It’s about the people. So much of our attention as investors centers on issues like trade or monetary policy which have real effects on economies and financial markets. In fact, we would categorize monetary policy risk as one of the leading issues driving equity market volatility today. But through all of that, it is important to not lose sight of the fact that this world is about people. The economic systems of the world of which we spend each day studying are based on the interaction of people. The growth of one economy or another is about how many people are willing and able to work and how much each person can do (aided by capital). This week a “people” policy concern came to the forefront once again as immigration issues captured headlines. Setting aside politics and moral discourse, we put the headlines of the week in the economic context. The United States economic system relies on both issues at play in the recent debate – the rule of law and the population growth that immigration brings to this country.

Let’s put the population issue in context. In a report by the Centers for Disease Control released in May, the United States last year saw the fewest newborns in thirty years. In 2017, there were 3.8 million births which is down over 15% from the most recent peak of 4.3mm births only ten years earlier. That pace is well below what is called the “replacement rate,” or the number of births needed to sustain population levels. Otherwise, absent immigration, the population is shrinking. In the United States, where mortality rates of young people are lower than elsewhere, the replacement rate is 2.1 births per woman. The current fertility rate is below 1.8. Granted, the United States is in a better relative situation compared to other developed nations such as Japan which has a fertility rate closer to 1.4 or Hong Kong at 1.2. Regardless of the differences, the result is the same over time – shrinking population leading to shrinking employment (headwind to growth) not to mention a shrinking tax base (headwind to fiscal balance). While the US has made itself more attractive for financial capital through recent corporate tax reform, it must also apply the same energy for policy reform to attract human capital while maintaining the integrity of rule of law. Remember, it’s about the people.