Peter Martin goes population ponzi mad!

By Leith van Onselen

I am usually a big fan of Fairfax’s Peter Martin. However, he has lost the plot today, urging Australia to throw open its border to allow mass immigration:

Immigration makes us richer… So big has been the economic boost from increased immigration over the past decade that [Bob] Gregory compares it to the mining boom. He says it eclipses the potential boost from lifting productivity, except while the mining boom came and went, the boost from increased immigration will last…

It is already beyond our control… An astounding 345,600 foreign students live here with the ability to work… 188,000 workers live here on temporary 457 visas… and 143,900 work here while on holidays… All of these programs are uncapped, all give the people who use them the inside running on permanent migration, and all eat away at the fiction that we control our borders. Loosening control further is likely to help, rather than harm us, so long as it boosts immigration…

It’s true that immigrants put a greater strain on our cities and on our environment, but we have scarcely begun to manage those things properly. Charging for road use and carbon emissions would be a start. And by contributing to Australia, immigrants give us the resources to build more infrastructure and protect our environment, if we have the will to do so.

Immigration boosts incomes because it allows people to move to where they can reach their full potential. …the benefits of freeing up immigration dwarf those of anything else imaginable.

In order to justify the case for mass immigration, Martin cites the Productivity Commission’s (PC) draft Migrant Intake into Australia report, released last week, which modeled that if immigration at current levels were to persist, then real GDP per person would be some 5% higher than under a zero net migration scenario.

However, as noted by the PC, its results depend upon the assumptions made. They also contradict the PC’s modelling contained in its 2006 major study on the Economic Impacts of Migration and Population Growth. There, the PC modeled the impact of a 50% increase in the level of skilled migration over the 20 years to 2024-25 and found that it caused real GDP to be 4.6% higher than would otherwise have been the case in 20 years time.

The PC also found that real income per person would be 0.7%, or $380 a year, higher than would otherwise be the case in 20 years time.

But here’s the kicker, according to the PC, “the distribution of these benefits varies across the population, with gains mostly accrued to the skilled migrants and capital owners. The incomes of existing resident workers grow more slowly than would otherwise be the case.

So according to the PC’s 2006 study, opening the spigots to skilled migrants, let alone unskilled migrants, would actually make the existing resident population worse-off because they would earn less income than would otherwise be the case.

Hardly sounds like a slam dunk for mass immigration, does it?

Martin also fails to mention that the PC’s latest report inferred economic costs from immigration beyond 2060:

In the long term, larger cohorts of immigrants will themselves add to the proportion of the population aged 65 and over as they age and, thus, reduce the impact of further immigration intakes on the age structure of the population (PC 2013a)… immigration cannot realistically prevent Australia transitioning to an older
population.

In its 2005 research paper Economic Implications of an Ageing Australia, the Commission found that ‘larger intakes can start to make appreciable differences to ageing, but only at the cost of unsustainably large population growth’ (PC 2005b, p. XVII). To illustrate this, the Commission projected that to retain the age dependency ratio at 2005 levels until 2045 would require an annual migrant intake of 3.1 per cent of the population — growing the Australian population to 85 million and the annual net migrant intake to 2.5 million by 2045.

We also shouldn’t forget that the PC’s modelling has not included the adverse environmental impacts of a substantially larger population, nor the adverse amenity impacts from much higher levels of congestion, which will not only reduce the living standards of the existing resident population, but also lower productivity.

Martin has noted these impacts in passing, but then all but ignores them. Perhaps he should instead have taken a leaf from The Australia Instutute’s Richard Denniss, who has considered these issues and has provided a sobering assessment:

“Australia is one of the fastest growing countries in the developed world and our infrastructure isn’t keeping up. It isn’t keeping up now and hasn’t kept up for the last 10 years, and it’s not budgeted to keep up in the next 10.”

“What politicians are doing is every year they announce record spending on this and a new that, but what they don’t point out is that on a per person basis, per person we are spending less on health, per person we’ve got less access to transport, per person the reason the queues in the hospital keeps getting longer is because we are not building hospitals as fast as we are growing our population. They all know it, they just don’t say it”…

“If you want to double your population – and that’s our plan – we want to double our population – you have to at least double your infrastructure to maintain people’s standard of living… We’re talking schools, we’re talking hospitals, we’re talking trains, we’re talking roads, we’re talking police”…

“Population growth costs a lot… If you double the number of citizens then you double the number of teachers and double the number of nurses. It’s pretty simple math. But of course, you don’t have to double them if you gradually plan to lower the number of services. If you are happy for us to gradually lower the number of services in our health system, our aged system, if you are happy for congestion to gradually get worse, if you are happy for the amount of green space per person to decline, then you can do what we do”.

