CTH reader “Charles” asked a great question yesterday that deserves some expansion:
CHARLES: “I’m having some trouble parsing how exfiltrating [deporting] illegal alien workers thereby pushing American wages upward can cause a decrease in inflation. Conventional wisdom for my whole life (73 years) has held that increasing labor costs drive inflation upwards.”
It’s a great question because Charles is essentially correct from a historical reference. However, we are in uncharted territory due to the scale of illegal aliens within the U.S. economy in this modern era. The answer is a commonsense theory currently playing out in real time.
ANSWER: A much larger percentage of illegal aliens live on various subsidies and govt spending programs than our native American population. As a result, it’s like govt spending, except we have ten million people spending excessive govt money instead of one big spending bill.
The underlying economy is inorganic and detached from traditional cause and effect. In this dynamic when you deport the illegals, we are reducing the govt spending. Less govt spending actually tames inflation and lowers housing costs at a greater rate than the upward pressure on wages.
Removing the ‘free govt money” from the economy, creates less upward price pressure. Additionally, deporting the govt spender reinstalls a more authentic supply and demand economy, because the current demand is skewed by all the ‘free money’ subsidy spending.
Charles is correct in that within his 73-years this was not evident. That’s because we have an unprecedented number of illegal aliens spending govt money without any economic productivity. Those subsidies, extra non-productive money in the economy, creates upward price pressure. Take the money away and prices drop.
It’s the same issue we have always had with supplemental food assistance programs, and entirely the reason why Barack Obama exploded the number of people eligible for food stamps and SNAP benefits.
This is also why Big Ag and big corporate food conglomerates always lobby for increases in food subsidy programs. It enables them to charge more money and make bigger profits.
Think of it like shopping in a grocery store. Perhaps 50% of the customers pay for their purchases with wages, 50% of the customers pay with govt subsidy. Everyone from the field to the store can charge more money. The retailer can charge more for the products because half of the customers are essentially disconnected from feeling any impact.
Take away or lower the ‘free money’ subsidy, and food prices start to return to a more traditional supply/demand scenario.
Take the “free money” illegal aliens out of the spending economy and you increase the percentage of authentic, actually productive money earned from wages being spent.
Now, to be fair, there is a point at which the price pressure from the rate of spending drops below the upward pressure from the rate of wage growth. Once that apex is crossed, the wage growth can naturally drive inflation; Charle’s traditional frame of reference. However, due to the scale of spending by illegal aliens, we are a long way from the point at which that happens.
Right now, my best guess is we can likely remove 10 to 15 million subsidized illegal alien spenders, before we reach the point where upward worker wage pressure starts to exceed the downward price pressure created by removing ‘free money’ spending.
And yes, we are in uncharted territory. Traditional economic references don’t work. This is one reason why America-First MAGAnomics is defying all the traditional economic analysis. Tariffs do not increase consumer prices; at scale they decrease producer margins. Deportation doesn’t drive inflation; at scale removal actually lowers prices.
Hope that helps.
~ Sundance
