Supreme Court Decision a Major Victory in Fight against Illegal Immigration

May 27, 2011

You’ve probably heard the news already (see the above link) but, if not, the Supreme Court yesterday upheld an Arizona law that would revoke the license of any business in the state of Arizona who knowingly hires illegal immigrants.  At least eight other states have such laws.  Now that the Supreme Court has given the green light to enforce them, we can expect other states to quickly draft laws following the Arizona example. 

Perhaps the biggest consequence of this decision is that it will virtually mandate employers to use the E-verify system to assure that job applicants are in the U.S. legally.  If accused of knowingly hiring illegals, employers must prove that they actually took steps to prevent such hirings.  Use of the E-verify system may be the best – and perhaps the only – proof that they took steps to prevent hiring illegals.  In fact, failure to use the system may constitute proof that they were turning a blind eye. 

This Arizona law is actually completely separate from the law enacted by Arizona last year, requiring law enforcement to check the legal status of anyone suspected of being illegal, which drew so much attention and condemnation by the president last year.  The Supreme Court has yet to weigh in on that law. 

Regardless of how the Supreme Court decides on that next law, this decision is a huge victory in the fight against illegal immigration.  Employers not already using the E-verify system will be soon be implementing it in droves.  Without the draw of employment, this will have a chilling effect on illegal immigration. 

 The vast majority of Americans are sick of illegal immigrants taking already-scarce jobs and driving down wages.  While both political parties at the national level have been quite effective in lobbying against any effort to rein in businesses’ source of cheap labor, they hold no sway whatsoever over states and municipalities where politicians live or die by simply doing the will of the people.  Now those local governments have a major weapon at their disposal to enforce immigration laws if the federal government insists on abdicating its responsibility.


FAIR Media Director Links Overpopulation and Surplus of Labor

May 25, 2011

I came across the above-linked op-ed piece yesterday, which appeared in “The Dan Stein Report.”  Dan Stein is president of FAIR, the Federation for American Immigration Reform, of which I’m a member.  Ira Mehlman, author of this piece, is their media director. 

I bring this to your attention because it’s a rare example of someone making a direct connection between overpopulation and a growing surplus of labor.  His focus is on unskilled labor, but the fact that any such linkage is made by anyone is remarkable, since it flies in the face of economic dogma.  The world may not wait for economists to come up with the solutions.  The field of economics had better start looking into the economic relationships that are increasingly evident to the layman, or they risk becoming completely irrelevant.

The Great Recession: An Opportunity Lost

May 23, 2011

I had hoped that some good would have come from the economic collapse that began in late 2008.  Finally, I thought, following more than a decade of cleverly-engineered asset bubbles designed to obscur the underlying fault lines in our economy, there will be some real soul-searching by politicians and economists alike about how their darling model of globalization could have yielded such a colosal failure.

We came close.  Amid all the headline-grabbing stories about mortgage-backed securities, ratings agency failures and loose lending standards, the G20 group of nations recognized that it was really global trade imbalances that lay at the heart of the matter, creating huge imbalances in currency reserves that fed these hare-brained investment schemes and papered over the stark reality that the U.S. was being bankrupted.  Fixing our trade issues became a common theme among Democratic candidates in 2008 and, once elected, Obama seemed to put the world on notice that time was short for them to boost their imports of American goods and rebalance the global economy. 

But that’s where it ended.  The stimulus plan gave the economy a little adrenaline boost.  The Fed chipped in and  fired up the printing press.  And other matters like Iraq, Afghanistan, health care and the president’s place of birth took center stage.  Unemployment fell a little and the economy added a few jobs.  The global trade imbalances that nearly collapsed the global economy, while as bad as ever, faded to the back page. 

Per capita employment remains mired at its recession lows.  Real income steadily declines.  Barely more than half of all college graduates of the past three years are employed.  Housing starts are at record low levels.  Housing prices continue to decline.  And what has the president done about it?  Secured a few non-binding agreements to boost imports of American products.  Set a goal of doubling exports in five years – not much of a stretch, considering that we started from a recession-depressed level.  And little else.  The economy has settled into what some economists are beginning to call “the new normal.” 

