Study Reveals Link Between Global Trade Imbalances and Population Density

 

As judged by the balance of trade expressed in per capita terms, thus adjusting for the sheer size of each nation, the effectiveness of the United States’ trade policies ranks near the very bottom of the nations of the world.  (See U.S. Trade Policy Ranks Among World’s Worst.)  Since the near-total collapse of the global economy last year, most economists who once shrugged off the effects of global trade imbalances now admit that these imbalances were the root cause of the collapse and can’t be sustained. 

The biggest trade imbalance has been between the U.S. and the rest of the world.  In spite of the best efforts of American manufacturers to get leaner and become more competitive, the trade deficit has been worsening for decades.  It begs the question whether there are factors at work that make these trade imbalances inevitable in a free trade environment. 

In Five Short Blasts,  I used U.S. trade data to argue that disparities in population density are a major (if not dominant) factor behind the U.S. trade deficit in manufactured goods.  But if population density is a factor, then the same impact on trade should be evident in the trade data for all nations of the world.  Densely populated nations should tend to have trade surpluses in manufactured goods while more sparsely populated nations should tend to have trade deficits.   To test my theory on such a global scale, I’ve completed a study of trade data for all nations of the world, using trade data provided by the CIA in its World Fact Book.   I began by breaking down the trade balance into exports and imports.  The following spreadsheets rank the exports and imports of all nations* in per capita terms:

Exports Per Capita, All Nations    Imports Per Capita, All Nations

You can see that the U.S. ranks 46th out of 154 nations in terms of exports per capita, and 118th in terms of imports.  But I soon realized that the top of the exports chart and the bottom of the imports chart were dominated by wealthy, developed nations.  That’s why I included the per capita Purchasing Power Parity (PPP, roughly equivalent to per capita GDP) for each nation in the charts.  To determine whether wealth was a factor, as logic would seem to suggest, I plotted x-y scatter charts for each:

Exports vs PPP Chart    Imports vs PPP Chart

As you can see, the wealth of a nation has a powerful influence on the volume of its exports and imports.  It makes sense.  A wealthy oil-producing nation, for example, may export oil in exchange for imports of manufactured goods.  A poor nation, on the other hand, has little to sell and, thus, has little money to buy.  That’s why this effect wasn’t evident when we looked only at the overall trade balance.  A poor nation is just as likely to have a balance of trade because it has nothing to sell or buy as a wealthy nation that exports and imports a great deal while maintaining an overall balance.

Therefore, it becomes necessary to confine our analysis of trade to developed, wealthy nations in order to avoid having other influencing factors muted by the wealth effect.  So I chose to confine my analysis to those nations with purchasing power parity (PPP) per capita (roughly a measure of GDP per capita) of $25,000 or greater.  (For reference, the U.S. had PPP in 2008 of $47,500.)

The following spreadsheet ranks the balance of trade of the 31 nations with a per capita PPP greater than $25,000. 

Trade Balance Per Capita, PPP GT 25K

I included a column with each nation’s balance of trade in oil and natural gas because I noticed what seemed to be a strong correlation.  High-lighting the net oil-exporting nations in yellow, it becomes easy to see the effect.  Like the effect of wealth, the effect of oil isn’t surprising either.  Naturally, those nations that export huge volumes of oil and gas are going to have favorable trade balances.  (As an aside, I found it interesting that, among developed nations with a deficit in oil and gas, America’s deficit, when expressed in per capita terms, is rather mundane – about the same as other nations.)

Since natural resources tend to be distributed unevenly around the world, trade in resources is vital and beneficial to all.  What’s really important is how nations use trade in manufactured products to offset deficiencies in natural resources and to maintain an overall balance of trade.  Unfortunately, no data for manufactured goods is available.  (If it is, I haven’t found it.)  However, I know from my experience in analyzing U.S. trade data that oil and gas tend to dominate trade in natural resources.  Subtracting them from the overall trade balance usually yields a pretty good approximation of trade in manufactured products.  So, using the CIA’s data and subtracting oil and gas from the overall trade balance, the following is a ranking of developed nations’ balance of trade in manufactured goods:

