Another Perfect Example of Conserving Space

http://www.sedona.biz/sedonacity0208.htm

Check out this article about housing in Sedona, California.  They are actually considering allowing families to live in rented “Accessory Dwelling Units” – essentially sheds with plumbing – erected on the property of existing single family homes!  Imagine what that will do to the average per capita consumption of products in Sedona! 

The per capita consumption-destroying space conservation warned of in Five Short Blasts is well underway in America.  What will it take?  When will we ever consider the one common solution to this housing problem, our energy dependence problem, our carbon emissions problem and so many other problems?  We need a population management policy in America to stabilize and eventually reduce our population.

Pete

Relationship Between Population Decline and Recession

I was just reading an article about the recently reported decline in the population of major cities in the “rust belt” – cities like Detroit, Cleveland, Buffalo and Pittsburgh.  It’s no secret that these cities are losing population and the reason is no secret either.  The loss of manufacturing jobs is driving people to seek employment elsewhere in the U.S., primarily throughout the South.  This is especially true of young people who, upon graduation, find work wherever they can. 

This isn’t the first time we’ve seen this kind of population shift.  In the ’30s it was people fleeing the dust bowl, looking for work in California.  In the 1800s, people fled the potato famine in Ireland.  I’m sure each of you can identify other such situations.  In every case, a population decline has been precipitated by some tragic event.

But it suddenly dawned on me; people have come to accept that a declining population is a bad thing because, in the past, it has always been caused by something bad.  The cause and effect have become synonymous.  This is almost surely part of the reason that many people tend to recoil in horror if you suggest that the population needs to decline.  It immediately conjures up images of conditions that have driven population declines in the past.  In their minds, the cause and effect relationship has been reversed.

An economic recession, like we are experiencing in the “rust belt,” can certainly drive a population shift away from that area.  But there is no inverse relationship.  A population decline cannot cause an economic recession, at least not in per capita terms.  Certainly, if the population of a country declines by 50%, then its GDP will decline too, meeting the technical definition of an economic recession.  But, for the remaining population, the per capita GDP will be just as high, if not higher.  They will not be worse off economically.  In fact, if such a country were over-populated to begin with, the remaining population will actually experience a dramatic improvement in their quality of life. 

This is something we all need to be aware of when we broach the subject of population management with people – the fact that they have been conditioned to think of it in negative terms because of the muddling of cause and effect in situations that they’ve seen before. 

Pete

Five Short Blasts – Some feedback on the theory

I’m out in Los Angeles at an annual conference that I attend regarding our enterprise trucking software for our intermodal trucking division. We had many presenters, one of which was a VP from the Port of Los Angeles talking about all the various upcoming projects (which will result in more tariffs), new “clean air” initiatives, etc. There are many industry experts and many leading intermodal trucking companies represented and since all we (the intermodal trucking companies) deal with are imports/exports I couldn’t be closer to a source of “economic impact” if I wanted to. Needless to say, at lunch and dinner I got into some interesting economic discussions related to what we do. Everything from illegal immigrant drivers, outsourcing, lack of labor pool in the U.S., etc. I presented your theory (or at least parts of it) and got some interesting (as always) responses that I felt compelled to share with you. As always any comments are appreciated.

 

1.       At dinner everyone at my table argued that there are not people in the U.S. that would do the jobs that we have these “illegal” or legal immigrants doing (farming, McDonald’s, and Hotel Room cleaners were some of their examples). Even at much higher wages which I was certain to point out. They were absolutely adamant that regardless of the wages (reasonable obviously) people simply would NOT do that type of work. I remember you being very adamant that people WOULD in fact do these jobs for better wages.

