Silverdome Sells for 0.0025 X Original Cost

November 27, 2009

http://www.freep.com/article/20091117/NEWS05/911170324/Silverdome-fetches–583-000

How bad is the economy and how far have property values fallen in Southeast Michigan, an area now beset by depression conditions?  A good indication came earlier this month when the Pontiac Silverdome and its 127 acres of land, home to the Detroit Lions from 1975 to  2002, was sold to a Toronto-based company for $583,000.

The Pontiac Silverdome and its 127 adjacent acres could become home to a Major League Soccer team now that the city has accepted a bid of $583,000 from a Toronto-based real estate company to buy the facility.

The Silverdome was built in 1975 at a cost of $55 million.  That’s $226 million in today’s terms.  It was sold for a mere 0.25% of that figure.  The selling price is less than the value of three houses and one acre of land in my neighborhood (or at least what I thought the value to be before this happened). 

The city of Pontiac had previously received much larger offers, $17 million and $20 million.  But, in each case, the deals fell through when the buyers were unable to obtain financing. 

The city of Detroit now has 30% unemployment and state-wide unemployment is 15.1%.  And that’s using the government’s low-ball U3 calculation method.  Southeast Michigan is truly experiencing 1930s depression-like conditions. 

In 2008, political candidates came to Michigan and dismissed the economic worries of its voters with the claim that Michigan was experiencing a “one-state recession.”  By the end of the year, it was clear that Michigan was actually the canary in the coal mine for the national economy.  America should be praying that Michigan isn’t still the harbinger of worse economic conditions to come.

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Study Reveals Link Between Global Trade Imbalances and Population Density

November 25, 2009

 

As judged by the balance of trade expressed in per capita terms, thus adjusting for the sheer size of each nation, the effectiveness of the United States’ trade policies ranks near the very bottom of the nations of the world.  (See U.S. Trade Policy Ranks Among World’s Worst.)  Since the near-total collapse of the global economy last year, most economists who once shrugged off the effects of global trade imbalances now admit that these imbalances were the root cause of the collapse and can’t be sustained. 

The biggest trade imbalance has been between the U.S. and the rest of the world.  In spite of the best efforts of American manufacturers to get leaner and become more competitive, the trade deficit has been worsening for decades.  It begs the question whether there are factors at work that make these trade imbalances inevitable in a free trade environment. 

In Five Short Blasts,  I used U.S. trade data to argue that disparities in population density are a major (if not dominant) factor behind the U.S. trade deficit in manufactured goods.  But if population density is a factor, then the same impact on trade should be evident in the trade data for all nations of the world.  Densely populated nations should tend to have trade surpluses in manufactured goods while more sparsely populated nations should tend to have trade deficits.   To test my theory on such a global scale, I’ve completed a study of trade data for all nations of the world, using trade data provided by the CIA in its World Fact Book.   I began by breaking down the trade balance into exports and imports.  The following spreadsheets rank the exports and imports of all nations* in per capita terms:

Exports Per Capita, All Nations    Imports Per Capita, All Nations

You can see that the U.S. ranks 46th out of 154 nations in terms of exports per capita, and 118th in terms of imports.  But I soon realized that the top of the exports chart and the bottom of the imports chart were dominated by wealthy, developed nations.  That’s why I included the per capita Purchasing Power Parity (PPP, roughly equivalent to per capita GDP) for each nation in the charts.  To determine whether wealth was a factor, as logic would seem to suggest, I plotted x-y scatter charts for each:

Exports vs PPP Chart    Imports vs PPP Chart

As you can see, the wealth of a nation has a powerful influence on the volume of its exports and imports.  It makes sense.  A wealthy oil-producing nation, for example, may export oil in exchange for imports of manufactured goods.  A poor nation, on the other hand, has little to sell and, thus, has little money to buy.  That’s why this effect wasn’t evident when we looked only at the overall trade balance.  A poor nation is just as likely to have a balance of trade because it has nothing to sell or buy as a wealthy nation that exports and imports a great deal while maintaining an overall balance.

Therefore, it becomes necessary to confine our analysis of trade to developed, wealthy nations in order to avoid having other influencing factors muted by the wealth effect.  So I chose to confine my analysis to those nations with purchasing power parity (PPP) per capita (roughly a measure of GDP per capita) of $25,000 or greater.  (For reference, the U.S. had PPP in 2008 of $47,500.)