So I expected that, by now, Republican candidates would be making hay of the president’s inaction on jobs and maybe even trade.  But, aside from whack-job Trump, none has uttered a peep.  All of the debate has returned to what seem to be the only two pre-recession issues that a politician can debate – taxes and spending.  It’s as though The Great Recession never happened.  Actuallly, it’s as though it were 1980 again and the trade deficit never happened.  Hell, I can’t even find a serious Republican contender for the nomination who’s tough on illegal immigration.  So, while I’m disappointed with Obama’s performance on these issues, you’ll forgive me for not getting on a Republican bandwagon yet.

I suppose it’s good that the national debt is getting so much attention, since it’s an unsustainable situation.  But let’s face it, while tackling the debt burden in a serious way is going to be good for the economy in the long run, it will have terrible negative consequences for the economy for years to come.  Anything that takes money out of the economy – which paying down the debt (or even slowing its growth) – will do, is a drag on the economy.  Ultimately, though, the rates at which we tax and spend have little effect.  Spending more than we collect in revenue may give the economy a short-term boost, but ultimately we arrive at a day of reckoning.  Spending less than we collect in revenue is a drag on the economy, but one that leaves our government in a better fiscal position, able to stimulate the economy as necessary.  In the end, we arrive at the same point in either case.  Not so with the trade deficit.  That money is sucked from the economy, never to return.  The only choice for sustaining an illusion of prosperity is deficit spending.

But, for me, the most disappointing failure in the wake of the The Great Recession is the failure of economists to do some serious soul-searching about how their growth and trade models and theories could have failed so miserably.  When someone did ask the question, instead of pondering what they may have missed, economists simply retreated further into their own camps, the Austrians (the followers of economists von Mises and Hayek, not the people of the European country) blamed the Keynesians and vice versa.  And all seized upon the superficial scapegoats of greed and corruption. 

I suppose it was foolish of me to hope for anything more.  Economists, after all, aren’t paid for independent thought.  Their corporate and Federal Reserve benefactors pay them to toe the line in support of their growth policies, and nothing else.  Still, I find it simply astonishing that no economist has seen the relationship between population density and balance of trade when the data practically screams it out.  Or that not one has the courage to wonder where,  even if resource issues can be held at bay indefinitely, population growth will ultimately take us when simple laws of physics dictate that it can’t go on forever.  The lack of intellectual curiosity in the field of economics is stunning.  One wonders how this subject continues to be offered as a field of study in our universities.  Why not alchemy or voodoo?  The field of economics is no more scientifcally-oriented than they. 

And so The Great Recession, our best chance to date to awaken to the real forces that are driving humanity and our economy off a cliff, has been an opportunity lost.  It seems that some worse event is required to rouse economists from their stupor – an event that their failure to seize this opportunity has made inevitable.

Business and The Common Good

May 17, 2011

The above-linked opinion piece by Chrystia Freeland, writer for Reuters, asks whether businesses add to the common good.  It’s an opportunity for me to write about one of the most profound implications of the new economic theory I presented in Five Short Blasts – the divergence between the  interests of business and the interest of the common good as increasing population density begins to erode per capita consumption. 

The quandary is best illustrated by the example I presented in the book – the difference between Japan and the United States in the per capita consumption of dwelling space.  In Japan, a nation ten times as densely populated as the U.S. (and nearly as wealthy, thus eliminating low income as an explanation for the disparity), the Japanese people live in homes that are only 30% the size of American homes (on average).  The reason is clear.  Japan is so crowded that space limitations don’t allow for anything larger. 

The Japanese people would give anything to live in a home like the average American.  Their tiny dwellings, often derisively referred to as “rabbit hutches,” are a national embarrassment.  In terms of dwelling space (and in many other ways as well), the Japanese have effectively crowded themselves out of a better quality of life.  This clearly isn’t in the best interest of the common good. 

But look at it from the perspective of businesses engaged in building, furnishing and maintaining Japanese homes, not to mention those engaged in manufacturing the products used by those businesses.  Although the average Japanese dwelling is more than three times smaller than the average American’s, the sum total of dwelling space is more than three times larger than it would have been if Japan’s population had leveled off at the same population density as the U.S.  Thus, sales volumes and profits for these companies are more than three times greater, thanks to population growth and stuffing more and more people into the same limited space. 

And so it is with virtually every business, regardless of the product or service they provide.  Their best interests are served by advocating for public policy aimed at growing and exploiting the population, in spite of the fact that such policies are not in the best interest of the common good.  And who wields the most power in terms of campaign financing and advertising to shape public opinion?  Businesses and corporations, and not individual citizens.  It’s the corrputing influence of corporate money. 

