The immigrant economy is so enormous in the US. There are all these Republican candidates for my Congressional district (formerly Duke Cunningham's seat and a very conservative district generally) and they are all trying to get to the right of each other on the immigration issue. I just got an email from one candidates campaign, boasting that he is backed by the big anti-illegal immigration group. None of these people seem to have a clue as to how our economy actually works.
In San Diego, everywhere you go you see people doing doing unskilled labor- picking crops in fields, washing cars, tending golf courses, doing landscaping and lawn care, and a hundred other things. Most of these jobs involve repetitive, back-breaking tasks that your average high school graduate would turn their nose up at. Is it any wonder that so many of these jobs are filled by illegal immigrants? See the movie, "A Day Without a Mexican", to get a sense of how important these people are to the economy. So, on to your subject of capital flows. Many (though not all) of these folks are being paid cash, under the table, and are not paying any income taxes or withholding on their earnings. They pay other taces- sales tax and the like, but generally they keep most of what they earn, and they send it home. As you point out, it represents a huge net outflow of capital for the United States, and probably isn't even factored into our official trade deficit statistics. One would think that eventually the U.S. economy would run out of money. But that is where things get interesting. We have an enormous debt, a giant trade imbalance, and yet Japan and China in particular continue to buy U.S. Treasury bonds. Why? My theory is that the Chinese government, having made themselves competitive through lost-cost manufacturing, are compelled to prop up the dollar to maintain their pricing advantage and maintain the value of the debt they hold. Like the old saying says, if you owe the bank a million dollars and you can't pay, you are in trouble. If you owe the bank a billion dollars and you can't pay, the bank is in trouble. Well, the U.S. owes China a lot more than a billion dollars. Which is where we get back to capital flows. If you think of all goods and services as forms of capital, the picture becomes very clear. China is financing the growth of its country by maintaining an American market with enough purchasing power to buy the goods they make. It is highly unlikely that China will ever see the return of the money we are borrowing from them at anything close to the current exchange rate, whch means, more or less, that the Chinese are loaning us money so we can buy their goods, knowing that they are subsidizing our purchasing power. When you think about it that way, Chinese monetary policy is financing all those folks who ship money back to Mexico. In fact, if you really want to take my theory to its logical conclusion, China is funding the wars in Afghanistan and Iraq. Not directly, of course, but imagine if China stopped buying U.S. bonds, interests rates shot up, and the value of the dollar fell by 40-50%. I don't know if it would happen right away or if the fall would be that dramatic, but there is no question we would be out of Iraq, maybe even out of Afghanistan. The U.S. economy would be a shambles. But as badly hurt as we would be, the economies of countries like China and Mexico, who depend heavily on U.S. consumption, would be devastated. It is just fascincating to see how complex the world economy really is. And yet, it makes perfect sense that China, and increasingly India, are starting to drive the world economic engine. They are by far the two most populous countries on the planet. They have opened themselves to market economics, and their people are beginning to reap the rewards (and the downfalls) of prosperity. Countries like Mexico, though rich in natural resources, are laggards by comparison. Why is labor the second-biggest export of Mexico? Because they barely export anything else. The big problem for Mexico, etc. is if their people stop sending money home, they have nothing left. They need to learn from China. Socialism is great for campfire talk, but market economics pays the bills, baby. On 3/20/06, Jim Davis <[EMAIL PROTECTED]> wrote: > > Scientific American has a story in News Scan this month about remittances > (money sent "back home" to developing countries by immigrants). > > The World Bank estimates that developing countries received $167 Billion > dollars last year in this manner (that's TWICE as much as they got in > foreign aid!) It also claims that, due the $18 billion dollars in > remittances received last year, that Mexico's second largest export (after > oil) is labor. > > What's being studied (and apparently heavily debated) is the effect of all > this money. Do the recipients invest this money in their economy, > providing > capital for those otherwise unable to get it? Or do they become dependent > on it and use it wastefully driving up inflation due to excess, > non-productive cash pumping into the economy? > > There's also the idea that remittances can help to alleviate economic > turbulence since people have a tendency to send more money when things are > bad back home and less when things are good. > > Lastly there's a question of what will happen if/when immigration is > slowed > and, perhaps, those immigrants that settle permanently stop sending money > home. > > Just found the whole concept (something I'd never considered before) > interesting. > > Jim Davis > > > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Message: http://www.houseoffusion.com/lists.cfm/link=i:5:200848 Archives: http://www.houseoffusion.com/cf_lists/threads.cfm/5 Subscription: http://www.houseoffusion.com/lists.cfm/link=s:5 Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=89.70.5 Donations & Support: http://www.houseoffusion.com/tiny.cfm/54
