As the US midterms swiftly approach, an economic crisis is at the forefront of voters’ concerns. The economic consequences of both cannot be understated, with a seemingly porous Southern border coupled with a tidal wave of crime. The inflation crisis is cutting into households’ spending power, with Republicans’ citing the loss of energy independence as a critical factor in rocketing prices. Reminiscent of the 1994 Contract with America, Kevin McCarthy’s Commitment to America outlines a series of proposals to combat these critical issues that stifle economic growth.
Immigration
An almost universal consensus exists amongst economists that immigration is beneficial for economic growth. They boost the supply side of the economy, and immigrants use their increased incomes to support businesses through their spending power. An IEA study concluded that between 2010 and 2013, productivity in the UK only rose marginally due to immigration; discounting immigrants, productivity fell during this period. The ONS found that immigration following the GFC raised UK productivity by 2-3%.
However, immigration is subject to political criticism from conservative figures, particularly illegal migration. The most common narrative is that by competing with workers, immigrants are undercutting native-citizens’ wages as the former are willing to work longer hours for less pay, depriving them of job roles. While true to an extent, studies have shown immigration to have positively affected wages for the top 85% of salaries, with only the bottom 15% of workers seeing a fall. Through redistributive fiscal policies, these negative side-effects can be counteracted, harnessing the benefits of immigration by pushing up salaries for the vast majority of workers and increasing economic output.
The Republican plan to curb illegal immigration on the Southern Border is warranted. Over 3.8 million individuals illegally crossed the border under Joe Biden’s first two years. The Republican plan to fund border control infrastructure and technologies shouldn’t damage the amount of beneficial, legal immigration into the US; although, politicians need to be wary of creating a toxic, anti-immigration environment that could deter positive immigration into the US.
Crime
Crime has a hugely detrimental effect on economic growth. Through creating an uncertain business environment, the recent surge in crime has led to hundreds of small businesses closing in cities such as Chicago and San Diego, mainly. The US is facing the highest murder rate in 20 years, with theft and physical violence also surging. As the US economy faces an inflation crisis, ensuring that long-run aggregate supply is promoted is vital for economic growth that will reduce inflationary pressures.
Democratic mayors have primarily been complicit in ‘Defund the Police’ initiatives; hence, the surge in crime is unsurprising. Similar to inflation expectations that often become a self-fulfilling prophecy, the anticipation of cuts in police funding emboldens criminals and creates an environment fertile for crime. Even though many defunding police efforts haven’t come to fruition, its expectation has spurred crime. Republican pledges to recruit 200,000 more officers will promote economic growth by creating a safer environment for individuals and businesses, especially giving the latter the confidence to expand production.
Energy
One of former President Trump’s key touted accomplishments was achieving energy independence. Through boosting oil and gas production, dependence on foreign exporters such as Russia and Saudi Arabia became a relic of the past. However, this quickly reversed under his successor Biden; cancelling the Keystone Pipeline and additional environmental regulations were some of the factors behind the return to an energy deficit.
While rocketing energy prices are a significant cause of inflation in Europe, the excessive stimulus by the Federal Reserve has a part to blame for inflation in the US. Through a mere doubling of the Federal Reserve’s balance sheet amidst the pandemic-induced economic slowdown from $4 to $9 trillion, the economy swiftly returned to full employment with aggregate demand exceeding the economy’s productive potential.
With this said, the Republican plan for energy security will help reduce inflationary pressures long term. Cutting red tape and needless bureaucracy and no longer being subjected to external supply shocks will keep energy prices low, allowing businesses to keep energy bills low to promote long-term economic growth. This could produce negative externalities, particularly on the environmental front; however, given the acute shortage that is currently crushing small businesses, boosting fossil fuel production in the short term is necessary to prevent the collapse of small businesses across the country, ensuring millions don’t fall into fuel poverty. However, a long term, sustainable plan for renewable energy is essential to prevent an inevitable climate crisis – an agenda the Republican party abandoned over a decade ago.
Ultimately, the series of pledges outlines in the Commitment to America look to serve the US economy well in the long term. The Republicans should remain wary of deterring legal immigration into the US through aggressive crackdowns on illegal immigration, given the plethora of net benefits to the US economy. A low crime environment is essential for sustainable, strong business growth with the tough-on-crime approach advocated by Republicans reminiscent of the late 1990s and early 2000s – decades that oversaw a sharp fall in crime rates. Gripping the energy crisis through expanding energy production, short-term production of fossil fuels will ensure energy security – a necessary precursor for economic stability.
Free Marketeer 