Real Per Capita GDP Declines at 7.5% Rate in 4th Quarter

February 28, 2009

The BEA (Bureau of Economic Analysis) revised its calculation of GDP for the 4th quarter, 2008 GDP yesterday.  Instead of declining at an annual rate of 3.8%, as announced on January 30th, the revised figure is 6.2%.  But GDP alone doesn’t adequately describe what happened to your share of the economic pie. A better measure is “real per capita GDP,” or GDP divided by the population of the U.S. (By the way, the term “real” means that the data is adjusted for inflation.) Since the population of the U.S. grew in the fourth quarter at an annual rate of 1.2% (adding 850,000 people in the 4th quarter), then real per capita GDP declined at an annual rate of 7.5%, from $38,413 per person in the 3rd quarter of 2008 to $37,693 per person in the fourth quarter. This is also the fourth decline in the last five quarters, a string interrupted only by a small rise of 0.45% in the 2nd quarter of last year, thanks to last year’s stimulus package. Real per capita GDP is now lower than the 1st quarter of 2007 when it hit $37,808. And no one expects it to do anything but decline further in the coming months.

It’s the rate at which the economy is deteriorating that’s the most disturbing.  Real per capita GDP declined at an annual rate of 1.5% in the 3rd quarter.  One quarter later, that decline has jumped to 7.5%.  If this rate holds, this recession will cross over from recesssion to depression by the end of the year.  (A depression defined as a decline in real GDP of 10% or more.)  No one is forecasting that this rate of decline will continue, but it wouldn’t surprise me a bit.  Not a single economic indicator is showing improvement, and nothing has been done to address the trade deficit or the explosion in our population.  Until one of both of those happens, the economic outlook will remain grim.

Advertisements

1st Immigration Raid of Obama’s Administration

February 26, 2009

http://www.kirotv.com/news/18797142/detail.html

The first immigration raid of an employer under the new Obama administration took place yesterday in Bellingham, Washington.  One third of the work force at an engine remanufacturing company, a total of 28 people, mostly illegal immigrants from Mexico, were arrested.  Three were later released.  The others are awaiting decisions regarding deportation. 

Statements and actions by Janet Napolitano, Obama’s new Secretary of Homeland Security, following the raid, give me cause for concern:

The secretary of Homeland Security has ordered of a review of an immigration raid in Bellingham in which a third of the employees of an engine manufacturing shop were arrested.

Janet Napolitano said she wants to know why Tuesday’s raid took place and said immigration enforcement should be focused on employers who hire illegal immigrants.

Uh, yeah, Janet.  Doesn’t this pretty much fit the bill?  Obviously, the raid was justified since it found that a full third of the company’s employees were illegals.  I hope that Ms. Napolitano is just re-stating department policy instead of condemning such actions.  Does she really want to come across as being sympathetic to illegal aliens at a time when 15% of the American work force can’t find a decent job? 

Of course, there’s always the bleeding hearts who come out in support of the criminals:

“Attacking workers, taking away the primary breadwinner, destroying a local business and leaving families torn apart is simply un-American and unjust,” said immigration advocate Pramila Jayapal with OneAmerica.

Nobody is tearing apart families here.  ICE (Immigration and Customs Enforcement) is simply enforcing the law and sending illegals home.  Their families are free to return with them.  And no one has destroyed the company.  They will find no shortage of American workers eager to take over.  (Although I’m sure some immigrant advocacy group will claim that building engines is another example of the kind of work that Americans won’t do any more.  Funny, there sure seems to be plenty of laid-off auto workers here in Michigan who would love to be doing that work.)

Napolitano would be better advised to issue strong statements of support for ICE and strong condemnations of illegal workers following such raids, unless she wants to destroy morale at Homeland Security.


Energy Consumption Per Capita: Are Americans Wasteful?

February 26, 2009

https://www.nationalpriorities.org/energy_consumption_per_capita

Here’s an example of how public policy can go awry when the relationships between population density, per capita consumption and employment are not clearly understood.  Click the above link to see a chart of energy consumption per capita for seven different countries.  Recently, I’ve seen something similar posted on various blogs that deal with issues like energy policy and global warming, and in each case the conclusion of the author has been the same – that since Americans use far more energy per capita than other wealthy nations like Germany, Japan and the U.K., then Americans are wasteful and great oil savings (and reductions in carbon emissions) could be realized by becoming as efficient as those nations at the right hand side of the scale. 

