Global Economic Growth Slowing. What a Surprise.

August 26, 2015

Though it seems that nearly everyone lately is alarmed by a global economic slowdown – especially in China, no reader of Five Short Blasts or this blog should be surprised.  You may recall that, late last year when I published my annual predictions for 2015, I warned of a faltering economy and, specifically, a slow-down in growth in China from 7.5% to less than 6%.  Last week, China’s growth rate fell to 6.7%, a story that sent global stock markets into a tail-spin.  At the time of my predictions, coming off of a strong 3rd quarter in 2014, virtually everyone was bullish on the prospects for accelerating growth.  Now, everyone is wondering, “What the hell happened?”

What happened is delusional economic growth theory running smack into the  economic reality of the inverse relationship between population density and per capita consumption.  On the news this morning I heard that only three countries account for 80% of the world’s economic growth – China, India and the U.S.  Since growth in the U.S. is practically negligible, that leaves China and India – the two most populous nations on earth.  Let’s focus on China.

To be sure, economic growth in China for the past two decades has been phenomenal.  Twenty years ago, China was among the poorer nations on earth.  It was a nation with a population four times that of the United States, but one that consumed virtually nothing.  Corporations drooled over the seemingly limitless growth potential.  Just imagine turning every Chinese citizen into a western-style consumer!  So they rushed in to build factories and infrastructure to make it happen – more development in two decades than the U.S. saw in two centuries.

Now their economy has gone as far as it can go on exports.  China’s continued growth now depends on domestic consumption, and it just isn’t there.  China’s consumers consume more products than ever before – far more – but nowhere near the level that was projected.  What economists have been unable to see is that China’s severe over-crowding caps its economic potential at a much lower level than they thought – at a level that it is very close to reaching, if it’s not already there.  In fact, it may have already over-shot its economic potential, with the export-driven economic momentum propelling it beyond that point.

This is actually good news.  Anything that exposes economic growth theory as the fraudulent pyramid scheme that it is hastens the day when economic stability and sustainability reign, a day when corporate lust for population-driven sales growth takes a back seat to the common good and an optimum quality of life.  But there’s a hell of a long way to go.

 


Obama’s Greatest Failure

August 16, 2015

With a year-and-a-half of the Obama presidency left to endure, it might seem a bit premature for post-mortems of his administration, but this call is easy to make at this point because his policies only assure that, as bad as the situation is, it will only be worse by the end of his administration.  I’m talking about trade.  President Obama was elected in no small part on the hopes that he would fulfill his campaign promises and address what was, at that time, an already enormous trade deficit.

However, soon after taking office, his fledgling attempt at addressing our trade deficit with Mexico was an absolute disaster.  Mexico sent him home with his tail between his legs and new tariffs on American goods.  Soon after, he turned his focus away from imports toward exports, questioning his economic team why the United States can’t be an exporting powerhouse like Germany.  Obviously, no one on his team pointed out to him that Germany is an exporting powerhouse because it has the United States to serve as its importing stooge, and that there are no other such stooge countries out there to do the same for us.

He obviously didn’t get this message because, in January of 2010, he publicly proclaimed a new focus on exports and vowed that the United States would double its exports within five years.  That was 5-1/2 years ago.  Why do I bring all of this up now?  Because the June trade figures, released last week, put an exclamation point on just how abysmal his failure on trade has been.  Exports fell yet again and our trade deficits with China and the EU set records in June.

At the time that he vowed to double exports, I knew and predicted that it was impossible for this strategy to succeed because the United States has almost no control whatsoever over exports, which are driven entirely by foreign demand.  What few measures are at the president’s disposal to influence exports – primarily things that would make American manufacturers more competitive – are all easily countered by similar measures taken by other countries.

So I began to track the data, beginning in January, 2010.  Since then, America’s already-bad trade deficit is now even worse.  Here’s a chart of our total trade deficit:  Balance of Trade.  Our total trade deficit has worsened from $37 billion to almost $44 billion in June.  That may not seem so bad until you consider the fact that, during that same period, our deficit in oil improved from $22 billion to $6.3 billion, almost all of which is due to a big jump in domestic production.  Take that away, and our total trade deficit would now be $60 billion.

