Per Capita GDP Contracts in 1st Quarter

April 29, 2016

Recessions are determined by two consecutive quarters of contraction in the nation’s Gross Domestic Product, or “GDP.”  But what if the GDP grows, but more slowly than the growth in the population?  In that case, your share of the economy has shrunk, as it has for every American, and it’ll feel like a real recession to you.  So that’s how recessions should really be defined – in terms of per capita GDP.

By that measure, the next recession may very well already be underway.  Though GDP grew in the first quarter, though by a paltry 0.5% (as announced yesterday by the Bureau of Economic Analysis), per capita GDP actually contracted by 0.2%, thanks to the population growing at an annual rate of 0.8% in the same time period.

This is the 2nd time in four quarters that per capita GDP declined.  It happened in the same 1st quarter time period last year, falling by 0.2%.  The difference is that last year the economy was already beginning to rebound by the end of the first quarter as we emerged from an extremely harsh winter.  This year, the economy stalled in spite of relatively mild weather and, with the first month of the 2nd quarter already behind us, the economic slowdown appears to be intensifying.

This stagnating of the economy isn’t just a one or two-year phenomenon.  It’s been developing for a long time now.  During the 8-year period beginning with the 1st quarter of 2008 (just before the onset of the “Great Recession”), per capita GDP grew at an annual rate of only 0.5%.  (Check this chart:  Real Per Capita GDP.)  During the 8-year period prior to that (2000-2008), it grew at an annual rate of 1.4%.  And during the 8-year period prior to that (1992-2000), it grew at an annual rate of 3%.  Though the economy continues to grow, albeit ever more slowly, in terms of GDP, per capita GDP has essentially ground to a halt.

This is exactly what the inverse relationship between population density and per capita consumption would predict – that eventually over-crowding would erode per capita consumption to a point where per capita GDP would actually begin to contract.  That’s exactly what we see happening now.  Though we continue to lean as heavily as ever on population growth to stoke the economy, that strategy has begun to backfire. We are all becoming worse off as a result.  It’s time for economists to wake up to the fact that this blatantly-flawed economic strategy is doomed to failure – that population growth has become a drag on the economy.


TTIP is a Horrible Idea for the U.S.

April 23, 2016

http://www.reuters.com/article/us-europe-usa-trade-idUSKCN0XI0AT

The above-linked article reports on opposition in the U.S. to the Transatlantic Trade and Investment Partnership – otherwise known as “TTIP” – another of the Obama administration’s hare-brained trade schemes.  (Geez, I can’t believe I voted for this guy based on his promise to fix America’s broken trade policy.  Boy, was I suckered!)

The TTIP trade deal is a deal with the European Union, or EU.  Here’s a chart of how America’s balance of trade in manufactured goods with the EU has trended since 2001:  EU.  Our trade deficit with the EU was already bad in 2001, but improved some from 2005 through 2009.  Since the onset of the slow recovery from Great Recession, however, our trade deficit with the EU has worsened exponentially as Europe has leaned hard on exports to prop up its economy.  In 2015 this deficit totaled almost $150 billion.  Expressed in per capita terms, that’s a deficit of $247.38 for every man, woman and child in Europe.  That’s little better than our deficit with China, at $283 per capita.

Of the 24 nations represented by the EU (not including tiny Malta), the U.S. has a surplus of trade with only six small nations:  Belgium, Cyprus, Latvia, Lithuania, Luxembourg and the Netherlands.  Together, these countries represent only 5% of the EU’s land mass.  So the U.S. has a trade deficit with 95% of the EU.

It’s often said that low wages are what causes trade deficits.  Then how does one explain such an enormous deficit with the EU, a conglomeration of rather wealthy nations with very well-paid workers?  Or some say that our big deficits with China and Japan are caused by the manipulation of their currencies.  No one accuses the EU of that, and yet we have a huge trade deficit with them just the same.  Or some say that America needs to improve its competitiveness.  Then how do you explain our trade deficit with France – $232 per capita – arguably one of the least competitive nations in the western world?

