More Useless Trade Talks with China, Part II

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.

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10 Responses to More Useless Trade Talks with China, Part II

  1. Mark A. Hall says:

    Pete:

    In reading into the context of our trade policy and the “fundamental changes” envisioned for our economy, I have come to one conclusion….

    Our political leaders have us racing to the bottom so that we can be reclassified as a “DEVELOPING NATION” and receive all of the Perks & Adulation bestowed upon other developing nations.

    It’s all about the ATTENTION…….

    When you are rising from the ashes, even small improvements look GREAT!!!!

    Thus, our future politicians will have NO difficulty proclaiming “JOB WELL DONE” as they rebuild the NEW AMERICA……….

    MAKES MEXICAN CLIFF DIVING SEEM LIKE A CAKE WALK!!!

    n

  2. mtnmike says:

    Pete, You said, “Political leaders and economists alike don’t understand the relationship between population density, per capita consumption and unemployment.” You’re selling them short Pete. They have the best minds in America at their beck and call and know EXACTLY what they are doing.

    Malthus explained every negative aspect of population growth in 1798 including the relationship between diminishing per capita consumption and population density. Along came Keynes and his buddy FDR and said Malthus was wrong; that you really can run a planet on debt and over population.

    In 1969, the U.S. reached the top of the mountain for consuming our own production, while maintaining our average living standard, while supporting a balanced budget, while adding millions to our population.

    The pyramid scheme of massive social programs and increasing the non-productive sector of government under FDR (following Keynes guidelines) along with the unfortunate 1970 event of peak U.S. oil was a show-stopper for a country that based their entire existence on domestic expansion and exponential growth (buy now, pay later).

    The next plan was exponential growth of debt under a non-backed fiat currency scenario. After 39 years, the U.S. has now run the debt-well dry and has lowered themselves to begging the COMMUNIST CHINESE and ARABS for help!!!

    A little dab of U.S. history shows clearly how poorly the Chinese immigrants were treated in America; denying them citizenship, land ownership, and disallowing further immigration at a time that Europeans were welcome. I’m confident that the Chinese have long memories and a greater grasp of U.S. history than our college seniors. And we now want them to sacrifice for us? Sure they will.

    • Pete Murphy says:

      Mike, in my most cynical moments I ask myself, “is it really possible that these economists can’t see these effects of population density?” “How is it possible that I’ve come up with something like this that has escaped them?” But they truly don’t get it. Economists and political leaders may think they know what they’re doing by using exponential growth to prop up the economy, but they don’t understand that the effects of rising population density are undoing their efforts at a faster pace. If they did, at least some of the vast majority of economists in the private sector would be howling about the government’s approach.

      It wasn’t Keynes and FDR who proclaimed Malthus wrong. It was the other sciences, eager to make a mockery of economics, which they didn’t consider to be a “science” at all. While Malthus was wringing his hands over food shortages, they say, they applied their sciences to do something about it, and now food is more plentiful than ever. Instead of regrouping and trying to further refine Malthus’ theory, economists reacted by curling into a fetal position and covering their ears. The field of economics was so badly burned that they vowed to never consider the subject of population growth again. In my conversations with economists on other blogs, it’s amazing to me how vigorously they defend obviously illogical positions.

      Worse yet, their attitude has even permeated the other sciences. Environmentalists have adopted their approach, shunning any discussion of overpopulation because they see the subject as so polarizing that it jeopardizes their credibility (and funding), risking their message being drowned out by the protests of groups that profit from population growth. All of their focus is on reducing per capita consumption and they seem incapable of understanding or unwilling to admit the direct correlation between falling per capita consumption and falling per capita employment. They think that we’ll substitute consumption of other services of some sort that don’t involve the consumption of products.

      I try to walk a fine line here. I don’t want to come across as being insulting to economists because, I believe, that only by getting them to open their minds to all the ramifications of overpopulation will anything ever change. There are a very few among them who seem willing to buck the conventional thinking in their field and we need to encourage them.