Manf’d Good Trade Balance, PPP GT 25K

Because my goal in analyzing this global trade data for manufactured goods was to determine whether or not there is any evidence of population density having an effect, it was here that I included the population density data.  And a relationship seems to jump out at you when you compare the population density of the nations at the top of the list (those with the most favorable balance of trade in manufactured products) to those at the bottom of the list.  (Here I should note that the overall population density for this group of 31 nations combined is 30.4 people per square kilometer.  The United States is almost right on this figure, at 31.3.  But the only proper way to determine whether a relationship exists is to plot the data on an x-y scatter chart and then have the computer generate a trend line.  A flat line indicates no relationship while a sloping line indicates the presence of a relationship.  Here’s the chart:

Manf’d Goods vs Pop Density

There is a fairly strong relationship evident.  But the slope of the line is somewhat muted by the presence of what is known in statistics as an “outlier” – a data point that is so far out of the range of the other data points that it’s statistically insignificant.  In this case it’s Qatar, the world’s champ in oil exports, at least in per capita terms.  Qatar exports so much oil that it has no need whatsoever of producing anything else.  They simply kick back and enjoy the good life with a PPP that far exceeds that of any other nation, net oil exporters included.  So, if we delete that data point, the chart changes as follows:

Manf’d Goods vs Pop Density2

Now the trend line conforms more to the data.  And if we were to eliminate Ireland, the data point at the other extreme end of the scale, but not quite an outlier, it’s easy to see that the trend line would conform to the data even more closely. 

It’s also important to note that by confining this analysis to developed nations – those with per capita PPP exceeding $25,000 – I excluded the most dominant player in world trade today:  China.  If China’s data point were included, it would fall right on the trend line, with a population density of 140 people/sq km and a balance of trade in manufactured goods of $351. 

It’s impossible to overstate the significance of this relationship.  Because economists adamantly refuse to give any consideration to the role of population growth in economics, they have completely overlooked the relationship between population density and per capita consumption, and its ramifications for trade.  (To learn more about the relationship between population density and per capita consumption, see “the theory explained” category on this blog.)

Finally, it’s worth noting here that population density also plays a role in driving trade imbalances in oil.  Very densely populated nations tend to be net oil importers, forcing them to export even more manufactured goods in order to maintain a balance of trade, combining with the effect of population density on their low per capita consumption.  High oil consumption and low domestic consumption of manufactured products team up to make such nations heavily dependent on exports of manufactured products. 

Summary and conclusions:

1. The balance of trade of the U.S., a nation with a low population density relative to most other nations, ranks near the bottom of all nations.
2. Global trade is dominated by oil and gas.  Oil exporting nations use their profits to purchase other natural resources and manufactured goods.  Oil importing nations export manufactured goods to fund their purchases of oil and gas.
3. How successful a nation will be in using manufactured goods to maintain a balance of trade is heavily influenced by its population density.  The effect is real and significant. 
4. The practice of free trade between two nations grossly disparate in population density is very likely to result in a trade deficit in manufactured goods for the less densely populated nation. 
5. Failure to account for the population density effect in global trade policies will likely result in sustained trade imbalances. 

—————————————–

* Small island nations, whose economies are dominated by tourism, are excluded.  Tiny city-states are included in their surrounding or neighboring countries.  (Example:  Hong Kong is included in the data for China.)

Retraction – No Change in Population Growth Rate

I should have known it was too good to be true.  Upon checking my data against the U.S. Census Bureau monthly estimates, I found some inconsistency in the point in time at which I was “grabbing” the current population data.  The fact is that there has been no change in the quarterly growth rate of the U.S. population since Obama took office.  The growth rate continues to follow the quarterly pattern to a tee.  The following is a corrected chart of the quarterly growth rate of the U.S. population:

Quarterly U.S. Population Growth Rate

The quarterly rate deviated from the quarterly pattern only in 2002, following the 9/11 attack. 

Sorry for the error.  I’ll try to be more careful and less enthusiastic when I see what seems to be an encouraging sign.

3rd Quarter GDP Up, Erosion in Underlying Economy Continues

Thursday the government reported that GDP rose at an annual rate of 3.5% in the third quarter, rising from an annual rate of $12.901.5 trillion in the 2nd quarter to $13.014 trillion in the 3rd quarter.  (Expressed in 2005 dollars.)  The government would have us believe that this is great cause for cheer – evidence of a rebounding economy and the end of recession.

