Globalization Proponents Starting to Sweat

October 11, 2016

As illustrated in the above-linked article, advocates of globalization, an experiment embarked upon in the wake of World War II to spread prosperity and avert future wars, are growing desperate to stave off its collapse.  It has indeed spread prosperity to some but a fatal flaw has been exposed.  Instead of turning overpopulated and desperately poor nations into Western-style consumers that would eventually lift the growth rates of economies that they scavenged in the first place, globalization has evolved into more of a host-parasite relationship that has left the “host” economies of Europe (most notably Great Britain, but there are others) and especially the United States, weakened, angry and ready to revolt.  Great Britain already has.  America and others soon will.

Globalization was doomed from the outset thanks the failure of economists to look beyond the resource challenges of overpopulation to consider the economic ramifications of declining per capita consumption and rising unemployment.  Now, a half-century into the experiment, instead of developing into the economic “growth engine” that its architects envisioned, it more resembles a sort of poverty-sharing program where the fortunes of some people have improved somewhat, but only on the backs of the more prosperous who now find themselves unwilling and even unable to sustain it.

Now the world’s ruling elite are calling for a coordinated effort among the host nations and their central banks to boost deficit spending and to keep interest rates near zero, ignoring the risk of eventual economic collapse posed by such reckless policies.

“On Thursday, Bank of England Governor Mark Carney said policymakers now have a better recognition of the need for their actions to ‘more immediately, tangibly and clearly, transparently benefit larger segments of the population.'”

All along, we have been assured by the advocates of globalization that all of us benefit, but those benefits may just be too complicated and ethereal for the rest of us to grasp.  No one, at least not in the host countries, is buying it any longer.  Why didn’t globalization provide more benefits that were “tangible, clear and transparent” from the outset?  Because it can’t.  It’s simply impossible for the host in a host-parasite relationship to experience any benefit.  So now they want to administer a little food and medicine to the hosts by jiggering the system, keeping them alive a little longer.

Reducing poverty in the undeveloped world is a noble goal.  I might even be able to get on board with globalization if, at the same time that the host economies were being scavenged, there were provisions to address the root cause of the poverty – gross overpopulation – that necessitated globalization in the first place.  (Before many of you who haven’t read Five Short Blasts freak out, I’m talking about doing this through economic incentives to encourage people to have smaller families.)  But that’s not what globalization’s advocates want.  They not only want to scavenge host economies, but they want the host nations to take in the overflow population from the rest of the world in order to fuel the revenue growth that the global corporations – who fund the campaigns of the ruling elite – demand.

Regardless of how the U.S. presidential election turns out, the pressure to scrap the globalization scheme will only intensify.

Trouble Signs in the Employment / Labor Market Picture

October 8, 2016

The September employment report, released Friday by the Bureau of Labor Statistics, continues a trend that has characterized much of 2016.  Job growth is slowing.  The economy added 156,000 jobs, but that’s the third straight monthly decline and is below the year-to-date average for 2016 (178,000 jobs per month), which is already down from 2015 (229,000 jobs per month).

Economists were at odds over how to interpret this latest report.  Some called it a “goldilocks” report – not too hot and not too cold.  In fact, on the surface, that might seem an apt analysis.  156,000 new jobs should be enough to absorb the growth in the labor force that results from population growth.  Yet, unemployment rose to 5.0% after hitting a low of 4.7% in May.

What’s happening is that what I have referred to in the past as the “mysteriously vanishing labor force” is reappearing.  It’s not a one-month phenomenon, but a trend that’s been building for well over a year now.  To better illustrate what’s happening, I ran some numbers dating back to the onset of the financial crisis that began at the end of 2007.  I tracked the change in the labor force and compared it to what the real growth in the labor force has been, assuming that people still need to find work to support themselves in about the same proportion that we’ve seen historically.  That is, about half of the population.  In other words, if the U.S. population grows by three million per year, it’s safe to assume that about 1.5 million of those people need work to support themselves and their dependents.  That’s been the historical norm.