2.       The 2^nd common theme was that there are simply not enough technically proficient people (we were talking specifically IT) in the U.S. labor pool. I’ve been hearing this a lot lately and apparently Bill Gates agrees. http://www.workforce.com/section/00/article/25/41/45.html

3.       Lastly, a couple of the people I talked to agreed or could understand that “as population densities increase, per-capita consumption declines”; however they said that this only applied to places like China or India and doesn’t apply to the United States. An example one of them used was that of Manhattan, New York. He said that there is a lot of money there and people buy more “stuff” than you can imagine. Apparels was one specific example I remember. I found this to be interesting as it didn’t occur to him or concern him that we could very easily become a China or India.
 

Again I simply wanted to share this experience. As an aside my best friend (who is a Mortgage Officer) borrowed my copy of “Five Short Blasts” many months ago and has finally got around to reading it. He has called me on multiple occasions and conveyed his interest and acceptance of this theory. It was definitely a wake-up call or at least an exercise in awareness for him and he said he was going to read it again.

-Brian D.

Another Crack in Globalization

http://www.forbes.com/opinions/2008/03/25/globalization-recession-bernanke-banks-oped-cx_pm_0326morici.html

A couple of posts ago, I included a link to a TIME Magazine article that warned of our trade deficit.  Now Forbes, a financial magazine, has jumped on the bandwagon!  The tide of opinion is turning against globalization and our trade deficit.  I generally agree with Mr. Morici’s article, but do not agree with his method for reducing the deficit – cutting fuel consumption and somehow just buying less stuff from China.  He essentially blames Americans for consuming too much.  This seems to be a popular conclusion about the trade deficit these days.  But it’s wrong.  We’re not consuming any more on a per capita basis than we used to.  The problem is that the manufacture of virtually everything – even American passports – has been outsourced to foreign suppliers. 

The only way to address the trade deficit is with the remedy proposed in Five Short Blasts:  a tariff structure on manufactured goods that is indexed to the population density of our trading partners.  And there are no remedies to our dependence on foreign oil that don’t begin with stabilizing and ultimately reducing our population.  Conservation measures, while fine and also necessary, if taken alone will only make room for more people and ultimately exacerbate the problem. 

Pete

Cracks Appearing in Globalization?

http://www.time.com/time/magazine/article/0,9171,1725094,00.html

It’s a significant development in the fight for a sensible trade policy when a major pubication like TIME Magazine acknowledges that our enormous trade deficit is a problem.  There is definitely a building groundswell of dissatisfaction with what our trade policies have done to our economy.  For example, when articles about trade appear in USAToday, the comments come fast and furious from those upset with our trade deficit.  Virtually no one is defending it.  If only our political leaders would recognize this wave of discontent, things may actually begin to change.

There are some inaccuracies in this article, but first I want to high-light some important statements that TIME has exactly right:

That problem is America’s vast, unsustainable trade deficit with the rest of the world. The deficit has created stuffed storehouses of dollars and dollar-based securities at many of America’s most important trading partners. The dollar reserves are especially large in Asia, where export-oriented countries like China and Japan have run large trade surpluses with the U.S. The Bush Administration has attempted to pin the blame for the trade deficit on “unfair” practices by foreign countries. Special abuse was reserved for China. Bush has maintained that Beijing’s manipulation of its currency, the yuan, made Chinese-produced goods exceptionally cheap and as a result they have flooded the U.S. market.

This argument is nonsense and always has been. Since China ended its currency peg in mid-2005, the yuan has risen 17% against the dollar and hit an all-time high last week. But the trade deficit with China hasn’t budged.

The trade deficit hasn’t budged because currency values have nothing to do with the root cause of the deficit – the disparity in population density and per capita consumption between the U.S. and China and so many other of our trading “partners.” 

And if you don’t believe TIME, then how about Warren Buffett?

America, Buffett warned, was facing the same fate. “Our trade deficit has greatly worsened, to the point that our country’s ‘net worth,’ so to speak, is now being transferred abroad at an alarming rate,” Buffett wrote.

