Pets in Japan

July 29, 2009

Thanks to my wife for taping Sunday’s episode of “CBS Sunday Morning,” which was devoted to the subject of animals.  I watched it last night.  One of the segments covered what seems to be a new phenomenon in Japan – pets.  As it turns out, it’s a perfect example of my theory at work – an example I hadn’t thought of but could have predicted if I did – so I thought I’d share it with you. 

It’s hard to believe that something as simple having pets – so ubiquitous in American society – has only more recently caught on in Japan.  Now everyone there wants one.  But there’s just one problem.  A large percentage of the population lives in tiny apartments where pets aren’t allowed.  So the CBS story highlighted a sort of “rent-a-pet” boutique where, for $25 per hour, people could rent a dog to walk around on a leash.  There was a long line outside the shop – people waiting patiently for the opportunity to experience this simple pleasure.

So here’s yet another example of how a high population density erodes per capita consumption.  Think about what this does to the per capita consumption of all products associated with pet ownership – veterinary services, pet food and all the paraphernalia that goes along with owning Fido or Kitty:  leashes, chew toys, beds, scratching posts, etc.  The cost of owning a medium-sized dog in America is over $1,000 per year.  So, for every 25-50 dogs in America, another job is created.  Since the median family income is about $48,000, if the average family had one medium-sized dog, it would contribute 2% to our GDP and likely account for three million jobs .  Cut that figure in half, as would easily happen in a population density like Japan, and that’s a 1% cut in GDP.  That’s not huge but, hey, all we’re talking about here is pets.  Extend that to every other product and you start to understand how a rising population density begins to erode employment. 

Some will say that this has nothing to do with a high population density – that the Japanese people are either predisposed to living in tiny accommodations or they are more enlightened than Americans, choosing a more efficient existence.  Nonsense.  The average Japanese family would upgrade their digs to a 1,500 square foot home (modest, but about the median for Americans) in a heartbeat if they could.  But it’ll never happen for them, not in their wildest dreams.  Japan is just way too crowded.  They’ll never be able to enjoy a modest home, a garden, a lawn, a lawnmower, a car in the garage or even a garage.  Nor would Americans or any other people who allowed their population density to grow to that level. 

Imagine living in these conditions.  Imagine waiting in line to rent a dog for an hour.  Imagine living in a home where leaving space for two people to pass each other is a critical factor in determining how to position your sparse furniture.  Imagine commuting to work every day in a train so packed with people that you can barely move because owning a car is too impractical.  Imagine that simple pleasures like playing golf or tennis or going to the beach must be planned far in advance because of the crushing demand for those facilities.  Finally, imagine what all of this does to per capita employment when more and more people are forced to share the same amount of space, fewer facilities and fewer products. 

If you can imagine these things, especially that last one, then you’re on your way to an understanding of global economics that eludes the most respected of economists.


More Useless Trade Talks with China, Part II

July 28, 2009

As evening news programs carried the opening remarks by President Obama and Treasury Secretary Tim Geithner at the U.S.-China talks that began in Washington, D.C. yesterday, it became clear how the administration envisions that the “fundamental changes” in our economy, in which Americans will save more, will somehow create jobs.  As I said in my post yesterday, saving money has never created a single job.  Only spending money creates jobs.

It seems that the plan is for the spending to take place in China.  The U.S. will save more, buying fewer goods from China, while China will boost its own economy to a level where their consumers will buy more American-made products.  When you think it through, you realize that this plan can only work if Chinese manufacturers take it upon themselves to move their operations from China to the U.S., and then ship the products back to China. 

I’m sure that the Obama administration, looking into the audience of 150 delegates from China and seeing the puzzled looks on their faces, concluded that they were wrestling with the language barrier and translation issues.  Instead, what they were really seeing was probably bewilderment and disbelief.  The Chinese were surely thinking to themselves, “are these guys nuts?”  “We have a labor force that’s twice the size of their entire population and we’re supposed to buy products from them?  We can’t even employ our own people!” 

So let me get this straight.  We buy all of the products we need from China.  And China will buy some of what they need from us.  Does any of this make any sense whatsoever, especially when you consider how much all of this shipping will increase carbon emissions from ships transiting the Pacific at the very same time that we’re trying to cut carbon emissions?  Wouldn’t it make a hell of a lot more sense, for both the U.S. and China, to just manufacture everything domestically? 