  3. ClydeB says:

    We can’t make anything at home, just look at the above the fold headline in the St. Louis Post-Dispatch this morning:

    Lack of skilled workers, training may slow St. Louis recovery
    By Steve Giegerich
    ST. LOUIS POST-DISPATCH
    07/28/2009

    A link to the article follows:

    http://www.stltoday.com/stltoday/business/stories.nsf/manufacturingtechnology/story/8471EAADC038AA6D862576010008CA8A?OpenDocument

    Can you imagine a factory town that has lost close to 50,000 auto assembly jobs over the last several years and not having any replacement jobs with a shortage of capable workers?
    MIND BOGGLING!

  4. mtnmike says:

    Clyde,

    So whose obligation is it to train workers? Certainly it couldn’t be the workers themselves, nor the companies that are complaining; that would indicate the need for personal responsibility. Perish the very thought of it in this ever increasing socialist environment.

    This mind set then conveniently leaves government to blame for not training the workforce for the jobs of today, such as a week long study in the correct manner of saying, “Welcome to Wal-Mart,” or “Will that be cash or credit.”

    Our current government is more than willing to accept the blame and to create entire new TRILLION DOLLAR agencies to deal with the unemployment problem by introducing tax based approaches to a problem that government created in the first place with NAFTA and the WTO!

    Note that the sidebar graph in the linked article demonstrates that 45% of employers cut back hours and 35% froze pay! Now they want highly trained workers for short pay, short hours, and short benefits! The patients are truly running the asylum.

  5. ClydeB says:

    Mike,
    I actually believe this to be a subtle demand for additional unemployment payments since the jobs do not exist to require training.

  6. mtnmike says:

    Clyde,

    You said it best on another post. Retraining is nothing more that a new form of extended unemployment benefits. I ran a piece after your comment concerning a source non the less than the U.S. Department of Labor, who determined that those who have undergone retraining had no advantage in obtaining work as compared to those who had not been retrained!!! The Department of Labor apparently didn’t get the memo that instructed them to avoid such useless studies and to “lie like a rug.”

    “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” Kenneth Boulding

    • Pete Murphy says:

      Clyde, thanks for forwarding that link. I think it’s important to note the source being quoted in the article. These are all people in the community college and employee development businesses, obviously making a play for federal money for assistance for “retraining” employees. They cite statistics that say employers plan to do some hiring and then try to make a case that money is needed to train those hiring prospects. The media then reports it all as though it were factual.

  7. mtnmike says:

    Pete,

    Thanks for the detailed reply. Malthus wrote much more than the relationship between population and food. This a direct statement from Thomas Malthus,

    “The number of labourers also being above the proportion of the work in the market, the price of labour must tend toward a decrease, while the price of provisions would at the same time tend to rise. The labourer therefore must work harder to earn the same as he did before.”

    Malthus went on to describe the point of population density reaching the ultimate impasse of unemployment for the laborers.

    There are literally thousands of economists who are not mad men, however, the sane ones do not find a home in government. Government now finds themselves trapped by the actions of FDR who was a personal friend of, and adopted the teachings of, Keynes as a delusional way out of his mess. Obama is nothing more than FDR and Keynes on steroids without the resource base to pull it off again!

    In aviation terms, we are well past the point of no return and may as well enjoy the portion of the ride that proceeds the crash.

    Attempting not to insult economists is impossible if we want to steer the ship off the rocks. When they’re wrong, they are wrong, no gray area.

    • Pete Murphy says:

      I agree, Mike. I’m all about taking economists to task for being close-minded to the single most dominant parameter in the equation. The trick is to win them over without first insulting them.

      Regarding Keynes and FDR, I’m not so critical. I think there’s a time and place for deficit spending. But those times must be matched with surpluses when times are good. But our politicians don’t have that discipline. Our constitution desperately needs an amendment to force some fiscal restraint.

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