Real Per Capita GDP Falls at Annual Rate of 7.0% in First Quarter

April 30, 2009

Yesterday the Bureau of Economic Analysis reported that real GDP (“real” means adjusted for inflation) fell in the first quarter at an annual rate of 6.1%.  But that only measures the size of the economic pie.  What matters to you and me is the size of our slice.  So a more meaningful gauge of the economy is real per capita GDP – adjusted for growth in the population. 

Since the U.S. population grew by 580,000 people in the first quarter (an annual growth rate of 0.76%) then real per capita GDP fell at an annual rate of 7.0%.  This follows a decline of 7.4% in the 4th quarter of 2008 and a decline of 1.6% in the 3rd quarter of 2008. 

At $36,998, real per capita GDP has fallen by 3.9% from its peak of $38,516 in the 2nd quarter of 2008 and is now at a par with real per capita GDP in the 2nd quarter of 2005. 

Two additional facts must be kept in mind in evaluating this data.  First of all, the BEA’s “real” GDP figures are totally dependent on their calculation of changes in the Consumer Price Index.  There are those who believe that the government underestimates inflation, most notably economist John Williams.  (See “Shadow Government Statistics.”) 

Secondly, it must be remembered that even real per capita GDP is not a measure of Americans’ purchasing power.  All increase in per capita GDP is due to increases in productivity and, contrary to what most economists would have you believe, there is no relationship between productivity and income.  Income is a function of the demand for labor.  So even an increase in real per capita GDP is no proof of a rise in the standard of living.

And what’s happening to the demand for labor?  The Labor Department reported this morning that another 631,000 workers filed for unemployment last week, and continuing claims jumped dramatically to 6.27 million, the 15th straight weekly increase.  Annualized, these weekly jobless claims work out to 32.8 million people losing their jobs every year, or 23% of the work force.  Given that data, it doesn’t take a genius to figure out that the demand for labor is falling fast and so too will wages and benefits. 

If the Obama administration wants to help the economy, it can stop giving away a big chunk of the pie to the parasitic economies of export-dependent countries and it can stop importing people to share what pie is left.  And the best way to help Americans improve their purchasing power is to boost the demand for labor relative to the size of the labor force.  Shrinking the denominator in that equation is the most effective way to do it.  Stop giving away our market to labor forces that consume no American-made products, and stop ballooning our own labor force by importing more foreign workers.  It’s just common sense.


Farewell, Pontiac.

April 28, 2009

http://www.usatoday.com/money/autos/2009-04-27-gm-kills-pontiac_N.htm

Taking yet another step toward oblivion, General Motors announced today that it will kill the Pontiac brand in 2010.  Thus ends another proud American name-plate, sacrificed on the altar of “free” trade. 

President Obama had the power to breathe new life into the domestic auto industry when he took office by restoring a balance of trade in the auto industry, demanding that Japan, Korea, Germany and Mexico begin buying as many American-made autos as we buy from them, or face tariffs and import quotas.  This would have almost instantly doubled domestic auto sales, breathing new life and profitability into GM, Ford and Chrysler, even as we headed further into recession.    Additional shifts would have been added and idled plants restarted.  This would have been a stimulus plan that put the one he opted for instead to shame.  Instant results. No expense to the taxpayer.

But no.  That would have made him a turd in the punch bowl at the G7 and G20 parties.  Much better to drive the domestic automakers into bankruptcy, slash pay and benefits, kill off thousands of dealerships, stiff bondholders and shareholders and stick taxpayers with the bill.

What a shame.  Pontiac made some of the most iconic models of all time including the G.T.O. and Firebird.  I’ve only owned one Pontiac in my life, a used ’84 Fiero which, aside from my first car, a ’73 Corvette, was the most fun car I’ve ever owned.  A mid-engined, 4-speed sports car with a composite body, independent suspension, four-wheel disc brakes and incredible handling for only $4,000.  High insurance rates finally killed off demand among its target demographic.  Too bad.  It was a terrific sports car at a great price. 