The following spreadsheet ranks the balance of trade of the 31 nations with a per capita PPP greater than $25,000. 

Trade Balance Per Capita, PPP GT 25K

I included a column with each nation’s balance of trade in oil and natural gas because I noticed what seemed to be a strong correlation.  High-lighting the net oil-exporting nations in yellow, it becomes easy to see the effect.  Like the effect of wealth, the effect of oil isn’t surprising either.  Naturally, those nations that export huge volumes of oil and gas are going to have favorable trade balances.  (As an aside, I found it interesting that, among developed nations with a deficit in oil and gas, America’s deficit, when expressed in per capita terms, is rather mundane – about the same as other nations.)

Since natural resources tend to be distributed unevenly around the world, trade in resources is vital and beneficial to all.  What’s really important is how nations use trade in manufactured products to offset deficiencies in natural resources and to maintain an overall balance of trade.  Unfortunately, no data for manufactured goods is available.  (If it is, I haven’t found it.)  However, I know from my experience in analyzing U.S. trade data that oil and gas tend to dominate trade in natural resources.  Subtracting them from the overall trade balance usually yields a pretty good approximation of trade in manufactured products.  So, using the CIA’s data and subtracting oil and gas from the overall trade balance, the following is a ranking of developed nations’ balance of trade in manufactured goods:

Manf’d Good Trade Balance, PPP GT 25K

Because my goal in analyzing this global trade data for manufactured goods was to determine whether or not there is any evidence of population density having an effect, it was here that I included the population density data.  And a relationship seems to jump out at you when you compare the population density of the nations at the top of the list (those with the most favorable balance of trade in manufactured products) to those at the bottom of the list.  (Here I should note that the overall population density for this group of 31 nations combined is 30.4 people per square kilometer.  The United States is almost right on this figure, at 31.3.  But the only proper way to determine whether a relationship exists is to plot the data on an x-y scatter chart and then have the computer generate a trend line.  A flat line indicates no relationship while a sloping line indicates the presence of a relationship.  Here’s the chart:

Manf’d Goods vs Pop Density

There is a fairly strong relationship evident.  But the slope of the line is somewhat muted by the presence of what is known in statistics as an “outlier” – a data point that is so far out of the range of the other data points that it’s statistically insignificant.  In this case it’s Qatar, the world’s champ in oil exports, at least in per capita terms.  Qatar exports so much oil that it has no need whatsoever of producing anything else.  They simply kick back and enjoy the good life with a PPP that far exceeds that of any other nation, net oil exporters included.  So, if we delete that data point, the chart changes as follows:

Manf’d Goods vs Pop Density2

Now the trend line conforms more to the data.  And if we were to eliminate Ireland, the data point at the other extreme end of the scale, but not quite an outlier, it’s easy to see that the trend line would conform to the data even more closely. 

It’s also important to note that by confining this analysis to developed nations – those with per capita PPP exceeding $25,000 – I excluded the most dominant player in world trade today:  China.  If China’s data point were included, it would fall right on the trend line, with a population density of 140 people/sq km and a balance of trade in manufactured goods of $351. 

It’s impossible to overstate the significance of this relationship.  Because economists adamantly refuse to give any consideration to the role of population growth in economics, they have completely overlooked the relationship between population density and per capita consumption, and its ramifications for trade.  (To learn more about the relationship between population density and per capita consumption, see “the theory explained” category on this blog.)

Finally, it’s worth noting here that population density also plays a role in driving trade imbalances in oil.  Very densely populated nations tend to be net oil importers, forcing them to export even more manufactured goods in order to maintain a balance of trade, combining with the effect of population density on their low per capita consumption.  High oil consumption and low domestic consumption of manufactured products team up to make such nations heavily dependent on exports of manufactured products. 

Summary and conclusions:

  1. The balance of trade of the U.S., a nation with a low population density relative to most other nations, ranks near the bottom of all nations.
  2. Global trade is dominated by oil and gas.  Oil exporting nations use their profits to purchase other natural resources and manufactured goods.  Oil importing nations export manufactured goods to fund their purchases of oil and gas.
  3. How successful a nation will be in using manufactured goods to maintain a balance of trade is heavily influenced by its population density.  The effect is real and significant. 
  4. The practice of free trade between two nations grossly disparate in population density is very likely to result in a trade deficit in manufactured goods for the less densely populated nation. 
  5. Failure to account for the population density effect in global trade policies will likely result in sustained trade imbalances. 