The following claim from Martin is also false:

So big has been the economic boost from increased immigration over the past decade that Gregory compares it to the mining boom. He says it eclipses the potential boost from lifting productivity, except while the mining boom came and went, the boost from increased immigration will last…

The huge ramp-up in immigration over the past decade did indeed give a boost to aggregate GDP (more inputs equals more outputs). But so what? Growth in real GDP per person has been falling over this period, as illustrated in the next chart:

ScreenHunter_10364 Nov. 17 08.03

Effectively, all rapid immigration has done is create the illusion of growth, along with a boom in congestion. Meanwhile, individual living standards have slid backwards.

Finally, Martin has completely failed to mention that Australia’s fixed mineral endowment (resources base) – the main driver of our wealth – would be diluted by mass immigration. For example, if the population doubles over the next 40 years, then this implies that Australia’s per capita resources base will be diluted by a corresponding amount. It also means that our fixed endowment of resources must be sold-off twice as quickly just to maintain our standard of living, other things equal.

On this issue, the final word on why a massive expansion of immigration is very likely to lower Australian living standards can be illustrated with a case study.

Consider Norway versus Saudi Arabia:

  • Both had a huge boom from oil exports.
  • Both nationalised and built sovereign wealth funds.
  • The GDP of both nations has generally tracked closely for decades with a couple of oil-induced divergences including now (N $500 billion ; SA $746 billion):
ScreenHunter_8770 Aug. 11 08.31
ScreenHunter_8771 Aug. 11 08.35
  • Today, Norway consistently ranks near the top in surveys of happiness and desirability to live, unlike Saudi Arabia. Norway has arguably the highest living standards of any nation on the planet. This shows up in GDP per capita: (N $97,000 ; SA $25,000):
ScreenHunter_8772 Aug. 11 08.37

Does anyone honestly believe that Norwegians would be better-off had they adopted Martin’s recommendations and opened the immigration floodgates?

[email protected]

Comments

  1. “It’s true that immigrants put a greater strain on our cities and on our environment, but we have scarcely begun to manage those things properly. Charging for road use and carbon emissions would be a start. And by contributing to Australia, immigrants give us the resources to build more infrastructure and protect our environment, if we have the will to do so.”

    So we can’t manage these things properly, we don’t charge for road use and carbon emissions, and we don’t seem to have the will to build more infrastructure and protect the environment.

    But how about we just ignore those inconvenient details and open the floodgates even more?

      • Nothing that comes out of Fairfax surprises me these days (though you’re right that Martin is normally one of the better ones).

        On unrelated note, I spent most of yesterday out in the garden and I can report that the Saturday Domain extract is by far the best source of base material for mulching (measured on a price per page basis). To all the advertisers who subsidised my work yesterday – my garden and fruit trees thank you.

    • Spot on AB
      Well said Leith
      Big Australia population boosters lurk on both sides of the political and economic spectrum. They share a callous disregard for the inevitable consequences of their unfailing belief in endless growth in a finite space.
      Continue to call their nonsense out where ever you see it.

      • ResearchtimeMEMBER

        Its going to be a bigger Australia anyway – either by us or someone else… its how you manage it thats the key. Either you do, or someone else does.

    • As I drive through the carlingford/eastwood (sino) areas in sydney to work everyday and look at the demographic mix of new Australians they do not seem to be working age more like retirement age.
      Is our services/population ponzi economic plan to be the retirement village for rich sino industrialists?

    • Martin is seriously all over the shop.
      In one para he says “It is already beyond our control”
      in the next para he says “..TVH levels are uncapped..”
      Here is an idea. Cap them.

    • Yes AB! Zero or slightly negative population growth is the way to increase the Australian standard of living. Consider how cheap real estate will become with more property than people! Then consider how much more money will be available to spend as consumers and to invest in better business when people are not chained to high mortgages.