In my opinion, Pontiac still has the most attractive styling of all of the GM products available today (except Corvette, of course).  The Pontiac G6 is as stylish as anything in its class and the styling of the G8 is in a class by itself.  Then there’s the Solstice – the equivalent of a BMW Z4 at almost half the price.  I’d be driving one now if I was in the market for a new car. 

Obama has said that America needs a vibrant auto industry.  But the plan seems to be to down-size it out of existence.  In 2004, Oldsmobile bit the dust.  Today it’s Pontiac, Saturn and Hummer.  Along with those cuts come the closing of more plants, the elimination of almost half of its dealership network and the elimination of 21,000 more jobs. 

If this was all part of a process of slowly reducing our population to a sustainable level, I wouldn’t have a problem with it.  But killing off the last vestiges of the manufacturing sector of our economy even as the population is expected to grow by at least 100 million people in the next forty years is a recipe for an economic catastrophe.  Oh, wait, we already have one!


Japan Pays Foreign Workers to Leave

April 25, 2009

http://www.nytimes.com/2009/04/23/business/global/23immigrant.html?_r=2

Give the Japanese credit.  They stick together.  Their corporations are fiercely loyal to their workers, guaranteeing lifetime employment.  And, as demonstrated in this linked article, their government is just as loyal and proactive in trying to maintain extremely low unemployment.  With only 4.4% unemployment (a figure sure to rise, though, as huge drops in exports begin to bite), the Japanese government has implemented a program that pays foreign workers to leave the country, in return for a promise to never seek work in Japan again.  Here are key excerpts from the article:

Rita Yamaoka, a mother of three who immigrated from Brazil, recently lost her factory job here. Now, Japan has made her an offer she might not be able to refuse.

The government will pay thousands of dollars to fly Mrs. Yamaoka; her husband, who is a Brazilian citizen of Japanese descent; and their family back to Brazil. But in exchange, Mrs. Yamaoka and her husband must agree never to seek to work in Japan again.

“I feel immense stress. I’ve been crying very often,” Mrs. Yamaoka, 38, said after a meeting where local officials detailed the offer in this industrial town in central Japan.

“I tell my husband that we should take the money and go back,” she said, her eyes teary. “We can’t afford to stay here much longer.”

Japan’s offer, extended to hundreds of thousands of blue-collar Latin American immigrants, is part of a new drive to encourage them to leave this recession-racked country. So far, at least 100 workers and their families have agreed to leave, Japanese officials said.

The program is limited to the country’s Latin American guest workers, whose Japanese parents and grandparents emigrated to Brazil and neighboring countries a century ago to work on coffee plantations.

In 1990, Japan — facing a growing industrial labor shortage — started issuing thousands of special work visas to descendants of these emigrants. An estimated 366,000 Brazilians and Peruvians now live in Japan.

Mr. Kawasaki led the ruling party task force that devised the repatriation plan, part of a wider emergency strategy to combat rising unemployment.

Compare this action to the U.S. where, in spite of 8.6% unemployment (which is certain to rise above 10% this year), the government still imports foreign workers at a furious pace, yielding to corporate lobbies eager to hold down labor costs by flooding the labor market and exacerbating unemployment.


“De-Development” Underway in Flint, MI

April 23, 2009

http://www.cnbc.com/id/30346822

In Chapter 12 of Five Short Blasts, I offered two opposing visions of the year 2050 in America – one a grim future  in which our population has exploded to 455 million people, and the second its polar opposite, in which our population has been slowly and carefully managed downward to 260 million. 

I’ll admit that I considered omitting this chapter from the book out of concern that such visions could seem a bit “kooky” to the majority of people, hurting the credibility of what was otherwise a serious treatise on the topic of overpopulation.  But I felt it was important to give people a sense of how things could be, as opposed to what they’re likely to become if nothing is done. 

