Flip-flopping demographer Peter McDonald is back with more immigration propaganda at yesterday’s AFR Infrastructure Summit, where he derided Scott Morrison’s decision to lower the non-humanitarian permanent migrant intake to 160,000:
Peter McDonald, professor of demography at the University of Melbourne, said Australia was facing a potential “labour-supply crunch” because about two million Baby Boomers were retiring from the workforce.
“They’re not going to be replaced at the young end, because the young end is not growing – the young end is flat and even falling because people are staying in education longer. So migration is really the only solution to that … it probably would have been better to stick at 190,000,” he said…
“Without Sydney and Melbourne Australia would be an international backwater – you have to have those dramatic places to attract the international interest,” he said.
I already comprehensively debunked Peter McDonald’s flimsy ‘optimal immigration argument last year. In a nutshell, his call for a big immigration program to counteract ageing directly contradicts his parliamentary research paper in 1999 whereby he concluded that it is “demographic nonsense to believe that immigration can help to keep our population young”, claimed that “levels of annual net migration above 80 000 become increasingly ineffective and inefficient in the retardation of ageing”, while also recommending “a population of 24-25 million within 50 years”:
There is no question that immigration, at least the first 80 000 immigrants, provides a worthwhile reduction in the extent of ageing of the population. However, immigration cannot ‘solve our ageing problem’. Substantial ageing of the Australian population over the coming decades is absolutely inevitable. To illustrate the lack of power that immigration has in relation to our age structure, we investigate the levels of immigration that would be required to maintain the proportion of the population aged 65 and over at its present level of 12.2 per cent. In doing this, we maintain the fertility and mortality assumptions of the standard but allow annual net migration to change.
To achieve our aim, enormous numbers of immigrants would be required, starting in 1998 at 200 000 per annum, rising to 4 million per annum by 2048 and to 30 million per annum by 2098 (Table 6). By the end of next century with these levels of immigration, our population would have reached almost one billion… The problem is that immigrants, like the rest of the population, get older and as they do, to keep the population young, we would need an increasingly higher number of immigrants…
It is demographic nonsense to believe that immigration can help to keep our population young. No reasonable population policy can keep our population young…
Levels of annual net migration above 80 000 become increasingly ineffective and inefficient in the retardation of ageing. Those who wish to argue for a higher level of immigration must base their argument on the benefits of a larger population, not upon the illusory ‘younging power’ of high immigration…
There is an upper limit to annual net migration. We argue that there were difficulties in the late 1980s when net migration rose for just two years to over 150,000 per annum. While it is not possible to be prescriptive, a sustained net migration level of 120 000 per annum is at the high end of what Australia seems to be able to manage.
Let’s be honest for a moment: the population is ageing because Australian’s are living longer (a good thing), as well as the mass immigration program ran in the post-war period (i.e. 1950s and 1960s):
These migrants (which include my parents) have now grown old, thus adding to Australia’s current ‘ageing problem’.
Therefore, Peter McDonald’s policy response to run a strong immigration program to counter population ageing is misguided, since today’s migrants will also grow old, thereby creating further ageing ‘problems’ in 40 year’s time.
Furthermore, the standard rigid definition of 15-64 years old for the working-aged population ignores the increasing labour force participation by older Australians:
Since the mid-2000s, the labour force participation rate of over-65s has more than doubled. And there is obviously further scope for increases in participation given older Australians are remaining healthier for longer, as well as the legislated lift in Australia’s pension eligibility age to 67 by 2023.
Regardless, the ABS’ own demographic projections show that immigration is next to useless in ‘younging’ Australia’s population. That is, if we apply a more realistic definition for the working aged population of 19 to 70 (given more kids are staying in school and older Australians are working longer), then running annual net overseas migration (NOM) of 200,000 to 280,000 delivers only 3% more working-aged Australians by 2101 than zero NOM:
This tiny ‘benefit’ will only be transitory and comes at the expense of adding 150% to 200% more people to Australia’s population versus zero NOM:
Such a massive increase in population will obviously take a massive toll on Australia’s natural environment and general liveability, which Peter McDonald has conveniently ignored.
This is curious, because Peter McDonald’s own model supporting a 160,000 to 220,000 “optimal immigration” range concluded with the following warning that if infrastructure doesn’t keep pace with population growth, then both productivity and living standards will suffer:
While this report argues that immigrants will be important to the construction of productive infrastructure in Australia, if increased immigration proceeds without investment in new infrastructure, especially urban infrastructure, the result could be reductions in productivity through increased congestion and inefficiency. Thus, a plan relating to Australia’s future levels of immigration must be coordinated with policy for urban infrastructure especially housing, transport, water and appropriate energy supply. With constant fertility and net migration at 180,000 per annum, Australia’s population would rise to 35.9 million by 2050. This is a large increase and most of the additional population would be settled in the existing cities all of which are already under strain from infrastructure shortages. (p. 45)
Given that Australia’s infrastructure has failed so dismally to keep pace with mass immigration, and that traffic congestion (among other liveability indicators) has unambiguously worsened, surely this renders McDonald’s 160,000 to 220,000 “optimal immigration” target null and void?
Peter McDonald needs to explain why he has performed a complete U-turn on immigration and why the well thought-out and logical arguments presented in his 1999 parliamentary research paper no longer hold true.
Finally, Peter McDonald’s claim that Australia would be an “economic backwater” without the migrant deluge into Sydney and Melbourne is ridiculous. Take a look at the below chart showing trade balances by state:
Notice how the so-called economic engines of Sydney (NSW) and Melbourne (VIC) have produced gigantic trade deficits?
Basically, all the extra migrants that have flooded into these two cities have barely lifted exports, since these cities don’t actually produce much that is tradeable. By contrast, imports have skyrocketed via more purchases of consumer goods like flat screen TVs, cars, furniture, etc. These net imports must be paid for, either by increasing the nation’s debt or through selling-off the nation’s assets. We’ve been doing both.
The truth is mass immigration promotes ‘dumb’ growth, concentrated in urbanisation and household debt, and associated sectors benefit (think Highrise Harry and Gerry Harvey). This has its limits, as we are already seeing in debt stress everywhere and declining liveability, as it benefits the few over the many.
But it’s not the preferred model of growth. Far from it. Productivity enhancement and competitiveness are a better model over the long run as they lower debt while boosting incomes per capita, are more meritocratic, and will send the 40% of the economy that is tradeable into overdrive.
Cutting immigration would lower the Australian dollar (other things equal), rebalancing the economy away from ponzi consumption-led growth towards productive tradeable growth. It would help to lift wages and would improve Australia’s current account, since Australia would import far less and the nation’s mineral wealth (and exports) would be shared among less people.
Once immigration is cut there’ll be an adjustment period while the real exchange rate tumbles. But the Australian economy will be far better off in the medium and long term, as will living standards.