Immigration will become the NFL Draft

Demographics, Declining GDP Growth & Debt

“With the first pick, of the 2044 worldwide immigration draft, the United Kingdom selects Ingeborg Johansson, the Medical Doctor from Sweden! The consensus number one prospect in this year’s class, we now go live with Stephen A Smith, who is with Ingeborg on the sidelines!”

I would assume competent world leaders regularly ask themselves how can they improve or at least maintain living standards for their citizens?

Yet few countries are growing above the rate of inflation, and many see a greater percentage of their populations enter retirement age each day. With an increasing number of people exiting the labor force while still receiving government benefits/services, those remaining in the workforce need to make up the difference.

Unless countries decide to repeal child labor laws or eliminate retirement ages, they really only have two solutions:

1. Make their workforce more productive

2. Find more workers

Advancements with AI might make the average worker more productive but even under optimistic scenarios, this will likely prove to be insufficient.

We need to find more workers and fast. Birth dates have plummeted over the past 70 years and are unlikely to bounce back soon. Leaving only one solution. Immigration.

This will have major societal implications, which I believe will make the system that exists today seem unrecognizable a few decades from now. In today’s post, I will attempt to speculate on what immigration will look like by 2040.

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Disclaimer: Please be careful to discern from what I am saying should happen versus what I think will happen. Much of what I mention in this article already takes place in various forms. Given how sensitive the topic of immigration is, I completely respect if you chose to not read this week’s article.

Demographics

It is no secret that birth rates in the developed word have steadily fallen off since the Baby Boomer generation. A relatively newer development, is that this trend is catching up with less developed nations too.

To maintain existing population numbers, there needs to be two children born per every woman. On a global basis we are at 2.30; this is why the human population continues to grow each year. However, virtually every developed country has less than 2 births per women. Countries like the United States, Sweden, France and UK are slightly below (1.60-1.80), this difference is addressed by current immigration levels. Others like South Korea and Singapore are at around 1.0, which would imply that without immigration, their population will halve. This is why South Korea has been contemplating a 4 day work week.

Regardless of where a particular country falls within the spectrum, the trend has been for birth rates to fall, which will exasperate the problem even worse. Even if births don’t decline, women are having children later, which further contributes to aged populations in developed countries.

Having an aged population becomes problematic because as more people enter retirement, they exit the workforce and instead of being net contributors to taxes and pensions, they become net recipients. Between social security & similar programs along with increased health care needs for seniors, governments need to spend more. Where are they going to find the money, Lebowski?

Declining GDP Growth & Debt

“Growth solves all problems.”

As long as value gets created, there are opportunities for workers, investors and governments. The most popular way to measure the value generated by a country is Gross Domestic Product (GDP). Most readers probably had to suffer through a basic economics course but to ensure we are on the same page, GDP is comprised of:

1. Government Spending (Programs, employees & anything they subsidize)

2. Household Consumption (Anything you spend money on besides taxes)

3. Investment (No not stocks & bonds— boring stuff like machinery & buildings)

4. Net Exports (Value of goods/services sold outside the country - what is imported)

GDP works well enough as a high level measure of spending within a country, economists will sometimes also look at GDP per capita to adjust for population sizes when comparing different countries. A common heuristic is that GDP per capita is a proxy for living standards within a country.

There are a few problems associating GDP with living standards that I won’t discuss but one key area I want to highlight is government spending. All things held equal, if a country’s government spending climbs, GDP will have increased but it might not be to the benefit of its constituents.

If you recall the first season of Game of Thrones, King Robert wanted the crown to spend a lot of gold to throw a tournament. The members of the Small Council tried to rationalize the expense by saying it would please the smallfolk and make a lot of money for the local businesses. The problem was, they did not have Gold on hand so they needed to borrow it from the Iron Bank.

Needless to say, the amount of incremental tax revenue generated from the tournament did not come close to covering the gold they borrowed. In the short term, King Robert increased the GDP of Westeros; government spending and consumption rose, and people were happy since jousts are fun. However, unless these households and local businesses took this extra money and invested it in something productive, after the effect of this short term stimulus ran out, the Crown would just be deeper in debt. (Check out 5 Business Lessons I learnt from Game of Thrones)

This borrow and spend mechanism is what modern governments do today; they issue bonds to pay for their spending, which they hope will encourage consumption, investment and exports. The problem is, if unsuccessful, their spending gradually makes up a larger percentage of GDP, forcing them to borrow and tax more.

