Immigration Reduces the Velocity of Money

As some of you know, I will sometimes write things that will surprise you. Consider this post as one of those WTF posts. Today I will talk about the negative effects of immigration on the economy- specifically the deleterious effects of immigration on the velocity of money and its consequences.

While few appreciate it, the high velocity of money is probably the main reason behind ‘things working so much better’ in developed countries- at least for now. Let me explain..

Since the principal way for most people to make enough money to live nicely in today’s world is through a job of some sort- it follows that a system which creates more well-paid jobs per unit of money changing hands is more desirable than one that is less efficient at creating jobs for the same transaction. Furthermore, an increase in the number of well-paid jobs creates even more well-paid jobs as people spend their disposable income.

Large-scale immigration screws up this balance on two levels.

1. Imagine your average person who was born and lives in a developed country. Chances are that such a person spends almost all the money they earn on living well. So a person who earns 100 units of money spends somewhere between 90-105 units. Now imagine your average replacement immigrant who likely makes 60-80 units because of.. who cares. Anyway, this person often comes from an impoverished country or background and will save a larger fraction of their income, say 20 units, by living very cheaply. But how does this affect the larger economy?

Simply put, the immigrant will spend only 50-60% of what a native-born will. While that might appear frugal and emulation-worth, it kills all those well-paid jobs which existed because of the extra 40-50 units spent by the native-born person. Moreover the very presence and competition from the immigrant reduces the native-born persons earnings from 100 to, say 80, units.

Now you might wonder why two people spending 60-80 units are inferior to one person spending 100 units. The answer lies in the job-creating potential of what they spend their income on. Essentials such as housing, food, utilities, healthcare etc create far fewer well-paid jobs per unit of money spent. In contrast, so-called frivolities such as restaurants, bars, shops and services create many more jobs per unit of money spent.

Immigrants, directly and indirectly, shift money from sectors that create more well-paid to decent jobs to those that create fewer jobs and are ridden with rent-seeking and inefficiencies.

There is however yet another way for immigration to reduce the velocity of money.

2. What I have mentioned until now can occur in growing as well as stagnant societies. While developed countries grew a lot after WW2 until the mid to late 1990s, that is no longer the case. Today developed countries are either barely growing or have become stagnant. They have also become older..

This brings us to the question- How does immigration affect a society where an increasing number of older people derive their income from public income schemes, pensions and utilize an ever-increasing amount of government healthcare?

All governments today derive their income from three sources- taxes, loans and royalties with the bulk coming from the first two. But how can you tax a rapidly increasing number of people who barely make enough to make ends meet? and how can you get low-interest loans from banksters and other shysters if your economy cannot grow quickly?

Did I mention that any “austerity” measures cause a further fall in revenue, growth and the velocity of money.

What do you think? Comments?