feared upon arrival, yet they thrived over the years. The proof of this is that in any large group of highly successful people, few are the actual immigrant. This is because success generally takes generations. We then ask the audience to give their ancestors a round of grateful applause. We close by noting that “we do not need immigrants to fill this room today (as few recent immigrants are in the audience); we need immigrants in order to fill this room 20-100 years from now!” We encourage you to remember this exercise.
Dr. Peter Linneman is a Principal and Founder of Linneman Associates (www.linnemanassociates.com), Professor Emeritus at the Wharton School of Business, University of Pennsylvania, author of “Real Estate Finance and Investments: Risks and Opportunities,” and co-author of “The Great Age Reboot: Cracking the Longevity Code for a Longer Tomorrow.” Follow Dr. Linneman on X: @P_Linneman
Read the November 2024 issue of CPE.
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