Of course it does.  The problem is that the Obama administration has already disavowed any measure that would provide real impetus to shift manufacturing back to the U.S., because any measure that tended to do that would be considered “protectionist.”  So how is this going to work?  Is WalMart going to tell China “no thanks, we’ve decided to make our own stuff here in the states.”  Will they just let their shelves run empty, waiting for American suppliers to materialize out of thin air?  Even if they did, wouldn’t those new suppliers more likely be in India, Bangladesh, or some other place that’s bursting at the seams with excess labor capacity?  What good does it do to focus on China alone when, relative to size, our trade deficit with other nations is even worse? 

With each passing day, woefully defective economic theory guides the shaping of the global economy in an ever-more convoluted and dysfunctional direction.  Political leaders and economists alike don’t understand the relationship between population density, per capita consumption and unemployment.  They don’t see the role played by population density disparities in setting up persistent trade imbalances.  All they need to do is look to the example of trade between the U.S. and Japan to see that economic development has absolutely no hope of improving a trade imbalance between two nations grossly different in population density. 

It all comes down to this:  trade policy based on flawed economic theory can never be anything but bad trade policy, and can never yield anything but bad results.  The Obama administration is making the same mistake as previous administrations when it tries to correct for that policy by asking other nations to act in our interest instead of theirs.  As proven by a cumulative trade deficit of $9.4 trillion amassed over thirty-three consecutive years, that approach is naive and doomed to failure.

More Useless Trade Talks with China

July 27, 2009

A delegation of 150 Chinese officials is in Washington today for bilateral talks on a host of issues, trade and the economy being foremost among them. 

With the global economy mired in recession, the United States and China begin talks Monday to seek a solution together despite tensions over currencies, the U.S. budget deficit and the huge U.S. trade gap with China.Ultimately, how well the U.S. efforts succeed could help determine how fast the economy recovers and how many U.S. jobs might be created once it does.

Three years ago, Henry Paulson, then Treasury secretary, used the talks to press Beijing to let its currency, the yuan, rise in value against the dollar, to make it cheaper for Chinese to buy U.S. goods. U.S. manufacturers blame an undervalued yuan for record U.S. trade deficits with China — and, in part, for a decline in U.S. jobs.

The U.S. efforts have yielded only mixed results. The yuan, after rising in value about 22 percent since 2005, has scarcely budged in the past year.

I have news for the writers of this article:  there were absolutely zero results.  Yes, the yuan rose in value, but it had no effect on our trade deficit with China, which has continued to rise.  That’s because currency valuations have almost nothing to do with the trade deficit – the best example being what’s happened between the U.S. and Japan over the past few decades.  While the value of the yen soared against the dollar by over 300%, our trade deficit with Japan soared as well.  This sounds counter-intuitive, but facts are facts.  It’s not currency valuations that drive trade deficits, it’s large disparities in population density. 

But the Obama administration intends to remain focused on the trade gap. It plans to stress at the talks Monday and Tuesday that China can’t rely on U.S. consumers to pull the global economy out of recession this time. In part, that’s because U.S. household savings rates are rising, shrinking consumer spending in this country.

“Perhaps the most important message we are going to have for the Chinese is that there has been a fundamental change in the U.S. economy,” said a senior administration official, who briefed reporters on the meetings under rules that did not permit use of his name. “The U.S. economy is going to recover, but it is going to be a different type of recovery than what the Chinese have seen in the past.”

Give the Obama administration credit for finally understanding the role of the trade deficit in wrecking our economy.  But that enlightenment hasn’t translated into action, other than to substitute high-level officials like Geithner for low-level flunky trade delegations at these talks.  The approach remains the same – talk, talk, talk.  Complain about currency valuations.

But there’s a slightly different twist this time – talk about fundamental changes in the economy that will cause Americans to save more.  In yet another display of the tortured logic of economics that has guided the policies of administrations for decades, the Obama administration somehow believes that saving money and spending and consuming less will create jobs – American jobs.  It’s just not true.  Saving money has never created a job for anyone.  It has other benefits for the economy and for individuals’ finances, but it doesn’t create jobs.  Only spending money and buying things and services creates jobs. 