The real trade story is what has happened to the trade deficit in manufactured products which, incidentally, is where the real opportunity for job creation lies.  Look at what has happened to the deficit in manufactured goods since January, 2010:  Manf’d Goods Balance of Trade.  It has nearly doubled!  And what about exports, the focus of Obama’s strategy?  Manufactured exports in June were actually lower than in September, 2011.  In other words, manufactured exports haven’t increased one iota in nearly four years!  Here’s the chart:  Manf’d exports vs. goal.

If this isn’t a total failure, then I don’t know what is.  (It should be noted that this failure isn’t just the result of turning a blind eye to trade.  President Obama’s disastrous trade deal with South Korea, which he proclaimed a “big win for American workers,” has played a key role in the worsening of the manufactured goods deficit.  Our trade deficit with S. Korea is on track to double what it was only three years earlier!)  The president owes the American people an explanation for this abject failure and for letting us down so badly on one of the key campaign promises upon which he was elected.


Improvements in Labor Force Slowing Dramatically

August 11, 2015

OK, I’m back from fishing in the north woods and there’s much to catch up on.  I’ll begin with Friday’s release of the July employment report.  It was a little anemic, with only 215,000 jobs added (according the survey of businesses).  It was down from June, which was down from May.  Worse (but not included in the headline figures), the “employment level” (a figure taken from the household survey) says that employment only grew by 101,000 in July.  That leaves per capita employment essentially unchanged since February.  Here’s the chart:  Per Capita Employment.

The growth in employment level was barely sufficient to keep pace with the growth in the labor force.  As a result, unemployment remained unchanged in July at 5.3%.  However, a more accurate reading of unemployment – one that has done an honest accounting of the growth in the labor force (almost all of which is driven by immigration) – would have the unemployment rate at 8.8%.

The number of unemployed Americans seems to have leveled off after dropping some since the “Great Recession.”  It hasn’t changed significantly since January.  Here’s the chart:  Unemployed Americans.

And to illustrate just how much improvements in the labor market have slowed recently, consider this:  during the first six months since July of last year, employment level grew by an average of 300,000 jobs per month.  But in the most recent six months, ending with July, that growth has slowed to an average of 107,000 per month.  Take away January and the growth slowed to 90,000 per month in the most recent five months.  That’s less than needed to keep pace with growth in the labor force and is a good indication that unemployment, truth be told, is actually beginning to rise slowly again.


Global Unemployment Drops Slightly in 2014, Still Higher than 2012

July 29, 2015

The main implication of the inverse relationship between population density and per capita consumption is that, as the world’s population continues to rise, so too will unemployment.  I’ve now begun tracking a rough measure of global unemployment, using the data posted on the CIA’s World Factbook web site for each nation, beginning with 2012.  Knowing the unemployment rate and the population, I can calculate how many people are unemployed in each nation, and then tally the sum for the entire world.  The CIA provides the data for most nations, but not all.  Also, the data has to be somewhat suspect, given that there is much disagreement over the official unemployment rate even in the United States.  You can imagine that the data for third world countries is probably not all that reliable.

Nevertheless, it’s all we have to go by.  Also, I’m making an assumption that the labor force in each country is made up of exactly 50% of the population (relatively close to the figure for the U.S.), since the CIA provides no data on the size of the labor force.  Using the CIA’s data and this assumption, in 2012 the global unemployment rate was 7.9%, and 26 million people were unemployed.  In 2013, the unemployment rate rose to 8.6% and 28.8 million people were unemployed.

In 2014, the situation improved slightly, with unemployment falling to 8.3% and 28.1 million unemployed.  It should be remembered that the period of 2012 through 2014 supposedly represents a time of global “economic recovery.”  While three years isn’t really enough data to begin drawing conclusions, so far the data seems to bear out the theory that unemployment will worsen as the world grows more crowded – even during a period of “recovery.”

This is data that I’ll continue to track and will report on again when 2015 data is available – probably early next year.


Republicans Oppose Legal Immigration?!?!

