David Kelly, chief global strategist with JPMorgan Funds, argued in his most recent weekly report that America could soon face a big labor shortage as more baby boomers reach retirement age. There aren’t enough younger peoplecurrently to replace them.
He said that many people, including members of the Trump administration, are focusing too much on trying to find ways to stimulate more demand via tax cuts and calls for the Federal Reserve to lower interest rates.
But Kelly thinks the biggest looming problem for the United States is about the supply of people in America that are of working age and able to keep spending.
Unless America adds more younger people to the labor force, Kelly argues that any tax cuts or other stimulus would be “more pointless than a fast car in a big city.”
“There is an obsession with how to stimulate demand, with fiscal policy, monetary policy and currency policy all being deployed to rev up the economic engine,” Kelly wrote. “However, America is facing a demographic pothole, and unless we fill it, growth will be mediocre, at best, regardless of how we try to stoke demand.”
Kelly recommended some short-term fixes to help fill the demographic pothole. He suggested making three-year undergraduate college degrees more available to students and delaying eligibility for Medicare benefits to retirees by one year until the age of 66.
But those proposals would also be controversial.
That’s why boosting immigration makes the most sense.
Kelly noted the number of immigrant visas issued by the United States so far this year has continued to decline following drops in both 2017 and 2018. That’s not a good sign for the US economy, especially since the overwhelming majority of immigrants coming to the United States are of prime working age.
“The pace of immigration will be key to the pace of economic growth. Put simply, unless the US increases immigration, even sustaining 2% real GDP growth over the next decade will be challenging,” Kelly wrote.
Kelly conceded that the United States needs to do a better job of tackling the issue of illegal immigration. But cracking down on all immigrants isn’t the answer either, he argues.
“This is, of course, a controversial idea at a time when illegal immigration is such a politically charged issue in America. But, while a solution to the problems caused by illegal immigration is urgently needed, it should not obscure the benefits that America has received from immigration in the past,” Kelly wrote.