That’s not to say that people shouldn’t save money.  There was a time when people could do both – buy the things needed to improve their standard of living and save at the same time.  They could do this because there was a strong demand for labor that kept incomes rising faster than inflation.  It was before the dawn of economic enlightenment that said we would somehow benefit by giving away the whole manufacturing sector of our economy. 

So it’s a complete mystery how the Obama administration envisions changes in the economic relationship between the U.S. and China creating jobs for Americans.  OK, so we cut spending and start saving more.  How does that create jobs?  The only thing that would create jobs would be if American consumers began choosing American-made products in favor of Chinese products.  How can that possibly happen when (a) in most cases, there are no American-made alternatives, and (b) the administration has vowed not to undertake any protectionist measures that would make American-made alternatives cheaper than Chinese products.  Increase the value of the yuan?  That won’t do anything.  Chinese manufacturers will simply cut their prices to maintain market share. 

Oh, and don’t even get me started about why the administration singles out China to fix our trade deficit when, in per capita terms, our deficit with China barely makes the top twenty.  Japan, Germany, Korea, Mexico and a whole host of others with worse trade imbalances (relative to the size of the nations)  get a free pass.  It makes no sense.

This kind of illogical, misguided, fractured and bumbling approach to trade makes me want to scream and, I’m sure, leaves our trade partners alternately rolling their eyes, scratching their heads, or rolling in the aisles with laughter once we’ve gone.

Prius Commercial Illustrates Economic Theory

July 25, 2009

In countless discussions with economists and non-economists alike, I’ve been amazed at how difficult it seems to be for people to grasp the new economic theory I presented in Five Short Blasts – that beyond a certain point, over-crowding begins to erode per capita consumption, inevitably driving up unemployment. 

I sometimes suggest that people consider the extreme limit – a world that is so densely populated that it is literally carpeted with human flesh.  In such an extreme case, per capita consumption would fall to virtually zero since there is no room for anything other than people, packed together so densely that a ping pong ball tossed into the crowd couldn’t find its way to the ground.  In such an example, it’s intuitively obvious that employment would also fall to zero.  (If no products are consumed, then no employment in producing and distributing products is available.)  Unemployment would rise to 100%.  It’s just simple math.  If per capita consumption is a function of population density (a parabolic function that rises to some point and then begins to decline) and the limit is zero when population density rises to infinity, then per capita consumption can only decline as the limit is approached, no matter how far away that limit may seem. 

That world is portrayed perfectly in the Toyota Prius commercials that have been airing on television lately.  A Prius wends its way down a one-lane road through a world where, except for the road, people occupy every square foot.  What appears to be grass is, upon closer examination, a field of people dressed in green, packed tightly together and waving, as though blowing in the breeze.  What appears to be blue streams are actually people dressed in blue, bounding along like bubbling, flowing water.  Even the sun itself is a ball of people, dressed in bright yellow and red.  The only object visible, other than people, is the Prius. 

Pictured in the commercial is a world where economists’ illogical premise that population growth can forever be used as an engine for economic growth has arrived at its logical conclusion – a world where people own and consume nothing.  There is no room for anything, other than to stand in one spot, wave in the breeze, and watch one car go by down a narrow road.  (Unexplained in that commercial is where the steel, glass, rubber, plastic and lithium batteries used to assemble that car, and the gasoline used to fuel it, came from.) 

But now imagine that you’re a Prius salesman, tasked by your boss with selling a Prius to every potential consumer in that picture.  After making your pitch, touting the eco-friendliness of the vehicle, your first potential customer replies “that seems like a very nice car, very eco-friendly, but no thank you.” 

“Why not?”, you ask.  “Well, for starters, just where the hell would I park it?”, comes the reply.  “There’s no place to build a garage.  And, besides, where would I drive it?  It’s so crowded here that there are no stores, no places of employment, nothing.  It’s so crowded that we don’t even have farms!”  (The dark side of the commercial, unseen by the viewer, is that the people in the Prius world survive only by cannibalism!)

Unfortunately for you, the Prius salesman, being a blade of grass and waving in the wind doesn’t pay well.  With no consumption in Prius-Land – there are no houses, no other vehicles, no golf clubs, no boats and, for obvious reasons, no lawn mowers (yikes!) – there is also no employment.  There isn’t even a textile mill to make new costumes to replace the ones worn by the blades of grass, sure to wear out as they constantly rub against one another as they wave in the breeze.  No one earns a dime. 