July 9, 2015

I haven’t posted much about immigration for quite some time.  Frankly, I’ve been pretty demoralized by the subject.  Both Democrats and Republicans have been stumbling over each other in a race to pander to the Hispanic vote.  America is evolving into a place where anything goes, everything’s accepted and immigration is no different.  Immigration laws are meaningless.  Illegals roam the streets of sanctuary cities with impunity and Americans know it’s pointless to protest.  No one will listen.

But immigration has suddenly become a hot topic for some rather bizarre reasons.  It began with Donald Trump’s bigoted comments about Mexican immigrants.  There’s a lot of valid reasons for opposing illegal immigration from Mexico, but claiming that the majority are criminals (aside from the fact that they’ve broken immigration laws), murderers and rapists simply isn’t valid – not even close.  So what happens?  As if on cue and as if to prove Trump’s point, some illegal Mexican criminal in San Francisco – a “sanctuary city” – randomly guns down some lady.  I generally consider Trump a buffoon who revels basking in the limelight and is devoid of any political sense.  But I am so disgusted with our immigration situation that I can actually see myself voting for him.  Apparently, a lot of others feel the same way since Trump has been surging in the polls since making his immigration statement.

And then comes this piece that appeared on Reuters a couple of days ago and I thought that the earth must have tilted on its axis when I read it.  Republicans actually questioning whether legal immigration needs to be scaled back!  For decades, both parties have been big proponents of legal immigration, if for no other reason than to placate their deep-pocket corporate benefactors who use immigration to hold down wages and to swell the ranks of consumers for their products.  But now it seems that some Republicans see an opportunity to tap into voters’ frustration with immigration policy.  Or, as the writer proposes, perhaps they’re getting nervous that the immigrant population – traditionally Democratic voters – has grown to the point that it threatens the continued existence of the Republican party.

There are some statements in this article that I can’t let stand without comment:

“It could also complicate prospects for a comprehensive fix to the nation’s outdated immigration system …”

I want to scream every time I hear this!  There is nothing broken or outdated about our immigration system.  The problem is that our politicians are unwilling to secure the border and enforce our immigration laws.  It makes them look bad in the eyes of Hispanic voters.

Since 1989, the United States has been letting in about 1 million new immigrants per year, a level comparable to the last great wave of European immigration at the turn of the 20th Century. The Census Bureau estimates there are now 43.3 million foreign-born residents in the United States and within 10 years immigrants will account for 15 percent of the population, a record high.

It’s worth noting here that, at the turn of the 20th century, the U.S. population was approximately 76 million people.  Since then, it has quadrupled to 320 million.  By the end of this century it will be 500 million.  Virtually all of this growth has been due to immigration.  America – a land of opportunity, amber waves of grain, mountains and fruited plains in 1900 – has been transformed into an overcrowded urban jungle where opportunity is a thing of the past for the majority of middle-class Americans.  This isn’t 1900 any more.  Where the Statue of Liberty once beckoned the huddled masses of the world, we now have our own huddled masses, stacked like cord wood in the inner cities where the “American Dream” has become a joke.

“… Jeb Bush, the front runner in the Republican race, says more legal immigrants are needed to boost economic growth while South Carolina Senator Lindsey Graham says they can help care for an aging population.”

Yes, immigration does boost macroeconomic growth, but it grows the labor force even more, and the net result is that, while corporations’ sales volumes grow, Americans are worse off.  And the notion that immigrants can care for an aging population is a Ponzi scheme.  The result is that those same immigrants will soon become an even larger, and probably poorer, aging population.

“Kentucky Senator Rand Paul has said higher levels of legal immigration would lead to lower levels of illegal immigration …”

Senator Paul gets the prize for stating the obvious.

“Economists have generally found that immigration has little to no effect on wages over the long term. Some argue that immigration has boosted overall wages because immigrants create more demand for goods and services and they generally do not directly compete with U.S.-born workers for the same jobs.”

