Inflation is and has been a lot higher than the government has been reporting, and undocumented workers play a large part in concealing the true inflation rate.
The two “i” words are back in the news, one more prominently than the other. The more prominent is “inflation.” The less prominent at the moment is “immigration” (of the illegal variety). The two issues are more closely tied than one would think. None of the three remaining major-party candidates for president has a realistic plan to resolve immigration’s contribution to the problem.
Inflation moved from minor concern to major concern this week for the Federal Reserve Board. Chairman Ben Bernanke has aggressively cut interest rates by 2.25 percent since September to try to prevent an economic implosion. But he has to balance recession concerns against the possibility that deep interest-rate cuts might also pump up inflation, as the January report on consumer prices showed a surprisingly steep rate of 0.4 percent. Wall Street fears deep cuts in interest rates might serve to trigger inflation while simultaneously failing to spur growth. Then Americans could end up hearing a revival of a word we haven’t heard in a few decades: stagflation.
How are illegal immigration and inflation tied together?
In 2005, Bear, Stearns Senior Managing Director Robert Justich and a team of his economists issued a study on the impact of illegal immigration on U.S. economic indicators. They found that undocumented immigrants account for some 8 percent of American workers, a much higher figure than the government reports. Justich’s report explained that the number of people counted in productivity calculations is artificially boosted when there are more people working than are reported to the government. American productivity is based on the amount our economy produces divided by the number of people working. If there are a lot more people working than the government takes into account, this makes productivity look artificially high. It can also help to conceal underlying inflation.
Editor’s Note: The author of this otherwise good piece, a descendant of Cubans, says the United States ought to make efforts to ensure a better quality of life in the countries from which the immigrants come. She apparently has not ever heard of ‘outsourcing.’