A Happy Day for Illegals, a Sad Day for Americans

November 22, 2014

Obama finally did it, granting amnesty to roughly 5 million illegals.  In the recent mid-term elections, Democrats were trounced by voters who, more than anything else, were incensed by the president’s amnesty plan.  He did it anyway.

So, for five million people who made a mockery of our immigration laws and made fools of those back home waiting in line to enter the U.S. legally, life has gotten much better.  But for 320 million Americans, life just got incrementally worse.  More competition for their jobs.  More downward pressure on wages.  More crowding, more traffic, more burden on the public school systems that are already short on funding.  The economy is incrementally worse.  In general, the quality of life for Americans has just declined.  Like polls have been telling us, America is on the wrong track – toward a dead end.  And immigration is the engine that’s driving us there.

Republicans are indignant about the president breaking our laws and failing to uphold the constitution, or so they say.  What they’re really indignant about is that the president beat them to the punch on pandering to the Hispanic vote.  Neither party is any better than the other when it comes to immigration.  Both parties have two constituencies to deal with.  Both parties have the voters to contend with, voters who are pretty much split on the issue.  But the Democrats have big labor on their side, and big labor loves the influx of unskilled labor that illegal immigration brings, which translates into potential growth in their membership.

Republicans, on the other hand, are in the pockets of big business, who loves the huge influx of skilled workers that H1B visa immigrants bring, keeping downward pressure on wages.  So, with Republicans you get posturing (and maybe a little more border enforcement) on the illegal immigration issue, but a huge influx of legal immigrants.  With Democrats you a huge influx of illegals, each wave attracted by the amnesty granted to the previous.  They all know that U.S. immigration laws are practically meaningless.

But, if you’re out of work and find yourself competing with immigrants for a job, does it really matter to you whether they have green cards or not?  You’re out of a job just the same.

It’s pointless to be angry with one party or the other.  Our anger needs to be directed toward economists and their idiotic reliance on population growth to stoke macroeconomic growth, a strategy that is ultimately doomed to failure.  If population growth is such an economic cure-all, then Japan, a nation ten times as densely populated as the U.S., should have an economy that’s not mired in decades of stagnation.

Nothing will change until the field of economics pulls its head from the sand and considers the full range of economic  implications of population growth.  Until then, we’ll get more of the same – presidents who hand their economic policy over to academic economists – the blind leading the blind.


Japan Plunges Back into Recession

November 20, 2014

http://www.usatoday.com/story/money/markets/2014/11/16/japan-says-economy-contracted-16-pct-in-july-sept/19147417/

It was reported on Monday (see above-linked article) that Japan officially slid back into recession in the 3rd quarter.  The economy contracted 1.6% (annual rate) in the 3rd quarter, following an even larger contraction of 6.7% in the 2nd quarter.  This came as a shock to the business community, which had expected a resumption of growth.

Japan is a poster-child for what happens to an economy that is badly overpopulated.  Japan is approximately ten times as densely populated as the U.S.  Because its people live in such dense, overcrowded conditions, per capita consumption there is a fraction of what it would be otherwise.  Low consumption would mean low employment, were it not for the fact that Japan runs a massive trade surplus in manufactured goods.  (It actually runs a deficit for overall trade because it’s also heavily dependent on imported raw materials in order to manufacture those goods.)  Without that surplus of trade in manufacturing, Japan’s economy would collapse into something resembling a third world country.

Once South Korea, followed by China, began muscling in on its export business, growth in Japan’s economy ground to a halt.  It’s been in a state of recession more often than not for the past two decades.  During that time, it has racked up an enormous national debt, the largest in the world, in order to prop up its economy.

In 2012, Shinzo Abe was elected prime minister of Japan, thanks to his promise to revitalize the economy through a combination of tax cuts, a huge boost in spending on infrastructure, and massive money-printing by Japan’s central bank – a program that came to be known as “Abenomics.”  Once the economy was kick-started, then the plan was to raise sales taxes in order to once again begin addressing the debt issue.

At least that was the plan.  It worked great at first.  The Japanese people were given lots of free money and they spent it.  The Japanese stock market soared.  But then came the tax hikes and the party was over.  The economy quickly collapsed back into a deep recession.

What economists don’t understand is that macroeconomic growth in a society plagued by severe over-crowding is impossible, and nowhere is this more evident than in Japan, one of the most densely populated nations on earth.  A point is reached where falling per capita consumption erases any gains that further population growth may provide.  This effect can be masked by deficit spending, but that tactic can only be sustained for so long.  Ultimately, the Japanese people are doomed to a failing economy and worsening poverty.

This opinion piece by James Saft does a good job of illustrating how boxed-in the Japanese economy has become, and how he and economists still don’t get it – that population growth is the root of the problem, not the cure – by implying that all would be well if Japan’s central bank could simply “print people.”