At first blush, it seems like a reasonable conclusion, doesn’t it?  After all, the image that immediately comes to mind regarding the relatively higher energy consumption in America is gas-guzzling SUVs, right?  And the image that comes to mind regarding Japan is fuel-efficient cars like the Toyota Prius.  There is some smattering of truth there, although no one thinks about the fact that there are far more Priuses on the road in the U.S. than there are in Japan. 

More importantly, the conclusion that America is wasteful and great energy savings could be realized is erroneous because population density and its relationship to per capita consumption, together with the economic consequences of that relationship,  haven’t been taken into consideration.  In the cases of Japan, Germany and the U.K., their per capita energy consumption is low not because they are more efficient than the U.S. but because their extreme population densities have driven down per capita consumption of nearly everything.  (Japan is ten times as densely populated as the U.S. while Germany and the U.K. are about seven times more densely populated.  Also, notice that, with the exception of the tiny city-state of Luxembourg, the left side of the scale includes the sparsely populated nations of Canada and Australia.) 

For example, consider the effect upon the per capita consumption of dwelling space in Japan.  It’s only 30% of that in the U.S., not because the Japanese like living in tiny homes, but because there is no room for anything larger.  So the energy used to light, heat and air condition their homes, in per capita terms, is only 30% of that in the U.S. as well.  Now, that may sound like a good thing from an environmental perspective until you consider the economic ramifications.

Not only is their per capita energy consumption in their homes reduced to 30% of the U.S., but so too is the per capita employment in all industries associated with building, furnishing and maintaining their homes.  Making matters worse, their per capita consumption of nearly everything, along with their per capita employment in those industries, with the exception of food and clothing, is similarly affected to a greater or lesser extent by their extreme over-crowding.  This leaves them with an enormous glut of labor that can only be gainfully employed by manufacturing products for export.  In essence, this over-crowding and low per capita consumption transform them into a parasitic economy, feeding on the markets and manufacturing jobs of nations like the U.S.

So the only way to reduce per capita energy consumption in the U.S. to a Japan-like level is to cut our overall per capita consumption of everything to their level.  The problem is that this would also cut per capita employment, just like in Japan, but without any other U.S. to turn to for employment of the resulting labor glut.  This would drive unemployment through the roof and start a world-wide decline of living standards. 

So let’s back up and consider the real problem, which is not the per capita consumption of energy but the total, world-wide consumption of energy.  If we want to reduce it, the correct approach is not to drive it down in the U.S., a move that would send global unemployment soaring, along with poverty around the world, but to dramatically reduce the population in overpopulated nations like Japan, Germany, the U.K., China, Korea and so many other places.  Yes, this would actually allow their per capita consumption of everything to rise, but the net effect would be a significant reduction in total consumption while allowing living standards to rise around the world.   

It’s imperative that we understand the economic consequences of overpopulation if we want to avoid a move toward well-intentioned policies that make a complete mess of the global economy.


Obama’s Address to Congress: Clues About Trade Policy

February 25, 2009

While others may have listened to the president’s speech to Congress last night with an ear for remarks about the stimulus package, mortgage assistance, plans to cut the deficit and some general economic cheerleading, I was listening for clues about what I consider our two most important long-term challenges:  eliminating the trade deficit and stabilizing our population, immigration being the most important aspect of the latter point.

A few days ago, I posted about some hints I was seeing and hearing that, while the administration is outwardly distancing itself from a protectionist approach to trade, they recognize the gravity of the trade deficit problem and are working on it behind the scenes.  (See  Administration Working Quietly on Trade Deficit While Disavowing Protectionism?)  So I was listening intently for any further evidence of this.  For the first half hour or so of the rehash of the economic stimulus plan and bank bail-outs and economic happy talk, I must admit I was growing impatient to hear anything new.  Then came this: 

We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet, it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we’ve fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea.

Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either. It is time for America to lead again.

He delivered that first paragraph with a look of disgust on his face.  It was a clear signal that he’d like to see products made domestically again.  OK, it wasn’t much, but he piqued my interest.  But the following, delivered later in the speech, really got my attention:

And to respond to an economic crisis that is global in scope, we are working with the nations of the G-20 to restore confidence in our financial system, avoid the possibility of escalating protectionism, and spur demand for American goods in markets across the globe. For the world depends on us to have a strong economy, just as our economy depends on the strength of the world’s.

To me, that’s a clear indication that the U.S. has sent the G20 a message that the U.S. can no longer prop up the global economy by sustaining a huge trade deficit, and that the G20 has agreed.  It sounds as though they’ve made a commitment to cut or eliminate the deficit by spurring demand for American goods in their own countries.  I’ll admit that I may be reading too much into this, but it seems to corroborate some other things I’ve heard.

