Recession Continues in 2nd Quarter of ’08, Now Entering 4th Consecutive Quarter

July 31, 2008

The recession that began in the 4th quarter of 2007 continued in the 2nd quarter of this year and is now entering its 4th consecutive quarter. 

“Wait a minute!”, you may be saying.  “GDP grew at an annual rate of 1.9% this past quarter.  How can you call this a recession?”  The classic definition of a recession is two consecutive quarters of decline in GDP.  But that’s a terrible definition.  A much better definition is declining per capita chained GDP – in other words, GDP adjusted for inflation and population growth.  If this figure declines, then that means that every American’s share of the economy is getting smaller. 

In the 2nd quarter of ’08, per capita chained GDP declined 2.6%.  While total GDP grew at an annual rate of 1.9%, inflation rose at an annual rate of 4.2%.  So chained GDP fell by 2.3%.  And since the population grew during the 2nd quarter by about 900,000 people, or about 0.3%, then add that to the drop in chained GDP for a decline in per capita chained GDP of 2.6%.  This was the third consecutive quarter of decline.  Many experts expect at least two more quarters of such decline. 

By far, the biggest contributor to the decline is the trade deficit.  Eliminating the trade deficit would boost GDP by 5.7%.  Cutting legal immigration would also boost per capita chained GDP by 0.1% by slowing the growth in the number of “capitas.” 

Here’s some key excerpts from the article:

An emergency dose of government stimulus helped the economy grow at a 1.9 percent annual rate in the second quarter …

… Revised data from the Commerce Department released with the second-quarter figures on Thursday showed national output shrank in the final quarter of 2007…

… The moderation in core prices came despite a jump in overall prices of 4.2 percent …

… Payrolls have declined for six straight months, and analysts expect a drop of 75,000 to be reported for non-farm payrolls in July.

And matters are getting worse.  Just today, first time unemployment claims rose to 458,000 this week.  That’s an annual rate of about 15.5% of the entire labor force applying for unemployment every year. 

How bad will things have to get before the government acknowledges that our trade policies are unsustainable?

Good News: Illegal Immigrants Leaving

July 31, 2008

The linked article is from the Center for Immigration Studies.  It’s a report of their findings regarding changes in the immigrant population.  It concludes that, based upon census results that find that the population of illiterate Hispanic immigrants is shrinking, that it is the population of illegal immigrants that is actually declining, a reasonable assumption.  The CIS is a an organization that is dedicated to influencing national policy toward reduced immigration, so one could argue that this is a self-serving report.  However, one could also argue that such a report tends to diminish concern about illegal immigration; thus, it wouldn’t be in the interest of CIS to publish it if it were not true.  So, all things considered, I tend to believe the report as a factual study.  Decide for yourself.  It it’s true, this is indeed very good news and is solid evidence that enforcement is working and that it needs to be sustained and even intensified. 

The following are the key findings of the study:

  • Our best estimate is that the illegal immigrant population has declined by 11 percent through May 2008 after hitting a peak in August 2007.
  • The implied decline in the illegal population is 1.3 million since last summer, from 12.5 million to 11.2 million today.
  • The estimated decline of the illegal population is at least seven times larger than the number of illegal aliens removed by the government in the last 10 months, so most of the decline is due to illegal immigrants leaving the country on their own.
  • One indication that stepped-up enforcement is responsible for the decline is that only the illegal immigrant population seems to be affected; the legal immigrant population continues to grow.
  • Another indication enforcement is causing the decline is that the illegal immigrant population began falling before there was a significant rise in their unemployment rate.
  • The importance of enforcement is also suggested by the fact that the current decline is already significantly larger than the decline during the last recession, and officially the country has not yet entered a recession.
  • While the decline began before unemployment rose, the evidence indicates that unemployment has increased among illegal immigrants, so the economic slow-down is likely to be at least partly responsible for the decline in the number of illegal immigrants.
  • There is good evidence that the illegal population grew last summer while Congress was considering legalizing illegal immigrants. When that legislation failed to pass, the illegal population began to fall almost immediately.
  • If the decline were sustained, it would reduce the illegal population by one-half in the next five years.

We DO NOT Import $700+ Billion Worth of Oil!!!

July 30, 2008

This is starting to drive me nuts.  T. Boone Pickens, in his ad about our dependence on foreign oil, included a statement that we are sending over $700 billion to foreign countries every year.  That’s true, but IT’S NOT ALL FOR OIL!!!  Less than half is for oil.  The rest represents our trade deficit in manufactured goods. 

Now I’m hearing this repeated everywhere.  During a campaign stop today, even McCain repeated this misunderstanding – that we’re sending $700 billion to foreign oil producers, “much of which can end up in the hands of terrorists,” he said.  Unbelievable!  Even one of our presidential candidates doesn’t understand even the basics about our trade deficit.  He gets his economic information from ads on TV, and it’s not even accurate. 