So, good luck selling those Priuses (or anything) in Prius-Land.  Fortunately for Toyota, the Prius commercial ends as the Prius drives into the sunset, sparing you what happens soon thereafter.  Had the cameras kept rolling, you’d have seen that the Prius was on its way to the last open landfill to be buried, making way for a little more space to be occupied by a few more blades of grass.  Then, growing weary from waving in the breeze, one blade of grass turns to another and says, “I’m hungry!”  Uh oh.  The rest of the commercial became R-rated for extreme violence, and had to cut.

Trade and Shipping Come Under Cap and Trade Scrutiny

July 23, 2009

It’s funny how the rest of the world, once so eager to push America to address global warming, gets cold feet when they see it dawning upon U.S. policy-makers that imported products and the fuel burned to ship them contributes as much (if not more) to global warming than products produced domestically.  They once thought that the unilateral enactment of carbon curbs by the U.S. might drive more manufacturing off-shore, boosting their own economies.  Now it looks like the tables might be turned.

To address the serious threat of global warming, Americans should be required to “pay” for the carbon content of goods they consume from countries around the world, a top U.S. official said on Friday.”It’s important that those who consume the products being made all around the world to the benefit of America — and it’s our own consumption activity that’s causing the emission of greenhouse gases, then quite frankly Americans need to pay for that,” Commerce Secretary Gary Locke told the American Chamber of Commerce in Shanghai.

… The U.S. House of Representatives has passed legislation that creates a market for companies to trade permits to emit greenhouse gases, which would be capped at a certain level and then reduced over time.

The bill also contains “carbon tariffs” that would allow the United States to slap duties on imports of carbon-intensive goods such as steel, cement, paper and glass from countries that have not taken steps to reduce their own emissions.

Locke said Chinese officials raised concern about those provisions this week.

“They feel in essence it’s a tax on their carbon activity,” he said.

The legislation passed by the House also contains provisions for including importers and the shipping industry in the “cap and trade” program.  It’s not clear how this would work, but any legislation that doesn’t treat the fuel burned in ships the same as fuel burned in any other enterprise is clearly illogical and flawed.  Burning billions of barrels of fuel to ship manufactured products all over the world, products that could just as easily (and probably more efficiently) be made domestically, makes absolutely no sense and is probably the lowest-hanging fruit available in the quest to cut carbon emissions. 

The U.N. seems to agree, sort of.  It’s considering timid, voluntary measures aimed at improving the efficiency of ships.

The United Nations shipping agency on Friday agreed to voluntary proposals aimed at cutting carbon emissions, delegates said.But environmental groups said it fell short of what was needed.

… Shipping accounts for nearly three percent of global carbon dioxide (CO2) emissions and pressure has grown for cuts ahead of a crucial climate change summit in Copenhagen in December. Delegates from around 90 countries approved non-compulsory technical and operational measures to reduce greenhouse emissions from ships.

These included an energy efficiency design index for new ships to ensure new vessel designs are environmentally friendly as well as an index for existing vessels.

Want to improve the efficiency of shipping?  How about taxing or even banning empty ships?  Nothing is less efficient than returning empty ships to their point of origin.  And roughly half of all ships (and virtually every oil tanker) bound for the U.S. from China, Japan, Saudi Arabia or wherever return home empty, burning thousands of gallons of oil per hour as they go.  At the very minimum, the importation of products on ships destined to return home empty should be discouraged with carbon taxes on the fuel burned both in delivering those products and in returning that ship to its point of origin (or to its next destination) anything less than full. 

If the problem of global climate change (not to mention the problem of peak oil!) is as dire as they say, then no fuel-burning enterprise should get a free pass if we’re serious about fixing the problem.  Let’s tax the fuel burned in ships, including the fuel burned by empty and partially-laden ships, just as heavily as any other fuel-consuming enterprise.  It’s the only logical and fair way to deal with the issue.

Is “Robust Trade” Really in Our Best Interest?

July 23, 2009

U.S. Trade Representative, Ron Kirk, while attending a meeting of APEC (Asia-Pacific Economic Cooperation) nations, defended the “Buy American” provision in the U.S. economic stimulus plan.  There’s nothing really profound here, but some of his statements about trade and trade policy in general are worthy of comment since they provide a glimpse into the government’s basic attitudes toward trade. 