The breach in logic here is astounding.  If immigrants don’t compete with U.S.-born workers for jobs, then who do they compete with?  The previous wave of immigrants?  That’s the implication.  So if those immigrants are then pushed out of their jobs by the new arrivals, then those immigrants now have to compete with U.S.-born workers for their jobs.  And the suggestion that immigrants drive up wages by creating more demand is preposterous.  That could only be true if they consume more than the average American.  Because their wages are low, they obviously consume far less, but still swell the ranks of the labor force, driving down wages.  Like everything else, labor responds to the laws of supply and demand.  Increase the supply and it puts downward pressure on wages.

In the long run, immigration simply feeds into the inverse relationship between population density and per capita consumption, driving up unemployment and poverty.  Isn’t that exactly what we’ve been seeing happen for decades?

Forgive my cynicism, but I don’t trust anything that any political candidate says, especially if it runs counter to the wishes of their corporate benefactors.  But it is encouraging to hear some Republicans beginning to question the wisdom of the immigration policy that will assuredly ruin our country over the long run.

 

 


Manufactured Exports Fall to Lowest Level in 2-1/2 Years

July 7, 2015

As announced by the Bureau of Economic Analysis this morning, the trade deficit edged up by a smaller-than-expected $1.1 billion to $41.9 billion in May.  But the real story is what’s happening in the category of manufactured goods, which continues to worsen precipitously.  The deficit in manufactured goods rose by $2.8 billion to $56.2 billion, its 2nd worst reading ever.  Here’s the chart:  Manf’d Goods Balance of Trade.  The increase was driven by a $2.8 billion decline in exports to $107.2 billion, the worst performance since October, 2012.  Manufactured exports have not risen since September, 2011.  (Remember President Obama’s pledge to double exports by January, 2015?)

Some analysts are blaming the strong dollar for the decline in exports.  However, an analysis of years of trade data has found that there is absolutely no relationship between trade imbalances and currency valuations.  Besides, if the strong dollar were to blame for a decline in exports, then there should be a simultaneous increase in imports.  In fact, imports of manufactured goods were flat in May and haven’t risen in six months.

A much more likely explanation is that the trade deficit is simply following the same trajectory that it’s been on for over three decades, thanks to the continued blind application of free trade policy to situations where it makes absolutely no sense.


Employment Level Falls 56,000 in June; Unemployment Edges Up to 8.8%; 432,000 Discouraged Job-Seekers Give Up

July 2, 2015

The headline for today’s employment report for the month of June reads “Employment Increased by 223,000 in June, and the unemployment rate declined to 5.3%.”  It’s hard to believe that that headline, and the headline of this blog post were both taken from the same report, isn’t it?  Well they were.  And I could have added to my headline a couple more facts:  that the employment figures for April and May were revised downward by 60,000 and that there were no wage gains in June.

In fact, that headline figure of 223,000 jobs added in June, taken from the establishment survey, is probably the only positive in the whole report.  (If it can even be believed.)  The positive from the household survey – a drop in unemployment to 5.3% – falls apart when you see why it dropped.  It seems that 432,000 long-term unemployed have simply given up looking for work.  Put them back in the equation, along with the other workers who previously and mysteriously vanished from the work force, and unemployment actually rose to 8.8%.

In November of 2007, 48.4% of the U.S. population participated in the labor force.  Since then, the U.S. population has grown by 19 million, but only 16% of them have been added to the labor force.  This is how the Obama administration has been able to claim a sharp drop in the unemployment rate – by understating the size of the labor force.  Here’s a chart of per capita employment since November, 2007:  Per Capita Employment.  While per capita unemployment has improved from the depths of the recession, it’s still at a deeply recessionary level.

One of the less-noticed statistics in the report, but perhaps the most telling about the state of the economy, is that employment in manufacturing was flat yet again in June.  In a separate report this morning, factory orders fell for the ninth time in ten months, and new factory orders and shipments are running 6% and 4% behind year-ago levels.

The Obama administration has continued the practices of previous administrations that exacerbate the demise of the middle class through immigration policy that floods the labor force with unneeded workers and trade policy that is detached from the realities that drive trade imbalances and turns a blind eye to a $600 billion/year trade deficit in manufactured goods.


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