In 2024, few developed nations outgrowing their inflation rates yet most have government spending approaching or exceeding 50% of GDP with debt levels above 100% of annual GDP. Many economists and business leaders have expressed concerns over this growing debt burden for years yet few countries are doing much to address the problem.

Immigration to the rescue

Despite attempts to convince the public inflation isn’t real, its largest advocates have been very quite about Modern Monetary Theory (MMT), since Covid era stimulus combined with historically low interest rates resulted in rampant inflation. Central banks had to respond by cranking up interest rates which only recently got inflation back to the 2-3% target.

Since infinite money printing has been proven to be an unsustainable strategy, countries will likely have to go back to fundamentals; How can they increase the number of workers and how can they make these workers more productive?

I don’t think governments will successfully convince women to have more children or to do it earlier, unless they can convince Taylor Swift to start having kids. Assuming they can’t rely on Swifties to fix the demographic time bomb, they might hope that AI will unleash incredible productivity gains. This probably won’t fix the issue either, because even if AI did deliver the productivity gains people are hoping for, the value would not accrue equally across the labor force.

Some workers might lose their job to automation. Others might keep their job and suddenly be able to do the work of 3 or 4 workers but do you think employers will adjust their salaries accordingly? Even if productivity does increase, governments won’t be able to raise taxes enough on its workforce to pay for the retirees without meaningfully hurting consumption or investment. This is why they will need to turn to immigration.

Immigration is a sensitive topic for many reasons that I won’t get into but I will attempt to make a statement that should not be controversial. Ready? Ok, here it goes.

“Countries should accept as many skilled immigrants that their infrastructure can support”. Ben Saltiel, right now

Before you unsubscribe or try to own me in the comments, please re-read the sentence; this is not a call for open borders. Every country has shortages for different types of skill sets, by allowing these gaps to persist they are only making themselves less competitive. If companies can’t find enough skilled workers within their own country, they look elsewhere or limit their growth.

Education is great but for some fields you need to wait a decade to see if these investments were worthwhile. When a country has doctor shortages, opening more spots in medical school doesn’t fix the problem for years. If investing in education is the NFL draft, then immigration is free agency. Just as free agents are a great way to quickly fill holes on a sports clubs, countries have this same tool at their disposal¹. Unlike with birth citizens, countries can exercise discretion over which immigrants they grant visas or residency to, increasing the likelihood they will add to the productivity of the nation.

Despite these developed countries having aged populations and skill shortages, applying for immigration is very complex, selective and bureaucratic, even for highly credentialed applicants. 70% of US green card applicants need to wait at least 5 years and it’s not much faster for preference immigrants either. Even with the addition of technology, immigration wait times are increasing, not declining.

Several developed countries tried to meaningfully increase immigration during the past decade to varying success; some of these governments have been replaced by opposition parties that came to power with anti-immigration rhetoric. As a result, I expect the next time governments attempt to increase immigration levels, they will do so differently.

I expect the decision criteria will closely resemble the point systems used in Canada and Australia but instead of waiting 5-10 years, applicants with high skill matches with a particular countries needs will likely get immediate approval, along with potential tax advantages. It would look like some combination of Portugal’s Golden Visa and the 30% Ruling in the Netherlands. This will happen because competition for certain types of immigrants will become so fierce, it’s not inconceivable to think that they will get similar treatment to pro athletes in free agency or companies looking for new corporate headquarters.

Not everybody will like these changes. Applicants from the previous process might find it unfair they had to wait so long while the new applicants did not. Existing citizens won’t like seeing new arrivals benefit from immediate tax breaks while using social programs. In most countries there are always contingents against immigration. Even people that are in favor of immigration don’t unanimously agree that employability should be the main criteria. While it’s a valid perspective, the immigration officers that granted citizenship to Elon Musk, Andy Grove, Satya Nadella, Lisa Su and countless others probably feel validated by their decision. In any case, countries will need to increase immigration massively to offset the declining birth rates and high debt levels, so they won’t only be admitting high skill match immigrants. There will be plenty of opportunities for all kinds types of immigrants, however only a select few will likely get the special treatment referenced above.

In any case, governments just like a general manager worried for their job, will start to compete to recruit immigrants they feel will add to the countries productivity and hopefully, can avoid population collapse.

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1. This assumes your general manager isn’t throwing awful contract offers at washed up benchwarmers and destroying your teams salary cap space in the process.