If the growth in the labor force recorded by the BLS didn’t keep pace with the actual population, or if it actually contracted, then that’s a labor force “backlog” that the economy will eventually have to absorb and put to work at some point.

I then compared this backlog to the “employment level” reported by the BLS from its “household survey” portion of the monthly employment report.  Here’s what I found:


From 2008 until present, the actual labor force grew pretty consistently each year, along with the growth in the population.  (2011 was lower because of an adjustment to the U.S. population based on the 2010 census.)  However, note the 2nd line – the growth (or contraction) of the labor force reported by the BLS.  Until last year, only one time did the BLS-reported growth exceed the actual growth in the labor force – in 2012.  Each year that it was less, people actually dropped out of the labor force – thus, the “mysteriously vanishing labor force.”  My more cynical side suspects the Obama administration of manipulating this figure to make the unemployment rate lower.  But let’s assume that people actually did drop out, employing an array of tactics to survive financially, at least for some period of time.

The third line is a calculation of the “labor force backlog,” a cumulative tally of how many people have left the labor force.  For example, in 2009 when the BLS reported that the labor force actually contracted by 1.544 million workers, this figure added to the actual growth in the labor force of 1.324 million workers, produced a backlog of 2.868 million workers.  Added to the 2008 figure, the backlog by the end of 2009 was 3.505 million workers.

Line 4 is the change in the employment level reported by the BLS based on the household survey.  Again using 2009 as an example, the BLS reported that the employment level actually fell in 2009 by 5.356 million people.  It was a horrible year.  As a result, the unemployment rate actually soared to 9.9% in 2009 from 7.3% in 2008.  (It was 5.0% in 2007.)

With all that said, here’s the problem I see developing.  In 2015, the growth in the labor force reported by the BLS exceeded the actual labor force growth.  In other words, people in the “labor backlog” rejoined the work force.  And through last month, that has accelerated dramatically.  In only nine months, the labor force has grown by an amount that would usually take almost two years.

Economists say that this trend is the result of an improved labor market.  People see the jobs picture brightening, making the time right to find a good job.  But I believe another factor is at play here.  The tactics used by displaced workers to survive the downturn have run their course.  Those who went back to school for more training and more advanced degrees (including those who scammed the system and used student loans to meet living expenses) are now saddled with all the student debt they can endure.  Those who went back home to live with Mom and Dad may have overstayed their welcome or have put their families in a financial bind.  Others may have exhausted the severance packages they received when they lost their jobs.  People need a source of income to survive.  The idea that people could simply drop out of the labor force without consequences was preposterous.

The labor force backlog reached a record 6.359 million people by the end of 2014.  As of last month, it’s dropped some to 4.9 million workers, but that’s still a huge backlog.  As of last month, workers are pouring back into the labor force at a rate that has exceeded the growth in the employment level, a trend that’s actually accelerating at the very same time that job creation seems to be slowing.  As a result, unemployment has begun to rise again. This trend is likely to begin to put downward pressure on wages and could actually reduce consumer confidence and slow the economy.  And, it should be noted, that much of the job creation we’ve seen in recent months has been in the restaurant and bar industry and in retail – sectors of the economy that are especially sensitive to consumer confidence.  They’re the first places people rein in spending when finances get tight.

All of this spells trouble for the economy in the coming months.


Ford Moving to Mexico; Trump Says He’ll Stop It

September 15, 2016

The above link will take you to an interview conducted by CNN’s Poppy Harlow with Mark Fields, Ford CEO.  If you have the patience to watch it all the way through, it will be immediately followed by further discussion of Trump’s plans to raise tariffs and bring manufacturing jobs back to the U.S.

Trump has long predicted that Ford would be announcing its move to Mexico.  Fields responds that they are only moving its small car production – the Focus and the C-Max (both made at Ford’s Dearborn, MI plant) -to Mexico.  Other models will continue to be made in the U.S.