As a nation, I can already see certain elements of the first vision unfolding as we continue to grow our population by three million people per year.  Frankly, I never expected to see any elements of the second vision come to pass.  So it was with great surprise that I came across this above-linked article this morning, detailing efforts underway in the city of Flint to begin razing entire sections of the city and returning it to forest.

Dozens of proposals have been floated over the years to slow this city’s endless decline. Now another idea is gaining support: speed it up.

Instead of waiting for houses to become abandoned and then pulling them down, local leaders are talking about demolishing entire blocks and even whole neighborhoods.

The population would be condensed into a few viable areas. So would stores and services. A city built to manufacture cars would be returned in large measure to the forest primeval.

Part of the 2nd vision in Chapter 12 was a federal agency to manage the orderly “de-development” as our population slowly declined.

In searching for a way out, Flint is becoming a model for a different era.

 

Planned shrinkage became a workable concept in Michigan a few years ago, when the state changed its laws regarding properties foreclosed for delinquent taxes. Before, these buildings and land tended to become mired in legal limbo, contributing to blight. Now they quickly become the domain of county land banks, giving communities a powerful tool for change.

Indianapolis and Little Rock, Ark., have recently set up land banks, and other cities are in the process of doing so. “Shrinkage is moving from an idea to a fact,” said Karina Pallagst, director of the Shrinking Cities in a Global Perspective Program at the University of California, Berkeley. “There’s finally the insight that some cities just don’t have a choice.”

Of course, all of this is taking place in reaction to economic realities, as opposed to being part of a plan for an orderly down-sizing of our population in order to improve our standard of living and quality of life.    But, once completed, the net effect will be the same.  It won’t be pretty to watch it unfold but, relieved of excess labor capacity, Michiganders who remain will be better off.


Geithner Calls for Trade Balance

April 23, 2009

http://www.reuters.com/article/newsOne/idUSWAT01129920090422?sp=true

Speaking at the Economic Club of Washington on Wednesday, U.S. Treasury Secretary Tim Geithner took on the trade deficit and essentially admonished the rest of the world to do its part to bring it down.

Speaking to the Economic Club of Washington, Geithner said it was essential to find a better-balanced model for world growth that relies less on U.S. consumers as economies bid to climb out of the steepest downturn in decades.

“We must set ourselves on a path so that one country, or group of countries, does not consume in excess while another set of countries produces in excess,” he said.

Geithner’s remarks are part of a concerted campaign by the Obama administration to push developing countries to stimulate domestic demand and cut reliance on exports for growth.

Geithner will repeat the message on Friday when he hosts a meeting of G20 officials after a regular gathering of finance ministers and central bankers from the Group of Seven major industrial powers.

This is a good sign that the Obama administration “gets it” when it comes to the role of the trade deficit in ruining the finances of the U.S. and ultimately collapsing the whole global economy.  It’s a good sign, but I’m under no illusion that it’ll work.  This is the same tactic employed by every administration for decades, although never at such a high level.  In the past, U.S. trade representatives have chastised nations like Japan and China to lower trade barriers.  In response, they’ve been patted on the head and sent on their way, leaving their foreign trade counterparts rolling in the aisles with laughter.

But then came the global financial melt-down.  No one’s laughing now.  And now it’s the Treasury Secretary and the President himself speaking of the need for the rest of the world to stimulate their domestic economies and stop relying on exports. 

But exactly how will this happen?  Will Americans consume less because growth in the economy grinds to a halt, because their purchasing power is permanently eroded by unemployment?  Or because they will mysteriously choose to start saving more, resisting the force-feeding of debt needed to restart the economy?  Or will some mechanism prod American consumers to choose domestically-made products over imports?  How will other nations be able to stimulate domestic demand at the same time that their export factories are closing down?

There’s no question that the administration understands the problem.  The question is what they will do when the rest of the world, especially overpopulated nations that are utterly dependent on their parasitic trade relationship with the U.S., proves unable to stimulate domestic demand or unwilling to fall on the sword to help us out.