—————————————–

* Small island nations, whose economies are dominated by tourism, are excluded.  Tiny city-states are included in their surrounding or neighboring countries.  (Example:  Hong Kong is included in the data for China.)


Obama Returns from Asia Empty-Handed

November 21, 2009

http://www.reuters.com/article/newsOne/idUSTRE5AK0K920091121

President Obama has returned from his week-long trip to Asia empty-handed.  No commitment by China to unpeg its currency from the dollar.  (In fact, Obama barely even raised the subject with the Chinese.)  No promises to  rebalance trade.  No promises to boost imports of American products.  And now we see that his big plan to boost American exports (see https://petemurphy.wordpress.com/2009/11/13/obama-has-plan-to-boost-exports-i-smell-a-rat/) was nothing more than a vague hope.  The whole trip was a complete waste of time – time that would have been better spent in the oval office, signing executive orders that could do far more to restore our economy and put us on track to a sustainable future for our children.

Speaking as an independent who voted for Obama, primarily because of his promises to do something about our trade imbalance, this is what I find most disappointing – that he has the power to single-handedly accomplish what needs to be done.  Sure, Congress moves at glacial speed on issues like health care reform and global warming, but Obama doesn’t even need the help of Congress to address our most critical issues.  He doesn’t need Congress’ help in changing trade policy.  He has full authority to impose tariffs and bring millions of manufacturing jobs back home.  He has full authority to halt the annual importation of a million more oil consumers, a million more carbon emitters and a half million laborers to compete with Americans for a dwindling supply of jobs.  All it takes is the courage to sit there at his desk and sign the executive orders.  In one eight-hour work day he could completely change the trajectory of the American economy and help put us on a path to a sustainable future.  Instead, he does nothing. 

During the campaign, his interest in and admiration of Lincoln was widely reported.  But it was not eloquence or diplomacy that made Lincoln a great president.  It was action – bold action that angered many but, ultimately, was in the best interest of his country.  He abolished slavery, resulting in a split in the union.  He led the nation through the bloodiest war in history.  He blockaded confederate ports and imprisoned confederate sympathizers.  At one point, he even authorized the naval bombardment of New York city to put down an anti-war uprising.  He authorized his generals to completely destroy the civilian infrastructure of the confederacy to assure the finality of its defeat.  Lincoln made gut-wrenching and often unpopular decisions that changed the course of history, not just for the U.S. but the entire world.

President Obama has similar opportunities.  The global economy has been collapsed by an over-reliance on faulty economic theories, developed by people blind to the economic consequences of unending population growth.  He was elected because we believed in change and hope for something different.  We were promised action to correct our trade imbalance.  But so far, all we’ve gotten is talk, diplomacy and now, as reported in the above-linked article, appeals for patience. 

The American people are patient.  We have the patience to allow action and change to produce the desired results.  It’s the lack of action for which we have no patience.


U.S. Trade Policy Ranks Among World’s Worst

November 20, 2009

In Five Short Blasts, I based my conclusions on the relationship between population density and per capita consumption on trade data between the U.S. and the rest of the world.  However, if my theory is valid, the same effect upon global trade imbalances (in manufactured products) should be found for every nation’s trade relationship with the rest of the world.  Clearly, America’s trade imbalance in manufactured goods with other nations is driven by the disparity in population density between us and our trading partners, especially those much more densely populated.  America has huge trade deficits with nations like Japan, Germany and China, for example.  So it stands to reason that nations like these should have large trade surpluses with the world as a whole – not just the U.S.  And sparsely populated nations like Australia and Canada should have deficits in manufactured goods, much like the U.S.

To determine whether this is true, I’ve begun a study of global trade for every nation on earth*, using data provided by the CIA on “The World Fact Book” page of its web site.  Once I had compiled all of that data onto a spreadsheet and calculated the balance of trade for each nation, I was interested in learning how each nation compared when its balance of trade was expressed in per capita terms, putting large and small nations on an equal basis. 

Essentially, this is a measure of the effectiveness of each nation’s trade policies.  An effective trade policy works to the benefit of that nation’s citizens, with a trade surplus contributing to their wealth.  An ineffective trade policy results in a deficit, resulting in a drain of wealth and low or negative savings rates.  Effective trade policy trades what a nation has in abundance for what it lacks, while at least maintaining an overall balance.  For example, a Middle East nation may trade oil for other resources like food, as well as manufactured products.  Or an extremely densely populated nation, lacking resources, may trade manufactured products to obtain those resources. 