The United States wants a robust trade policy that is in the interest of its people and the “Buy American” campaign will not violate World Trade Organization commitments, Trade Representative Ron Kirk said on Wednesday.Kirk was speaking after Asia-Pacific Economic Cooperation (APEC) countries agreed in a two-day trade discussion in Singapore to shun protectionist measures, saying it would be a setback for the global economy.

“We would like a robust trade policy that is one that American people believe operates fairly in their favor as opposed to just the interest of one industry…as well as protecting the rights of workers that helps us to implement the president’s number one objective that is to put Americans back to work,” he said.

First of all, “robust trade” in general is not in the best interest of the American people.  Exports are.  Imports, on the other hand, are a detriment.  That’s why the U.S. and every other nation counts imports as a subtraction from their calculation of GDP (gross domestic product).  In fact, imports are a “double negative.”  That is, the import counts as a subtraction from  GDP and, if that import eliminates production in the U.S., then the GDP is further reduced by that amount.  For example, suppose that one additional auto worth $25,000 is imported into the U.S. in a given month.  That will subtract $25,000 from GDP.  Now, if that import results in a decline in auto production in the U.S. of one corresponding auto worth $25,000, then GDP declines by an additional $25,000. 

Conversely, each dollar of import into the U.S. is someone else’s export.  Exports add to GDP because it’s production that wouldn’t otherwise be consumed domestically.  “Robust trade” is meaningless for the American economy.  Robust exports would indeed by a boon to American workers, but robust imports are exactly the opposite.  The only thing that matters is the balance of trade.  “Robust trade” is a plus if it results in a surplus of trade; a negative if it results in a deficit.  If the U.S. exported two dollars’ worth of product while importing only one dollar’s worth, that would be a far better trade picture than if we exported one trillion dollars’ worth while importing two trillion dollars’ worth. 

Of course, there are some benefits associated with imports.  Imported oil is a source of energy that we can’t produce domestically.  But it’s still a negative for the U.S. from a fiscal perspective.  Imported manufactured goods may offer us greater choice and variety but, unless offset by exports of American-made products (to provide other nations with greater choice and variety), then those imports destroy jobs and are a fiscal drain, just like imported oil.

The word “trade” itself implies some mutually beneficial exchange of products.  To the extent that foreign trade results in a large deficit for the U.S., it really isn’t “trade” at all.  It’s deficit spending.  It’s selling off our assets for the purchase of commodities – ultimately leading to financial ruin if sustained over a long enough period of time.  There is nothing mutually beneficial about it.  The exporting country derives all the benefit while we bear the burden of lost jobs and treasure. 

When the U.S. runs a trade deficit, our loss is a gain for every other nation that contributes to that deficit, exporting to us more than they import.  So it should come as no surprise that most of the rest of the world is opposed to anything the U.S. might do to restore a balance of trade:

World Trade Organization Director-General Pascal Lamy, also at the meeting, said this month that governments were unfairly blocking trade in response to the global downturn, hurting wealthy economies most and raising concerns about stimulus measures in both rich and poor nations.

So let me get this straight.  Wealthy nations are edging toward measures designed to benefit their economies by slowing harmful imports, but the WTO would have us believe that such actions are actually hurting their economies?  It doesn’t seem likely that they would all adopt an approach tantamount to cutting off their noses to spite their faces, does it?  The fact is that every nation understands that imports are a drag on their economy.  They’re tolerated during good times but can and should be slowed when times are bad.  And the adoption of protectionist measures should always be considered when foreign trade becomes a net drag on the economy, as it does in the situation of a trade deficit.  For the U.S., that situation has now existed for thirty-three consecutive years, racking up a deficit of $9.4 trillion. 

Yet, inexplicably, the administration has sworn off any measure that has any real hope of restoring a balance of trade:

“I would tell you that the United States has taken very seriously the definition of our president that he expressed not only in London but recently affirmed that we will not engage in protectionist behavior,” Kirk said.

Then what hope is there of restoring a balance of trade?  And without restoring a balance, how can America’s trade policy possibly be “in the interest of its people?”  Doggedly sticking with failed trade agreements and global organizations dedicated to perpetuating trade imbalances isn’t in our best interest.  That’s not “change we can believe in.”  It’s the status quo.  A real leader would challenge such agreements and organizations to change, or he would withdraw from them in favor of building new organizations and writing new agreements that would truly be in our best interest.

