A Macroeconomic Pyramid Scheme

This summer was a long trip with the family back to Canada to my hometown, taken after a three years’ break due to COVID. The one thing that assaulted me as soon as I landed in Canada was the pressure from my wife and parents to buy real estate property! You’re missing out on big gains! You gotta do it for your family! You’re not young anymore! My parents’ friends, who are all first-generation immigrants and mostly working-class boomers, were full of stories of how they and people they know got hundreds of thousands of dollars and even millions of dollars on property gains within a couple of years, not to mention those who bought several properties and now can retire. (They mix their get-rich-quick success stories with a lot of bad-mouthing of the country’s economic system, but that’s a topic for another time.)

I took what they say with a boulder-sized grain of salt because I’ve grown up around these people and I know that they cannot help telling tall tales. Still, there’s no denying that there’s been an unparalleled real-estate boom in the Greater Toronto Area over the last couple of decades. Last year, Toronto’s real estate prices were ranked 2nd most overpriced in the world. There’s no shortage of Cassandras warning about the impending bubble burst whose goo will cause an economic flood. I’m one of those Cassandras. Even the mainstream internet makes fun of us, millennials waiting for that burst so we can finally afford to buy a home. But when it comes to my parent’s semi-literate friends, trying to tell them what happened in the US and the whole world in 2008 (a.k.a. “The Great Recession” triggered by the “subprime mortgage crisis”) is like trying to give a lesson in differential geometry to marketing majors. Forget about it.

But to me the math is simple. If everyone and their aunt mortgage the house they live in plus two more rental properties, then where do you find the people who have zero properties and are therefore forced to rent yours? Everyone minus everyone equals no one. And if you don’t get rental income, how do you not default on all that mortgage? Add to that the anecdotal reports that people are going to the bank and making up imaginary incomes on their mortgage applications, and you have the perfect recipe for a once-in-a-century housing crash and all the wailing and gnashing of teeth that entails.

But there’s no telling that to the masses. There’s a real-estate hysteria going on, a terrifying herd stampede, that cannot be stopped with reasoned debate. Who knows if and how much I would have been part of it had I lived here all along rather than pop in after three years and right at the point when the hysteria is at its peak (or just past it)?

So there I was with these thoughts in my head while on the outside everyone disagreed with me. Being the open-minded scholar that I am, I tried again and again to think of reasons why they may be right, and I may be wrong. Then, as I was strolling along a pedestrian street one day, the reason occurred to me: immigrants.

Toronto is famous for immigrants, having probably more immigrants per capita than any other big city in the world (well, after Miami, apparently). I sat on a bench in a busy local square, and I was struck by the multiculturalism of the place.  Many of the people speaking foreign languages were young, probably university students. In Canada, most of them will be on track to citizenship after graduation. “Well,” I thought, “Here are the renters! Here are the people who’ll fill up all those investment properties!”

Now, I don’t know if there’s enough of them to stymie the real estate burst, but there are a lot of them. Half a million per year, apparently. And it appears that that’s the economic strategy of the powers that be: build heaps of new properties and bring in the immigrants to rent and buy them. All the incumbents get rich: the government, the builders, the banks, and even the immigrant tradesmen who don’t even speak English but who’ve been in the country just long enough to mortgage their first semi-detached house in the suburbs.

If we zoom out to the macro level here, we see how the game works. A constant stream of immigrants is the steady-state requirement for the wealth of the nation. Within southern Ontario, real estate has got to be a major component of GDP. Other industries: food, healthcare, finance, education, are supporting rather than value-creating industries. In other words, the key competitive economic advantage of Ontario isn’t some knowledge-based industry or even natural resources (as it is in Western Canada); it’s simply that it’s Ontario – a wealthy, liberal, developed place. You sell that to immigrants and you’re good.

But what happens in the long run, when there are no more immigrants? In the immortal (or undead) words of John Maynard Keynes, “In the long run, we are all dead.” In other words, who cares! Make money now. Besides, the long run is very far off: Canada is a vast country with less than forty million people. There’s so much more room. The bubble can grow for decades to come, and may it never burst!

This vast pyramid scheme has been characteristic of post-Columbian North America all along. Read Alexis de Tocqueville’s travel memoirs and you will find how in the middle of the nineteenth century European adventurers were setting out into the endless forest that was then the American Midwest, clearing trees to build a shack for themselves in the middle of the woods and waiting for the area to become urbanized so that the land they were granted at almost no cost can become prime real estate and turn them into wealthy landlords.

You could argue that the pyramid scheme that runs on immigration is not as central to the economy in Canada as a whole, and especially not in the US, where they do have world-leading tech industries (IT and aerospace). But you don’t need me to tell you that immigration is the hot issue there, too. You also don’t need to tell me that in Europe they seem to be trying to replicate this economic system and running into immigration controversy themselves.

I’ve written about immigration at length before. My novel The Woke Iliad contains an extended satire on it. You can find my essay on immigrants on my blog. Or if you want an edited and expanded version, you can read it in my published collection of essays, Catharses: Essays in Applied Mimetic Theory. There, I write about immigration as a tool for diffusing conflict among the incumbent population. I stand behind this Girardian perspective, which does not contradict this economic angle. In the modern capitalist economy, reconciliation and diffusion of conflict are done with money, with economics. So this can be taken as an expansion of my previous views.

The immigration debate is charged with mostly moral arguments. Being charitable versus protecting one’s inheritance. Providing opportunities for others versus taking care of your own people. Economics comes into the discussion on the topics of unemployment or wage depression. But the economic pyramid-scheme essence is hardly ever brought up in the public discourse. I think it’s because everyone benefits financially from the pyramid scheme, so it’s impossible for anyone to posture with moral indignation. It’s hard to persuade someone against something by pointing out that it’s making them rich.

Those who like to bewail the Death of the West like to blame it on the machinations of anti-Western elites, decadent morals, “cultural Marxism,” or culturally hostile immigrants. In the English-speaking world at least, these tend to be the same people who like to contrast Western free-market economics with the dysfunctional socialistic systems of the Banana Republic that is the rest of the world. I don’t disagree that the free market, reasonably regulated, is the least bad economic arrangement. But let’s be real here. The root motive behind immigration today is to be found in one of the West’s most sacred cows: private property. A great idea in and of itself, in the real world it cannot avoid producing obsessions which, if we’re being real, are impossible to distinguish from “the love of money.”

No matter one’s political persuasion, sinking into debt or losing one’s retirement benefits is not befitting of a free Western citizen. And to avoid that fate in the free Western economy, one’s going to need immigrants.