The Bear’s Lair: Biden’s people have lost the denominator

In the recent Congressional Budget Office projections of the budget deficit to 2033 (which as you would expect, make gloomy reading) there is one morsel of good news: revenues in 2024 (and extrapolated to 2033) are higher than previously expected because immigration brought more people into the workforce. That caused me to wonder: to what extent are Biden administration economists counting the output of immigrants, legal and illegal, without counting their costs? If they have missed the post 2021 influx, causing the “denominator” of worker numbers to be understated, productivity is much lower than reported, as is GDP per capita, since the denominator of “capitas” is higher than reported. Since the officially reported figures are inexplicable to any rational economic thinker, the unreported and more negative estimates are likely to be the truth.

We can see the extent of the difference from the employment statistics. By one moderate estimate, around 8 million illegal immigrants who may be working have entered the United States since President Biden took office. To examine the statistics, we can compare figures between January 2020 and January 2024, which removes both seasonal effects and the effect of COVID-19, which did not hit the U.S. economy significantly until March 2020. The two periods are comparable in terms of stated unemployment rate – 3.6% in 2020 and 3.7% in 2024. Yet the civilian labor force – the total of people available for work – has increased only from 164.3 million to 167.2 million, an increase of 0.44% per annum, significantly slower than the 0.94% annual increase in 2014-20, when immigration was better under control. Even according to the official figures, of the 2.7 million net new jobs created since 2019, 2.9 million have been taken by immigrants, legal and illegal, while Americans have lost a net 183,000 jobs.

The slowing increase in the labor force is a pretty good indication that illegal immigrants have not been included in it, whether by ineptitude or design is not clear. Both the Bureau of Economic Analysis and the Bureau of Labor Statistics are located in Washington and staffed almost exclusively by strongly Democrat voters – this was true even 20 years ago, in the George W. Bush administration, when I met the head of BEA and found her remarkably rigid in her belief system.

Since the error in the statistics would make the Biden track record look appalling, I thus think it unlikely to be corrected before November – if you asked me to guess, I would expect the additional bodies to be leaked into the denominator gradually during a Trump administration (if one were to occur) thus deflating productivity gains, inflating unemployment statistics and making the administration’s track record look much worse than the reality. Of such statistical anomalies are political campaigns made.

The effect of the error would depend on what proportion of the illegals are assumed to be employed. Theoretically, none of them should be employed, but in reality, there are no effective controls on their employment. (Not even universal compulsory E-Verify, whose omission from the recent immigration bill demonstrates that the bill was nothing but a disgraceful open-borders wish list, to which no Republican should have signed on.) If at one extreme, none of them are employed then the true unemployment rate is not 3.7% but 8.1%, and the economy is already in a deep recession. That does not match the increases in GDP we have seen recently, so we can confirm our instinctive belief that a good many of the illegals have slipped through the net and have jobs, whether on or off their employer’s books.

Going to the other extreme, if all the illegal immigrants were unemployed, then the unemployment rate of 3.7% would be about accurate (though the U6 unemployment rate of 7.2% is a more accurate measure of it.) However, in this case, the only moderately awful productivity figures of the Biden term are wildly out. According to official figures, productivity has increased since the first quarter of 2021 from an index value of 110.8 to an index value of 111.8 in the fourth quarter of 2023, an increase of 0.33% per annum, already a pathetic figure that shows the effect of Biden administration’s regulations and general meddling on the efficiency of U.S. industry.
However, if you take account of the 8 million extra people employed in producing this extra output, then Biden-era productivity growth becomes negative 1.48% per annum – in other words, these additional illegal immigrants have the effect of REDUCING the productivity of the U.S. workforce by 1.81% per annum (0.33 plus 1.48).

So much for the claims of the cheap labor lobby that high immigration would improve the U.S. economy. In fact, the illegal immigrants are harming it, making the United States more like a Third World sweatshop through their introduction of Third World work methods, Third World crime and Third World educational levels. Needless to say, this rapid decline in productivity must produce a steady decline in U.S. living standards, both of the domestic population and of the immigrants themselves, who if employed off the books will find their lot no better materially and more impoverished spiritually and socially than if they had never left Lagos, Dhaka or Guayaquil.

There is another calculation we can make, valid whatever percentage of illegal immigrants are working, and that is the change in Disposable Personal Income and GDP per capita when you add more capitas. Between the first quarter of 2020 (before COVID – 2021 has much higher figures because of the state transfer payments in that year) and the fourth quarter of 2023 Disposable Personal Income per capita on the official figures rose from $47,722 to $50,353, an increase of 5.7% or 1.4% per annum. However, when the 8 million additional mouths to feed are included, 2023’s figure falls to $49,182, and the increase from 2020 falls to 3.1% or 0.8% per annum.

Thus, our incomes are increasing only very slowly, despite all those extra working age immigrants we have imported. (These imports temporarily reduce the dependency ratio of old folk and children to total population, but at an awful actuarial cost when these immigrants, who have mostly spent only part of their careers in the United States, working for below average incomes, come to draw Social Security and Medicare – let alone the Medicaid and welfare they are drawing in intervening years.)

As for GDP per capita, population has increased 0.86% per annum faster than the official figure, so GDP per capita growth is reduced by the equivalent amount. Real GDP has increased by 8.0% since the first quarter of 2021 or 2.42% per annum per capita (using the BEA population figures), but that figure drops to 1.56% per annum per capita when the additional population is included.

The downward revisions in growth and incomes from the inclusion of illegals are moderate, but the upward revision in unemployment and productivity growth (both of which cannot be accurate, but the truth must lie along the line between one and the other) reflect the beliefs of ordinary Americans that, whatever the feelgood numbers touted by the White House, real economic existence is currently rather unpleasant, and appears on a trend to getting worse. The latest inflation numbers, with core inflation up 0.4% in January, suggest that the inflation problem has not been solved either.

There is a further thundercloud looming over the U.S. economy. The stock market is currently close to an all-time high, with a bull market that has been even narrower than the “Nifty Fifty” market of 1971-73 in being concentrated almost entirely among the juggernaut “Magnificent Seven” oversized tech stocks. Big-city real estate is also way overvalued – the vacancy rate in U.S. office real estate is at 19.6% in January, an all-time record that suggests much overblown office financing is due to default.

With the real economy very much weaker than has been portrayed, the office glut is not going to improve and the stock market is due for a massive fall that will wipe perhaps 70% off its value. Much of the current GDP growth and tax revenue is due to speculative profits from the rise in stocks and the silly loans that are being made, particularly to private equity deals. There is thus a further deflation coming of the happy-talk statistics of the Biden administration, bringing them much more in line with the reality being suffered by the American public.

The false optimism of current U.S. economic statistics is highly deceptive, both to business decision makers and to the electorate that will be voting in November. It is unlikely that corrections will be made before the election, but the quicker they are made, the better. When they are made, full disclosure is needed, so that future years are not portrayed with artificial pessimism, distorting the track record of the policy errors that have produced the current malaise and the hopefully better policies of the next administration. Making decisions, business or electoral, is difficult enough without government statisticians distorting the economy’s picture.


(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)