Will the G20 hold up their end of the bargain by boosting American imports?  These nations have promised this before, but never before has the global economy been collapsed by the trade imbalance.  They don’t want to see it happen again.  But to believe it and commit to it is one thing.  My prediction is that they will fail and the trade deficit will persist, because the economies of badly overpopulated nations are incapable of increasing their consumption.  It will now be interesting to see how much patience the Obama administration has as the trade deficit persists month after month.  Although Obama has expressed a desire to “avoid the possibility” of a turn to protectionism, that’s not the same as an outright rejection of such an approach if others fail.

And finally there was this, just one more indication of his concern with the trade deficit:

… we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.

And the speech was notable for what it didn’t include.  There was not a single mention of anything to do with immigration policy.  Not a peep.  The bad news is that we desperately need real immigration reform that includes dramatic cuts in legal immigration, but the fear was that Obama would do the opposite and even advocate for amnesty for illegal immigrants already here.  So far, there’s been no evidence of that and the lack of any immigration talk last night is further indication that he has no interest in boosting immigration.  As I’ve said before, how could anyone as smart as Obama believe that some of his highest priorities – cutting our dependence on foreign oil and reducing carbon emissions – won’t be made more difficult by importing more oil consumers and more carbon emitters?

One last item:  we can all expect the price of fuels to soar as a result of the following:

But to truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy. So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. And to support that innovation, we will invest fifteen billion dollars a year to develop technologies like wind power and solar power; advanced biofuels, clean coal, and more fuel-efficient cars and trucks built right here in America.

A “market-based cap” would be a plan to tax fuels, making them more expensive and making alternative energy sources more cost competitive.  This sounds like the plan I proposed in Obama’s Opportunity to Kill Three Birds with One Stone.  If it’s kept revenue-neutral by returning those taxes to the taxpayers in the form of reduced income taxes, then it’s nothing to fear.  And, as I proposed, if the fuel consumed by ships delivering imports is included (after all, someone should account for this huge consumption of fuel), then this too would go a long way toward making domestically-produced products more attractive.

If I’m right about all of this – that this administration is committed to eliminating the trade deficit – then there’s great cause for optimism.  We could see an economic renaissance in this country the likes of which we’ve never witnessed before. 


Administration Working Quietly on Trade Deficit While Disavowing Protectionism?

February 21, 2009

We’ve been getting some mixed signals from the Obama administration so far regarding trade.  During his confirmation hearings, Geithner branded China a currency manipulator, to everyone’s delight except China.  Then he reassured the G7 that the U.S. was committed to avoiding a return to protectionism.  Then the “buy American” provision is included in the first pass of the stimulus package, only to be watered down with a clause about complying with our trade obligations after howls of protest from Canada and Europe.

More recently, during his visit to Canada, Obama reassured the Canadians about trade with the U.S. (as well he should), while discussing with president Harper ideas about revising NAFTA to include environmental and labor protections, which would seem to be aimed more at Mexico than Canada, which is where the real problem lies. 

What’s going on here?  Is the administration committed to reducing and eliminating the trade deficit, or isn’t it?  Without going into too much detail, during a meeting with a U.S. congressman this week (during which I presented him with a copy of Five Short Blasts), I got the impression that the administration, including the Federal Reserve, understands very well that the trade deficit is the single greatest threat to our economy.  Since there was no press present, the congressman may have felt more at ease in sharing things told him in confidence, so I won’t elaborate.  And I may be reading way too much into it, but I left with the impression that this issue is going to be addressed. 

Is it possible that the administration is maintaining a public posture of disavowing protectionism to prevent stirring up fear and anger in the global community while quietly implementing policy, in whatever form it might take, that will reverse our trade imbalance? 

Here’s another example.  Buried in this linked article about Paul Volcker’s comments at a luncheon with economists is this Volcker quote:

The current crisis had its beginning in global imbalances like a lack of savings in the United States, but policy-makers around the world were too reticent to take action until it was too late, Volcker said.

When he speaks of “global imbalances” and the “lack of savings in the United States,” isn’t he really talking about the trade deficit without actually saying it?  The cause and effect relationship between the trade deficit and our lack of savings is widely understood.  And, in using the lack of savings as an example of global imbalances (by his use of the word “like”) he’s implying that there are others, and everyone knows that trade is the worst global imbalance of all. 

