Trump is threatening to wreck capitalism, not fix it

During Donald Trump’s first week as president, Yahoo Finance mustered some optimism about his determination to create jobs. If Trump can stay focused on the economy and not get sidetracked, we predicted, he might actually do some good for struggling American workers.

Well, so much for that. Trump has moved on from jobs and is now focused on a grandiose border wall, a ban on immigrants, a new and unproved health-reform law, and taxes on imports to punish Mexico for existing. Trump could still come to his senses and refocus on the issue Americans say is most important—the economy, duh—but he seems more likely to lose interest and keep chasing whatever lands him in the headlines.

In just the last few days, Trump has rolled out more ideas that would harm the economy than help it. Begin with immigration. Trump has fulfilled a campaign promise and imposed his version of “extreme vetting” of immigrants, by slashing the number of refugees allowed into the country and banning migrants from 7 predominantly-Muslim nations. He may also cut the number of foreign workers allowed into the United States on various types of work visas. This is supposed to be for national-security reasons, but it has big economic implications as well.

The US actually needs more immigrants, not fewer, in order to grow faster. By limiting immigrants, Trump is making his goal of 4% economic growth that much harder. That’s because of slowing population growth, as this chart shows:

Some people think slower population growth leaves fewer people to claim a fixed amount of prosperity, making everybody better off. But that’s not how it works. In reality, a faster-growing population generates more economic activity that boosts growth and employment. That’s one reason the baby-boom generation enjoyed so much prosperity. A slower-growing population means lower growth and less wealth to go around. With the baby boomers aging and the US birth rate declining, immigrants are the most obvious source of population growth. Unless Trump wants to tell Americans to have a lot more babies.

Immigrants are key to economic growth

Immigrants are also more entrepreneurial than native-born Americans: They start businesses at nearly twice the rate as people born here. Latinos are the most entrepreneurial ethnic group in America, according to data from the nonprofit Kauffman Foundation, followed by Asians, whites and blacks. These can be high-tech businesses or corner delis, but whatever they are, new businesses account for a lot of job growth in America, while big businesses mostly hold steady on employment. Entrepreneurs are crucial to growth, and immigrants are the most active entrepreneurs.