Geithner: China Currency Manipulation a “Significant Issue”

January 21, 2009

http://www.reuters.com/article/companyNewsAndPR/idUSN2148652720090121

As reported in this linked article, Timothy Geithner, Obama’s Treasury Secretary nominee, when questioned about currency manipulation by China, described it as a “significant issue” and as “… an important issue for the country …” 

I’ve really got my antennae up, alert for any clues as to whether or not Obama will really take meaningful action to restore a balance of trade.  This is just one, small, early indication that he’s willing to take it on.  Yes, I’m making a bit of a leap from Chinese currency manipulation to our overall trade deficit, but why else would Obama be concerned about this issue?  Does he merely want American consumers to pay more for imports from China?  It doesn’t seem logical that that’s all he’s after.  A strengthening yuan would indeed drive up the cost of Chinese imports, but what he’s really after is a restoration of the profit potential to motivate a return to manufacturing products domestically, driving up the demand for labor which, in turn, would drive up incomes, more than off-setting any rise in prices. 

Of course, if we wait for currency valuation to improve the trade deficit, we’ll be waiting forever, just as we have for the last three decades.  The dollar may fall against the yuan, but the Chinese will simply compensate in some other way – perhaps by increasing the government’s subsidies of Chinese manufacturers – in order to hold prices down.  So the real question is how quickly Obama will run out of patience.  When he does, it’s going to be fun to watch what happens!


Reuters’ Asia Writer Fears Protectionist Sentiment in U.S.

January 21, 2009

http://www.reuters.com/article/newsOne/idUSTRE50K1H620090121?sp=true

Many mornings I wake up and wonder, “what can I write about today?” “How many ways can I keep saying the same things about overpopulation, trade and immigration?” I’m slowly learning to stop fretting about what to write, because it never fails that something like this linked article comes along. 
   
First of all, it incensed me that Reuters posted this in the “news” section of their site as opposed to the editorial section, because the piece is pure opinion from the perspective of an Asian correspondent, Andrew Marshall, Reuters’ “political risk correspondent,” a self-serving diatribe against protectionism and in support of free trade. No doubt, anything that threatens “free” trade between the U.S. and Asian nations like China, Japan, Korea and Taiwan, among others, does present them with some significant risk. So let’s have some fun dissecting this guy’s arguments. It begins with the very first sentence:

As the world plunged into the Great Depression eight decades ago, governments tried to stem the damage by erecting trade barriers, and only made the crisis worse. The risk is growing that history will repeat itself.

To begin with, prior to the October, 1929 stock market crash, which marked the start of the Great Depression, the U.S. had successfully relied upon tariffs for 153 years to maintain a balance of trade. So too did other nations and trade didn’t suffer for it. At the time, U.S. trade policy was governed by the Fordney-McCumber Tariff Act of 1922, which was widely credited for the boom times of the “roaring ‘20s.” The Smoot-Hawley Tariff Act, which many free trade cheerleaders bash as the cause of the Great Depression, wasn’t even signed into law until June of 1930, a full eight months after the depression was already well underway. And its intent was not to head off the depression. Rather, the intent of Smoot-Hawley was to streamline the tariff-setting process by setting the tariffs in fixed dollar terms instead of in percentages, thus eliminating all the hassle of determining the value of imports to be used as the basis of the percentage.

The Great Depression had nothing to do with tariffs. Rather, the small decline in trade was caused by the depression. We’ve already seen a repeat of that phenomenon with today’s recession, when November’s trade data showed a big drop in imports and exports, due entirely to the worsening global recession.

The specter of beggar-thy-neighbor protectionism has emerged as a key global political risk in 2009. In the major industrial economies and in the developing world, faith in the benefits of globalization is being replaced by growing pressure from labor unions and corporate leaders to curtail free trade.

“Beggar thy neighbor protectionism” is a term used to describe protectionist policies that work against the interests of the speaker using the term, in this case a writer representing Asian interests. By contrast, the protectionist policies employed by China and other developing nations, with the full support of the World Trade Organization, is referred to with high-minded names like “free trade” and “globalization.” Give me a break. “Free trade” hardly describes the trade situation of today’s world when the WTO enforces protectionism in favor of two thirds of its member states – the economies of which it’s trying to boost at the expense of others, most notably the United States.