But, like I said there are some bad misstatements in this article.  Let’s begin with the sentences that followed that first quote above:

The real cause of the trade deficit is that Americans spend too much and save too little. That’s true for both the government, with its mammoth budget deficits, and the average consumer. American household debt reached $13.8 trillion at the end of 2007, or more than double the amount in 1999. This debt-financed consumption has led to a level of imports well beyond the nation’s ability to pay for them. Americans have no one to blame but themselves.

Nothing could be further from the truth.  Americans have simply been trying to sustain their standard of living.  It wasn’t their choice to out-source the manufacture of virtually everything.  What choice do they have?  In almost every case, there simply aren’t any American-made alternatives. 

Here’s another one:

That’s why today’s turmoil in U.S. financial markets will end in a massive transfer of wealth from America to the rest of the globe.

Today’s turmoil began with the massive transfer of wealth to finance the trade deficit, now totaling a cumulative $9 trillion since 1976.  The transfer of wealth has already happened and continues at a rate of $700+ billion per year.

The housing bust, the subprime catastrophe, the Bear Stearns evaporation, and the tanking markets have already dented household wealth. But this is just the beginning. These events are only the trigger to a larger problem that affects America’s standing in the global economy.

Again, TIME has the cause and effect reversed.  The housing bust and subprime catastrophe are due to wages not keeping pace with inflation, forcing average Americans to resort to subprime mortgage terms just to be able to “afford” (or so they thought) a home. 

But the worse error is the first sentence of the last paragraph:

There is, simply put, no way out of this situation for America.

Nothing could be further from the truth.  America is still a sovereign nation.  We can withdraw from trade treaties and revise our trade policy.  We can implement the tariff structure on manufactured goods called for in Five Short Blasts.  We could completely reverse this situation in a matter of a few short years.

Pete

U.S. Leaders Not the Only Ones Clueless About Effects of Trade

http://activequote.fidelity.com/rtrnews/research_frameset.phtml?page=market_news_main.phtml?intro_page=individual_news_story.phtml%3Fstory=NEWS.CBSMW.8F86AB5237344F819A9C.37156E920336%2526pt=News%20Story%2526parentTitle=Market%20News%2526parentURL=market_news_main.phtml%2526product=ROR/256&provider=CBSMW

These Reuters stories scroll into oblivion very quickly, so the following is the text of the article:

PARIS (Reuters) – President Nicolas Sarkozy has questioned whether France and Britain could not work together to put pressure on the United States to strengthen the dollar.

Sarkozy starts a 2-day state visit to Britain later on Wednesday and in an interview with the BBC, he said the two countries could combine forces in many areas.

“For example, regarding the economy, could we not together press our American friends so that the dollar climbs,” Sarkozy said, according to a transcript of the interview released by the Elysee Palace.

(Reporting by Crispian Balmer)

Wow, it’s incredible that the French leader is utterly clueless about the effect of the U.S. trade deficit on the value of the dollar, and that it’s the rest of the world that determines the value of the dollar, not the U.S. 

Yes, Nicolas, there is something you can do about the value of the dollar.  You can start buying more American goods and eliminate the $8 billion per year deficit we have with France.  And if your British buddies want to help, they can start by eliminating the $4 billion deficit we have with them. 

Pete

Has Japan’s Population Stabilized?

http://enews.mcot.net/view.php?id=3395

Some good news for a change!  Data from Japan seems to show that their population has stabilized over the last three years.  One can only hope that Japanese government officials will stop wringing their hands over their “aging population” and realize that never-ending growth is unsustainable and a bigger threat to their economy and security than a transitory blip in the average age of their population.  And one can only hope that our own government officials will come to realize the same thing.  Hopefully, our population won’t have to increase ten-fold (to the population density of Japan’s) before we see the same result. 

