Obama’s two-faced top economic guru backs economic equality and more immigration
When he’s talking to reporters, the chairman of the president’s Council of Economic Advisors says Americans will be better off if the president gets his top legislative goal — boosting the number of workers by boosting immigration.
But when he’s talking to his fellow economists about Americans’ low wages, Jason Furman turns 180 degrees — by pushing the contradictory goal of having a labor shortage, dubbed a “tighter labor market,” where employers have to compete for workers by offering higher wages.
The West Wing splits between the president and Furman, and between the two halves of Furman’s brain, is a gift for GOP reformers, such as Alabama Sen. Jeff Sessions, who is pushing for a low-immigration, high-wage economic policy.
“The President’s top economic advisor has said we need a tighter labor market — a statement completely at odds with the Administration’s foremost legislative goal… [which is] an immigration plan that will dramatically surge the number of workers competing for jobs,” Sessions said in a statement to The Daily Caller. (RELATED: Sessions chides GOP donors, House leaders, journos on amnesty)
In numerous speeches, Obama has pressured and pleaded with House Republicans to back the Senate’s “Comprehensive Immigration Reform” rewrite. The Senate bill would provide amnesty for at least 10 million illegal immigrants, and roughly double the annual inflow of 1 million new immigrants and 650,000 guest-workers into the U.S. labor market.
That market is already glutted with millions of unemployed Americans — and four million American youths turn 18 each year.
But passage of an immigration bill that brings in more workers “has got to be a top priority,” Obama told Democratic legislators Feb. 14. “We’re going to have to keep on working on that.”
Simultaneously, Obama’s main 2014 campaign theme is the lack of economic opportunity for poor Americans, and the widening wealth gap between rich and poor.
“This is the defining challenge of our time: Making sure our economy works for every working American,” Obama declared in a Dec. 4 speech on opportunity, which was spurred by data showing that the top 1 percent snagged nearly all the extra wealth created in Obama’s tenure.
“Increasing inequality… challenges the very essence of who we are as a people,” said Obama, who is using the opportunity theme to urge voter support for interventionist government.
Upper-income journalists in D.C. have ignored the glaring contradictions between Obama’s econmic-equality and immigration rhetoric.
Even the economics reporters who laud Furman in columns and press conferences can’t connect the dots.
The Washington Post recently portrayed Furman as a nerd genius. “Economist Jason Furman is the wonkiest wonk in the White House,” the Post declared Feb. 12. “The 43-year-old economist… seems to relish a day spent describing ‘principal component analysis’ to a befuddled White House press corps, has long been the ultimate wonk for the nation’s capital,” said the Post.
Furman has three degrees from Harvard, including a Ph.D. in economics. He also has a master’s degree from the London School of Economics, which is located a few blocks behind Kings College in central London. Last June, Obama said Furman “is one of the most brilliant economic minds of his generation.”
The contradiction between Obama’s immigration and economic equality policies is a public relations problem for the economics genius.
His genius solution is Doublespeak 101 — talking Economics 101 to professional economists, while spreading public relations on reporters, including TheDC.
This article cites three events where Furman spoke about labor and wages, opportunity and immigration. TheDC asked him questions at two of these events.
On Jan. 24, 2014, Furman gave a presentation to economists gathered at the D.C.-based Tax Policy Center, where he said the poverty rate of the nation’s wage-earners have been stuck at roughly 28 percent since 1967.
Wages haven’t much improved since 1967, but poverty has been almost halved by government wealth transfers, such as food stamps, Furman said. But Furman said raising Americans’ wages is a better cure for poverty than government transfers.
“Raising incomes, there’s whole bunch of things we can do there,” he told the economists. “Obviously, the most immediate step we can take is raising the minimum wage… [and] education — everything from pre-K to college — plays a role there.”
Next, he added, “continuing to strengthen the overall economy, continuing to bring the unemployment rate down, having a tighter labor market.”
Wow. A “tighter labor market”?
In a tight labor market, unemployment is low and employers must compete for scarce workers by bidding up their wages. That’s what happened in the late 1990s, when Democratic President Bill Clinton’s Internet-boosted economy ran out of workers, ensuring that salaries rose, even for the least-skilled workers. (RELATED: No more low-wage immigration, UK, Canada tell CEOs)
But today’s Americans face a very “loose labor market, “ where employers can minimize pay because they can hire from an army of 20 million unemployed and underemployed Americans, and pick and choose as they please from the huge inflow of Americans youths and immigrants.