What Does God Think About Overpopulation?

July 20, 2009

There’s no doubt what economists think about overpopulation.  There’s no such thing – not now or ever.  Man is clever enough to overcome any obstacles to growth, they say.  We can stretch resources through recycling and substitution.  We can mitigate any threats to the environment.  We need more population growth as an engine for economic development.

The Catholic Church too sees no cause for concern.  God will provide for us all.  The use of contraceptives is sinful, as it thwarts God’s will.  At least that’s the pope’s position, seeming quite confident in his knowledge of what God’s will might be – a position almost universally ignored by Catholics. 

But is the pope right?  Does God want us to increase in numbers at a rate dictated only by our libido?  Will He reveal to us new methods to feed ourselves and new mechanisms for managing our effect upon the environment?  What does He really think about all this?

Or is it possible that the pope’s got it all wrong?  Perhaps the answer can be found in our genetic make-up.  As reported in the linked article (link provided above), it seems that the Creator has built in a mechanism for limiting our ability to reproduce.  The Y chromosome, the one that makes males unique from females and carries the code for the design of the male reproductive system, is destined for the scrap heap – steadily deteriorating with no mechanism to repair itself. 

In a new study, researchers say there is a dramatic loss of genes from the human Y chromosome that eventually could lead to its complete disappearance — in the next few millennia. While the Y chromosome’s degeneration has been known to geneticists and evolutionary biologists for decades, the study sheds new light on some of the evolutionary processes that may have contributed to its demise and posits that, as the degeneration continues, the Y chromosome could disappear from our genetic repertoire entirely.

…  the Y chromosome, which once contained as many genes as the X chromosome, has deteriorated over time and now contains less than 80 functional genes compared to its partner, which contains more than 1,000 genes. Geneticists and evolutionary biologists determined that the Y chromosome’s deterioration is due to accumulated mutations, deletions and anomalies that have nowhere to go because the chromosome doesn’t swap genes with the X chromosome like every other chromosomal pair in our cells do.

In other words, male fertility is destined to steadily decline.  So, is it possible that God Himself saw a need to limit our reproductive capacity as our ability to conquer disease steadily extends our lifespan?  Isn’t this actually contraception that’s been built into our genetic make-up?  If so, when we practice contraception by artificial means, are we thwarting God’s will or are we actually supplementing it?

The truth is that none of us can pretend to know God’s will on the subject of overpopulation and how to manage our numbers.  But, beyond the fact that natural limitations like resource availability and the environment’s capacity to absorb our pollutants seem to make unending population growth a physical impossibility, our own genetic make-up seems to provide evidence to refute the pope’s version of what he believes God’s will to be. 

And if, in fact, it is God’s will that we limit our numbers to no more than can be sustained by our finite world, a very logical conclusion, wouldn’t it also be logical that He would provide an economic system that would function best in an environment of population stability?  If so, then who are economists to claim otherwise?  Perhaps it’s time that they stopped promoting an illogical and unsustainable economic model and start envisioning the true economic model of the future – a future with a stable and sustainable population.

Sec. Locke Singles Out China, Ignores Flaws in U.S. Trade Policy

July 16, 2009

No sooner had I published yesterday’s piece, critical of Obama for abandoning American workers, when I came across this article.  It seems that the Obama administration understands that our trade deficit is unsustainable. 

The trade imbalance between the United States and China is not sustainable, and the two countries have a joint responsibility to reduce greenhouse gas emissions, U.S. Commerce Secretary Gary Locke said on Wednesday.

China should shift from export-led growth, increase its exchange rate flexibility, and open its markets more, Locke said in remarks prepared for a speech to the American Chamber of Commerce.

The Obama administration’s approach to correcting our trade imbalance defies logic.  Having sworn to adopt no protectionist measures of any kind, he has given up all credibility and leverage on the issue.  In addition, singling out China while ignoring the trade deficit with other nations makes absolutely no sense.  Of course our trade deficit with China is by far the largest of any nation; China accounts for one fifth of the entire world’s population.  But when put in per capita terms (adjusting for the size of the nation in question), our trade deficit with China barely makes the top twenty.  The per capita trade deficit in manufactured goods with other nations like Japan, Germany, Mexico, South Korea and others is much worse.  So what is China to think when they are attacked by the Obama administration for a $270 billion trade deficit when we seem perfectly willing to accept a $100 billion trade deficit with Japan, a nation with one tenth as many people?