The problem is that the one thing the EU has in common with others like China and Japan is a high population density.  The EU has 325 people per square mile.  China’s is 380 people per square mile.  Japan’s is 902 people per square mile.  Compare these figures to the U.S. at 87 people per square mile.  It’s this disparity in population density that drives these trade imbalances.  It’s caused by the imbalance in the markets that’s caused by overcrowding.

So the problem with this TTIP deal is that it’s rooted in a relentless pursuit of free trade theory that fails to account for the role of population density in driving these trade imbalances, instead of being rooted in the pursuit of balance.  The U.S. wrongly believes that lowering trade barriers is always good for any nation, since it doesn’t understand the role of population density.  And the EU would never agree to any deal that doesn’t also lower barriers in the U.S.  It’s inevitable that such a deal will only exacerbate America’s trade deficit.

 

 


Boston Globe Satire of Trump

April 12, 2016

A few days ago, the Boston Globe published this hypothetical, satirical front page dated April 9, 2017, which would be three months into a Trump presidency.

Boston Globe

I’ll be the first to admit that some of the kinds of things that Trump has proposed – the same things I’ve advocated for years – a drastic reduction in immigration (especially illegal immigration) and a total overhaul of trade policy that would rely on the targeted use of tariffs to restore a balance of trade – is scary stuff to a lot of people and to the media as well.

In fact, the April, 2017 edition of the Boston Globe could actually look very much like what the Boston Globe has proposed, at least in terms of the headlines.  (I didn’t bother to read the accompanying articles, not having that much time to waste.)  No doubt, deportations would begin – as they well should.  And we could very well witness a drop in the stock market – “Markets sink as trade war looms.”  Big deal.  The market sinks about every other day for one reason or another, usually followed the next day by a headline that reads “Markets jump as … ”  The headline about ISIS?  That’s a ridiculous stretch.

But this satire begs the question as to what the same front page might look like otherwise?  So I took a little time to have some fun with this.  Suppose there were to be a third term of Obama, or perhaps someone like him who would continue the same policies.  Here’s how that front page might look:

Boston Globe Alternative

(I only altered the headlines.)  The point is, is this any less scary?  Some of it may sound a little over-the-top, just as the original Boston Globe satire did, but it’s merely an extrapolation of where we’re headed if we keep pursuing Obama’s policies on immigration and trade.

Or maybe it would be more helpful to ponder what a Trump presidency (or any presidency willing to tackle illegal immigration and trade policy) would look like a year down the road, on Monday, April 9, 2018 after all the hysteria has settled down.  Maybe then the front page of the Boston Globe would look more like this:

Boston Globe Alternative 2

(Again, only the headlines have been altered.)  Wouldn’t you love to see those kinds of headlines?  That’s the kind of news we haven’t read in a long time – for decades.  It’s the kind of headlines that could only be made possible by a president with the backbone to tackle the trade and immigration issues.


February Uptick in Exports Swamped by Imports

April 6, 2016

A $1.8 billion rise in manufactured exports in February – the first rise in five months – was swamped by a $3.5 billion jump in imports, sending America’s trade deficit in manufactured goods to its third worst reading ever – $59.7 billion vs. the record of $63.7 billion set in March, 2015.

Since president Obama vowed in January, 2010 to double exports, the overall trade deficit has held fairly steady, thanks only to a slowdown in oil imports.  But the trade deficit in manufactured goods continues to worsen exponentially.  Here’s the chart:  Manf’d Goods Balance of Trade.

Manufactured exports haven’t risen in five years.  In February they were actually below the March, 2011 level.

If America were a business and Obama was the CEO, he’d have been fired long ago for such a pathetic performance.


Troubling Signs in the March Employment Report

April 4, 2016

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

This time around I’m going to focus less on the headline numbers and more on the details of the March employment report.  (Link provided above.)  Although the headline numbers appear strong – 215,000 jobs added with the unemployment rate up slightly at 5.0% – there are troubling signs in the details which hint at a looming economic slowdown.