Everyone, please, watch the Pickens ad carefully!  You’ll see that he doesn’t say that this money is spent on oil.  Is that any reason to be less concerned?  Actually, we should be much more concerned!  At least the deficit in oil doesn’t also include a loss of eight million manufacturing jobs! 

Our trade deficit is, by far, the single greatest factor behind the destruction of America’s economy.  It merits enough attention for people to at least understand the very basics of the problem.

Report Details Huge Toll of China Trade Deficit

July 30, 2008

A report released by the Economic Policy Institute reveals just how damaging “free” trade with China has been for American workers.  In fact, I believe the report even understates the damage.

The U.S. trade deficit with China cost 2.3 million American jobs between 2001 and 2007, the Economic Policy Institute said on Wednesday in a report likely to fuel debate about free trade ahead of November elections.

Even when they found new jobs, workers displaced by job loss to China saw their earnings decrease by an average of $8,146 each year because the new jobs paid less …

I believe the job losses are actually twice as high.  Do the math.  Our annual trade deficit with China is about $250 billion.  Experts say that 2/3 of the cost of products is labor.  That means that about $164 billion worth of jobs have been lost.  If you assume each such job paid $40,000 per year, that’s a total of 4.2 million jobs, not 2.3 million.  And that’s just trade with China.  Trade with other overpopulated nations accounts for another $250 billion of the trade deficit.  That’s yet another 4.2 million jobs.  A total of 8.4 million high-paying manufacturing jobs lost to idiotic trade policies based on 18th century economic theories.  That’s enough jobs to employ the entire work force of the state of New York.

It’s time for those theories to be tossed onto history’s scrap heap of failed theories.  And it’s time to give their economist proponents the heave-ho as well.  We need a new breed of economists willing to remove the rose-colored glasses and return to the basics of balancing our trade books.

Tide Turning on Globalization?

July 30, 2008

First of all, in an article I posted yesterday, I predicted that the U.S. would cave in to the demands of China and India in the “Doha round” of trade negotiations at the WTO (World Trade Organization).  I’ll be the first to happily admit that I was wrong!  As reported in the above article, the talks completely collapsed yesterday, and some say they may not be revived for years, if ever.  Is it possible that the tide is turning on globalization?  Could it possibly be that U.S. leaders are beginning to recognize the incredible damage that’s been done to our economy by parasitic, overpopulated nations? 

We can only hope.  There’s one particularly revealing paragraph in this article that deserves comment:

The talks’ failure may mark a watershed after two decades of increasing globalization. The collapse comes against the backdrop of a weakening global economy and growing opposition to foreign trade and the associated high-profile job losses in the U.S. The Doha Round, named for the Qatari capital where the talks began in November 2001, was designed to benefit poorer nations by reducing trade-distorting farm subsidies. The U.S. and Europe would reduce their generous payments to farmers, it was hoped, in return for broader access to developing countries’ markets for industrial goods.

This is an unusually frank admission that free trade has been harmful to the U.S. economy and that the real agenda of these talks was not to advance the concept of free trade but to benefit poorer nations.  I’ve said over and over again that this is the real agenda of the WTO, to transfer America’s wealth around the world and that it does this by actually enforcing protectionism for two thirds of its member states. 

The following paragraph merits comment as well:

… The issue that scuttled the talks involved a demand by India and China for the right to increase tariffs if food imports surged. Both countries have several hundred million small-scale farmers whose livelihoods would be threatened by larger, more efficient U.S. and European producers.

Oh, I see, it’s OK for China and India to protect domestic production.  They demand the right to raise tariffs if imports surge.  What about the $250 billion of imports (from China alone, in excess of exports) that have wiped out millions of high-paying manufacturing jobs in America?  If America so much as utters a peep of complaint, we’re mocked as “protectionists!” 

It’s time to fight fire with fire and bring back the tariff policies that the U.S. relied upon for the first 171 years of its history to protect domestic industry from such predatory practices.  It’s time to eliminate the trade deficit.  The “developing world” (especially China) likes to brag that it has “decoupled” from the U.S. economy.  It’s time for them to prove it.  Let’s wean them from America’s free trade breast. 

Economists: America’s Worst Villains?

July 29, 2008

America is on the brink of what may be history’s greatest economic collapse, similar to but greater in magnitude than the pre-Nazism collapse of Germany. And we have economists to thank – economists advising our leaders and formulating economic policy. This article is a good summary of the sorry state of modern economics. It’s pretty lengthy, so I’ll just comment on a few noteworthy passages, especially the point dealing with free trade.  (It should be noted that the author of this article, Guy Sorman, is a French economist and that France enjoys a large trade surplus with the United States.  No suprise that he’s a big fan of free trade!)

The uncontrolled printing of currency destabilized Weimar Germany, facilitating the rise of Nazism.

History is repeating itself in the U.S. today. The uncontrolled printing of currency to counter the effects of our enormous trade deficit is undeniably destabilizing America. The only question is what will arise in America when the economic collapse happens. Will it survive at all?