The problem isn’t China.  The problem is U.S. trade policy.  Just exactly what did the U.S. expect when it applied the same policy that was already a proven failure all over the world to a nation with one fifth of the world’s population?  Unfettered free trade and blanket applications of protectionism are merely the two extremes in the spectrum of trade policy available.  Each is just as dumb as the other.  Smart trade policy takes into account the role of population density in driving trade imbalances and applies varying degrees of protectionist tariffs as necessary (like a tariff structure on manufactured goods that is indexed to population density) to assure that a balance is maintained. 

The Obama administration can hardly be faulted for taking its cues from economists who, because they are close-minded toward any consideration of the role of population growth in the economy, have no clue as to why our decades-old policy of unfettered free trade (while other nations maintain tariffs) is failing.  But you’d think that after thirty-three consecutive years of trade deficits – a cumulative $9.4 trillion – that those responsible for economic policy would begin to question whether the problem is our own policy and not some failure on the part of the rest of the world.

Obama Abandons American Workers

July 15, 2009

After promising, during the election campaign, to revise NAFTA and fix other broken trade deals that have robbed the U.S. of its manufacturing jobs, President Obama now seems to figure that, with the rescue of Chrysler and GM, he has done enough to repay Big Labor for their campaign support.  We now see that he’s cut from the same cloth as his Republican rivals in the election and has begun reading his lines from the G20 globalization play book, offering nothing more than job retraining for those unfilled millions of jobs in mythical “new industries.”

President Barack Obama took a dose of reality to Michigan on Tuesday, saying that thousands of jobs lost to the auto industry’s downturn are not coming back and it is time to prepare for new industries.Traveling to Michigan, a state hit hard by job losses as Detroit’s Big Three automakers have reeled from the U.S. recession, Obama planned to promote a $12 billion initiative to boost community colleges and increase the graduation rate.

“(The) hard truth is that some of the jobs that have been lost in the auto industry and elsewhere won’t be coming back,” Obama was to say, according to prepared remarks released by the White House.

“They are casualties of a changing economy. And that only underscores the importance of generating new businesses and industries to replace the ones we’ve lost, and of preparing our workers to fill the jobs they create,” Obama will say.

Like a boat captain, happening upon a shipwreck, he scooped up as many survivors as his boat could handle and dropped them at the nearest, deserted island.  But, instead of going back for the rest, he has tossed the shivering survivors a cell phone, told them to call for help, and then continued on his way, shamefully abandoning the rest. 

Obama has done absolutely nothing to revise NAFTA (the North American Free Trade Agreement) or any other trade deal and, even worse, has remained silent in the face of dumping by Japan and tariffs imposed by Mexico.  I suppose that the math dictates that it is better to be thought a good statesman by the majority of the 83% of Americans still employed than to risk the ire of our trading partners just to make the 17% unemployed happy. 

Retraining.  Retraining to do what?  What new industries is he talking about?  Would these be the same new industries that were supposed to be our salvation the last time – like the “high tech” computer and cell phone industries, whose jobs have followed more low tech occupations overseas, or the health care industry, whose unending expansion now hangs like a millstone around our necks? 

No, I suppose he’s talking about renewable energy – wind power and solar – industries that have existed on the margins for decades, languishing for lack of demand, a demand that may have picked up dramatically if his “cap and trade” program hadn’t opted instead to rely almost exclusively on carbon capture and sequestration instead of a big move toward renewable energy.

And if the demand for solar panels and wind turbines – equipment widely available from foreign manufacturers – does pick up, what are the odds that he will do anything to steer that demand to American suppliers, risking  the very charges of “protectionism” from the rest of the world that have cowed him into inaction on other trade issues?  And even if he did, would jobs created in those fields even offset the jobs lost in the conventional power industry? 

Obama has cast his lot with economists who, simultaneously clinging to their half-hatched 18th century theories of free trade and curling into a fetal position and covering their ears at any suggestion of concerns about overpopulation, steadfastly proclaim that jobs magically appear for anyone who wants them, regardless of how fast we pile on new workers with never-ending population growth.  They’re absolutely incapable of comprehending that consumers can’t possibly continue to consume at the rate necessary to absorb the productive output of a swelling labor force, magnified by increases in productivity. 