First of all, the job gains are concentrated in retail, health care and food services.  Among the higher-paying categories of jobs that really drive the economy – manufacturing, mining (largely oil drilling), construction and business – only construction saw gains in jobs.  Manufacturing and mining employment fell yet again and business jobs were flat.  The latter is an especially troubling sign, as it was one of the sectors that had been propping up employment for some time, averaging gains of 52,000 per month during 2015.  This year, however, there have been virtually no gains in business employment at all.

Secondly, the large gain in retail jobs – 48,000 in March – is inconsistent with other data on retail sales and consumer spending, both of which have been hovering around an annual rate of gain of 1-2%, barely enough to keep pace with inflation and population growth.  In other words, there appears to be no justification for such gains in retail employment.  I’m looking for this trend to reverse soon when company executives wake up to the fact that their sales forces have grown out-of-proportion to sales volumes.  I also expect employment in the food services industry to soon reverse course as the explosion in fast-food establishments that always happens at the tail end of a recovery goes bust.

Beyond the employment report, there are other red flags waving, like heavy advertising for easy mortgages and “title loans,” where you bring in the title to your car and they’ll loan you money with the promise that you get to keep driving your car as long as you make the loan payments.  Already, auto sales were being propped up with sub-prime loans.  So now, not only are people who can’t afford them getting new cars, but they’re then using those cars as collateral for loans that they also can’t afford.  And it’s a fact that when people have their cars repossessed (the “title loan” people and the dealerships will have to fight over who actually gets the car), they also tend to lose their jobs.

This economy’s been running on fumes for quite a while, as the federal budget has been lagging the rate at which the trade deficit is sucking money out of the economy.  Something’s going to give soon.

 


U.S. Trade Deficit with China Continues on Same Trajectory

March 15, 2016

Our trade deficit with China in 2015 continued worsening on the same trajectory that it’s been on since the onset of “free” trade with China that began after Clinton granted them “most favored nation” trade status in 2000.  Our deficit in manufactured goods (other categories of goods are trivial) hit $387.6 billion in 2015.  In 2001, it was $83 billion.  It’s worsened relentlessly by about $20 billion every year since.  Take a look at the chart:  China.

Some would have you believe that such trade deficits are the result of low wages.  Sure, wages are much lower in China.  But if there’s a relationship between trade deficits and wages, then doesn’t it make sense that, if those wages rise, then the deficit should at least begin to moderate?  The fact is that, since 2001, China’s purchasing power parity, or PPP, analogous to the average wages paid there, has risen almost five-fold.  But there’s been absolutely no effect on the trajectory of our deficit.  Look at this chart:  China PPP vs deficit.

There is a relationship there, but it’s exactly the opposite of what economists would have you believe.  What you see is that the Chinese are rapidly growing wealthier as a result of their trade surplus with the U.S.  That surplus is driven by the huge disparity in population density between China and the U.S. – 380 people / square mile vs. 90 people per square mile.  Their high population density makes it impossible for the Chinese to consume at the same level as the U.S., but they are every bit as productive.  When a country comes to the trade table with a bloated, hungry labor force, but no proportional market to offer in return, the result is inevitable – a huge trade deficit for the less densely populated nation – the U.S.

Others would have you believe that our trade deficit with China would go away if only the Chinese stopped manipulating their currency, keeping it weak in order to make imports from the U.S. expensive for its consumers while making its exports cheaper for American consumers.  That seems to make sense, but the data doesn’t support it.  Look at this chart:  China Xch rate vs deficit.  The fact is that, instead of getting weaker, the Chinese yuan has actually gotten stronger vs. the dollar by 36% since 2001, rising from 8.28 yuan per dollar to 6.09.  And instead of reversing or even moderating our trade deficit with China, it’s worsened by 367%.