But how much of this is real growth versus the illusion of growth created by government stimulus spending?  In March the government passed the American Recovery and Reinvestment Act, authorizing the spending of $787 billion to boost the economy.  Proof that it’s actually stimulating the economy would be an increase in GDP if the stimulus spending is removed.

The fact is that the underlying economy continues to deteriorate.  As I reported in Stimulus Spending Masks Huge Decline in 2nd Qtr. GDP, the underlying economy contracted at an annual rate of 8.2% in the 2nd quarter.  In the 3rd quarter, stimulus spending increased to $113 billion, for an annual rate of $452 billion.  If this spending is removed from 3rd quarter GDP, we find that the underlying economy has continued deteriorating, albeit at a slower pace, at an annual rate of 3.5%.  Without the stimulus spending, 3rd quarter GDP would be 7.5% below the peak GDP reached in the 2nd quarter of 2008.  (It should be noted that that figure was also “stimulus-aided,” the result of the Bush administration $150 billion tax rebates.)

Making matters worse, real per capita GDP (sans stimulus spending) fell to its lowest level since 3rd quarter 2003, with the addition of another 300,000 people to the U.S. population contributing to the decline.

This is why some political leaders, economists and financial pundits are raising alarm over the possibility of  backsliding into recession once the government stimulus is removed – because the underlying economy continues to deteriorate, and not at a slow pace.  It’s likely that the government will enact new stimulus measures to sustain the illusion of economic growth, but at the risk of record deficits alarming the financial community in a way that will send interest rates soaring, countering any stimulus measure.  It would be amusing to watch such idiotic economic policy play out were it not for the devastating effects on the vast majority of Americans.

Population Growth Injected into Carbon Cut Debate

 

http://www.reuters.com/article/GCA-GreenBusiness/idUSTRE59B2OX20091012?sp=true

As reported in the above-linked Reuters article, at least one low-level government official recognizes that projected U.S. population growth will make America’s goals for reducing carbon emissions much more difficult.  Brian O’Neill, a scientist at the U.S. National Center for Atmospheric Research, who also works at the International Institute for Applied Systems Analysis in Austria, has correctly observed that projected population growth makes carbon emissions reductions more difficult for the U.S. compared to some other developed countries where their populations are stable or declining. 

The leaders of the G8 nations have agreed to cut carbon emissions by 2050 by 80% from their 1990 levels.  Some of these developed nations are expected to decline in population by 2050, but not the U.S., whose population is projected to be 60% higher in 2050 (at 400 million people), vs. its 1990 population of 250 million.  So an 80% reduction in those emissions by 2050 would translate into a per capita reduction of 87.5% for the U.S.  For nations whose populations are projected to decline, their per capita reductions would be less than 80%.  This will translate into a lower standard of living for Americans than for other developed countries. 

Why is O’Neill talking to Reuters correspondents about this?  Is he a rogue low-level official speaking for himself?  Or is he parroting thinking that he’s heard at higher levels in his organization?  Or is it possible that this is an intentional move by the Obama administration to inject the subject of population growth into the carbon emissions debate? 

If the latter is the case, then to what end is the administration broaching this subject?  Two possibilities come to mind.  Since virtually all of our population growth is due to immigration, could it be that the administration is setting the stage for a dramatic change to immigration policy?  The second possibility seems more likely to me – that the administration is trying to shift the focus of carbon emissions reductions to a per capita basis instead of total emissions.  If so, they may think that the U.S. can get some relief on its own emissions goals vis-a-vis other G8 nations, but there’s a danger that such an approach could back-fire.  If total carbon emissions reductions are translated into a per capita basis, then it would be logical to apply the per capita figure evenly to all people of the world.  In such a scenario, U.S. emissions would have to be cut much further, since vast numbers of people already exist at far lower levels of per capita emissions, and population growth projections for many third world countries is even worse than the projections for the U.S.  In other words, if everyone gets to emit their fair share, then U.S. emissions will have to be cut much more drastically than 80%, a level that many already believe is simply unattainable. 

My interest in all of this is, of course, not so much reductions in carbon emissions, but the pressure that this subject brings to bear on the need to reduce our population.  Since economists don’t understand that reductions in our population would actually have huge economic benefits, we’ll all be better off in the end whether the impetus for population reductions is economic or some environmental concern.  The good news here is that, as much as environmentalists would like to keep the population factor below the radar, it’s beginning to be openly discussed.