Here’s the data:

Trade Balance Per Capita, All Nations

Some observations are in order:

  1. I’ve made no attempt to correlate this data with population density.  (That will come in a subsequent article.)  This is just the total trade balance for each nation, divided by the population of that nation. 
  2. By this measure, the United States ranks near the very bottom of nations, coming in at 147th out of 154 nations.  Every man, woman and child in America is poorer each year by more than $2700, thanks to our trade policy.  (That’s over $10,000 for a family of four!) 
  3. Of the top 13 nations, all are oil-producing nations except one – Ireland.  Ireland is world champion in terms of trade among non-oil-producing nations, followed by the Netherlands and Germany.
  4. For all of the talk about China’s trade surplus with the world, they rank only 36th,  with a per capita trade surplus that is less than 3% that of Ireland’s.
  5. It’s interesting to note that Britain, one of the very worst in terms of trade policy effectiveness, especially considering their exports of North Sea oil, sits right next to Ireland, the world’s best among non-oil producing nations.  Ireland is doing something right while the U.K. (like the U.S.) is clearly doing something wrong. 

This isn’t an indictment of Obama’s trade policies in particular.  It took many years of trade policy bumbling by both Democratic and Republican administrations to get us into such a mess.  But it is a call to action for Obama to stop tip-toeing around the issue and begin making bold moves to restore a balance of trade.  What should he do?  Is our trade balance problem a function of too few exports, too many imports, or both?  Where should he focus his attention?  I’ll tackle that in the next article.

In a future article, I’ll zero in on manufactured products.  In the meantime, I though this data might explode some myths out there in regards to global trade.

* – Small island nations with economies based on tourism are excluded from the study.  Tiny city-states like Hong Kong, Singapore and Luxembourg are rolled into the data of their surrounding or neighboring nations.


American Labor Numb to Trade-Related Job Losses

November 18, 2009

http://www.reuters.com/article/domesticNews/idUSTRE5AG30Y20091117

Just at the very time when it is finally dawning on American leadership that our enormous trade deficit lies at the heart of our economic problems, American labor, numbed by decades of brow-beating about the supposed benefits of free trade and globalization, seems to have given up the fight.  Just when President Obama most needs for American workers to rally behind his efforts to restore a balance of trade – while meeting with the Chinese premier in an effort to stop Chinese manipulation of the currency exchange rate – the labor movement has fallen silent.  America’s most powerful labor union prepares for a summit on job creation without one mention of correcting our trade imbalances. 

As reported in the above-linked Reuters article, AFL-CIO President Richard Trumka is preparing for a December 3rd White House Summit on job creation, focusing on such things as steering government stimulus spending toward small businesses.  His plan doesn’t include a single mention of trade. 

In a preview of labor’s contribution to Obama’s December jobs summit, AFL-CIO President Richard Trumka said money from the Troubled Asset Relief Program could be lent directly to small- and medium-sized businesses at commercial rates.

He said TARP money could also help small community banks that were ignored during the financial rescue effort by having them manage the loans.

… The AFL-CIO jobs plan also calls for extended unemployment benefits, food assistance and healthcare for the unemployed, more money for infrastructure projects and state and local governments, and job creation aimed at distressed communities.

Never mind the fact that the President’s emphasis on currency exchange rates will have little effect on the trade deficit with China, or that his whole approach to trade has been far too timid.  Without the support of American labor on this issue, he has virtually no chance of softening foreign opposition to trade policy inititatives. 

I suppose that labor leaders like Trumka can hardly be blamed for giving up the fight after decades of being ignored on the trade issue by their own party and mocked by business leaders and economists as being unwilling to “compete” in the global economy.  For decades, labor complained bitterly about the effects of trade policy while administrations and both political parties remained enamored with the false promises of a doomed model of free trade and globalization.  But the climate on trade policy is changing rapidly in the wake of the global economic collapse and this is exactly the wrong time to give up the fight and become dependent on government largesse.  The very moment in history when you were proven to be right all along is not the time to admit defeat.


Trade Deficit Explodes in September!