By the way, isn’t it interesting how the terms “free trade” and “globalization” have become synonymous? Prior to the signing of the Global Agreement on Tariffs and Trade in 1947, the world already enjoyed vibrant trade in spite of tariffs. So wasn’t the world “globalized” already? Free trade has nothing to do with globalization. It is simply a different model of trade, one that doesn‘t work when applied to nations of grossly disparate population density.

There is wide agreement among analysts that protectionism will worsen the crisis this year. The only question is how much.

The Economist Intelligence Unit forecasts global merchandise trade will contract 1.5 percent, assuming moderate protectionist measures. But, it added, “a more aggressive move against free trade could further undermine global economic conditions and prolong the downturn”.

An adoption of protectionist trade policies like tariffs by America may, in fact, result in a worsening of the crisis in places around the globe – especially in those overpopulated nations dependent on their parasitic relationship with the U.S. to sustain their bloated labor forces – places like Japan, Korea, Germany and China. But tariffs would certainly help restore a balance of trade for the U.S. and would be a huge boon to our economy. Those other places would have to find some other way, besides robbing jobs from the U.S., to deal with their unemployment problems.
 Despite the risks, many analysts argue that a wholesale retreat into protectionism can be averted, because globalization has brought benefits governments will not want to reverse.

Cheap imports from emerging markets have brought significant benefits to consumers and companies in the developed world.

“This factor, combined with the entrenched nature of global supply chains, is likely to limit the political tolerance for protectionism, at least in the main developed-country markets and in emerging markets that are highly dependent on exports,” the Economist Intelligence Unit said.

Notice that, aside from mentioning “cheap,” the author makes no attempt to identify any of these purported “benefits” of his version of globalization. That’s because, for nations like the U.S., there are none. There’s nothing but downside – the annihilation of the manufacturing sector of our economy, the collapse of the entire economy in general, falling incomes, soaring debt and a steady decline in our standard of living. When pointing out low prices for imports for consumers, free trade cheerleaders never want you to make the connection that consumers are also workers, and that wages have fallen further than prices, destroying purchasing power, eroding our savings and making us ever-more dependent on debt.

The only thing we have to fear …

January 20, 2009
… is ignorance. Franklin D. Roosevelt may have believed that fear itself was the enemy, but he was wrong. What he really faced was ignorance of the forces that led to the Great Depression – the ignorance that allowed the forces of greed – corporate tycoons, buttressed by their well-meaning economists, armed with their primitive, 18th century theories about free trade and comparative advantage, to convince our nation’s leaders that an abandonment of successful trade policy would send exports soaring along with their self-interests. Only ignorance could have allowed that generation to believe that a $0.67 billion decline in trade volume could cause a $33 billion decline in their GDP, and that a tweaking of tariffs that had been so successful for over 150 years could have collapsed the global economy.

It’s the same ignorance we face today – an ignorance that settles for superficial explanations for the latest economic collapse – a housing bubble and sub-prime mortgage crisis – without ever questioning why we had to resort to the concept of sub-prime mortgages to make housing seem affordable in the first place. It’s the same ignorance that plagues our economists today, still adamant in their refusal to give consideration to how population growth may impact the macro-economy. It’s the same ignorance that fails to recognize the relationship between population density and per capita consumption, and what happens when nations grossly disparate in in these characteristics attempt to trade freely with each other.

It’s only ignorance that allows economists to believe that a global economy which is utterly dependent on the draining of resources of its wealthiest state can be sustained indefinitely. It’s ignorance that leads us to believe that that same state, now collapsing under the weight of its debt, can only be saved by force-feeding it more debt. It’s only ignorance that allows economists to believe that never-ending population growth is the only path to a healthy economy, or that it’s even possible.  It’s ignorance that places total trust in the World Trade Organization, loudly critical of protectionist forces in the United States while very quietly enforcing protectionism in favor of two thirds of its member countries – but not the U.S., of course.