Finally, the article ends with a quote so egregious that I can’t let it pass without comment:

David Satterthwaite, of the International Institute for Environment and Development (IIED), said … “It’s consumption that drives dangerous climate change, not population.” … “There is at most a weak link between population growth and rising emissions of greenhouse gases.”

Anyone who would make such a statement is being disingenuous, to put it mildly.  The rise in greenhouse gas emissions is directly related to the growth in population over the past couple of centuries.  Even a fifth-grader can understand that total emissions is a function of population times the average per capita emissions.  Only a fool would focus solely on per capita emissions while discounting the role of population growth.  Stabilizing and reducing our population is critical to achieving our goals for greenhouse gas emissions reductions.  If reduced enough, it could also have the side effect of providing a huge boost to the standard of living for everyone.

Roy Beck Video About U.S. Immigration Policy

 

http://www.youtube.com/watch?v=n7WJeqxuOfQ

The above link will take you to an outstanding presentation by Roy Beck, founder of NumbersUSA, about U.S. immigration policy.

U.S. Life Expectancy Stalls at 77.9 Years

 

http://www.reuters.com/article/newsOne/idUSTRE57I6BF20090820

http://www.cdc.gov/nchs/data/nvsr/nvsr57/nvsr57_14.pdf

The first of the above links will take you to a Reuters article reporting on Wednesday’s announcement by the CDC (Center for Disease Control) that U.S. life expectancy hit a new high of 78 years in 2007.  The second link will take you to the most recent CDC report, to which the 2007 data has not yet been added. 

Seventy-eight was the headline figure.  But reading more closely, you’ll find that we haven’t reached 78.0 at all.  The actual figure is 77.9.  “Wait a minute,” I thought to myself.  “I thought we were already at 77.9.”  So I did some digging.  Sure enough, the old record, reported on page 173 in my book, was 77.9 years, reached in 2006.  So what gives?  How can the CDC claim that our life expectancy has climbed to a new record when, in fact, it has actually stalled at 77.9?

Easy.  Just do the same thing the Department of Labor does to hold down the unemployment figures – revise your methodology to make the numbers look better.  In this case, if you look at Table 8 on page 27 of the CDC report (the table of life expectancy), you’ll see a couple of footnotes indicating that the data for 2006 was revised.  The 2006 figure used to be 77.9 years.  Now it’s 77.7 years, making the new 2007 data point appear to be an improvement and a new record, when it’s nothing of the sort. 

Also, go to the next page – Table 9 on page 28.  There you’ll see that the death rate for age groups 15-24 and 25-34 have risen to their highest levels in many years.  And the death rate for age group 45-54 remains above its 1999 levels.  The population in these age groups dwarfs the population of the older age groups, where the death rate is declining nicely, but remains extremely high as would be expected for such elderly people. 

My economic theory is that rising overpopulation leads to rising rates of unemployment and, consequently, poverty – real poverty for those at the bottom of the economic ladder and an insidious poverty for most of the rest of us as declining real incomes gradually take their toll.  And poverty is the world’s number one cause of deaths.  This report may or may not be an indication of the beginning of that process.  It’s interesting that death rates are rising in the age groups that represent the newest entrants to the labor force – where incomes are lowest and benefits like health care are less available.  Meanwhile, death rates continue to decline for older Americans, those with Medicare and those with more secure access to health care benefits provided in pension plans.  But those benefits are dying as fast as that segment of the population. 

Has the U.S. life expectancy reached its zenith?  Will unemployment and poverty slowly drive death rates higher?  The jury is still out, but it’s an ominous sign when the CDC starts fudging data to paint a rosy picture.

Progress is a Menace!

 

http://thepalaceoflight.com/index.html

Many thanks to my wife for providing me the above link.  This is the full-length version of the Shredded Wheat commercial that’s been airing on TV.  She saw this version the first time the commercial aired, and it seems that it was promptly cut down to a much shorter version.  So she found the web site that not only has this commercial, but a whole series of absolutely hilarious videos that build on the same “progress is a menace!” theme.  You’ve got to watch them!

