April 20, 2017
I’ve been predisposed for a week or so and it’s now time to get caught up on some things. There’s been a lot in the news lately regarding Trump administration policies on immigration and trade. I’m extremely pleased with what’s happening on immigration, less so with what I hear about Trump waffling on the idea of a “border tax” (another name for tariffs).
But I’ll start with the above-linked story that came out last week because this is a perfect example of the divergence of interests that takes place when a nation becomes “economically over-populated” or takes on the characteristics of such an economy through free trade with a badly overpopulated nation. For the benefit of those unfamiliar with this concept, this divergence of interests is one of the consequences of the inverse relationship between population density and per capita consumption. As a society becomes more densely populated, the need to crowd together and economize space begins to erode per capita consumption. As per capita consumption declines, so too does per capita employment. The result is rising unemployment and poverty. It’s in individuals’ best interest – in the best interest of the common good – that this situation be avoided. (To better understand this concept, I encourage you to read Five ShortBlasts.)
However, while per capita consumption may begin to decline as a population density reaches a certain level, total consumption continues to rise with a growing population. Who benefits from that? Anyone in the business of selling products. Not only do they benefit from the increase in sales volume, but they benefit further as the labor force grows faster than demand, putting downward pressure on wages. Thus, it’s in corporations’ best interest to see population growth continue forever, and to pursue more markets through free trade.
So it’s in the best interest of the common good that we avoid meshing our economy through free trade with nations whose markets are emaciated by overcrowding and who come to the trading table with nothing but bloated labor forces hungry for work. But it’s in corporations’ best interests to grow the overall customer base through free trade with those same nations. So it comes as no surprise that a big-business coalition is eager to steer lawmakers away from any tax plan that would include a “border tax” (a tariff) that might shut them out of their foreign markets.
They call themselves “Americans for Affordable Products,” making it sound as though it is individual Americans who make up this coalition and not global corporations. They want us to believe that products will become less affordable. While prices for imports may rise, they want you to forget that those increases would be more than offset by rising incomes and falling tax rates. They don’t care if the border tax benefits you. All they care about is that it may not necessarily benefit them.
So which of these competing interests will lawmakers heed – their wealthy corporate benefactors or the angry Americans who swept the Trump administration into power on his promise to enact a border tax and bring our manufacturing jobs back home? Money talks and I fear that groups like this coalition are having an effect. Trump and Republicans would be wise to ignore them. Democrats paid the price for ignoring the plight of middle-class Americans when Obama betrayed his promise of “hope and change.” Those same middle-class Americans will pull the trigger on Trump too if he doesn’t come through.
April 8, 2017
The Bureau of Labor Statistics yesterday released its employment report for the month of March. The headline jobs number was weak. “Only” 98,000 jobs were added in March – about half of what was expected. But unemployment dropped by two tenths (a fairly big drop) to 4.5%. The data underlying the unemployment figure was quite strong. The “employment level” (the number of people reporting being employed in the household survey portion of the report) rose by 472,000 in March. (It rose by 447,000 in February.) And the labor force grew by 145,000 – outpacing the growth in the general population for the fourth month in a row.
Last month, Trump hailed the strong February employment report as “real,” as opposed to the “fake” reports produced by the Obama administration. (The Obama administration did lean heavily on claims of a shrinking labor force to prop up its unemployment figures.) Was that claim just bluster or has the reporting methodology actually changed for the better? It’s two early to tell but, at least for the second month in a row, the BLS claims that the labor force grew (as it actually does, of course) and the numbers seem plausible. Time will tell.
Per capita employment (the employment level divided by the population) climbed above 47% for the first time since November, 2008. (Here’s the chart: Per Capita Employment.) The “detachment from reality index” – my measure of how much the unemployment figures were distorted by the “mysteriously vanishing labor force” tactic used by the Obama administration – fell to its lowest level since January, 2013. (Here’s the chart: Detachment from Reality Index.)
This is great news, but it has more to do with a burst of confidence among consumers (likely driven by a burst of confidence among investors which has driven the stock market higher) in the wake of Trump’s election. The fundamentals of the economy haven’t changed. The trade deficit is as bad as ever. And interest rates are on the rise which will pull the economy down if Trump isn’t able to make headway with tax and trade reforms. And the jump in stocks that have propelled the economy has already stalled, now waiting to see if expectations of Trump policies actually materialize.
I hope that what appears to be honesty with the factors that make up the employment report (based on a scant two months’ of data) continues. But without the “border tax” that Trump promised, the good numbers won’t.
By the way, for some time now, the Federal Reserve and others have been proclaiming the economy to be at full employment. If that were true, then how does the economy continue to add jobs at a faster rate than the growth in the labor force, and how does the unemployment rate continue to fall? It’s because they were all sucked in by the “detached from reality” employment reports produced by the Obama administration. The fact is that an honest reading of unemployment (one that grew the labor force in proportion to population growth) has unemployment at 7.3% – nowhere even remotely close to “full employment.”