Will Barack Obama carry on this tradition of ignorance by settling upon policy spoon-fed him by his staff and advisers, as his predecessors have done for decades? If policy is crafted by the most capable of ignorant advisers, is it any less ignorant? Or is Mr. Obama wise enough to recognize when policies recommended by his advisers are the same that have been tried before and ultimately led to where we stand now? Will he be courageous enough to trust his own instincts and reach far enough back in history to find policy -especially trade policy – that was a time-tested and proven success? For now, all we can do is hope.

 


Demos’ “Fair Trade” Approach

January 19, 2009

I received an invitation to the “Thinking Big, Thinking Forward” conference, billed as a conference on America’s economic future,  to be held in Washington, D.C. on February 11th.  The conference is sponsored by a consortium of “think tanks” including The American Prospect, the Demos World Policy Institute, the Economic Policy Institute and the Institute for America’s Future.

I admit that I had never heard of “Demos” before, so I paid a visit to their web site and quickly came across the linked paper titled Trading Up:  Win-Win Solutions to Raise Global Living Standards and Ensure the Success of American Workers

This paper espouses the “fair trade” aproach to international trade that’s favored by Obama and his incoming administration.  To summarize, this approach would include labor standards and environmental protection in trade agreements, improving the standard of living for workers in foreign countries while supposedly leveling the playing field for American manufacturing. 

This is the same tired, worn-out approach that has helped to guarantee an enormous trade deficit and loss of manufacturing jobs for the past three decades.  It’s a never-ending cycle of negotiations, baby steps forward, backtracking, followed by more threats and negotiations – all while our trade deficit expands and kills off more American manufacturing.  It places our trade policy in the hands of our trading partners, making us totally reliant on their promises to negotiate in good faith and to comply with agreements – promises that are never kept.  And it ignores the reality that, even in situations where the “playing field” has been “leveled” in this manner, the results are no different.  Take Japan and Germany as just two examples.  Nowhere are labor standards higher and nowhere is environmental protection taken more seriously.  Yet, when expressed in per capita terms (divided by the population), our trade deficit in manufactured goods with Japan is four times worse than China, while Germany’s is almost three times as bad.  Sure, advancing labor standards and environmental protections benefits the foreign workers but this also translates into making them and their industries much more productive and efficient, which only enhances their competitive position.  That’s not to say that it shouldn’t be done, but that it’s no way to combat a trade deficit and loss of jobs. 

But then Demos goes further by promoting the liberalization of trade with poor nations, eliminating tariffs on their products and helping them to spur export growth.   This is exactly the approach employed by the World Trade Organization, enforcing protectionism in favor of poor and developing countries (and it includes two thirds of its member states in that category) while demanding that the United States drop all trade barriers.  The result is predictable – more job losses and a bigger trade deficit for the United States. 

These approaches have consistently failed to restore a balance of trade for the U.S. because they fail to account for the biggest driving force of all behind the trade deficit – the disparity in population density between the U.S. and so many of these trading partners. 

Mr. Obama seems to be an intelligent, open-minded, results-oriented individual who has consistently championed the cause of the middle class and has acknowledged the damage done to the manufacturing sector of our economy by the trade deficit.  So how long will he be patient with this approach?  Is he willing to wait four years, eight years, ten or even twenty to see results?  He’d better be willing to wait even longer, since this approach has yielded a string of annual trade deficits now thirty-three years long.  Doing the same thing harder won’t change the results.  To expect different results with the same approach is Einstein’s definition of insanity. 

Raise labor standards and environmental protections around the world?  Great!  Let’s do it!  But don’t expect it to make one iota of difference in the trade deficit.  We need to scrap the failed experiment in unfettered free trade – an experiment that, in only six decades since the signing of GATT in 1947, has completely destroyed the wealth and industrial might that America built up over the first 171 years of our history through the use of tariffs to assure a balance of trade.  We’ve now tried both approaches and the difference in results couldn’t be more stark.  It’s time to return to the tried and proven trade policies that helped make this nation great.


Napolitano: Crack Down on Employers of Illegals

January 18, 2009

http://www.azcentral.com/arizonarepublic/news/articles/2009/01/16/20090116napolitano0116.html

In  a Senate hearing for her confirmation as Secretary of the Department of Homeland Security, Janet Napolitano emphasized the need to crack down on employers of illegal aliens.

Arizona Gov. Janet Napolitano, the nominee to be Homeland Security secretary, pledged Thursday to get tougher with employers who hire illegal workers.