Opening economies and promoting trade have helped reconstruct Eastern Europe after 1990 and lifted 800 million people, many of them in China, Brazil, and a now-license-free India, out of poverty. Even in Africa and the Arab Middle East, nations that have embraced capitalism have begun to escape from the terrible underdevelopment that has long plagued them.

Behind all this unprecedented growth is … a scientific revolution in economics, as yet dimly understood by the public but increasingly embraced by policymakers around the globe. … No longer does economics lie; no longer would Baudelaire be able to write that “economics is a horror.” For the mass of mankind, on the contrary, it has become a source of hope.

Here, the effects have been correctly identified, but not the cause. All of this rise in wealth around the globe has been bought and paid for by America – by the transfer of $9 trillion from America’s economy to the rest of the world through its staggering trade deficit. No wonder the rest of the world is thriving! Economics now perpetrates the biggest lie in the history of the world on the American people. It has graduated from being a liar and a “horror” to an abomination.

2. Free trade helps economic development.As Smith observed when his native Scotland began to benefit from free trade, it is through access to the world market that poor nations become rich. … Free trade also makes rich countries richer, economists agree.

We now know that free trade helps poor, overpopulated nations become rich, and wealthy, overpopulated nations to become even richer at the expense of wealthy, less densely populated nations like America.

By importing less expensive goods made in low-wage nations like China, wealthy nations effectively increase their own citizens’ income—and the main beneficiaries are poor and middle-class people, who can buy cheaper clothes, electronics, and myriad other goods.

The evidence speaks otherwise. Incomes in America have been steadily declining since free trade took root and began wiping out millions of high-paying manufacturing jobs. And when incomes decline faster than prices, people are poorer. Period. Regardless of the price of junk at Wal*Mart.

In fact, economists have long understood the law of comparative advantage: whenever differences in the cost of producing goods exist between two countries, both will benefit from free trade, a mechanism that allocates their resources most effectively.

That law has now been disproven by the rapid decline of America’s economy. The “law of comparative advantage” breaks down between two nations grossly disparate in population density. Since it doesn’t even consider the role of population density, it is not a law at all but a flawed, incomplete theory at best. At worst, it’s a failed theory that belongs atop history’s scrap heap of failed theories.

Free trade not only generates the greatest possible growth; it tends to distribute it widely, both within nations and among them. For evidence, consider the emergence of vast middle classes in all free-market societies, as well as the economic convergence among nations that have embraced capitalist economics. After less than 20 years of market-driven growth, Brazil, China, and India—whatever their injustices—are closer to the Western level of development than they were before that growth got under way.

This does not mean, as some observers fret or gleefully predict, that the United States is about to stop leading the world economically. Other nations may draw closer to it—Western Europe in 1950 had a per-capita income half that of the U.S.; now it’s 80 percent—but the American economy has remained the world’s most vigorous for more than a century because of its superior efficiency, demographic dynamism, and innovation.

This is the biggest lie of all. In spite of the listed advantages of the American economy, it has lost badly to predation by the parasitic economies of overpopulated nations. We now stand at the precipice of total economic collapse, our economy having been drained of trillions of dollars of wealth and our assets sold off and placed in control of the parasites. We’ve been transformed from the world’s greatest industrial power – the wealthiest and most envied nation on earth – into the world’s economic laughingstock, a pathetic, hollowed-out shell of what it once was.

There are a very few good, open-minded economists who objectively evaluate the destruction of America’s economy and acknowledge the folly of unfettered free trade. This is not an indictment of them. But the remainder are an absolute disgrace, clinging like drowning rats to the sinking ship of their failed 18th century theories of Smith and Ricardo, in spite of the mountain of evidence piling up to discredit the very “laws of economics” they use to rape and plunder America’s economy. If America survives, a very open question, they will likely go down in history as America’s greatest villains.

WTO Negotiations: U.S. Gives, China and India Take

July 29, 2008

Here’s yet another example of America’s prowess in trade negotiations and why the U.S. economy is now collapsing under the weight of an unbearable trade deficit. The WTO (World Trade Organization) is in a panic to conclude its Doha round of negotiations before Bush leaves office, knowing that he is a patsy who will sign anything. And, of course, America’s ambassador to the WTO cares nothing about the U.S. economy. He’s a Bush stooge who is working hard to please his boss. So he has literally given away the farm (by agreeing to huge cuts in farm subsidies, not to mention more cuts for American manufactured goods), and is now surprised that China and India are reneging on previous “voluntary” agreements.

The outcome here is predictable. The U.S. will cave in and back off of its demands, and there will soon be an agreement. The U.S. will cut subsidies and tariffs (what few remain) and China and India will not. There’s nothing you or I can do about that. But when the agreement comes to a vote in Congress, that’s where we’ll have our say. I’ll keep you posted as to when this happens and when we all need to bombard our legislators with calls and letters to prevent the further compounding of our national economic disaster.