National Conservatives offer terrible economic policies, but their worst has to be the claim that deporting illegal immigrants will raise wages and reduce house prices. The Daily Signal recently published an article making that claim. Here is a sample:
"In this regard, immigration enforcement achieves two macro objectives at once: It makes America safer while also attacking the systemic affordability crisis.... The evidence is already compelling. The early economic returns on immigration enforcement are nothing short of stunning...
Thankfully, under President Donald Trump, real wages have risen every single month of his presidency...These gains result largely from at least 2.5 million illegal aliens leaving America...
Masses of illegal aliens crowd out citizens in the housing market. According to Apartment List, since Trump took office, national rent prices for Americans have actually declined by 1.4%. CNBC called the current trend “one of the more renter-friendly periods in a decade."
The article argues that supply and demand principles of basic economics is working. But we know that National Conservatives despise economics, so it's ironic that they appeal to its logic to support their case. It's true that a smaller supply of workers will increase wages, ceteris paribus. European workers experienced that in the middle ages when the plague killed half the people. But the deportations from the U.S. aren't even close to that scale. The labor force is around 170 million people. Losing 2.5 million immigrants is 1.4% of that force. But all of the immigrants weren't working. Assuming half were, that means a reduction in the labor force of less than 1%.
Wages are sticky. Immigrants leaving last month won't change wages this month. And ceteris paribus never holds. Many things besides the supply of labor effects wages, such as demand by employers, the weather, the state of the economy, etc. The only thing that could immediately impact real wages is a reduction in inflation, because economists adjust nominal wages for the inflation rate. In the short run, the inflation rate impacts real wages more than any other factor and the article from Daily Signal reports real wages.
What drives inflation? Federal Reserve monetary policies. Tariffs don't. Oil prices don't. Both of those increase the prices of some products, but consumers will spend less on other items, reducing those prices, so they can purchase the more expensive ones if the money supply doesn't grow. The inflation rate is the net change in all of the goods and services, not just a few. Inflation isn't an increase in the price of hamburger or gasoline. It's the price increases and decreases of all goods and services added together. Consumers can spend more on everything only if the Fed increases the money supply.
In a similar way, the number of immigrants leaving aren't sufficient to drive down the price of houses. The U.S. has about 135 million homes. Assuming four people per household of immigrants, only 0.6 million households have left, not enough to impact supply and demand in a way that people will notice. The main driver of housing prices has always been the money supply, determined largely by Fed interest rates.
Economists have known for centuries that the new money created by the Fed lowering interest rates goes into the stock market, cars and houses. Washington Irving wrote about it in his "Mississippi Bubble" essay describing the inflation in housing prices in Paris before the crash in 1720.
In case you didn't notice, the common denominator between wages and housing prices is the Fed. Fed policies effect the inflation rate that adjusts nominal wages to real wages and the interest rate that effects housing prices. Following the Covid epidemic, high inflation reduced real wages and made workers poorer. At the same time, housing prices had increased for decades due to the Fed's policy of keeping rates near zero for decades.
Fed inflationary policies reduce real wages while increasing housing prices. Doesn't that describe the affordability crisis?
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