Bill Evans demands immigration remain full throttle

Via the AFR:

Westpac chief economist Bill Evans has warned the Morrison government to resist any temptation to cut immigration in response to a spike in the jobless rate.

…Mr Evans said Australia had responded to high unemployment in the early 1990s by slashing immigration and there was a danger in pursuing a similar strategy in the wake of the COVID-19 crisis.

…“We get productivity growth with better targeted taxes and less regulation and we get strong population growth with immigration,” he said.

Alas, Bill, we must disagree. This is one of the few times you have talked Westpac’s book. Immigration boosts house prices but does precious little else.

Yes, immigration gives you some growth. But it is neither smart nor fair growth. And it actually destroys the productivity you will get from your tax reforms as it crush-loads the life out of cities.

This is very straightforward. If you’re always trying to catch up to your own infrastructure deficit then you’re only ever oscillating between -1 and 0 for its contribution to productivity.

This leads to the second problem. Without productivity growth, income growth stalls and, what there is of it, automatically shifts to capital because immigration creates its own excess labour supply with an output gap that never shrinks.

This is NOT an economic theory. It is a FACT, based upon the empirical study conducted by Australia over the past fifteen years.

Even before COVID-19, the OCED was forecasting a yawning Australian output gap into 2021 as immigration outpaced productive capacity. It has trended that way ever since the GFC as we ran immigration too fast (with a brief hiatus during the 2015/17 housing boomlet):

Wages trended down accordingly. Indeed, when we overlay the output gap with wages and the immigration rate they match up perfectly:

The conclusion is obvious. If you run mass immigration into a slack economy then the result is certain: an ever-yawning output gap and crushed wages.

If, however, you cut immigration, as we did after the 1990 recession to below 1% for a few years, then the output gap closes and wages can recover. The growth that would have resulted from immigration is not lost, it simply shifts to other macro mechanisms. The Australian dollar will be lower and tradeables output higher.

We need to add the likelihood that in the period ahead, as China slows, the Australian terms of trade will keep falling so income will be scarce as it is.

We do not want a recovery that shifts this diminishing income entirely to capital. It will gut the Aussie middle classes US-style and lead directly to demand deficit and secular stagnation.

We need a productivity-based recovery that shares the gains. Not a population-based one that destroys what remains of Australiana.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. Recently listening to a big 4 economist talking hospital builds – “eye watering costs” to keep up with demand, etc etc. Yes, we have an aging population but the ‘high levels of immigration’ elephant in the room never rates a mention.- ever. This situation is a conscious choice to a large extent but so many are wilfully ignorant. Or consider it an unchangable fact of life.

    • Middle class getting reduced to peasants via debt and competition with 3rd world labour and most that I see are not even aware of the problem. Blinded by real estate. For now anyway.

    • It’s not ignorance, it’s biddability. An economist is someone who is paid by wealth to sanctify measures for screwing the poor. In Australia, mass migration is one of those measures.

      Pre virus, the average rate of population growth across the OECD (~ 0.7%) was half of ours (~1.6%). Post virus, you won’t find the economists pushing mass migration for other OECD nations. That’s the last thing their governments want to hear.

    • drsmithyMEMBER

      Or consider it an unchangable fact of life.

      Kinda. It would be more accurate to say there is a deep and fundamental belief that “more” is always “good”. Ie: it is a manifestation supply-side thinking.

      None of these people are capable of thinking systemically – everything must be broken down into component parts and evaluated only at that layer – nor of reconciling theory with reality. Everything is worked out in their heads based on “axioms”, and when the real outcome does not match the theoretical outcome, it’s because of a problem in reality, not theory.

      You may be familiar with this phenomenon if you are religious.

      • Diogenes the CynicMEMBER

        Economists have a lot of blindspots its due to their studies. Waste is costless, supply is infinite, demand insatiable, no spoilage etc. It’s that or Evans toeing the company line to get his supper.

    • 🌼 Extinction Rebel 💀

      Yawn. Bank economist says government must not do anything that may affect the housing market, like cutting immigration, because his employer’s loan book is 60% home loans.

      In other news, my barber tells me yes, I do need a haircut.

  2. boomengineeringMEMBER

    What must the Aboriginals be making of all this, At least the first settlers after 1629 assimilated, spoke Australian and adopted the Australian way of life, unlike all the immigrants since after 1788. The benefit of this pre 1788 assimilation is their mixed offspring are still with us today.
    Very unpatriotic to Australia importing excess immigrants. The politicians should be deported to their country of allegiance.

    • reusachtigeMEMBER

      The first settlers arrived in 1788 to make our great nation thanks to Captain Cook’s discovery the other captain guy that brought us here!

      • I preferred your avatar back around 2012 or so when you were just another honest punter trying to make sense of things, and just as baffled and outraged as most of the commentators on this site. Your “satirical” shtick is worn out.

    • Maybe they are thinking; after the next 80 year drought, let’s see who’s got the right genes to survive on this continent?