“You have to deal with illegal immigration from the demand side as well as the supply side,” she told the Senate Homeland Security and Governmental Affairs Committee during her confirmation hearing. The committee is expected to send her nomination to the full Senate for a vote early next week.

“You have deal with what is drawing people across the border, and that is a job,” said Napolitano, a former federal prosecutor and state attorney general

Napolitano, who signed into law Arizona’s employer-sanctions bill, didn’t elaborate on her plans for dealing with employers who hire illegal workers. Some critics of immigration reform complain that law enforcement has been lax in prosecuting those employers.

Napolitano also voiced support for continued fence-building along the border, but did express concern that a fence along the entire southern border would not be as cost effective as other more high-tech monitoring approaches. 

Although Barack Obama has been supportive of “comprehensive immigration reform” that provides a path to citizenship (in other words, amnesty for those here illegally), he has also linked it to gaining control of our border.  This may be one small piece of evidence that he intends to meet that commitment. 

Beyond that, we can only hope that the reality of the challenges he faces with several of his top priorities – cutting carbon emissions and reducing our dependence on foreign oil, not to mention reducing unemployment – can only be made that much more difficult by importing more carbon emitters, more oil consumers and more laborers to be added to an ever-growing overcapacity of labor. 

He’s a smart man and not an idealogue, two qualities necessary for an open mind that’s receptive to finding and fixing the real root cause of our nation’s problems.  So we can only hope that he will come to understand that rampant population growth, exacerbated by high rates of immigration, is simply not in our nation’s best interests.  We can be proud of our heritage as a nation built of immigrants.  But there comes a time when the process of building is complete.  Like a building made of concrete,  once complete, you don’t keep pouring concrete in through the windows just to uphold the tradition of using concrete.


Bush: “Why Did the Financial Collapse Happen on My Watch?”

January 15, 2009

During Monday’s press conference, President Bush was asked whether he ever felt the burdens of the presidency.  He responded “no” and explained that one would have to be a whiner to feel burdened by the job.  He then offered an example.  “I didn’t sit around and whine about ‘Why did the financial collapse happen on my watch?'”

This statement reveals – to put it in crude terms – a sort of “shit happens” mentality toward the economy and may explain a lot about why we find ourselves in such a mess.  We see that there is no tendency in the man to look back and wonder whether his policies played a role – whether he could have done anything differently to prevent it.  It just happened.  Not my fault.  Jim Lehrer’s interview of Dick Cheney, broadcast on PBS’s Newshour on Thursday night, reinforces this attitude in the administration.  Cheney said that the administration did a good job with economic policy, citing the tax cuts and their response to the financial crisis, preventing it from becoming worse.  The financial crisis itself was something that just happened outside their control.

I’m not saying the global economic melt-down is a result of policies that Bush enacted.  On the contrary, I believe that it dates all the way back to the signing of GATT in 1947, setting up the enormous trade imbalances that doomed the global economy from the beginning.  Every president since shares some of the blame for supporting a trade regime that was nothing more than a thinly-veiled global welfare state, slickly packaged with high-minded names like “free trade” and “globalization.” 

However, Bush was the only man for the last eight years who could have done something about it.  By the time he took office in 2001, it was clear that the trade deficit was escalating exponentially out of control.  But it seems that month after month, year after year, as the trade figures grew worse, he maintained his “shit happens” mentality about the whole thing, never pondering whether it was sustainable, where it would all lead, and if he should do something about it.

There’s a lesson here for Mr. Obama.  Things don’t just happen.  You’re inheriting a world of institutions and agreements, all of which were well-intentioned but some which will ultimately prove to have been horrible ideas.  When they blow up on your watch, you can’t just sit back and say that “I didn’t create this mess and it’s just dumb luck that it came crashing down during my administration.”  Your job is to root them out and fix them before that happens.  Take a good look at the structure of the global economy, the stated goals of the World Trade Organization, our trade agreements and the results of decades of trade negotiations.  And take a good look at the results of trade policy for the first 171 years of our nations history.  Compare those results to the last few decades and decide for yourself whether it’s time to make a correction.