Furman pointedly declined to mention immigration as a fix for poverty, even when he offered a grab-bag of additional recommendations. “And then anything in the long run that increases overall growth and helps the economy, whether it is infrastructure, tax reform — including business tax reform — [or] trade agreements we’re negotiating with worker rights and environmental rights incorporated into them,” he said.
Furman’s tight-labor comments are Economics 101. And they’re echoed by Obama’s top economic policy manager, Gene Sperling.
Long-term unemployment is a major problem, and more marketplace demand for labor would make employers ”reach out further into the [unemployed part of the] workforce,” Sperling said at a Feb. 20 breakfast hosted by Politico. During his hour-long speech, he talked up the need for education and a higher minimum wage, but mentioned immigration only once.
“Our economy still has three people looking for every job… We saw thousands of people looking for just a few hundred jobs here in Detroit when Wal-Mart put up ads,” Sperling told a CNN interviewer in January.
Those recommendation for a tight labor market were not meant to merely highlight the decades-long wage stagnation. They were intended to identify policies that aid opportunity and shrink the wealth gap, which Obama claims is the “defining challenge of our time.”
“That is an agenda to both grow the pie and make sure more of that pie is being shared,” Furman told his fellow economists, echoing the president’s public statements about wealth disparities.
He even said there’s been a recent reduction in unemployment that has tightened the labor market and nudged up wages. “We’ve seen wages start to rise in the last year and would like to see more of that,” he said.
The trouble is, Obama’s policy of encouraging high rates of immigration will loosen the labor market so that employers — including high-income professionals seeking nannies, cleaners and gardeners — have a surplus of workers from which they may pick and choose. That extra labor supply pushes wages down and worsens equality.
He’s backing a Senate immigration bill that would triple legal immigration to roughly 30 million over the next 10 years. Also, the Obama-backed bill would also allow 1.3 million guest-workers per year, or 13 million over a decade. These temporary workers would compete for jobs in the high-tech sector, in professional jobs such as accounting, and in blue-collar sectors, such as food processing, hotels, resorts, transport, warehousing and restaurants. (RELATED: Obama split 500,000 American families to legalize illegals before 2012 election)
Overall, the bill would allow the 30 million immigrants — plus 13 million guest-workers — to compete for the jobs sought by the 40 million Americans who will turn 18 during the next decade. That doesn’t include unemployed and underemployed Americans over the age of 18. That influx would greatly loosen the labor market.
The national has already run that experiment.
From 2000 to 2010, the government allowed in 14 million legal or illegal immigrants — plus at least 6.5 million temporary guest-workers — to complete for jobs sought by the roughly 40 million Americans who turned 18 during that period. That extra labor supply helped keep most workers’ wages flat while also helping to grow the wealth of Wall Street investors — and also helped to inflate the real-estate bubble, since those laborers needed housing. The real-estate bubble eventually cost Americans $17 trillion in paper wealth, Furman said Jan. 24.
But Furman works for the president, not the voters. So when he’s meeting with journalists, the doctor of economics drops his call for tight labor markets, and becomes Jason Furman, Ph.D., public relations on equality… or immigration.
On Jan. 31, 2014, Furman attended a breakfast hosted by the Christian Science Monitor.
The Daily Caller was there and asked Furman, “How does the president reconcile his support for a massive increase in the labor supply with a claim that opportunity is the defining challenge of our generation?”
Public relations genius Furman initially said the immigrant inflow would expand the economy. No surprises there: The 30 million immigrants and 13 million guest-workers will buy — and sell — a lot of food, shelter, autos and entertainment.
“Independent economists have said that if the Senate bill became law, over the next two decades, our economy would grow by $1.4 trillion more, and it would reduce our deficits by $850 billion more,” he said in a November speech in San Francisco.
His economics genius repeated that simple claim at the breakfast, saying “the CBO has said that immigration will expand output by $1.4 trillion dollars.”
“Immigration reform, of all the economic policies that are on the agenda right now, is the one that would do the most to expand the pie,” Furman told the reporters.