Ford actually sells six car models:  Fiesta, Focus, C-max, Fusion, Mustang and Taurus.  The Fiesta and the Fusion are already built in Mexico.  Ford’s announcement about the Focus and C-max leaves only two of its six car models that are still made in the U.S. – Mustang and Taurus.  The former is built at its Flat Rock, MI plant and the Taurus is built in Chicago.  Most of its SUVs and trucks are built in the U.S.  There’s a good reason for this.  The U.S. continues to maintain a 25% tariff on all imported light trucks.

The Transit Connect is an interesting exception.  Until 2013, Ford imported the Transit Connect, a vehicle it markets as a commercial van/truck, from Turkey, trimmed out as a passenger van.  It then strips out the passenger interior, removes the windows, and replaces them with metal panels, converting it into a commercial vehicle.  It did all of this to escape paying the 25% import tariff.  In 2013, the U.S. ordered Ford to stop this practice.  Ford still does it, but now it pays the tariff.  It “eats” the cost of the tariff.  It doesn’t pass it on to the consumer.

If elected, Trump has vowed to essentially tear up most trade deals – particularly NAFTA, and will raise tariffs to force companies to re-establish their manufacturing operations in the U.S.  In the case of Mexico, he has suggested a 35% tariff.  During the linked interview, Ms. Harlow asked Mark Shields directly whether he would still move manufacturing to Mexico if that were to happen.  Shields side-stepped the question.  But the answer is obvious.  Of course Ford would not move more production to Mexico if that were to happen.  Quite the opposite.  Production of the Fiesta and Fusion would also return.

Late in the interview, Shields cited the huge savings in labor costs for the move to Mexico, saying that it needed to be done to remain competitive in that segment of the market.  Ms. Harlow failed to follow up with the obvious question:  “So you’ll be reducing the price of the Focus once production has moved to Mexico?”  I would have loved to see him squirm and see the smirk run away from his face when he replied that the price wouldn’t change a bit.

Has any company ever cut the price of any product once its production was moved overseas?  Of course not.  They pocket the extra profit.  Which brings us to one of the arguments employed by economists (and cited in the 2nd CNN segment which starts immediately after the Mark Shields interview) that prices will rise and consumers will be forced to pay the tariffs, hurting the economy and cutting deeply into consumer spending.

That’s absolute nonsense.  Consumers don’t pay the tariffs.  The importing companies pay the tariffs.  Whether or not they elect to pass that extra cost along to the consumer is entirely up to them.  As we saw above with the Transit Connect, Ford doesn’t pass it along.  Sure, that would cut deeply into profits.  By far, the smarter alternative is to move manufacturing back to the U.S.

During the course of the interview, Ms. Harlow repeats a myth about tariffs and their role in the Great Depression.  “… the last time a big tariff was instituted in the United States back during the Great Depression, all the economists agree that it made the Great Depression worse.”  I’ve said it many times but it bears repeating here:  that’s factually false and is absolute nonsense.  First of all, no new, big tariff was implemented during the Great Depression.  The Smoot-Hawley Tariff Act of 1930 was a very slight tweaking of the  Fordney-McCumber Tariff Act of 1922, raising tariffs overall from 38.5% to 41.4%.  Following enactment of Fordney-McCumber, the economy boomed during the “roaring ’20s.”

By the time Smoot-Hawley was enacted, the Great Depression had already been underway for a year.  During the Great Depression, America’s balance of trade declined by less than $1 billion while GDP fell by $33 billion.  To blame tariffs for the Great Depression is ludicrous.  But that didn’t stop economists from doing it, eager to make a case for their new, untested theory about “free” trade.

In the CNN piece following the Mark Shields interview, CNN reports on dire warnings by economists that Mr. Trump’s tariffs would have disastrous consequences for the economy, cutting GDP by up to $1 trillion and would result in the loss of 4 million jobs.  Such claims are really puzzling, given the fact that economists know very well that a trade deficit is actually a subtraction in the calculation of GDP.  It’s impossible that bringing back manufacturing would do anything other than boost GDP dramatically.  Merely balancing trade in manufactured goods would be an $800 billion boost to the economy.  That would be a 4% jump in GDP which, not coincidentally, is what Trump has targeted for economic growth.  Any further surplus in trade in manufactured goods would boost the economy even more.  And instead of cutting 4 million jobs, it would actually create approximately 10 million jobs.