Americans Close Wallets; Trade Deficit Falls

January 13, 2009

http://www.census.gov/foreign-trade/statistics/highlights/monthly.html

The Census Bureau announced this morning that the trade deficit made its first significant decline in years in November, falling 28.7% from $56.7 billion in October to $40.4 billion in November, its lowest level since November of 2003.  The November deficit in goods fell by a record amount, from $69.0 billion in October to $52.4 billion in November, driven by a decline in the oil deficit from $32.3 billion in October to $19.4 billion in November.  The non-oil goods deficit, primarily the deficit in manufactured goods, which accounts for most of the job losses due to the trade deficit, declined by a more modest amount, from $35.3 billion to $31.4 billion. 

There are some important points to be made here:

  1. Any such decline in the trade deficit is very good news, but the reason for the decline is not.  Wiping out household net worth and destroying Americans’ purchasing power is no way to restore a balance of trade. 
  2. While the deficit in manufactured goods has declined, it’s still enormous.  Even if the November deficit were sustained at this level, it’s still an annual deficit of $377 billion.  Assuming that the cost of labor is about 2/3 of that cost, this accounts for over five million manufacturing jobs paying $50,000 per year that have been lost.
  3. Disingenuous economists and historians are fond of blaming the Great Depression on U.S. tariff policy, citing the small decline in the trade balance of $0.67 billion from 1929 to 1933.  So where are the economists blaming this recession/depression on protectionist American trade policies?  No one would dare suggest such a thing.  America is the most open market in the world.  So you have to wonder – if this recession is producing a dramatic decline in global trade, isn’t it possible – perhaps even likely – that the drop-off in trade in the 1930s was caused by the Depression and not vice versa?  If anything, one could make the case that it is the protectionist trade policies of the Word Trade Organization, enforced in favor of developing countries (in fact, in favor of two thirds of the WTO member states) that is to blame for this depression.  One could make that argument, but I prefer another explanation.  It is the global community’s failure to recognize the role of population density in creating huge trade imbalances that is to blame.  Protectionist WTO policies have only exacerbated the problem. 

Don’t expect this decline in the trade deficit to be the start of a trend.  Already, foreign companies are slashing jobs and costs in order to restore their U.S. sales.  And with each piece of news like this, the dollar soars and other currencies decline. 

Nothing has fundamentally changed in the trade equation.  Nothing has been done by the U.S. to extract compensation from foreign nations for their inability to provide us access to equivalent markets.  What we’re witnessing is an intensification in the global battle for employment.  Layoffs in the rest of the world are accelerating, which will cut U.S. exports and drive the trade deficit higher.  The cut in exports will drive unemployment in the U.S. higher.  Because of gross overpopulation throughout the world, labor is in a terrible state of over-supply, a fact now laid bare by the deepening global recession.  The debt-driven gravy train of the American market has ground to a halt.  The nations with the most bloated labor forces – Korea, Japan, Germany and China, among others – are going to take the brunt of this depression, but we’ll share in the pain.  The economic collision I warned of with Five Short Blasts is gathering momentum.


Is Sony “Dumping” on the U.S.?

January 13, 2009

http://www.reuters.com/article/ousiv/idUSTRE50B7LN20090113

First it was Toyota announcing a loss.  Today it’s Sony.

Japan’s Sony Corp (6758.T) will likely suffer an annual operating loss of about $1.1 billion, its first such loss in 14 years, due to sluggish sales and a stronger yen, a person with knowledge of the matter said.

The mention of a “stronger yen” is a critical point here.  It’s a clear indication that Sony lost money in the U.S., its biggest market.  “So what?” you may be wondering.  “It’s a tough economy.  Everyone is losing money.”  That’s true, but there’s a huge difference between foreign and domestic companies.  It’s a violation of international trade rules for a company to sell products at a loss in a foreign market.  It’s a practice known as “dumping” and is expressly forbidden.  It does’t matter whether it takes place in a good economy or in a recession.  It’s still dumping. 

The U.S. should immediately insist that Sony raise its prices.  If they don’t, the U.S. should lodge a complaint with the World Trade Organization.  And if the WTO doesn’t take swift action, the U.S. would be entirely within its rights to slap tariffs on Sony products, Toyota products, Toshiba products (also expected to post a loss) and any Japanese company that is selling products at a loss in our market. 