But any new jobs would also be divided among the increased population, just as a slightly bigger pizza is divided into smaller slices to feed a much bigger family.
In its June 2013 report, CBO recognized this grade-school pie-dividing problem, and concluded that average wages — but not investment income — would drop for 10 years. If the Senate bill becomes law, “a greater number of immigrants with lower skills than with higher skills would be added to the workforce, slightly pushing down the average wage for the labor force as a whole,” said the CBO report. (RELATED: Obama urges Hispanics to rally for amnesty)
Wages for university-trained Americans — including the expensively-reared children of D.C.-based professionals — will also drop because the bill increases the inflow of university-trained guest-workers and immigrants, the CBO report said.
Next, Furman tried to square the circle by saying extra immigration boosts productivity. Basically, that more immigrants will grow the economic pie faster than it grows the number of mouths.
The Congressional Budget Office has “said — and this is very important — [immigration] expands what economists call Total Factor Productivity which is the total amount you can create out of a given amount of capital and labor, and is the closest thing we have in economics to a free lunch,” Furman told TheDC.
That CBO prediction was included in a June CBO report on the Senate’s immigration bill. “Total factor productivity (TFP, the average real output per unit of combined labor and capital services) would be higher by roughly 0.7 percent in 2023 and by roughly 1.0 percent in 2033,” the CBO report said.
Uh-huh. Will more immigration really boost productivity?
The same June CBO report cited by Furman also said that the Senate bill would also lower wages for a decade, and also shift more of the nation’s wealth from wage-earners towards investors, including the investors who donate to Democratic and GOP campaigns. The increased wealth is small, and mostly would go to the already wealthy — the “one percent.”
By 2033, the nation’s per capita output will rise by 0.2 percent, or one-fifth of a cent per dollar earned by each person, the CBO reported. The shift of new wealth from ordinary Americans to wealthy investors — temporarily dubbed “the one percent” by progressives during the 2012 election year — would continue for at least 20 years, said the CBO’s June report, titled “The Economic Impact of S. 744.”
“Average wages would be slightly lower than under current law through 2024… [and] the rate of return on capital would be higher under the legislation than under current law throughout the next two decades,” the CBO concluded. (RELATED: Senate bill allows 464 million immigrants by 2033, says CBO)
At the breakfast with Furman, TheDC cited the CBO’s prediction about a wider wealth gap, but Furman kept on spinning.
“A study done by the chief economist of the Labor Department [shows] that [immigrants] patent at higher rates than native born Americans, and Americans end up patenting even more when they’re in the proximity of immigrants,” Furman told TheDC and the other reporters at the breakfast.
But that’s not quite what the report says. The 2008 study by the labor department’s economist was based on data from 1950 to 2000. Back then, universities, companies and government labs imported a trickle of top-notch mid-career scientists and engineers, such as Nazi rocket scientists. That older data, said the 2008 study, shows “the skilled immigrant patenting advantage over skilled natives is entirely accounted for by immigrants’ disproportionately holding degrees in science and engineering.”
And the Senate bill does’t offer any visas to bring in additional mid-career scientists. Those experienced scientists arrive via the existing O Visa, which can be claimed by people “who possesses extraordinary ability in the sciences, arts, education [and] business.“
Instead, the Senate bill boosts the inflow of new grads from India, China and other places, who are placed into outsourced jobs in Silicon Valley or in back-room support jobs in New York and other major cites.
The Senate bill doesn’t even tilt the overall immigration inflow towards skilled workers, said Steven Camarota, a researcher at the Center for Immigration Studies. Roughly 10 percent of the to-be-amnestied illegals — and only 33 percent of the legal immigrants — have college degrees of some type, he told The DC. The Senate bill doesn’t significantly change that ratio, even as it permanently doubles the inflow, he said.
In fact, the Senate bill is primarily designed to amnesty the huge mass of resident, Democrat-leaning, low-skill illegals. In Illinois, only one-in-ten working-age illegals hold jobs that usually require degrees.
Furman’s breakfast claim that the Senate bill will boost productivity growth was also contested by liberal economists.
Economists argue that productivity tends to rises faster when labor shrinks — not when it grows — partly because companies try to find better ways to use their relatively more expensive employers. When there’s plenty of labor, there’s less incentive to buy productivity-boosting machines. For example, a steady supply of cheap farm-hands reduces the incentive for Wisconsin farmers to invest in cow-milking robots.