Free trade advocates claim that manufacturing jobs don’t matter any more, that most manufacturing is automated and there are few jobs there to be had.  If that’s true, then why do so many badly overpopulated nations with huge, bloated work forces cling so desperately to the manufacturing that they do for the American consumer?  Certainly, automation has improved productivity in manufacturing, but not nearly to the extent that free traders would have you believe.  Consider the production of the supposedly high-tech cell phones like the i-phone.  Their manufacture is about as low tech as you can get – thousands of people assemble the circuit boards by hand in China.

During one of the CNN segments, the reporter comments that “cars aren’t really built from scratch any more.  They’re assembled.  Those plants in Mexico will be assembling them from American-made parts.”  As if the process of assembly requires no effort, and as if cars haven’t been built that way since Henry Ford invented the assembly line.  I can tell you from personal experience, having toured the Dearborn plant where Ford builds the Focus, that it takes a lot of workers to make an assembly plant “tick.”  Watching a stack of sheet metal being turned into a finished automobile in less than 24 hours is truly awe-inspiring.  Having toured both auto assembly plants and electronics manufacturing, I can tell you that an auto assembly plant is far more “high-tech” than electronics production.

Trump’s plans to use tariffs to return manufacturing back to the U.S. is exactly what the American economy needs – and is exactly the thing that globalists fear the most.

Labor Market Sputtering

September 9, 2016

Following two months of impressive gains, the employment report released a week ago by the Bureau of Labor Statistics was rather unremarkable.  According the the establishment survey, private payrolls added only 126,000 jobs in August, while government employment rose by 25,000 to bring the total job gains to 151,000.  According to the household survey, the employment level rose by 97,000.  These figures are just enough to keep pace with the growth in population.  So unemployment held steady at 4.9% for the third month in a row – a figure held artificially low by the “vanishing work force” trick used throughout the Obama administration.  Otherwise, the figure would be 8.0%.

It wasn’t a bad report, but there are some causes for concern:

  • The average work week fell by 0.1 hours.  For manufacturing workers, it fell by 0.2 hours.
  • Average hourly earnings rose by only 3 cents.  That’s an annual rate of gain of just over 1%.  It had been running at 2.4%.  It lagged the rate of inflation in August, meaning that American workers grew slightly poorer.
  • Hiring gains were led by restaurants and bars, a segment of the economy that may be built to over-capacity and is ripe for some contraction, especially as the economy begins to slow.
  • Manufacturing employment was flat again and is down by 37,000 compared to a year earlier.
  • Health care employment rose by only 14,000 – well below the average monthly gain of 39,000 for the prior twelve months.

That last item could be an early indication that the economic boost from Obamacare has just about run its course.  Obama has avoided the economic funk that typically plagues administrations as they near their end.  Typically, an administration begins to rein in the deficit spending that was driven by stimulus programs enacted early on, as pressure builds to cut the deficit.  But “Obamacare” was a whopper of a stimulus program, continuing to pour trillions of dollars into the economy.  But the process of scaling up the health care industry to meet the new demand fueled by that program may now be nearly complete.  We’ve even heard of insurers exiting the program, citing unexpected losses.

So far this year, job gains have averaged 181,000 per month, down from 229,000 in 2015, which was down from 251,000 in 2014.  August gains lagged the average for 2016.  The labor market is clearly slowing.  Obama’s adminstration may catch the late-term economic flu yet.


Deficit Spending Holding Recession at Bay

August 26, 2016

It’s been a long time since I posted on this subject – about a year and a half.  Some discussion about the national debt jogged my memory, and I was curious to see how my chart would look now.

The following chart tracks the growth in the national debt vs. the “cumulative trade deficit.”  It’s an important metric because the trade deficit siphons money from the economy – money that is subsequently pumped back into the economy by federal deficit spending.  Countries who run a trade surplus with the U.S. repatriate those dollars primarily through the purchase of U.S. government bonds – bonds that are used to finance deficit spending.