“That wouldn’t be very nice,” you may be thinking.  “We wouldn’t want them to treat us that way.”  Think again.  That’s exactly how the Japanese treat us, and even worse.  Japan sustains a $100 billion per year trade surplus in manufactured goods with the U.S.  by refusing to buy from us as much as we buy from them.  That’s approximately 1.34 million high-paying manufacturing jobs they’ve taken from our economy. 

“But we don’t want prices raised,” you may also be thinking.  “I can’t afford things as they are now.”  You can’t afford things because the downward pressure on wages caused by the trade deficit has driven down incomes more than prices have been held in check.  If the prices of imports were raised, the profit potential needed to justify manufacturing in the U.S. would be restored.  Wages would rise faster than prices.  This would be true even if you work in a field not associated with manufacturing, as job-seekers vying for your job would be pulled out of the pool of available labor and put to work in factories. 

For decades the U.S. has blamed currency valuations for our trade deficit and Japan has been a master of manipulating the yen-dollar exchange rate in its favor.  Now the global economic melt-down has overwhelmed their ability to prop up the exchange rate, and the table has turned in our favor.  It’s time to strike and force actions that will restore a balance of trade.  It’s time to stop being played for a sucker in the global trade game. 

One final comment on a quote from the article:

The company has assumed the yen at 100 yen per dollar and 140 yen per euro, compared with the current dollar/yen level of 89 yen and euro/yen level of 119 yen. A firm yen cuts into the value of its profits and makes its products less competitive in overseas markets.

A strong yen only makes Japanese products less competitive if they adjust the dollar price higher in response to the exchange rate.  Have you seen any evidence of that?  Of course not!  If anything, they’ve been cutting prices to try to prop up sales.  That’s dumping!!


Obama’s “Grand Bargain”

January 12, 2009
While being interviewed by George Stephanopolous yesterday on ABC’s “This Week,” Obama admitted that, at some point in his administration, in order to restore some fiscal sanity while pursuing his agenda, he will have to reach a “Grand Bargain” with Congress and the American people – sweeping legislation to put the brakes on spending and raise taxes to eliminate the deficits and begin paying down the debt. “Everyone will have to share the pain,” he said. “Everybody has to have some skin in the game.”
I don’t know if he’s thought this through yet but, contrary to what some “economists” may be telling him, cutting spending and raising taxes by themselves will seriously erode the purchasing power of consumers. As consumption declines, so too will employment. It’s a recipe for making the recession (or depression?) even worse, unless one more step is taken – eliminating the trade deficit. When he speaks of everyone “sharing the pain” and having “skin in the game,” is he including the exporting nations who have gotten a free ride in the American economy? Cutting the purchasing power of Americans doesn’t mean that they’ll simply stop buying imports. Go to WalMart and take a look around. See any luxury items? Of course not. Everything you see is necessities. And, aside from most of the grocery items, do you see anything that’s manufactured in the U.S.? Again, no. Sure, there’ll be fewer imported cars purchased, but sales of domestic models will decline just as fast. It’s services where the pain will really be felt – services provided by American workers.

In recent decades, as free trade policies eroded our manufacturing base, the big lie that we could somehow still have a vibrant economy was swept under a rug of debt. Americans could be made to feel just as prosperous by swapping savings for debt. We sold everything we could think of to foreign investors to raise the cash for easy credit. When we finally resorted to selling them subprime mortgages, the whole scheme came crashing down and the rising tide of unemployment that we had held at bay for so long is now topping the levee and inundating us.

Mr. Obama is a very smart man. In his efforts to restore some sanity to our fiscal mess, how long can a line item written in huge, bold red caps escape his attention? Unless Mr. Obama wants his “Grand Bargain” to accelerate our economy’s downward spiral, he’ll have no choice but to finally turn his attention to our massive trade deficit, now totaling $9.2 trillion since our last trade surplus in 1975. And, being a smart man, will he look at our decades-long strategy of complaining about currency valuations and cajoling our trade partners to abide by the spirit of agreements, and say to himself, “gee, this is working really well?” “Let’s keep doing it!” Or will he finally conclude that, just perhaps, it may be time to take some positive action – like tariffs, for example – to restore some balance? The last “skin in the game” may be the global trade welfare state.

