The Way to Cure Inflation: More Immigrant Workers
by John Lawrence
There is a supply shortage which means that there is not enough supply to meet consumer demand. At the same time there is a worker shortage. The worker shortage causes the supply shortage as companies have to cut back on their supply of product because they don't have enough workers to make more. They have to pay workers more because they are in a competition for workers. So there is a gap between supply and demand because there is a gap between available jobs and the supply of workers. The solution: increase the supply of immigrants to fill the demand for workers. Then companies could ramp up supply to meet demand, and wage price spirals would diminish. Instead, the government has restricted immigration. This limits the supply of workers especially those who are in demand for the lower skilled jobs. Republicans are all concerned about immigration when the solution to the inflation problem is to let more immigrants into the country to fulfill the need for essential workers. This would fill the void in the job market and increase supply of goods and services. This in turn would lower prices and go a long way to taming inflation. The Fed cannot solve the problem of inadequate supply of workers by raising interest rates. This will only tend to rein in asset prices which in and of itself is a good thing since housing and rents are too expensive. But it will not increase the supply of commodities for which there is more demand than supply.
After noting that reversing the Trump tariffs on Chinese products would lower inflation, Fareed Zakaria also noted the following:
The second one, he noted, would be immigration reform. This is the time to reverse more of Trump’s restrictions on immigration, many done by executive action and hundreds of which are still in effect, which have caused severe worker shortages in industries such as farming, construction and health care.
The problem, however, is not one relating to facts or logic. No one seriously disputes the validity of these claims. During the campaign, Biden lambasted Trump’s tariffs on China and much of his immigration policy. Yet after entering office, the Biden White House has behaved on these issues like a deer caught in the headlights — paralyzed by fear that any major shifts might get attacked by Republicans.
I also might add that cranking up the Cold War rhetoric regarding China is not the way to lower the price of consumer products most of which are manufactured in China. China is learning the lesson that Russia learned during their ongoing war with Ukraine. If you have a product or commodity that the west wants or needs, you can cause a lot of damage by withholding that product or in other ways making it more expensive. As Russia has made the price of gas more expensive, they have directly caused inflation in the US and Europe. One could also point out that sanctions on Russian oil by western governments have contributed to rising inflation so in that sense the Biden administration has shot itself in the foot. China could take a page out of Russia's book, and increase costs to western consumers. In fact it already has as container ships (wholly owned by Chinese companies) have raised their prices to transport goods from China to the US. The US needs to cooperate with China if it wants the trade relationships so vital to consumer spending, which is 70% of the US economy, to remain on a salutary basis.
It is to be noted that China turned the tables on the US by sanctioning Nancy Pelosi and her family after her trip to Taiwan. It's as if they're saying, "See, you guys aren't the only ones that can do sanctions." China could get into a sanctions war with the US if tensions between the two countries continue to escalate. China could take steps to increase the cost of Chinese produced consumer goods which are essential to the functioning of the US economy. Or it could even withhold some essential manufactured goods altogether. As Russia has us over a barrel with regard to gas prices, China could put us over a barrel with respect to any number of consumer goods that we are dependent on them for. On the other hand, if we cooperated rather than competed with China, that might go a long way to solve the climate change problem. Ditto for Russia. Those 2 countries have a lot to do with whether or not planet earth gets a handle on climate change. Can we afford not to cooperate. In the long run the fate of Taiwan or Ukraine is less important than the fate of the whole planet.