But this particular commercial stands out for the way in which population growth is included in the list of topics Frank Druffel derides.  Never mind the fact that Post Cereals sanitized the commercial into a shorter version, removing all the controversial stuff.  It’s truly astounding that any company would ever produce such a commercial in the first place and then promote it on the internet.  It’s just one more tiny indication that the world is waking up to the issue of overpopulation and all of the other issues associated with it.  Kudos to Post!

Obama Administration Punts on Amnesty and Immigration Reform

The latest issue of the Immigration Report newsletter, distributed every two months to its members by the Federation for American Immigration Reform (FAIR), arrived in the mail the other day.  The headline article reported on the White House summit on immigration reform, held on June 25th.  I found the article especially interesting in light of my recent post on the dramatic drop in the rate of U.S. population growth, in which I speculated that while the administration is publicly supporting immigration reform and amnesty, it is (for whatever reason) quietly putting the brakes on immigration.  Here are some excerpts from the article:

President Committed to Amnesty but Chief of Staff says “The Votes Aren’t There”

The much anticipated and oft-delayed White House summit on immigration reform finally took place on June 25.  President Obama hosted about 20 members of Congress for a closed door meeting about how to deal with an “immigration system that is broken and needs fixing.” 

… White House chief of staff, Rahm Emanuel, made a point of dampening expectations that amnesty legislation is imminent.  “The votes aren’t there,” Emanual admitted in an interview with the Christian Science Monitor.  President Obama reiterated that point in a post-summit statement, saying, “there is not by any means consensus across the table.”

… A further indication of how unpopular the idea of an illegal alien amnesty is with the American people was House Speaker Nancy Pelosi’s (D-Calif.) revealing post-summit statement.  While reaffirming her “absolute commitment” to an illegal alien amnesty, Speaker Pelosi made it clear that it would be up to the Senate to pass a bill before the House would act. 

Whether or not you agree with the approaches taken, you have to admit that Obama has been dauntless in tackling issues important to him – things like global warming, salvaging the domestic auto industry and, more recently, health care reform – regardless of a lack of public support.  So it seems quite uncharacteristic for the administration to simply throw up its hands on the issue of immigration reform with the excuse that “the votes aren’t there.”  Perhaps their hearts were never really in it. 

It seems that opponents of amnesty and immigration “reform,” led by groups like FAIR and NumbersUSA, have clearly gained the upper hand in the immigration debate and that it’s unlikely any amnesty legislation will even make it to the floor of Congress any time soon.  But, as FAIR emphasized in their newsletter, this is no time to lower our guard.  We need to hold the government’s feet to the fire on securing the border and on halting the importation of foreign labor.

2nd Quarter Real Per Capita GDP Falls 1.7%

The Commerce Department announced on Friday that real (adjusted for inflation) U.S. GDP (gross domestic product) fell at an annual rate of 1.0%.  However, since the U.S. population is growing, a more meaningful way to look at GDP is in per capita terms.  After all, what matters to individual Americans is not the size of the whole pie, but the size of their slice. 

Measured in those terms, real per capita GDP fell at an annual rate of 1.7%.  This is the fourth consecutive quarter of declines in GDP, the longest since the Great Depression of the ’30s.  Worse yet, the string of quarterly declines would now be six consecutive quarters if the recession had not been interrupted by a tiny rise in GDP in the 2nd quarter of ‘08, thanks to the first economic stimulus plan implemented at that time by President Bush. 

In the 2nd quarter, the U.S. population grew by approximately 520,000 people.  (As an aside, it should be noted that this has contributed another quarter million workers to the labor force at a time when the economy is losing jobs at a frightening pace, thus adding to the downward pressure on wages and benefits.)  Thus, when expressed in per capita terms, the 1.0% decline in GDP reported by the Commerce Department swells to 1.7%.  In other words, contrary to economists’ belief that population growth is a critical component of economic growth, population growth has actually contributed to the decline in the financial picture of individual Americans.

Expressed in constant 2005 dollars (which is to say, adjusted for inflation), real per capita GDP fell from $42,167 in the first quarter to $41,988 in the 2nd quarter.  This is 5% below the record of $44,166 set in the 4th quarter of 2007 and is the lowest figure since the 4th quarter of 2004. 