 


7.2% Unemployment, And Rising Fast

January 12, 2009

http://www.reuters.com/article/ousiv/idUSWEN227520090109?sp=true

Unless you’ve been cut off from civilization since Friday morning, you’ve probably already watched and read countless stories of the news reported in this linked article, that the economy shed another 524,000 jobs in December, raising the unemployment level from 6.7 to 7.2%.  So my purpose in writing this post is not so much to inform as to provide some additional commentary from a perspective missed by the mainstream media. 

But first, since I’ve been maintaining a running tally for 2008, it’s appropriate to close the book by observing that a total of 2.6 million jobs were lost in 2008.  And 1.8 million new workers entered the labor force during the same time, thanks mostly to immigration but also due to young workers entering the labor force faster than older ones retire.  Thus, our economy actually came up short by4.4 million jobs in 2008, which is about 2.9% of the labor force. 

At least one analyst has forecast that we could begin seeing job losses of one million per month.  More economists are acknowledging that the economy is far worse than they realized, using terms like “deepening” and “severe recession.”  Friday, Dr. Peter Morici, economics professor at the Univeristy of Maryland, was probably the first to assert that we have actually entered a depression, noting that a recession is self-correcting while the current economy, without massive intervention, is doomed to spiral out of control. 

When I made my 2009 predictions back in November, including such things as a trillion dollar stimulus package and 10% unemployment, at least one reader called them “far-fetched.”  In only two short months, not only do such things not seem far-fetched, they are beginning to look conservative.  I’m beginning to think things could actually get much worse. 

As the economic crisis has evolved, analysts have made comparisons to earlier recessions, but the comparisons are steadily moving backward in time.  At first, conditions were the worst since some time earlier in the decade, like following 9/11.  Then it was the recession of the early ’90s.  Then the early ’80s or the ’70s.  Now we’re beginning to see the specter of the Great Depression. 

The U.S. economy slipped into recession in December 2007 and the 12-month downward spiral is already the longest since the early 198Os. If it lasts more than 16 months, it will be the longest recession since the Great Depression.

“We expect the jobs hemorrhage to continue through much of 2009,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.

“The current pace of job losses means that the unemployment rate will rise into the 9 percent to 9.5 percent range — at a minimum — before leveling off.”

The collapse of the U.S. housing market triggered the worst financial crisis since the 1930s, and businesses and consumers alike have retrenched, with shock waves spreading worldwide.

This financial crisis was not triggered by the collapse of the housing market.  It’s no more valid to stop the backward retracing of the chain of events with the housing market collapse than it would be to stop with the collapse of AIG.  Why did the housing market collapse?  Because people couldn’t afford to pay their mortgages.  Why?  Because their low incomes made them ineligible for traditional loan terms.  Why are their incomes low and declining?  Because trade policies have exported more and more jobs, leaving labor in a state of over-supply.  Ahhhh, now we’re getting somewhere. 

And the unemployment situation is even worse than the headline numbers would have you believe:

More worryingly, the number of people working part-time for economic reasons reached 8 million in December, up from an already high 7.3 million, and the labor underutilization rate, which includes discouraged job seekers, jumped to 13.5 percent from 12.6 percent.

Not surprising when weekly first-time jobless claims are now consistently above 500,000, an annual rate of 26 million workers or 17% of the labor force. 

In light of these conditions, isn’t it time to consider that economists really don’t know what the hell they’re talking about?  Oh, they know a lot about economics, a field akin to contemplating one’s navel, in which each knows the other’s theory and all of the arguments for and against them, and they debate them endlessly.  But all of it has little relevance to what’s happening in the real world.  I once heard economists described as people who are good with numbers, but don’t have the personality to be accountants.  I’m afraid it’s not true.  They’re not even good with numbers.  They can’t handle the rigorous addition and subtraction required to maintain a balance sheet.  If they could, who among them would be advocates of a perpetual trade deficit? 

It’s time to look elsewhere for answers.  There are very logical reasons for our economic demise and equally logical remedies.  If you’re a new visitor to the site, may I suggest that this site and my book, Five Short Blasts, would be a good place to start?