For the past two years, until the last few months, economic experts and major media outlets were all predicting an economic downturn if not a full on recession. Story after story talked to men who said the economy was so much better under Trump and how terrible it was under Biden. Objective federal government economic data never agreed with the gloom and doom talk. It’s true that leading economic indicators were negative twenty months in a row while the economy thrived and inflation declined. However, the leading indicators are based on a rising demand for and production of goods. In normal economic circumstances these indicators may work but not in a post-Covid economy where the demand for goods was falling and the demand for services was rising.
What was rarely reported on over the past two years of the Biden recovery was how much better the economic situation was for women under Biden than under Trump. Men who stayed healthy had it pretty good even in the worst of the pandemic but women got hammered by job losses, loss of childcare and responsibility for school age children when schools closed. The increased child tax credit passed by Joe Biden and the Democrats kept families from sinking into poverty during the pandemic but times were tough for working moms. Since the relaxation of pandemic restrictions the demand for services has boomed, and as sold out Taylor Swift concerts and the huge success of the movie Barbie demonstrated, that surge in demand for services was led by women.
So we have a pretty good idea of why the gloom and doom predictions were wrong; women were spending for services, but that does not explain the apparent paradox of inflation declining while employment was increasing. One of the federal reserve’s operating principles is that raising interest rates will increase the cost of money reducing demand for goods and services and therefore reducing the number of jobs and the ability of workers to get wage increases. Keeping worker’s wages from rising has been a primary objective of the federal reserve in its fight against inflation.
The Biden economic miracle is that despite high interest rates consumers spent more, jobs increased and inflation dropped. How is that possible? It defies modern economic orthodoxy. A team of financial and economic analysts for a leading institutional brokerage may have solved the mystery as reported by Marketwatch.com one of the many media companies including the Wall Street Journal and Fox News owned by the Murdoch family.
The Marketwatch article explains that running fiscal deficits at a time of full employment is an economic stimulus. That stimulus is driving increased demand for goods, services and jobs. What the Marketwatch article does not discuss is how that stimulus should be causing increasing inflation, if all else is held constant, according to economic theory. Clearly, the return of women to the job market has boosted the economy and held back increases in the costs of services, but inflation, jobs and economic growth numbers are too good for that to be the only explanation.
Remember, this is reported by a company in the Fox News family:
Analysts at institutional brokerage Strategas led by Don Rissmiller agree that what they call “big fiscal” — the large budget deficits being run at a time of full employment — is a major driver of the economy. But they also point to another factor at work: immigration. “There are good reasons to believe the U.S. has benefited from positive supply effects, ie, there’s surprisingly solid real economic growth (~3%) along with more tame inflation (~3%) as we start 2024,” they say in a presentation. And the upside really appears to be U.S. specific rather than global.
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So that’s where immigration plays a role, helping to offset the aging of the U.S. workforce. “To the extent U.S. immigration has been tough to fully measure in recent years, the reported data may be underestimating this boost. The policy enacted by some states to relocate migrants from the southern border to larger cities may have also had the (likely unintended) effect of matching individuals to regions where there was an ability to work, even if informally. Such an occurrence could then help explain other U.S. data anomalies (e.g., missing workers in the household employment survey, missing income in the gross domestic income calculation)”
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What are the market implications? “My most immediate concern is that if there’s a substantial change in the U.S. government’s policy regarding the border, that could set the stage for a second wave of inflation,” said Rissmiller in a follow-up email. “Given how out-of-consensus that seems vs. expectations of central bank policy (easing) this year, that would pressure both bonds and stocks.”
So, despite all the very serious problems associated with the recent increase of migrants and asylum seekers at the southern border, immigration has made a large positive impact on the U.S. economy. And that was reported by a news source in the Fox News family of corporations,
Of course, our immigration system could be improved so that there would be fewer serious problems and negative local. impacts. The asylum system is so underfunded and so understaffed that it may take many years to get a hearing. In 2023 the average time to a hearing was reported as 4.3 years. This slow process causes serious problems for both asylum seekers and the communities hosting them. What is clear from many studies over the years is that an immigration system that is flawed but lets immigrants in is better for the economy that one that stops immigration.
An award winning investigation of the impacts of immigration reported on NPR's "This American Life" showed how immigration restored a town in decline in Alabama while surrounding towns continued to decline. It’s well worth a listen and it’s based on sound social science.
The American economy is once again the envy of the world under Joe Biden’s leadership. Joe Biden and the Democrats have wisely spent money to invest in American infrastructure to improve the economy and it is working. The main reason that the stock markets are at record highs while the economy is growing rapidly with falling inflation, a modern economic miracle, is immigration.