How can that be?  It’s because trade imbalances have absolutely nothing to do with currency valuations any more than they are caused by low wages.  They may affect profit margins somewhat for the exporting country, but no one is going to stop exporting just because currencies change in value a little bit.  The fact is that, like wages, the currency valuation is a product of the trade deficit, not the cause.  China’s currency is getting stronger because their economy is getting stronger – thanks to their trade surplus with the U.S.

There’s only one effective remedy that can restore a balance of trade with a nation that is badly overpopulated – tariffs.  What started the trade deficit with China in the first place?  Lowering tariffs in 2000 – their prize for attaining “most favored nation” status.  Isn’t it only logical to conclude that that was where we went wrong and to correct the mistake?


A Slug in The Face

March 14, 2016

Like the member of a choir that practices the same hymns over and over, I suppose that I sometimes get a little bored with taking the analytical approach to making a case for sensible trade and immigration policy.  It’s refreshing to step outside of that every once in a while.  The events of the past few days have prompted me to do exactly that.

As a kid, I guess I’d characterize myself as a fun-loving, happy kid who just wanted to be everybody’s friend.  A little meek and timid too, I suppose.  Most kids were nice kids, but there were some that weren’t, and I just couldn’t understand that.

I remember vividly the day that changed, at least to some extent.  I attended a Catholic elementary school and, on this particular day, we studied Christ’s teaching about turning the other cheek.  “If a man strikes you on the cheek, offer him the other.”  (Maybe not a direct quote, but close enough.)  “OK,” I thought, “that’s what I’ll always do.”  That very afternoon, as I walked home from school, a kid that I didn’t like – the kind of kid that I would eventually learn was known as a bully – jumped me for absolutely no reason and began to beat the hell out of me.  Remembering the day’s lesson, I didn’t fight back.  And I got it on both cheeks.

Upon my arrival home, it was obvious from the black eye and scrapes on my face that something had happened.  I explained and my Mom was upset.  Then Dad came home.  Instead of being proud of me for abiding by the day’s teaching, he was angry – perhaps even ashamed of me – and lectured me about standing up for myself.  I was confused, but concluded that he was probably right.  People have to stand up for themselves in such situations.

There was another boy in our school, one who probably wasn’t the “sharpest tool in the shed” and so, at the age of 16, found himself still stuck in elementary school after flunking several grades.  Perhaps because of that or for whatever reason, he was a hot-head and everyone feared him.  (I’ll have to admit, though, that he was quite an asset on the football team.)  But one day on the playground, I somehow crossed him, and he began shoving me, finally cornering me against the wall of the school.

At this point, I figured, there was nothing to lose.  I was going to get a beating one way or the other.  And here was an opportunity to make my Dad proud of me again.  Though I was three years younger, I was still a pretty good-sized kid.  I hauled off and slugged him square in the face as hard as I could!  I can still remember the shocked look on his face as the blow rocked him backward.  And the fight was on, but somehow broken up quickly by the nuns.

As I sat in detention later that day, I found myself being cheered by the other kids who were also there for one infraction or another.  They couldn’t believe that I had done what so many of them wanted to do.  I was a hero to them.  Lesson learned.  The only thing a bully understands is a slug in the face.  They’ll only respect people who stand up for themselves.  It was a valuable lesson, though the whole “turn the other cheek” thing would forever lurk in the back of my mind, moderating any urge to lash out unless absolutely necessary.

There were only two other such instances.  A kid who made it his mission to begin taunting me every single day as I delivered newspapers on my route.  After taking all I could stand, he paid the price.  So did another kid from my boy scout troop who, during a game of soccer on the playground where we had gathered before a camp-out, taunted me in the same way.

Decades later, my own son found himself in the same situation.  Certain kids were bullying him and making him miserable.  “Here’s what I want you to do,” I told him.  “The next time he does that, slug him right square on the nose as hard as you can.”  My wife was horrified.  “He can’t do that!  He’ll get in big trouble and so will we!”  I assured her that, though he might get in a little bit of trouble, it would be nothing permanent and would be well worth the lesson he’d learn from the experience.