Pete

A Perfect Example of Conserving Space

http://activequote.fidelity.com/rtrnews/research_frameset.phtml?page=market_news_main.phtml?intro_page=individual_news_story.phtml%3Fstory=NEWS.CBSMW.1F1D4EB8F66B4EAEACC7.0035EBFDA1B0%2526pt=News%20Story%2526parentTitle=Market%20News%2526parentURL=market_news_main.phtml%2526product=ROR/256&provider=CBSMW

It may be difficult to navigate to the above Reuters story, since these stories scroll into oblivion so quickly, but here’s a quote from the beginning of the article:

“BEIJING (Reuters) – Shifting China’s model of urbanization to favor huge supercities could boost per capita output, improve energy efficiency and help contain the loss of arable land, the McKinsey Global Institute (MGI) said on Monday.

Rapid urbanization has been a major driver of Chinese growth over the past two decades and will become more so over the next 20 years; cities will account for 95 percent of China’s gross domestic product by 2025, up from 75 percent today, MGI said.

But the institute, the economics research arm of consultants McKinsey & Co, said in a report that China could reap even greater economic benefits by adopting a more concentrated pattern of urban growth.

By enforcing land acquisition rules more strictly and by tweaking incentives for local officials, national policy makers could nurture 15 supercities with average populations of 25 million people, the report said.

Alternatively, planners could develop 11 clusters of cities with combined populations of more than 60 million people.

China currently only has two cities of more than 10 million people, Beijing and Shanghai.”

This is a perfect example of the whole premise of the theory I’ve proposed in Five Short Blasts. Of course, China has no choice but to pursue development that will improve efficient use of the land. And note the focus on the improvement of per capita output. But, as is always the case, there’s no recognition of what this will do to per capita consumption. It will decline because crowding people together into smaller spaces makes it impossible for them to own products which require a lot of space to use and store. Their homes will be smaller, reducing the consumption of materials used in their production. They’ll own fewer and smaller cars. They’ll own less of everything that takes up space in their tiny homes.

They’ll be ever more dependent on exports to sustain their bloated labor force and population. And they’ve found a partner with the U.S., ready and willing to relieve them of their unemployment and poverty, importing their unemployment and poverty and transferring U.S. wealth to China, selling off more American assets to finance it.

You have to wonder what it will take to wake this country up.

Pete

Trade with Thailand

http://www.guardian.co.uk/feedarticle?id=7399376

Thailand has a population density of 324 people per square mile, about the same as China.  And our per capita trade deficit in manufactured goods with Thailand is nearly identical to that of China, exactly what the theory presented in Five Short Blasts would predict.  But you never hear a word about our deficit with Thailand, do you? 

The point of this article is that Thailand had a small trade deficit with the rest of the world in February.  But this was due to heavy purchases of manufacturing machinery.  They’re gearing up to increase their exports!  Also note that, despite the fall of the dollar, their exports to the U.S. are actually growing.  Those who believe the falling dollar will have any lasting, meaningful effect on our trade deficit are mistaken because the value of the dollar has no relationship to the root cause of the deficit – the gross disparity in population densities between the U.S. and Thailand and so many other nations.  These nations will compensate for the falling dollar simply by cutting costs and price in order to maintain (and even grow) their market share. 

Pete

Bear-Stearns Collapse

In my “2008 Predictions,” you’ll find the following:

“Long-Shot Prediction: There will be at least one Enron-style collapse of a major financial institution as off-balance-sheet schemes unravel.”

I thought that it was a long shot but, less than three months into the year, it’s already happened!  True, JPMorgan-Chase and the Fed precluded an actual bankruptcy of Bear-Stearns, but only by a technicality.  Bear-Stearns has been around a very long time.  They actually weathered the Great Depression, but couldn’t ride out today’s economic melt-down.  It speaks volumes about how bad things are getting. 

Don’t be surprised to see an even bigger financial institution go the same route in the coming days.  Still, the government does nothing to address the root cause of this mess – our enormous, persistent trade deficit.  Until it does, expect current conditions to persist. 

Pete