November 13, 2009

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

On Friday the Bureau of Economic Analysis (BEA) released U.S. international trade data for the month of September.  Contrary to economists’ expectations of a minimal increase in the trade deficit from August’s level of $30.8 billion, the deficit exploded by 18.5% to $36.5 billion, returning rapidly to pre-recession record levels from a low reading of $26.4 billion in May.  (Link to the full BEA report provided above.) 

Analysts are already dismissing the increase, blaming it on a boost in oil imports while high-lighting a 2.9% boost in exports.  But that boost was more than offset by a 5.8% increase in imports, including a $1.6 billion increase in non-petroleum goods (in other words, manufactured products). 

This is very bad news for America’s economy and helps explain why the GDP of the underlying economy (with stimulus spending factored out) continues to decline at a frightening clip.  (See https://petemurphy.wordpress.com/2009/10/30/3rd-quarter-gdp-up-erosion-in-underlying-economy-continues/)

While this is happening, President Obama continues to squander his opportunity to wipe out this trade imbalance and restore America’s manufacturing economy, wasting his breath whining about exchange rates in countless unproductive trade meetings, much to the relief of our parasitic trade partners. 

Every unemployed American and every American worker worried about job security and declining wages and benefits should be outraged by the administration’s unwillingness to take swift, meaningful action to put an end to the structural predation of the American labor market.


Obama Has Plan to Boost Exports. I Smell a Rat!

November 13, 2009

http://www.cnbc.com/id/33898862

The above-linked CNBC article reports that Obama has a plan for boosting exports to Asian nations, a plan he’ll unveil in his upcoming trip to the region.  

President Barack Obama said on Thursday he planned to discuss a strategy with Asia Pacific leaders calling on their countries to import more U.S. goods and the world to rely less on exporting to the United States.

“In the coming days, I’ll also be meeting with leaders abroad to discuss a strategy for growth that is both balanced and broadly shared,” Obama said before leaving on an Asia trip that includes a meeting of APEC (Asia Pacific Economic Cooperation) leaders in Singapore.

“It’s a strategy in which Asian and Pacific markets are open to our exports, and one in which prosperity around the world is no longer as dependent on American consumption and borrowing, but rather more on American innovation and products,” Obama said.

Since boosting exports is something over which the U.S. has absolutely no control, I smell a rat.  Exports are a function of foreign demand for U.S. products and we have no control over that.  We’ve been trying for decades – cutting our manufacturing costs, complaining about exchange rates, filing complaints with the WTO (World Trade Organization), boosting “innovation” – all to no avail.  If our trading partners are unwilling or, more precisely, unable to import more American products, they won’t.  So what’s the plan?  Does President Obama plan to send container ships-full of American products to Asia and then dump them in the ocean?  Hey, I have a plan to boost book sales, too.  I can advertise and cut the price of the book all I want but, unless I put a gun to your head, you won’t buy the book unless you want to. 

Well, perhaps there is another way.  I could give you $20 to buy the book, which retails for $16.95.  Who wouldn’t jump at that deal?  Of course, I’d have to just print money to keep that offer going for very long, but at least I could delude myself into believing that book sales are going gangbusters and, as long as you’re willing to overlook the fact that the money is couterfeit, then you’ll be happy too.  And my printer will be happy as a clam. 

Could it be that Obama’s plan is something similar?  We’ve seen that he and Treasury Secretary Tim Geithner and Fed Chairman Ben Bernanke have no qualms about cranking up the printing press to boost the economy.  The problem has been that Americans then use that money to fund the purchase of imports, boosting foreign economies and not our own.  So wouldn’t a more effective use of that money be to just give it to China, Japan and Korea on the condition that they use it to buy American products? 

Yeah, yeah, I know:  it’s a stupid idea that’s doomed to failure, once mountains of American products pile up on the wharves at their ports, and once we realize that those funds are being diverted to expand China’s military.  But it would boost American manufacturing in the short term, for maybe a few years, which is all President Obama needs to win a second term and to claim a legacy of having revitalized the manufacturing sector of America’s economy.  Publicly, both Obama and the Asian nations will claim that this money is a “loan” from the U.S., but privately they will agree that it’s nothing of the sort; just printed money that’s never to be repaid. 

If this isn’t the president’s plan, then something equally twisted is likely to emerge.  If our leadership isn’t smart enough to fix our broken trade policy in a way that’s within our control, by returning to the sensible application of tariffs that once built this nation into the world’s preeminent industrial powerhouse, then its only alternative is to strike preposterous deals that gloss over our trade imbalance and give the appearance having done something meaningful.