A Feb. 2008 report by the Bureau of Labor Statistics concluded that “during the 2000-05 period, output growth was lower in all sectors and reductions in labor input played an important role in contributing to the productivity increases.”
In fact, “it is probably the case that an influx of young or less-skilled workers will depress productivity gains [because] jobs will be re-engineered to take advantage of abundant, low-skill labor, and that no doubt helps explain part of the weakness in U.S. productivity gains after 1973,” said Gary Burtless, a labor market economist at the Brookings Institution.
“Labor productivity surged in the recession phase as the number of workers (and their hours) fell faster than output,” he said in a statement to TheDC.
Productivity and the labor supply are “largely disjoint/separate,” said a statement from John Fernald, a senior research advisor at the Federal Reserve Bank of San Francisco. In fact, Because technology is distinct from labor, “productivity grows… and then actual output depends on productivity plus the labor force,” he told TheDC.
Just to be nice, let’s say that Furman is correct when he claims that more immigration raises productivity.
But that doesn’t mean the extra wealth will be shared more evenly, according to Lawrence Mishel, president of the left-of-center Economic Policy Institute. “We are often told that greater competitiveness and higher productivity are the keys to higher living standards… In the past four decades, and especially recently, it has not translated into proportionate gains for working families,” Mishel wrote
“During the last decade of high productivity growth, low-income households have seen no increase in real income,’ according to an co-authored article by Jonathan Willis, a vice president at the Federal Reserve Bank of Kansas City.
Vice-President Joe Biden’s former economic, advisor, Jared Bernstein, argues that more low-skill labor tends to increase the wealth gap. Extra low-skilled immigrants cut wages for low-skilled Americans, Bernstein said. “When they are substitutes (i.e., domestic workers or recent immigrants with low skills) the wage effects from immigrant competition are significant and negative,” wrote Bernstein, who now works at the Center on Budget and Policy Priorities.
Instead of immigration boosting equality, a reduced supply of low-skilled workers would help close the wealth gap, Bernstein wrote. “Tight labor markets are highly equalizing [because] they provide low-wage workers with some of the [wage-boosting] bargaining power they severely and increasingly lack.”
In December 2013, Furman admitted the logic behind Bernstein’s tight-labor plan to aid low-skilled workers, and inadvertently contradicted his boss’s immigration agenda while he was trying to tout his bosses’ equality agenda.
During a brief White House press conference about income inequality, TheDC asked Furman “if there has been any changes to the labor supply that help or hinder inequality?”
Yes, said Furman. Adding more professionals will drop their salaries closer to non-professionals, he said.
“What you’d like is to increase the supply of skilled labor,” Furman responded. “I mean, inequality is associated with something called skill-biased technological change [that creates] a lot more demand for skilled people. And that drives their wages up… [so if] you increase that supply, get more people in education, that helps offset [demand] that and reduce the total amount of inequality over the long run,” he said.
So, according to pro-equality Furman, the arrival of more skilled experts in a market tends to reduce the average salary for skilled experts.
But pro-immigration Furman, the arrival of more migrants, skilled people and entrepreneurs will create a bigger pie for Americans, including low-skilled Americans.
But the nation has run this test since 2000, at a rate of 1 million immigrants per year. What does the data say?
In the Jan. 24 presentation to his fellow economists, Furman admitted: “If you look from 1967 through 2012, the poverty rate measured entirely in terms of market income, actually rose slightly, from 27 to 29 percent.” Poverty was cut only through government spending programs, chiefly food-stamps and the Earned Income Tax Credit subsidy for low-wage employees, he said.
Some people did gained more pizza from this process — the immigrants. In the period from 2000 to 2013, 5.3 million of 8.8 million new working-age immigrants won jobs, according to a June analysis of government census data by the Center for Immigration Studies. But the number of native Americans with jobs fell by 1.6 million, despite a 16.4 million increase in their working-age population.
The inflow of migrants did helped spur overall consumption, especially of housing because the government pushed eager banks to provide mortgages to poor people.
But many low-skill, low-income immigrants couldn’t pay their mortgages, and lost their shirts and homes when the bubble burst in 2008.