As it turned out, it was some other bully who chose to pick on him soon after that, and my son had taken his lecture to heart.  He did get in a little trouble, but no one ever bullied him again at that school and he learned a valuable lesson about standing up for himself.

Those were school-yard bullies, the kids with the brawn to act out on their sociopathic tendencies.  In adult life, all of us found ourselves confronted by an entirely different kind of bully.  These were the kids with similar sociopathic tendencies who lacked the brawn, but learned other methods of bullying – lying and manipulation – and weaseled their ways into positions of power where they could enhance themselves by bullying the rest of us.

Who am I talking about?  The ones who, with a twinkle in their eye, would stand there and tell you that free trade was good for you, that a rising tide in Mexico or China or Japan would somehow eventually lift your boat too, even though you may be losing your job right now.  “Change is a good thing and you need to embrace it,” they would say, trying to make you feel like a stubborn goat who wasn’t bright enough to understand what was good for him.  (Any time someone tells you that you need to embrace change, you can be sure that it’s a change that works for him and not for you.)  They would even bring in the foreign workers from the country where your job would be going and make you train them.

These same bullies want to explode the population with immigrants, not because it’s for your benefit, and not even out of compassion for the immigrants, but because it swells the ranks of consumers and grows their bottom line while at same time keeping downward pressure on wages by keeping the labor force in a constant state of over-supply.  “This wave of immigrant workers we’re bringing in is a good thing,” they say, with that same twinkle in their eye.  “Immigrants are great entrepreneurs and create lots of new jobs.”  The implication is that you’re too stupid to do the same.  And, of course, your job is now gone.

Then there’s the globalist bullies and the leaders of countries who thrive on running huge trade deficits with the U.S.   “Free trade benefits all,” they say, pooh-poohing any notion that a trade deficit is somehow a bad thing for you.  But suggest that maybe it’s their turn to run a trade deficit for a while and watch their reaction.  Here come the threats.

For decades now, American workers have been faced with corporate bullies, led by functioning sociopaths who lay off thousands of workers and sleep like babies at night, snoozing in gilded beds with satin sheets and dreaming of even greater profits, free of a guilty conscience because they have none, rationalized away by any twisted logic that works in their favor.

We’ve been powerless.  As much as we’d have liked to line up all of these bullies and literally slug them in their faces for ruining lives, our better natures and maturity and laws that impose serious penalties instead of an hour in detention prevented it.  Not to mention that it would be completely ineffective.  They would laugh in your face as the police slapped you in cuffs, and now wouldn’t even feel compelled to provide any severance.  Month after month, year after year, Americans have been bullied by globalists and corporate elites – the top 1% who get richer and richer by squeezing all the rest of us. We feel powerless.  We’re cornered against that wall.

Along comes Donald Trump.  He seems to be an enigma, someone who emanates from the ranks of these bullies and seems to be one himself, but a strange sort of bully, one who seems to have taken offence to the bullying of his fellow Americans and now relishes the opportunity to give those other bullies a taste of their own medicine.

I think this might explain his ascent to front-runner status in the Republican race.  Some blame it on the ever-worsening turn toward the right that the Republican Party has been courting for years now.  But I think that’s off the mark.  Trump’s rise has been fueled not only by Republicans who are increasingly realizing that they’ve merely been played by the mantra of “conservative principles” espoused by the bought-and-paid for representatives of the bullies I spoke of above, but also by independents and even Democrats who see his campaign as a metaphorical “slug in the face” for the globalists and corporate elites who have bullied them into submission and economic decline for decades.

So here’s some advice for Mr. Trump.  Americans are eager to see their oppressors get the “slug in the face” that they’ve deserved for so long.  Though we’ve had all we can take from these bullies and long for someone with the backbone to stand up to them and undo what they’ve done to us, it will all be lost if the slugs in the face go beyond the metaphorical and become something that our better natures can’t be proud of.  You can be tough as nails and take them on without crossing the line into advocating actual, physical violence.  Be presidential, get elected, and then let’s put these bullies in their place.

 

 

 

 

 


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