What Japan’s people need, more than anything else, is simply room to breathe.  Less densely populated, they could live in real homes instead of rabbit hutches.  They could drive real cars and park them in their own garages.  They could have lawns and gardens.  They could play golf on golf courses that currently don’t exist.  The quality of their lives would improve by leaps and bounds.  But, with fewer of them, the Japanese macroeconomy, as its traditionally measured, would be smaller and economists would be sounding the alarm.

It never ceases to amaze me how economists are incapable of recognizing or acknowledging how dumb their reliance on never-ending population growth in a finite world is.  Japan is a perfect example.


BLS Begins Fudging “Employment Level” in October

November 12, 2014

Because of travel and family obligations, I’m a few days late commenting on the October employment report, released on Friday by the Bureau of Labor Statistics (BLS).

According to the report, the economy added 214,000 jobs in October, short of expectations for 240,000 jobs.  And, of course, unemployment fell once again to 5.8%, which aligns nicely with the number of jobs added.  But the way that they were brought into alignment is almost amusing.  Now that the unemployment rate has fallen below 6%, all of the pressure and media attention on that figure is off.  (Never mind the fact that it got down to that level primarily by claiming that workers left the labor force.)

As the unemployment rate fell, though, attention began to turn to the fact that the percentage of the population that’s actually  employed is still at historically low levels.  So, I suppose, we shouldn’t be surprised that it appears that the BLS has now begun to fudge the “employment level” – the number of Americans employed as determined by the household survey.  In October it jumped by 683,000.  However, if that was the only figure that the BLS fudged, then unemployment would have plunged by four tenths to 5.5%, which surely would have been met with a lot of skepticism.  No problem.  Just claim that 416,000 people rejoined the work force.  Voila!  Per capita employment takes a big jump.  Unemployment drops a tenth.  And the October employment report looks really rosy.

Nobody can believe that 683,000 Americans found work in October.  Two days before the employment report was released, payroll processing firm ADP announced its estimate that the economy added 230,000 jobs in October – a number that is consistent with past months and consistent with the BLS’s establishment survey.  The same day, polling firm Gallup announced that its “U.S. Job Creation Index” actually slipped in October.  The following day, Gallup also announced that its estimate of  “payroll-to-population rate” (per capita employment) actually fell in October to 44.4% from 44.8% in September.  That’s a big one-month drop.  And, that same day, Challenger estimated that layoffs rose sharply in October.  In light of the other data, the BLS’s claim that the employment level rose by 683,000 in October is clearly preposterous.


Trade Deficit in Manufactured Goods Soars to New Record in September

November 4, 2014

http://www.bea.gov/newsreleases/international/trade/2014/pdf/trad0914.pdf

As announced by the Bureau of Economic Analysis this morning, the overall trade deficit rose by $3.0 billion to $43.0 billion in September, driven entirely by a steep rise in the deficit in manufactured goods – which rose by $3.9 billion to $52.1 billion – a new record.  (Check the chart:  Manf’d Goods Balance of Trade.)

The expansion of the deficit in manufactured goods was driven mostly by a sharp decline in exports.  September exports of manufactured goods fell to $111.9 billion.  That’s only $0.2 billion higher than in March, 2012.  Over that same time frame, manufactured exports needed to rise by $48 billion to keep pace with President Obama’s promise (made in January, 2010) to double exports within five years.  Here’s the chart:  Manf’d exports vs. goal.

In September our trade deficit with China soared to $35.6 billion, completely obliterating the previous record of $30.9 billion set only two months earlier.  Imports from China rose by $5.1 billion in September while exports to China fell by $0.3 billion.

The entire trade deficit in September is due to only four countries:  China ($35.6 billion), Germany ($6.1 billion), Japan ($5.3 billion) and Mexico ($4.8 billion).  All four nations are more densely populated than the U.S.  China’s population density is four times that of the U.S.  Germany’s is eight times.  Japan’s is ten times.  Mexico is only about twice that of the U.S.  Take away these four countries and the U.S. actually had a surplus of trade with the rest of the world.

Expressed in per capita terms (which factors out the sheer size of nations), the trade deficit with Germany was the worst of these four nations at approximately $100 per German citizen.  Mexico and Japan were nearly tied at about $43 and $41 respectively.  China was last at $29.   It’s important to note that Germany and Japan are both high wage nations, disproving the theory that trade deficits are caused by low wages.

Today, Americans went to the polls in a sour mood.  They’re unhappy with falling incomes and trumped-up employment reports.  They’re fed up with a president who’s more concerned with illegal aliens than he is with the plight of American workers.  And they’re sick of inaction on trade policy that’s has been a proven loser for decades, stripping them of their ability to make a decent living.  They’re right to be angry.  Since President Obama made his promise to double exports, our trade deficit in manfactured goods has nearly doubled while exports have barely budged.  There’s been no follow-through and there was never a plan.  Just a proclamation and crossed fingers.