Are U.N. Goals Eliminating Poverty or Spreading It Around?

April 21, 2009

For those who wonder why the U.S. pursues policies that seem not to be in the best interest of the American people – trade policy foremost amongst them – you can find the answer in the the United Nations’ “The Millenium Development Goals Report.”

The U.N. web site provides the following paragraph as a background explanation of the Millenium Develpment Goals:

 The eight Millennium Development Goals (MDGs) – which range from halving extreme poverty to halting the spread of HIV/AIDS and providing universal primary education, all by the target date of 2015 – form a blueprint agreed to by all the world’s countries and all the world’s leading development institutions. They have galvanized unprecedented efforts to meet the needs of the world’s poorest.

These goals were formally agreed to and adopted by the U.S. at the “Millenium Summit” meeting of the U.N. in September, 2000. 

In September 2000, building upon a decade of major United Nations conferences and summits, world leaders came together at United Nations Headquarters in New York to adopt the United Nations Millennium Declaration, committing their nations to a new global partnership to reduce extreme poverty and setting out a series of time-bound targets – with a deadline of 2015 – that have become known as the Millennium Development Goals.

There are eight goals set forth, each with various specific “targets” for achievement.  For the sake of brevity, I won’t list them all here.  You can find them at http://www.un.org/millenniumgoals/bkgd.shtml.  The goals are on the right hand side in red.  Click each to read the goal and its associated targets. 

Most of these are laudable goals:  cutting poverty, improving education, reducing child mortality, fighting AIDS, halting environmental degradation and so on.  But it’s the final goal that may shed light on the genesis of our global economic collapse:

Goal 8:  Develop a Global Partnership for Development

Target 1:  Address the special needs of least developed countries, landlocked countries and small island developing states.

Target 2:  Develop further an open, rule-based, predictable, non-discriminatory trading and financial system.

Target 3:  Deal comprehensively with developing countries’ debt.

Work on these development goals began in the early 1990’s.  Following a decade during which the U.S. trade deficit had peaked at $151 billion in 1987, by 1991 it had fallen back to only $31 billion, a mere 0.5% of U.S. gross domestic product.  Even as late as 1997 it was only $108 billion or 1.3% of GDP.  Few imagined that our trade deficit could present much of a problem. 

Then, as now, economists believed that there were no limits to growth for which there were no technological solutions.  Every worker displaced by trade  in a developed country like the U.S. would find new work providing products and services that we couldn’t even imagine.  Economic development would grow the demand for products just as fast as it unleashed new workers on the global labor market.  Through gains in efficiency, recycling and substitution, resources shortages could be avoided indefinitely; and technology could mitigate all consequences for the environment.  And then, as now, economists refused to acknowledge the possibility of overpopulation and had no understanding of the relationship between population density and per capita consumption, nor its potential for accelerating unemployment and poverty.   Against this backdrop, world leaders naively believed that living standards could be elevated for all without dragging down the living standards in the developed world and without addressing the rapidly escalating problem of overpopulation. 

And so, eager to lead the world in doing its share, the U.S. began aggressively eliminating what trade barriers remained, even as the World Trade Organization enforced such barriers in favor of undeveloped and developing countries like China and India.  Disparities in population density between the U.S. and such nations created an enormous imbalance in global trade that sowed the seeds of the great economic collapse of 2008.  Only six years after the millenium summit, the U.S. trade deficit exploded to nearly $800 billion – more than 6% of our GDP.  American assets were sold off at a furious rate to finance the deficit, and a mountain of debt was built to mask the effects of declining incomes and net worth. 