Over the years, these two metrics have tracked very closely together, but not perfectly.  Sometimes deficit spending outpaces the trade deficit.  Sometimes it lags.  But any time that deficit spending lags the trade deficit, a recession is always right around the corner, since the net effect is a drain of money from the economy.

Typically, toward the end of a president’s administration – especially if it’s been a 2-term administration, deficit spending begins to decline as stimulus programs implemented at the beginning of a new administration expire and as pressure builds to rein in the deficit.  It happened at the end of the Clinton administration and at the end of the George W. Bush administration.  For this reason, I’ve been predicting that the Obama administration would end the same way.

It doesn’t look like it will.  Take a look at the chart:  growth in nat’l debt vs cumulative trade deficit.   Clearly, the Obama administration has felt no compulsion to rein in deficit spending like his predecessors.  When it comes to deficit spending, President Obama has kept his foot on the throttle like no other before him, pouring money into the economy.  In light of this, it’s not surprising that the economy has managed to hang on by its fingernails to avoid another plunge into recession.

Where has all the concern about fiscal restraint gone?  In the early ’90s, during the George H.W. Bush administration, deficit spending raced ahead of the trade deficit.  By the time Clinton took office, there was a lot of concern about the exploding national debt, so Clinton worked with Republicans to rein in the spending and actually balance the budget (on paper, at least).  He could afford to do it.  Thanks to the explosion in personal computer and cell phone technology and manufacturing, the economy hummed along at a brisk pace.  But by the end of his administration, the tech bubble burst, the trade deficit began to explode (thanks to NAFTA and China’s admission to the WTO – both of which were Clinton’s progeny), and there was little deficit spending to pick up the slack.  His administration ended in a bad recession.

So what’s different now that makes Obama immune to the exploding deficit?

  • Interest rates have fallen to near zero.  So interest payments on the national debt have actually declined in spite of a growing debt.  Zero percent of any amount, no matter how large or small, is still zero.  In fact, there’s even some talk of the possibility of interest rates going negative, as they have in Japan.
  • Perhaps because of the above or, for whatever reason, all political pressure for fiscal restraint has vanished.  No one – not even Republicans – even mention it any more.  No one seems to care.
  • Central banks around the world – and that includes the U.S. – are getting very skittish about the potential for another recession at a time when their recession-fighting ammo is all spent.  They’re pressuring governments to actually step up deficit spending.

In light of this, it’s not surprising that the recession I’ve been predicting hasn’t yet taken hold.  What is surprising is that the economy isn’t doing better than it is.  Twenty years ago, if you had told economists that the federal government would be running a $1 trillion/year deficit, that interest rates were near zero, that the Federal Reserve would have a $4.5 trillion balance sheet, and that the result of all of this was GDP growth of only 1%, they’d have told you that you were crazy – that it was impossible.  Yet here we are.

It’s surprising to many, perhaps, but not to those of us who understand the inverse relationship between population density and per capita consumption, and that all of our efforts to prop up the economy with rampant immigration-fueled population growth are actually eating away at consumption as fast as we can add new “capitas.”  The end of growth is at hand.  It has often been said in the corporate world that “if you aren’t growing, you’re dying.”  The day may be coming when even a “no growth” economy might look good.


July Employment Report

August 11, 2016

It’s difficult to know what to make of the July employment report, released on Friday, in which the Bureau of Labor Statistics (BLS) announced that the economy added 255,000 jobs (on the heels of a gain of 292,000 in June), while the employment level rose by 420,000.  Considering the following, these numbers are hard to believe:

  • GDP (gross domestic product) rose by only 1.2% in the 2nd quarter, and by only 0.8% in the first quarter.  In per capita terms, that’s zero growth – perilously close to a recession.  Yet we’re to believe that the economy is adding jobs at more than double the rate of population growth, a rate more characteristic of far higher GDP growth?  Seems a stretch.
  • The “Labor Market Conditions Index” – a broader measure of the labor market (of which the BLS data is just one part) used by the Federal Reserve to assess labor market conditions, turned positive for the first time this year in July, but barely.  That index paints a picture of a flat, weak labor market at best.
  • Two days before the release of the BLS report, payroll processing firm ADP estimated that 179,000 jobs were created in July.  This was the 2nd month in a row that the BLS data far exceeded the ADP data.