Voters are in a “throw-the-bums-out” frame of mind.  If the president had been on the ballot, he’d surely have been the first “bum” to go.


Your vote counts, but does it matter?

November 3, 2014

Tomorrow we’ll all go to the polls to cast our ballots, or at least we should.  Every vote counts.

And it’s true.  We’ve all heard stories of elections and ballot issues decided by a handful of votes, especially on the local level where a total of only hundreds or a few thousand votes may be cast.  Your vote may be the deciding factor in determining which candidate takes office.

But does that really matter?  With each passing election cycle, polls show that more and more voters say that America is “on the wrong track.”  Indeed it is, and that’s exactly the problem – we’ve been on a road to nowhere for decades.  We took a turn down that road in the wake of World War II with our embrace of  free trade as a way to head off such wars in the future.  Add to that our dedication to using population growth to stoke economic growth.  On those two issues – free trade and population growth (driven by immigration), there is absolutely no difference between the Republican and Democratic parties.  Both parties promise to keep us heading down that road.  So does it really matter if you veer left or right on the road to nowhere?  Of course not.

Oh, it may sound like there’s differences.  The Democratic candidate may say that he or she is against unfair trade practices.  The problem is that “fairness” isn’t the problem when trading with badly overpopulated nations.  Fair or not, the results will be the same – a huge trade deficit and loss of jobs, driven by the disparity in population density.*  Fairness, currency manipulation, cheap labor, lax environmental rules – none of these things matter.  Trade imbalances are determined by disparities in population density.  Period.

In the case of immigration, the Republican candidate may rail against illegal immigration and demand more border enforcement, but also supports higher quotas for legal immigration.  The Democratic candidate will tend to oppose those higher quotas, but will sympathize with illegal immigrants in search of a better life.  In the final analysis, does it really matter whether or not that person who just took your job has a green card in his wallet?  Our rate of population growth has remained on exactly the same trajectory for decades, regardless of which party held power.  The net result is the same – a labor force that grows faster than it can be absorbed by the economy, driving down incomes.*

Both parties favor reducing the budget deficit.  Neither party will.  Republicans may cut taxes and Democrats may boost spending, but neither will make any difference in your financial security and the budget deficit won’t change, since it’s a function of the trade deficit.*

By all means, go to the polls tomorrow and vote.  Your vote will determine whether some hare-brained ballot initiative is passed and whether some crook wins some local election.  But don’t expect any change for the better at the national level.  With either party, you’ll get exactly the same thing.  We’ll continue veering left and right down the road to nowhere.

The only thing that will change for the better is that we’ll get a respite from political ads for a little while.

———————————————

* If you’re new to this site and don’t understand the inverse relationship between population density and per capita consumption and how it drives trade imbalances and unemployment, or how the budget deficit is a function of our trade deficit, I encourage you to read more on this site or to pick up a copy of Five ShortBlasts, available through this web site or from Amazon.


The End of Growth

October 22, 2014

http://www.reuters.com/article/2014/10/16/us-cenbanks-markets-policy-idUSKCN0I501120141016

Last week, markets were in a steep sell-off, driven largely by increasing worries about global economic growth.  (See the above-linked Reuters article from last week.)  In the wake of the Great Recession, years of interest rates at zero and money printing by the central banks of the U.S., Europe and Japan have yielded pretty disappointing results.  Europe is once again on the brink of recession.  And Japan has either been in recession or been on the brink for decades.  And slowing economic data in the U.S. is making it look as though we won’t avoid backsliding into recession either.

We’ve all seen cartoons depicting pessimists standing on street corners wearing sandwich-board signs declaring that “the end is near.”  Well, folks, it’s time to face facts.  When it comes to economic growth, the end is, in fact, here.

Let’s begin with a step back – way back – to World War II.  The imperialist ambitions of both Germany and Japan had similar roots.  Both nations were badly overpopulated, short on resources and long on unemployment.  Both embarked on huge land grabs.  In the wake of the war, in 1947, the Global Agreement on Tariffs and Trade – the precursor of today’s World Trade Organization – was implemented, with the primary goal of preventing such wars by giving Germany and Japan easier access to resources and more access to U.S. markets, thus alleviating the high unemployment that fostered Hitler’s rise to power.

No problem, at first.  Americans had done without for years, with the nation’s manufacturing capacity devoted 100% to the war effort.  There was a lot of catching up to do and Americans’ appetite for goods seemed insatiable.  The economy boomed and the federal government was able to cut spending and whittle away the debt it had racked up during the war.