But, who knows if the Commerce Department is even being honest about GDP?  Could the decline in 2nd quarter GDP actually have been worse?  Consider the 1st quarter.  The 1st quarter decline in GDP was originally reported on April 30th as 6.1%.  Each month after the original release, GDP is further refined.  By the end of June, that 1st quarter figure had been revised downward to a decline of 5.5%, and the government eagerly hyped the number as evidence that our economic decline wasn’t as bad as first thought.

Well, guess what?  Buried in the report of 2nd quarter GDP is a final revision of 1st quarter GDP.  By this time, no one cares about the 1st quarter any more and so virtually no one reports it.  But the final 1st quarter GDP figure was revised upward (from the most recent estimate) almost a full percentage point, to 6.4% – higher than the initial report on April 30th of 6.1%.  Is the government playing games with economic data to provide a psychological boost to the economy?  Is it possible that the 2nd quarter was actually worse than reported and, to avoid negative publicity about the state of the economy, they decided to load some of the decline back onto the 1st quarter?  You be the judge. 

Pundits applaud this smaller 2nd quarter decline in GDP as evidence of improvement in the economy.  Some even call it “less negative growth.”  Baloney.  It’s not “improvement” or “less negative growth.”  A decline is still a decline.  And how much worse would it have been without the economic stimulus plan that was enacted in February?  Has that spending really been “stimulative,” or is it holding back an even worse decline?  More on that subject in a subsequent post.  (Stay tuned.  You’ll be shocked at the numbers!)  But there’s also a bit of good news on population, which I’ll cover in yet another subsequent post.

The important take-away here is that population growth is contributing significantly to Americans’ economic decline.

Pets in Japan

Thanks to my wife for taping Sunday’s episode of “CBS Sunday Morning,” which was devoted to the subject of animals.  I watched it last night.  One of the segments covered what seems to be a new phenomenon in Japan – pets.  As it turns out, it’s a perfect example of my theory at work – an example I hadn’t thought of but could have predicted if I did – so I thought I’d share it with you. 

It’s hard to believe that something as simple having pets – so ubiquitous in American society – has only more recently caught on in Japan.  Now everyone there wants one.  But there’s just one problem.  A large percentage of the population lives in tiny apartments where pets aren’t allowed.  So the CBS story highlighted a sort of “rent-a-pet” boutique where, for $25 per hour, people could rent a dog to walk around on a leash.  There was a long line outside the shop – people waiting patiently for the opportunity to experience this simple pleasure.

So here’s yet another example of how a high population density erodes per capita consumption.  Think about what this does to the per capita consumption of all products associated with pet ownership – veterinary services, pet food and all the paraphernalia that goes along with owning Fido or Kitty:  leashes, chew toys, beds, scratching posts, etc.  The cost of owning a medium-sized dog in America is over $1,000 per year.  So, for every 25-50 dogs in America, another job is created.  Since the median family income is about $48,000, if the average family had one medium-sized dog, it would contribute 2% to our GDP and likely account for three million jobs .  Cut that figure in half, as would easily happen in a population density like Japan, and that’s a 1% cut in GDP.  That’s not huge but, hey, all we’re talking about here is pets.  Extend that to every other product and you start to understand how a rising population density begins to erode employment. 

Some will say that this has nothing to do with a high population density – that the Japanese people are either predisposed to living in tiny accommodations or they are more enlightened than Americans, choosing a more efficient existence.  Nonsense.  The average Japanese family would upgrade their digs to a 1,500 square foot home (modest, but about the median for Americans) in a heartbeat if they could.  But it’ll never happen for them, not in their wildest dreams.  Japan is just way too crowded.  They’ll never be able to enjoy a modest home, a garden, a lawn, a lawnmower, a car in the garage or even a garage.  Nor would Americans or any other people who allowed their population density to grow to that level. 

Imagine living in these conditions.  Imagine waiting in line to rent a dog for an hour.  Imagine living in a home where leaving space for two people to pass each other is a critical factor in determining how to position your sparse furniture.  Imagine commuting to work every day in a train so packed with people that you can barely move because owning a car is too impractical.  Imagine that simple pleasures like playing golf or tennis or going to the beach must be planned far in advance because of the crushing demand for those facilities.  Finally, imagine what all of this does to per capita employment when more and more people are forced to share the same amount of space, fewer facilities and fewer products. 

If you can imagine these things, especially that last one, then you’re on your way to an understanding of global economics that eludes the most respected of economists.