Even before the bubble burst, data shows that wages also fell during this high-immigration period. Poverty rose — and the increase consisted almost entirely of poor immigrants. Data provided by the Census Bureau shows that the number of people in poverty rose by 3.7 million from 1990 to 2007. The increase in poverty is equal to the growth of the poor Hispanic population, which rose by 3.9 million over the same period.
Younger workers were hit hard. In October 2013, half of all unemployed workers were millennials, aged 16 to 34. The number of unemployed millennials grew 37 percent — up to 5.7 million — between 2003 and 2012, according to a study by the Federation for American Immigration Reform. Another 3.3 million dropped out of the workforce.
Also, despite Furman’s breakfast immigration-boosts-productivity claim, the pie didn’t grow faster than the population because there was no spike in productivity in this high-immigration period, according to a chart prepared by the left-of-center Economic Policy Institute.
So there’s little evidence that the current inflow of one million low-skill immigrants per year is boosting opportunity for Americans or economic equality, despite Obama’s promises and Furman’s spinning.
“All the evidence is that right now, labor markets are very weak and wages are barely keeping up with inflation,” Joe Stiglitz, a Nobel Prize wining economist at Columbia University, told TheDC on Feb. 18. “Forecasts for the economy returning to full employment in any sense anytime soon just aren’t there,” he added.
“It would be wonderful if we got back to a four percent unemployment rate… but it doesn’t look like any scenarios will get us there.” Lawrence Katz, a Harvard labor economist, told TheDC Feb. 18. “We’re basically barely doing better than keeping the growing population employed and there’s not much pressure to raise wages… so the minimum wage is one of the best tools we have here,” said Katz who was an advisor for the CBO’s immigration report.
Even academics who support mass immigration say immigration contributed to inequality. “A simple calculation suggests that the presence of immigrants can explain about 5% of the rise in overall wage inequality between 1980 and 2000,” said a 2009 paper by Berkeley professor David Card.
But it could get worse.
Immigrants boosted the labor supply by 10 percent in the two decades from 1980 to 2000. If the draft 2013 Senate bill become law, roughly 20 million working-age immigrants will join the legal labor force, now 150 million strong, creating a 13 percent boost in one decade.
In April, Harvard economist George Borjas showed how immigration helps immigrants, employers and investors, but also widens the gap between rich and poor. He estimated legal and illegal immigration population cumulatively has expanded the economy by 11 percent, or $1.6 trillion. Immigrants receive 97.8 percent of that $1.6 trillion increase in their pay packets, he reported.
But their low wages and drag down wages paid to Americans by roughly $402 billion per year. That transfers $437 billion to the wealthier Americans who hire low-skill workers, either Americans or immigrants, Borjas concluded.
Unsurprisingly, Americans have looked at their share of the pizza. Now most Americans repeatedly tell independent pollsters that they oppose more foreign workers. The opposition is highest among low-income and mid-income Americans.
The opposition is lowest among wealthy Americans. These well-off Americans include the academic economists, government officials, Washington advocates and establishment journalists who gain from cheaper domestic servants such as immigrant nannies, cleaners and gardeners.
Amusingly, even this upper-income support is being undermined by the growing use of university-educated guest-workers. Roughly 800,000 of these lower-wage graduates are now working in U.S. That’s one year’s output from U.S. colleges. The foreign professionals are filling out desirable jobs in banking, medicine, accounting, academia, accounting, Silicon Valley and even media.
The great economic harm caused by mass immigration to U.S. voters creates an opportunity for GOP politicians who are willing to break from their business donors, said Mark Krikorian, the director of the Center for Immigration Studies.
Republicans “have the opportunity to label the Democrats as the party of cheap labor… and to bring back Republican and independent voters that have been staying home in the last few elections,” he said.
So far however, “much of the leadership can’t make that leap,” Krikorian added.
Sessions, however, is pushing the party to make that leap. “Low wages and high unemployment demonstrate that we currently have a loose labor market with more workers than jobs,” he said in his statement to TheDC. It is “astounding that the White House and Congressional Democrats continue to push for an immigration bill that would double the flow of new workers from abroad.” Amusingly, leftist icon, socialist Sen. Bernie Sanders says the same thing.
After the Monitor breakfast conversation, Furman invited TheDC to meet for an interview. Unsurprisingly, White House officials declined to schedule the talk.