The infrastructure and economies of Germany and Japan were rebuilt.  Slowly, the new trade regime enabled imports from those nations to erode America’s trade surplus.  First came Volkswagens and a sprinkling of Mercedes and BMW’s from Germany.  Those were followed first by motorcycles from Japan, and then Hondas – pathetic little cars that were painted in paisley and sold as jokes, but they got their foot in the door.  By the early 70’s our trade surplus was gone.  We oscillated between surplus and deficit for a few years.  We ran our last trade surplus in 1975.  Since then, we’ve experienced 38 (soon to be 39) consecutive years of trade deficits.

At about the same time, America’s budget deficit began to grow again too.  It had to, to offset the trade deficit’s drain of money from the economy.  Soon, new terms began to creep into the American economic lexicon:  “redundancy,” “down-sizing,” “right-sizing” and “outsourcing.”  American manufacturers began closing their doors en masse, unable to sustain a profit margin in the face of the onslaught of foreign companies snatching up American market share.

Even with their new-found trade surpluses and manufacturing jobs cannibalized from American manufacturers, the Europeans and Japanese both found it necessary to lean heavily on deficit spending, just as America was doing, to keep a lid on unemployment.  Rising productivity enabled manufacturers to meet growing demand without growing employment at the same pace.

At the end of World War II, the world’s population stood at just under 2.5 billion.  Today it has nearly tripled.  All of this growth has been concentrated in urban areas.  Cities have expanded and grown vastly more crowded, and it’s a fact that people living in crowded conditions consume less out of necessity.  Growth in the global labor pool outpaced the rate at which workers were absorbed into the economy, putting downward pressure on wages.  And that situation grew exponentially worse when China was factored into the global trade equation, growing the global labor pool virtually overnight by 25%.

For a time, government deficit spending, used primarily to fund social safety net programs and other programs designed to supplement incomes and prop up a perception of wealth, sustained consumption and kept the economy growing.  But that tactic has run its course.  National debts have risen to worrisome levels.

Developed economies looked to China to pick up the slack by developing its economy, turning 1.3 billion people who had nothing into western-style consumers.  By that measure, China has been a huge disappointment.  Collectively, they consume a mountain of goods, but nowhere near enough to even consume their own productive capacity, much less to develop into a market for other nations.  Their growth is faltering and it looks like their domestic consumption will settle at the same diminished level as Europe and Japan.

Growth is now virtually dead and all the deficit spending in the world can’t prop it up.  Economists won’t admit that fact and adamantly refuse to give any consideration to the fact that population growth lies at the heart of the problem.  But markets don’t care, and what we’re witnessing is an adjustment to a no-growth world.  Interest rates have fallen to zero.  Bond yields, projected to rise as the economy “recovered” never did, and are now sliding backward to near-zero levels.  Central banks’ hands are tied, left only with thinly-disguised money printing programs to fall back on to provide stimulus to the economy, a tactic that’s already begun to make them nervous about unintended consequences.

The world’s economy is reaching a critical and dangerous point, where the inverse relationship between population density and per capita consumption begins to take hold in a big way that can trigger an irreversible downward spiral.  People consume less than they’d like for two reasons – because they lack space to make use of products, and because they are simply too poor to afford them.  When the proportion of people in the first condition reaches a critical level, the downward pressure on wages begins to make everyone poorer, accelerating the downward pressure on consumption.  Governments’ and central banks’ resources and abilities to hold this economic force at bay will soon be exhausted.

Economists had better extract their heads from that place where the sun doesn’t shine, and soon, if this economic fate that they don’t understand and are unable to see is to be avoided.  I fear that they won’t.  Growth isn’t always desirable.  Sometimes it’s cancerous.  Left unchecked, population growth will soon present the one challenge that none of them are clever enough to overcome – worsening poverty that gets so bad that it throws the world population into decline.  In essence, if economists and world leaders aren’t smart enough to manage our population to a level where all can enjoy a high quality of life, their stupidity will surely drive it to a level that no one wants.

 


Unemployment Falls Below 6%, Thanks to Vanishing Workers

October 3, 2014

http://www.bls.gov/news.release/empsit.nr0.htm

This morning’s September employment report (link provided above) claims that the economy added 248,000 jobs in September and that unemployment fell to 5.9% (from 6.1% a month earlier).  Yet, per capita employment remained unchanged in September.  Here’s the chart:  Per Capita Employment.

So how does that happen?  Once again, another 100,000 workers vanished from the labor force at the same time that the population grew by over 200,000.  Thus, the reality is that unemployment didn’t change at all.  And the unemployment “detachment from reality index” – the difference between the government’s official unemployment level and a realistic reading that grows the labor force along with the population – rose to a near record level.  (Here’s the chart:  Detachment from Reality Index.)

It’s also interesting to note that, once again, manufacturing employment was flat (where is the “manufacturing renaissance” we keep hearing about?) and hourly earnings actually fell by one cent in September.

 


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