Time will tell.  If this is the approach, I think the administration will eventually discover that the trade deficit simply won’t respond to measures small enough to fly under the radar.  I predicted that the administration would take such an approach, essentially trying harder at the failed approaches of the past until, hopefully, it realizes that a more direct approach, like a return to tariffs, is the only way to get the job done. 

But, for now, I’m taking some comfort in signs that it at least the administration recognizes the problem.


Parasites Fret Over Health of Host

February 19, 2009

http://www.reuters.com/article/ousiv/idUSTRE51I1NH20090219

I don’t like to use inflammatory or insulting rhetoric, so my apologies to the good people of Japan.  But Japan’s concern about the health of the U.S. automakers, as reported in the linked article, is perfectly analogous to parasites fretting over the health of their host. 

A healthy U.S. auto industry is vital for a sound U.S. economy and by extension for Japanese carmakers, a Tokyo-based auto lobby said, giving a tacit nod to the latest request for federal aid from ailing rivals in Detroit.

There is no one on earth more responsible for the sickening of the U.S. automakers than Japan, a nation incapable of consuming its own automotive productive capacity and who thus resorts to feeding on the American market.  They come to the trade table with an enormous glut of labor, hungry for work building cars for Americans, while offering nothing in return.  In fact, considering that our per capita trade deficit in manufactured goods with Japan is 4-1/2 times worse than that of China, there may be no one on earth who bears more responsibility for America’s overall economic collapse (and perhaps the global economic collapse) than Japanese automakers. 

Free trade cheerleaders loudly proclaim the many benefits of free trade and, when pressed for examples, the one they fall back upon in those situations where no others can be identified is “low prices for consumers.”  But when it comes to trade with Japan, one of the wealthiest nations on earth, whose cars have no price advantage over American models (in many cases they’re more expensive), free trade barkers can’t even claim this as a benefit. 

The U.S. has nothing to gain from trade with Japan and other nations with similar huge gluts of labor, badly overpopulated and desperate to prey on other economies to provide jobs for their surplus of workers.  That doesn’t mean that we should refuse to trade with them, but it does mean that tariffs must be employed to maintain a balance of trade in these situations. 

In many cases, free trade is a wonderful thing and the U.S. enjoys a very beneficial trade relationship with many nations.  But it’s important to recognize that trade in manufactured goods with overpopulated nations inevitably establishes a relationship in which the U.S. serves as host to a parasitic economy dependent on exports.  The time has come for the global community to deal with the problem of overpopulation instead of relying upon the U.S. market to sustain it.


Falling Dollar to Help Trade Imbalance? Wrong!

February 18, 2009

Economists tell us that a falling dollar will help to correct our trade deficit by making imports more expensive (restoring the profit potential to manufacture domestically) and by making our exports less expensive for foreign customers.  It seems to make sense.  But I have maintained all along that it won’t work.  What economists fail to recognize is that foreign trade, especially in manufactured products, is less about sourcing products where they are made most cost effectively than it is about a global war for employment.  Our foreign competitors will never cede their U.S. market share just because of changes in the exchange rate.  They’ll simply do whatever is necessary to cut prices. 

Solid evidence of that was released by the U.S. Bureau of Labor Statistics this morning when it made its monthly release of changes in import and export prices.  In spite of the dramatic decline of the dollar vs. virtually every other currency on earth, our export prices rose by 0.5% last month while import prices declined 1.1%.  Not convinced by month-to-month swings?  OK, compared to year-ago prices, export prices declined by 3.6%, but import prices declined by more than three times that amount, or by 12.5%! 

Recently, nearly every major Japanese company has reported big losses, blaming the strengthening yen.  In the last couple of days, Daimler (maker of Mercedes Benz) has also reported a loss.  This means that these companies have been selling products at a loss in the U.S. – in other words, “dumping” – a practice expressly forbidden by the World Trade Organization.  But they’re doing it anyway in order to prop up market share, knowing that it’ll take years for the U.S. to catch on, register a complaint with the WTO, and for the WTO to act after a lengthy appeals process.  By then, they’ll have found another way to keep their prices low and maintain market share. 

There’s been lots of talk recently about the potential for a trade war.  I have news for you:  we’ve been in a trade war for decades and we’re losing badly because we’re not even putting up a fight.  We’re the global doormat.  When it comes to competing in a trade war, we’re about as effective as France is in fighting a real war. 

The time has come for America to stand up for itself again and address the enormous imbalances in trade in manufactured goods that we have with the badly overpopulated nations of the world – China, Japan, Germany, Korea, Mexico and others – who prey on our market and rob of us jobs to sustain their badly bloated labor forces.