On the other hand, there are reasons to believe the BLS data.  On the same day that ADP released its estimate, polling firm Gallup’s “Job Creation Index” held steady at a record-high level for the third month in a row.  First time unemployment claims have been running at historically low levels, although it should be noted that not getting laid off isn’t the same thing as getting hired, and the low rate of claims may have as much to do with the changing nature of jobs, making fewer people eligible for unemployment when their work slows down.

On Tuesday, the BLS announced that non-farm productivity fell for the third quarter in a row.  This is consistent with an economy that’s adding jobs in the face of weak demand.  But why?  Why would employers be piling on workers in a flat economy that’s teetering on recession?  Corporate earnings have been declining for several quarters now.  Companies are usually in full-blown, head count-cutting cost control mode by now.  Instead they’re hiring at a healthy clip?  It’s possible.  Given the political climate surrounding the income inequality issue, there seems to have been a collective effort by corporations to blunt some of the criticism by raising entry-level wages and, possibly, to continue hiring long past the point at which they would normally have begun laying people off.

But that won’t last forever.  Shareholders are growing impatient for companies to begin showing actual earnings growth again instead of just slowdowns in the rate of decline.  I have my doubts about how much longer the factors that are putting downward pressure on employment and wages – especially falling per capita consumption and population (labor force) growth – can be held at bay.



Globalism Establishment Starts to Sweat as their Regime Begins to Crumble

July 26, 2016

These three articles appeared in the news a couple of days ago almost simultaneously in the wake of the Republican convention.

In this first article, finance ministers and central bankers from the G20 nations pledge to “share the benefits of global growth more broadly.”  The article focuses on concerns surrounding “Brexit,” Great Britain’s vote to pull out of the European Union over dissatisfaction with the EU’s open border policies and with being fleeced to prop up the economies of other EU nations.  But the article also takes note of Trump’s vow to pull out of trade agreements.  The G20 is starting to sweat.

In the 2nd article, U.S. Treasury Secretary Lew is reported as saying that it’s time to “redouble our efforts to use all of the policy tools that we have to boost shared growth.” Why is it time to do that now?  Why weren’t we doing this all along?  It’s because it’s now clear that “free trade” policy is becoming more widely opposed, with the political left now opposing the Trans Pacific Trade Partnership (TPP) and with the right going further, vowing to pull out of all existing free trade deals.  The globalist Obama administration is also starting to sweat.

And further evidence comes in this 3rd article about a meeting on Friday between President Obama and his Mexican counterpart.  Don’t be fooled.  This wasn’t just a meeting designed to stress the importance of the relationship between these two countries.  Both are beginning to sense the very real possibility that their trade regime is nearing it’s end.  I predict that, sometime between now and the election, there will be an announcement of some deal, a deal that had its genesis in this meeting, that will move some token manufacturing back from Mexico to the U.S. in an effort to blunt some of the trade anger.

I have written occasionally about cracks that were beginning to appear in globalization – like more and more economists beginning to openly question whether donor countries like the U.S. and Britain were really seeing any benefit at all from these trade agreements and whether they have been, in fact, a net drag on their economies.  The globalization story has been very much like the annual reports that emanated from the now-defunct Enron Corporation.  We were told by Enron that their business was very complicated – too complicated for analysts outside the company to understand.  As it turned out, it wasn’t really complicated.  It was a scam.  People will only buy into such scams for so long.  And so it is with globalization.  The British people could no longer take it.  Nor can Americans.

Without the support of its donor nations and the continued subservient acquiescence of its citizens, the globalization scheme is doomed.  Good riddance.