April 4, 2017
OK, I know it’s not reasonable to expect anything different. After all, Trump hasn’t yet had a chance to implement new trade policies that would have any meaningful impact on our trade results. What he has done is meet with some leaders of nations who are among the worst offenders in terms of their trade surplus with the U.S.: Mexico, Japan and Germany, most notably. He meets with Chinese president Xi Jinping in a couple of days. Reportedly, he hasn’t pulled any punches so far in expressing his displeasure with the trade deficit and has vowed to take tough action (like a “border tax”) to change the situation. So, one thing we can say about the early evidence provided by the February trade results is that tough talk has absolutely no effect on trade results. (As if the trade results of past administrations aren’t sufficient evidence.)
In February, the deficit dipped slightly. Here’s a chart of the deficit in manufactured goods: Manf’d Goods Balance of Trade. As you can see, though the deficit dipped slightly from January, it remains stuck in the $55-62 billion range it’s been in for two years.
As time goes on, I grow more nervous that Trump will cop out on the trade issue just as Obama did, as more and more meetings with world leaders and business leaders try to convince him of the intangible, unquantifiable benefits of free trade. It worked on Obama. Hopefully, they’ll find Trump a tougher nut to crack. Time will tell. If there is no border tax in Trump’s tax overhaul plan, we’ll know that he caved to the pressure. We’re watching, President Trump. You can kiss your supporters goodbye if you don’t come through on this campaign promise.
April 3, 2017
In the wake of the Obama administration, it still makes me nervous any time the president sits down for talks with a foreign leader. For Obama, there were no concessions too big for him to make. Foreign leaders played him like a fiddle. Americans came out the losers every time. I say this as one who had big hopes for Obama and voted for him in 2008.
As reported in the above-linked Reuters article, Chinese President Xi Jinping travels to Florida this week to meet President Trump at his Mar-a-Lago resort. The media will be focused on dealings aimed at reining in North Korea’s nuclear ambitions. But the real story will be their talks on trade. America’s failed trade policy is far and away the biggest contributor to our economic decline. All of our economic problems and virtually every other problem that is impacted by monetary resources allocated to deal with it can be blamed on our trade deficit. The budget deficit, nearly all of our national debt, our crumbling infrastructure, our health care crisis, homelessness, poverty …. you name it, they’re all directly linked to the drain of our financial resources wrought by the trade deficit. And no country is more responsible for that drain than China, who accounts for nearly one half of the entire deficit.
On Friday, the U.S. president sought to push his crusade for fair trade and more manufacturing jobs back to the top of his agenda by ordering a study into the causes of U.S. trade deficits and a clamp down on import duty evasion.
If the President is truly interested in the cause of U.S. trade deficits, he need look no further than this blog and can learn all he needs to know by reading Five Short Blasts. Nations who come to the trading table with nothing to offer but bloated labor forces and markets emaciated by gross overcrowding are the cause of trade deficits. By this criteria, China is the worst of the worst. Only tariffs (or a “border tax,” if that term is less onerous) can maintain a balance of trade when dealing with such countries. Negotiations are pointless since the only possible outcome is to trust the other side to take actions to rein in their appetite for our market. Decades of experience since the beginning of the failed experiment with “free” trade has proven that they won’t.
So far, President Trump has proven that, for the most part, he can be trusted to follow through on his campaign promises. No promise was bigger than getting tough with China on trade. It seems that Germany’s Angela Merkel found him to be a very different president from Obama in her recent meeting with Trump. Hopefully, he’ll be just as tough on Xi. It seems that Trump’s “border tax” idea is now becoming more accepted as a crucial element of his upcoming tax reform plan. Let’s hope he doesn’t negotiate away any of it this week.
March 21, 2017
As part of my monthly calculation of the size of the actual labor force (for the purpose of analyzing the monthly employment report), I use the U.S. population as determined by the “Population Clock” on the home page of the U.S. Census Bureau. As I write this, it stands at 324.73 million. This figure typically grows at the rate of about 180,000 per month. That’s a scary rate of population growth. The U.N. estimates that half of all world population growth by 2050 will be caused by the growth of the population in only eight nations – seven third world nations and – you guessed it – the United States, the only developed nation that continues to experience third-world-like population growth.
But I’ve noticed something strange in the last six months, and especially since the beginning of the year. In December, the population clock actually fell back by almost 600,000. Since then, the population has been growing at a rate of only about 80,000 per month. Today, it stands at almost exactly the same level as it did at the end of September.
This is great news, but I suspect that some of the reason for the slowdown is not good news. You may recall that sometime back around December, the CDC announced that death rates in the U.S. were rising while life expectancy had actually declined slightly. But there’s some really great news too. Illegal immigrants are being deported and the entry of new illegal immigrants has slowed dramatically. Even legal immigration has slowed since Trump took office.
Although it’s still early in this new trend, a couple of observations are in order:
- Most economists predict economic gloom and doom to accompany a lack of population growth. Contrary to that, the U.S. economy has experienced its best growth in many years in the past six months. A brightening economic outlook is one of the outcomes I predicted in Five Short Blasts that would accompany a stabilizing or even declining U.S. population.
