One of the most valuable economic lessons I've ever learned came from one of the most important economists of the 20th century, Paul Samuelson. He explained that the economy works like a soda cooler, which consists of a tube open at both ends. You put a warm bottle in at one end, and the pressure forces a cold bottle out at the other. The idea is simple: you need to invest resources to get results. So far, so obvious. But what happens when a "populist" (that was his term) says that you don't need to put any soda in, but that you just need to put your hand inside the tube to pull out a cold bottle? And when it runs out, you repeat the process again and again. As long as the audience is willing to turn a blind eye to reality (and there are always many willing to do so), the populist will triumph politically. The problem is that when their term ends, those who remain will have to put in many bottles before they can pull out any.
How many times have we experienced – both in the public and private spheres – the dilemma of whether to accept immediate gain at the expense of the future? Do we give a child a mobile phone now to keep them quiet, or do we take it away to educate them?
All this is relevant to the presentation of the report Demographic transition, immigration and aging in Catalonia 2024-2050,Prepared by Josep Oliver, Professor of Applied Economics at the Autonomous University of Barcelona.
The author explained that immigration "has been key" to sustaining economic growth and the Catalan labor market, given that almost all of the jobs created in the last twenty years have been filled by immigrants.
Oliver believes that "immigration is a huge benefit to a country from a macroeconomic point of view," but not "from an individual point of view." I must warn the reader that I don't understand what interests "the economy" could possibly have other than the interests of its citizens, but Oliver explains the conflict as follows: "If those who arrive are poorer than me, and I am poor, but they are poorer, then they get the school lunch program." In other words, "since public services are scarce, natives and immigrants must compete to obtain them," so "the history of the clashes in Great Britain and France between immigrants and natives is, quite literally, that."
According to Oliver, the solution to this conflict is simple: "Since growth brings in more tax revenue," and given that "a significant portion of this additional public revenue comes from immigrant contributions, we must allocate some of it directly to the areas where they are concentrated." In other words, we must put more money into the welfare state so that we can continue to fund the same public services.
The problem with this proposal is that it's just putting your hand in the fridge to take out a soft drink without putting anything in the other end.
Does immigration generate more tax revenue? Yes. Since there are more people working and consuming, more corporate tax, more VAT, and even slightly more personal income tax is generated.
Does immigration allow for a financial strengthening of the welfare state? No; immigration weakens it.
The reason is simple: the welfare state is based on solidarity, which means that those who earn more contribute more than they receive, and those who earn less receive more than they contribute. If the newcomers are from the lowest income brackets, the balance is thrown off balance.
It's not just a matter of common sense. The Danish Ministry of Finance calculates the fiscal impact of immigrants each year based on their geographic origin. Those from Western Europe have a neutral impact, while the impact on the rest is negative, especially for those from North Africa, the Middle East, and Pakistan. The British government also reports the fiscal balance of immigrants based on their skills, with the balance being very negative for low-skilled workers.
Branko Milanovic, an eminent figure in the field of inequality, concluded long ago that immigration is incompatible with the welfare state, and even longer ago Milton Friedman ignominiously declared that "illegal immigration is good for America... as long as it is illegal," that is, as long as it is not illegal.
The fact that the fiscal balance of low-skilled immigration is negative should not be a reason to prevent it. Ensuring our elderly receive personalized care, for example, is a powerful reason to accept immigrants. But let's not fool ourselves: it comes at a cost that, if we don't bear it today, will have to be borne by future generations, because immigrants cannot help pay for school meals or pensions for one simple reason: they are also entitled to them.
And how should we finance it? That's a topic for another article.