  2. St JacquesMEMBER

    A case of too much economic theoretical purity and not enough historical reality. Look at Europe just in recent months Martin; as time went bye less than half those people were Syrian refugees and the numbers coming from everywhere were growing exponentially as word got out through the developing world that Europe was open to all. After just a month, 10 000 were arriving in Germany each day and it was growing – exponentially and the Syrian portion was already less than half of arrivals and dropping. No society could cope with that and survive Martin.

    • ResearchtimeMEMBER

      As an aside – the encyclical (John Paul II (1995) p. 12) makes an observation the rich and developed countries there is a disturbing decline or collapse of the birthrate. The poorer countries, on the other hand, generally have a high rate of population growth, difficult to sustain in the context of low economic and social development, and especially where there is extreme underdevelopment. Recent events in Paris over the past weekend are just a foretaste of what s to come. Underline the difficulty of Europe within a generation of sustaining itself, in the face of population explosion in the Middle East and North Africa.

      • lol…His Holiness could have actually assisted by refusing to continue threatening the millions of young catholic women of sub-Saharan Africa with divine retribution if they used contraception.

      • ResearchtimeMEMBER

        Hmmm… we both know that not to be true! A lot of spoof around not much fact. The Catholic Church (as far as I know) only starts recognises life around 6 days after fertilisation, once the “potential” embryo actually attaches to the womb. In fact Augustine said that it was a nothing until 40 days (from memory) – a day plucked out of the air. But there is now something recognised physiologically that happens around 41-42 days, the beginnings of a nervous system (? – cannot remember). So there is still a school of bioethics thought that still recognises that period.

        What is interesting, is that everything is base around potential. Given women abort at least half of their foetus’s naturally inside a month… they key point is when does an embryo become potential? Hence the six day point above.

        But an embryo now, with certain parents – is now worth $40-50k on the open market (some substantially more)! Potential untapped – so to speak. Its a very interesting topic. And maybe the Catholic Church may have to push back its recognition back some…

        Gattica, here we come

  3. What a disingenuous crook

    He can’t be that stupid so he must be a paid liar

    Having said that comparing Norway and Saudi arabia is pretty spurious

    There are major differences aside from immigration

      • What?

        You dont think there are other factors that might affect GDP in the two countries?

        Like culture, religion, education, climate, geography, position etc etc etc

      • Sure. But do honestly believe that SA’s GDP per capita wouldn’t have been much higher if immigration was materially lower? Its oil wealth would have been spread over a much smaller population base.

        This is the key point of the comparison, which applies equally to Australia as a commodity exporter. If you ramp-up immigration, you reduce resources wealth per head.

        Norway’s stable population approach is a winner compared with a population ponzi.

      • Yes I agree with the sentiment that migration dilutes wealth

        I just think using a comparison of Norway and saudi arabia as proof is absurd, opens you up to criticism and diminishes credibility.

      • So you are insisting that that was the only material difference in the way the two countries were run?

        Perhaps GDP growth would have been lower in Saudi arabia had they not increased migration
        Perhaps GDP growth would have been high in Norway had they increased migration

        etc etc and so forth

      • Of course GDP would have been lower if they had not run high immigration. But their GDP per head would have been higher. Why? Because their oil exports would have been shared among less people. What part of the equation do you not understand? It’s not rocket science.

      • I’m not sure if you are really this dense…

        How do you know that would have been the case? There are a million variables

        Perhaps if Norway had run higher immigration, they may have developed other high tech value add industries

        Perhaps if Saudi Arabia had run lower immigration, they may have undergone some type of societal collapse from undiluted social tensions and inability to maintain infrastructure

        There are a million potential scenarios

        You are presenting the two countries as if they are identical twins who underwent some controlled randomised experiment in migration. They are not. There are countless other variables at play that cannot be accounted for

      • Goodness me, give it a rest. This is an economics blog. Surely we all understand that there are no direct comparisons, you can only point to indicators, and that there is never a counterfactual.

      • So who should be giving it a rest?

        The guy who draws tenuous conclusions by comparing only one variable out of thousands/millions?

        Or me?

    • Australia has a choice.
      Do we choose to continue a high population growth model (Saudi Arabia) or low population growth (Norway)?
      The comparison/analysis is valid.