- A rising death rate is another outcome that I predicted in my book for nations whose population densities continue to grow beyond a critical level, driven by rising unemployment and poverty.
This is all something I’ll be watching closely as immigration continues to slow dramatically during the Trump administration.
March 15, 2017
The employment report for the month of February (the first full month of the Trump administration) was released on Friday and the numbers looked pretty good. The economy added 235,000 jobs and the unemployment rate fell one tenth to 4.7%. President Trump hailed the news and declared that, though the employment reports during the Obama administration were fake, that the February numbers were very real.
Let’s examine that claim. First of all, take a look at this chart: Labor Backlog. Some explanation is in order. “Actual labor force growth” is the growth in the labor force if it had grown at the same rate as the overall population as it does in reality. The “BLS reported labor force growth” is the growth in the labor force that the Bureau of Labor Statistics uses to calculate the unemployment rate. The “change in employment level” is a figure taken directly from the BLS monthly data. It’s the growth in the number of people who report being employed in the household survey. The “labor force backlog” is the difference between the growth in employment level and the “actual labor force growth.” If the employment level grows faster, then unemployment should decline along with the “labor force backlog.”
Note that during the Obama years, the BLS consistently reported less growth in the labor force than what the growth in the population would suggest. Only in 2012 and 2015 did the BLS report labor force growth that was slightly above actual growth. The result is that the “labor force backlog” grew steadily during the Obama administration until it peaked at the end of 2014 at 6,359,000 workers who were unemployed. By the end of 2016, that backlog had fallen only slightly to 5,994,000 workers. In spite of that, according to the BLS, the unemployment rate plummeted from 9.9% in 2008 to 4.7% in 2016. That’s impossible and the only way that the BLS was able to make it appear that the unemployment rate was dropping was by claiming that workers were dropping out of the labor force or by not growing the labor force as the population grew, or through some combination of those factors. Thus, when Trump claimed that the employment data was “fake” during the Obama administration, he was exactly right. If you’ve been a follower of this blog, you know that it’s something that I maintained all along throughout the Obama administration.
OK, so how about Trump’s claim that the numbers now are “real?” So far, in January and February, the BLS has reported growth in the labor force of 416,000 workers. The actual growth in the labor force – if it grows in proportion to the population – is only 89,000 workers. In other words, so far in 2017, the BLS now claims that 327,000 “missing” workers have reappeared in the work force. That supports Trump’s claim that his numbers are real. But time will tell. Two months’ of data isn’t nearly enough to judge how honest the Trump administration is being when it comes to the employment reports. It’s something I’ll watch just as closely as the Obama numbers.
March 8, 2017
The U.S. trade deficit for the month of January was posted yesterday by the Bureau of Economic Analysis. It was horrible. President Trump took office on January 20th, but he can hardly be held responsible for any of the January results. This is all on former President Obama.
How bad was it? The overall trade deficit rose to its worst level in nearly five years – $48.5 billion. At $62.1 billion, the deficit in manufactured goods just missed its all-time worst reading of $62.5 billion set in March of 2015. As you can see from this chart, if the trend in manufactured goods continues, we’ll have a new record very soon and, without the change in trade policy promised by President Trump, it will likely get worse from there: Manf’d Goods Balance of Trade.
Then there’s the export numbers. In January of 2010, lacking the courage to take on the problem with imports, President Obama vowed to double exports in five years in an effort to turn the U.S. into more of an export-driven, Germany-like economy. It never happened and never even came close. In January of 2017 – seven years after Obama made that promise – total exports, at $192 billion – remained below the October, 2013 level. Worse yet, exports of manufactured goods were below the level reached in September, 2011 – up only 26% from when Obama made that promise. And that increase was due entirely to global economic recovery from the 2009 recession and had nothing to do with any real improvement in America’s export position.
So that closes the book on Obama’s trade policy, which was a total failure. Actually, if President Trump follows through on his promise of tariffs (or border tax, or whatever you want to call it), this closes the book on a seven-decade-long experiment with free trade and globalization, begun in 1947 with the signing of the Global Agreement on Tariffs and Trade that, by any measure of its effect on the American economy, has been a complete disaster.
- America’s trade surplus dwindled until we ran our last trade surplus in 1976.
- 41 consecutive years of trade deficits has yielded a cumulative deficit of $14.4 trillion. During that time, the national debt, which is closely linked to the trade deficit, grew by $19.4 trillion. In 1976, the national debt was only $0.5 trillion. Virtually all of our national debt is due to the cumulative trade deficit since 1976.
- During this period, family incomes and net worth have declined, our infrastructure has crumbled, and our nation has been bankrupted. The manufacturing sector of the economy has been gutted. More than ten million manufacturing jobs have been lost. The United States, once the world’s preeminent industrial power, has been reduced to a skid-row bum, begging the rest of the world to loan us money to keep us afloat.
This is all on you now, President Trump. You own it. You’ve promised to straighten out this mess. America is watching and waiting.