  3. “… This is one of the few times you have talked Westpac’s book…..”

    LOL

    A bank economist by definition is always talking their employers book.

    Everything revolves around stimulating or cooling demand for debt products peddled by banks.

    It’s like asking a food scientist employed by McDonalds to talk about the role of bacon.

    • A role as ‘economist’ is one of the most unaccountable jobs that exists in the private sector — has anyone ever been sacked for being a sub-par economist? Everyone knows their forecasts will be wrong 95% of the time, so what can you do to make yourself a sub-standard economist?

      • Agreed.
        You only have to note the way economists measure inflation to realise that economics is not a science.

  4. If, however, you cut immigration, as we did after the 1990 recession to below 1% for a few years, then the output gap closes and wages can recover.

    In early 90s we didn’t cut immigration but rather very few were willing to come beside people from ex Soviet Union, war stricken Yugoslavians and some kiwis that had deep recession on their own.

    Same will happen now. we don’t have to do anything to the rules and immigration will still fall while emigration jumps.

    • We will need to disagree on that one, Doc.

      I maintain that, given the ability to come here, a bunch of third worlders will come here – recession or not. And the one already here will overwhelmingly not go back to bumfvckistan.

      • Yep, you are right Peachy and DoctorX is on the right track too.

        Back in the olden days immigration would only let people in if they had skills required by productive economic activity and there was demand for those skills (or lack thereof).

        That meant immigration was limited to the capacity of the productive economy to absorb the immigrants (even allowing for the neoliberal preference for a solid chunk of unemployed to keep the wage slaves on their toes).

        Now all that matters is the capacity of the new immigrants to consume ….especially debt products peddled by the kind of people who pay Bill Evans to explain that what is good for private banks is good for Australia to rapturous applause from the finance sector.

        By that measure we need all the fresh flesh we can get.

        DoctorX will explain why COVID-19 is no barrier to the resumption of creating a Big “Herd” Australia.

        • I personally more like Sydney traffic as it’s now and never really preferred crowds, but always pointed out that despite policies not changing immigration will. I still stick to my prediction that Australia will lose 1 million of population in next year or two

      • keep in mind that for huge majority of “third worlders” that’s a mission impossible without help. Paperwork procedures and costs are great barriers.

        What do you think how much money a young family of 3 from India, for example, needs to get paperwork sorted, get airplane tickets and have enough to start life here until they find a job?
        During recessions when unemployment is high this last portion of the cost goes up significantly while an alternative options of friends and family members providing shelter and food for them become scarcer.
        With that one money there would they be considered poor or middle class?

      • Yes, the draw is welfare — free education, healthcare, state pension and a host of other baubles. Who wouldn’t want a piece of that? Would you be prepared to pay $50k for $500k+ of benefits? Fcken oath.

        But while the math doesn’t stack up (in the long run) the plan is to keep funnelling ever greater numbers into the system to make it look sustainable.

        • Yes, the draw is welfare — free education, healthcare, state pension and a host of other baubles. Who wouldn’t want a piece of that? Would you be prepared to pay $50k for $500k+ of benefits? Fcken oath.

          This is, of course, why most immigrants would rather come to Australia than, say, America.

  5. I’ll take tautologies for $100, Alex: “…we get strong population growth with immigration”. Nice work if you can get it!

  6. mikef179MEMBER

    Bank balance sheet heavily weighted towards residential property.
    Bank Economist: We need to take measures which will prevent falls in residential property prices.

    Surprise!

  7. it would be fiscally irresponsible to do anything but slash immigration rates. lets remember that immigration rates are supposed to be at a level that benefits Aussies not the rest of the world. strong numbers still being allowed will further lower living standards for the middle (average) class but strengthen the top fews bottom line

  8. Jumping jack flash

    Bill knows how the system works…

    Cheap 3rd-world immigrants are absolutely necessary enablers of debt eligibility in this late stage of the game.

    The price to buy into the debt ponzi gets higher and higher. The eligibility rules for debt remain constant. Prices of discretionary items and services, which is pretty much all there is, cannot rise – the people have no money because the unyielding “quest for debt” ensures that any spare capacity that could be used to pay price rises out of is used to obtain debt with instead.

    Slaves are necessary. They are the release valve. The slaves are used to maintain productivity and the provision of discretionary goods and services but reduce fixed costs which then go into the business owners’ pockets to allow them to satisfy the debt eligibility standards, and obtain the debt they need.

    Debt growth is already in the gutter and is certainly inadequate to maintain the economy. The banks don’t want this to reduce much more.

  9. Bank economists can never escape the reality that they are extensions of the capital markets sales team.

    Bill has rationalised away this reality quite well; he’s had plenty of time to do it.

    His read of the RBA and other economic trends is mostly just fine. But it doesn’t mean his opinion on immigration is worth any more than an economist for the Property Council.

  10. nexus789MEMBER

    The opposite to this clowns recommendations would be the way to go given the large pool of unemployed.