Inverted Economy: Immigration Masks Recession Threat

America’s financial condition is in an unusual and in many ways unprecedented posture, sitting now in what Dhaval Joshi, Chief Strategist at BCA Research, calls an “inverted economy.” At the heart of this anomaly is a labor supply crisis fueled by a surge in illegal immigration and a shift toward government-sector job growth. One need look no further than the Biden administration’s open borders and big government spending policies to see the underlying causes.

For decades, the dance between labor demand and supply has guided the rhythmic cycles of the U.S. economy. Traditionally, a contraction in labor demand, falling below labor supply, heralded economic downturns. Yet, this long-established pattern has flipped in the aftermath of the pandemic. Under current conditions, it is the scarcity of available, capable, and willing workers — rather than an over-supply — that is turning the typical supply and demand curve on its head. 

"The US Economy Is Inverted": How The Flood Of Illegal Immigration Is Delaying The Official US Recession https://t.co/yz86gvV84Y

— zerohedge (@zerohedge) March 31, 2024

The current economic landscape is nuanced. While labor demand dips into recessionary territory, the overall Gross Domestic Product (GDP) defies expectations by avoiding a downturn. This scenario presents a deceptive sense of stability, as the underlying labor market dynamics tell a different story. The influx of illegal immigrants, many of whom eventually integrate into the labor supply calculations, plays a pivotal role in staving off a traditional recession. This influx, coupled with a government-spending spree on public sector jobs, paints a complex picture of Americans’ economic reality.

Critics argue that the administration’s liberal immigration policies and its propensity to inflate government sector employment are merely band-aids on a gaping wound. The recent revelation by The New York Post, highlighting New York City’s distribution of pre-paid cash cards to immigrants, illustrates a broader strategy of leveraging taxpayer money to manage immigration-related challenges. While offering short-term relief and a political “win” for leftist progressives, this approach raises serious questions about sustainability and the true health of the private employment market.

Economist Daniel Lacalle describes the current situation as a “private sector recession.” While aggregate job growth figures may project an image of economic vibrancy, a closer examination reveals a stagnation, if not outright contraction, in the private sector. This discrepancy, masked by an expansion in government jobs paid for with more massive deficit borrowing and spending, skews public perception and the understanding of the economy’s actual condition.

The scenario unfolding reflects a deeper, systemic issue. Huge growth in government employment — all financed with inflationary money printing — paints over the true challenges facing the private labor market. Deficit financing of government jobs programs is unsustainable and detrimental to long-term economic health. The “creation” of millions of government jobs that do not actually produce any of the essential goods and services Americans need should never be seen as a replacement for organic growth in the private sector.  

In this context, the Biden administration’s open borders fiasco and willingness to expand government employment at the expense of private sector vitality is a tactical maneuver to delay the inevitable recognition of an “official” recession. While the manipulative numbers game the federal government is playing may be politically useful, the coming implications for domestic production and the well-being of working Americans could be disastrous.