Instead of real action to help American workers, Obama, like every other politician, dangles the carrot of “retraining.”  During his speech in Michigan, he praised Governor Jennifer Granholm’s “No Worker Left Behind” program in which a few workers have successfully retrained for new jobs with Michigan’s budding but miniscule film industry or with a couple of tiny makers of renewable energy equipment, leaving hundreds of thousands of workers waiting their turn in the unemployment lines.  It seems that retraining is needed because there are millions of jobs going unfilled simply because Americans are too dumb to perform them.  $12 billion to prop up community colleges.  Less than $100 per American worker.  That’s Obama’s plan to create jobs. 

Yet, real jobs, for which there is a real demand, seem to be reserved for other workers of the world.  Japanese, German, Korean and Mexican workers have a right to buid at least half of the cars driven in America.  You don’t.  Bangladeshi workers have a right to manufacture apparel.  You don’t.  Chinese workers have a right to manufacture virtually every other product imaginable.  You don’t.  Jobs for Americans?  Flip burgers.  Ring cash registers.  And, oh yeah, teach other Americans how to do something other than what they used to do.  Those are American jobs.

New GM Emerges into Same Old Environment

July 12, 2009

General Motors emerged from bankruptcy on Friday promising more nimbleness, better products, more customer focus and a return to profitability.  Freed of all its crushing debt, it certainly should find it much easier to make money.  And its image of poor quality and boring cars is largely a hangover from the ’70s and ’80s.  They already have a nice line-up of vehicle offerings with quality on a par with anyone in the world, a line-up that is promised to only get better. 

But so what?  The federal government went to extraordinary lengths to salvage both Chrysler and GM, not primarily to return them to profitability, but to salvage the last vestige of the manufacturing sector of our economy and the jobs that go along with it.  What’s important is not so much a return to profitability for GM, but the restoration of the job-creating sales volume that GM, Ford and Chrysler once enjoyed. 

Unfortunately, the new GM and Chrysler emerge to rejoin Ford in the same marketing environment from whence they came.  GM and Ford build outstanding vehicles (hopefully, Chyrsler will soon join them), but that’s not going to make a bit of difference.  Neither will reduced labor costs or lower debt overhead.  The problem is that Toyota builds great vehicles too.  So does Honda.  And Nissan. And Subaru, Suzuki, Mazda, Kia, Hyundai, Volkswagen, Mercedes, Audi, Porsche, BMW, Jaguar, Land Rover, Saab, Volvo, …  The list can go on and on.  Soon, Chinese manufacturers will be joining the fray.  How can anyone honestly expect that the market share of GM, Ford and Chrysler will do anything but decline as more and more foreign manufacturers get free access to the U.S. market?

It wouldn’t be a problem if American manufacturers were getting access to equivalent foreign markets.  The problem is that there are no equivalent markets.  Most of these foreign brands emanate from countries that are so badly over-populated that their car markets are a mere shell of what we have in America.  In Japan, even the Japanese auto manufacturers have difficulty selling cars because so few people buy them, not because they can’t afford them but because owning a car there is impractical.  There’s no place to park them and the roads are far too congested.  That’s why Japan is famous for its badly overcrowded mass transit system.  It’s the same in Korea.  Germany isn’t much better.  American exports of vehicles to these countries is virtually non-existant, while they export hundreds of thousands of cars to the U.S. every month. 

With all the celebration of GM’s return, there was little notice of the fact that GM plans to lay off another 20,000 workers.  And there will be nothing but more job losses in auto manufacturing as the ever-growing onslaught of foreign manufacturers erodes market share for the domestics.  Nothing will change until the time (if ever)  that our nation’s leadership wakes up to the real underlying problems with our trade policy that make our huge trade deficit and the accompanying loss of jobs unavoidable.  Only when they come to the realization that the experiment in unfettered free trade begun in 1947 with the signing of GATT (the Global Agreement on Tariffs and Trade) has been an abysmal failure for the American economy, wiping out in six decades all the wealth created over the previous 171 years, will there be any chance of putting this economy back on a sound footing.

The new GM has emerged, but into the same old world of dumb U.S. trade policy based on half-baked 18th century theories and politicians lacking the wisdom, will or intestinal fortitude to do anything about it.