      • Now you have really taken it beyond absurd

        Why not choose the United States with its high immigration as your comparator? rather than saudi arabia? We have about as much in common with both countries . Mineral extraction is not the only thing that defines a nation

      • Norway annoys the crap out of the Big Australia population boosters.
        How can a country of only 5m people with so little pop growth over the last 55yrs have such a prosperous and dynamic economy with such a high standard of living?

  4. I’ve met Mr Martin several times. He’s a nice bloke and very bright. I really like his work, but agree that this one is a shocker.

    It may or may not be relevant that his wife is of Indian descent. I’m not sure, but she may be a migrant herself. In his circumstances, I suspect that even the most stalwart of fellows would find it hard to go banging on about the perils of excessive immigration to an audience of gazillions of people and then go home to proudly show his work to the missus.

    • It is surprising how many otherwise intelligent people refuse to acknowledge the inevitable self-destructive consequences of endless population growth in a finite space.
      On the left it seems driven by a desire to be seen to be expressing concern for the welfare of their fellow man and woman, when in reality the outcomes are the exact opposite.

    • arescarti42MEMBER

      “I suspect that even the most stalwart of fellows would find it hard to go banging on about the perils of excessive immigration to an audience of gazillions of people and then go home to proudly show his work to the missus.”

      Maybe. It’s often been my experience that the most fierce opposition to immigration has come from recent immigrants themselves.

      • Everyone is a nymby at heart. All my immigrant friends say the same thing. Also calling newer migrants “fobs” I giggle and remind them we were all once fobs..

    • He might be a nice bloke but this could be the worst piece of Pollyana population hopium I have ever read.
      If this guy is considered a leading Australian economist we are flying blind in a world of hurt.

  5. Geez, I feel so goddamn wealthy standing with zero personal space on this Melbourne Metro train heading slowly into the city.

    • I haven’t heard any since he became PM, but he has previously been in favour of a Big Australia (to no-one’s surprise). Link from 2012.

      http://www.theaustralian.com.au/archive/national-affairs/people-mean-growth-says-malcolm-turnbull/story-fng387xs-1226509489548

      MALCOLM Turnbull slammed the Greens’ “small population” agenda yesterday, putting him at odds with Labor’s “sustainable Australia” mantra and undermining the Liberal Party’s election promise to cut population growth.

      Mr Turnbull called for a “more open” Australia and said Bob Carr’s call when NSW premier that Sydney was “full” had caused massive damage, precipitating an economic slowdown in the biggest state and fanning irrational fears of immigration. “Anyone who thinks it’s smart to cut immigration is sentencing Australia to poverty,” Mr Turnbull told the Securing the Future conference, co-hosted by the Melbourne Institute and The Australian.

      • Malcolm must be the only person (not an REA) living in Sydney to be calling for increased population growth.

    • Ah, you just need to work out a scam to ensure that you benefit from the influx. Some in the Chinese community sure have – from dodgy accountants, lawyers and real-estate agents to the tour guides taking kick-backs from real-estate sales groups and duty free shops to the restaurants and duty free shops that have different prices for mainland Chinese vs locals. Just work out your scam, ethnic target group and you too will benefit from milking the influx in tourists and immigrants for all it is worth!

  6. The Norway vs Saudi is not a good comparison. Those in power in the latter probably rank darn highly on the happiness scale. In Norway it’s the people who have the power. Australia vs Saudi, now that may be a fairer comparison.

    • exactly, one is a democracy and the other an absolute monarchy/theocracy. One a highly secular country while the other is the HQ for the most fundamentalist branch of the most fundamentalist religion.

  7. We are all poorer every time China air or air India inloads its hunan cargo in the spearhead and then caravan of the foreign guestworker invasion all to rting the student & tourist & 457 schemes.

    One would think that Australia at 18 x the OECD average of foreign guestworkers per head of population was already a very unnatural level.

    After all we know from APRA and Austrack that 1.7 million recorded foreign guestworker (and another 180,000 missing) only bring in $10 billion but send out $36 billion.

    Air India arrivals Sat Sydney Airport.
    60 wheelchairs are taken to the plane to cater for the old and sick Indian mothers or extended family being brought in to go on Australian welfare and Medicare.
    Go check – that’s normal and an indication of just what’s coming in.