Poverty has been alleviated to some degree in some developing nations, but now we see that it has come with a price.  Unemployment is soaring with the world now glutted with excess labor and productive capacity.  Instead of eliminating poverty, this grand plan of the U.N. is merely diluting it and spreading it around.  Read the one-page forward to the U.N.’s report (use the above link), and you’ll get a picture of high-minded goals that are now in complete disarray.  The U.N. is now calling for rich nations to intensify their efforts and accelerate the delivery of aid.  But the nation that was richest at the time that these goals were adopted – the U.S. – has now been completely drained of every penny of its wealth in support of these goals, necessitating that any additional aid be funded on the backs of taxpayers or by the outright printing of money.  But it can’t be sustained, and that reality is slowly sinking in.   Although the world still clings desperately to its economic fantasyland where obstacles to endless growth and development can be magically wished away, that dream is beginning to slip from its grasp.

While these millenium goals of the U.N. might be attainable in a world that was reasonably populated, they never had a chance of success in the real world where an enormous glut of labor lay dormant in grossly overpopulated nations like China and India.  Once unleashed on the global market, their nearly limitless productive capacity, combined with markets emaciated by over-crowding, has decimated the once-healthy economies of the developed world. 

Without addressing overpopulation, these millenium goals are doomed to failure.  And the field of economics should shoulder the lion’s share of the blame.  The time is long past for economists to drop their platitudes about the ingenuity of mankind and their childish refusal to consider the ramifications of population growth and start behaving like real scientists.  Start pondering what endless population growth does to an economy.  How will people live?  What will be the effect on the size of their homes, on their ability to own and operate vehicles, on their ability to enjoy recreational pastimes?  What will this do to per capita consumption?  To per capita employment?  If economists did begin asking such questions, they’d soon realize that decent living standards for all are impossible in a state of overpopulation.  A new economics would emerge.

Then will be the time for world leaders to reconvene and adopt a new set of goals, grounded in reality, freed of illogical assumptions and focused like a laser on the real issues that hold back human development.


To Pull the Economy Out of the Crapper, Buy American!

April 20, 2009

There comes a time when you have to put your money where your mouth is. 

A few days ago, my wife discovered a crack in one of our toilets.  The crack had started at the top of the bowl, below the lip, and had propagated downward, ending at the water line.  If it went any further, we’d have a leakage problem.  So it was time to buy a new toilet.  Oh, joy.

So we were off to Lowe’s.  They had a nice display of a big selection of toilets.  We wanted one that was elongated (not round), with a good flush rating.  Several models seemed suitable, so we narrowed down our selection to an American Standard model, based on price. 

But just before closing the deal, I asked the salesperson where these toilets were made, fully expecting to hear that none of them were made in the U.S.  She explained that the American Standard toilet we had selected was made in Mexico, but there was another, the Kohler model that, to my surprise, was made in the USA, in Wisconsin. 

So we stopped and reconsidered.  The American Standard was $225.  The Kohler was $248.  Which was better?  Who knows?  A toilet isn’t one of those things you can take for a test drive, at least not while the salesperson or other customers are looking. 

For us, the decision was easy.  The American Standard went back on the shelf and we took the Kohler home with us.  It was simple to install, looks great and flushes as advertised. 

As a general rule of thumb, about two thirds of the cost to manufacture a product is labor.  My $248 Kohler toilet probably cost about $150 to manufacture.  So $100 of labor went into that toilet.  For a premium of $23, I was able to put $100 back into an American worker’s pocket.  Had I bought the American Standard, I’d have spent $225 without putting back a penny. 

It’s kind of like the “paying it forward” concept that has become so popular among philanthropists.  If I invest in helping someone out, it’ll eventually come back around at a time when I might need the help myself.  If we all bought American on those occasions when we have the choice, it’d make a huge difference in our economy, fueling a big demand for labor to fill high-paying manufacturing jobs.  What’s an extra $23 for a toilet if a high demand for labor causes me to get a $100/month raise? 

So buy American!  If we’ve learned anything over the past year, it’s that low prices for foreign-made products don’t mean much if you’ve lost your job and have no income at all.  Instead of benefitting from low prices, we can now see that the loss of jobs has left our economy in the crapper!