It’s the very reason that our nation’s leaders turn a blind eye to illegal immigration and process as many legally as the sytem can handle.  It’s the very reason that our trade policy has been hijacked by “free trade” advocates – not because they give a rat’s behind about free trade, but because it provides them access to more and bigger populations, the more densely populated the better, regardless of what it does to the trade deficit or the nation’s economy.  It’s the very reason that public and private grant money has snuffed out any independent thinking by our business and academic economists, who must toe the line of corporations and the Federal Reserve if they want to keep the money flowing. 

In 1952, Eisenhower’s Secretary of Defense, Charles E. Wilson, former CEO of General Motors, famously proclaimed, ” What is good for the country is good for General Motors, and what’s good for General Motors is good for the country.”  A year later, Al Capp created a new character for his L’il Abner comic strip – General Bullmoose – whose motto was, “What’s good for General Bullmoose is good for everybody!”  It’s exactly this attitude that permeates public policy and economic theory to this day.

While it may have been true in 1952, and throughout history up to that point, when the world population was less than half what it is today, that the best interests of both business and the common good were the same, it isn’t today.  That relationship broke down when population density reached a critical level, beyond which people were forced to begin crowding together, eroding per capita consumption and driving up unemployment. 

There’s nothing wrong with business wanting to make a buck.  It’s what drives them to produce products and services that we need, and to do it efficiently.  But it also drives them in a direction that, at some point, is no longer in our best interest.  Boundaries need to be established to assure that business continues to function as our servant and not our master.  That’s why I’ve advocated a major overhaul of the U.S. constitution, adding amendments that preclude business from using population growth and bad trade policy to stoke profit growth.  It’s why the first amendment needs clarification of the now-ambiguous speech of our founding fathers who never imagined that “the people” could be interpreted to include global corporations, or that money would be equated with “speech.”  This ambiguity and these interpretations have effectively silenced “the people,” drowning out their “speech” in a tidal wave of corporate money used to influence policy in a direction contrary to the common good.

Balance of Trade in Manufactured Goods Improves

May 16, 2011

I was out of the “office” last week, so I’m just now getting caught up on news about the trade deficit.  On Wednesday, the Bureau of Economic Analysis released its monthly report on “U.S. International Trade in Goods and Services.”  (Link provided above.) 

There was bad news on the overall balance of trade which, once again, worsened dramatically – driven this time by the soaring price of oil.  But the part of the report I’m interested in – and all Americans should be interested in, for this is where the jobs are – is the balance of trade in manufactured goods.  And there we find some good news.  Though imports jumped, exports jumped even more, bringing the balance of trade in manufactured goods in March – at $19.37 billion – more than 10% below its trailing twelve month average of $21.54 billion.  That’s significant improvement.

Overall, exports rose to a pace that exceeds Obama’s goal to double exports in five years.  However, although exports of manufactured goods jumped by nearly $7 billion in March, exports of manufactured goods are still slightly behind the pace needed to double them in that time frame.  And, after all, manufacturing is where the jobs are. 

The following are the charts of our overall balance of trade, the balance of trade in manufactured products, and where we stand with respect to Obama’s goal of doubling exports in five years.

Balance of Trade          Manf’d Goods Balance          Obamas Goal to Double Exports

The question is this:  how much of this improvement in exports of manufactured goods and in the balance of trade in manufactured goods can be attributed to Obama trade policy, both overt and behind-closed-doors, and how much is simply due to improvement in the global economy driving an overall increase in global trade, boosting both exports and imports and leaving us no better off?  Though the March deficit in manufactured goods is 10% below the 12-month trailing average, it’s still much worse than in early 2010 when global trade was stunted by the effects of the recession.  And will it continue to improve, or is trade a bit of a lagging indicator, still enjoying the 4th quarter bump in global GDP growth, but now susceptible to the slowdown in 1st quarter GDP which, if anything, seemed to accelerate in April?  Can we really believe that Obama has engineered a turn-around in trade and manufacturing without resorting to any meaningful change in the use of tariffs?  Both history and my economic theory suggest that that’s not likely.

April Employment: A Tale of Two Surveys

May 6, 2011

The Bureau of Labor Statistics (BLS) released its report for the month of April this morning.  The establishment survey that determines how many jobs were created during the month says that 244,000 non-farm jobs were added in April – an upside surprise.  But the household survey, used to measure the unemployment rate, says exactly the opposite.  According to that survey, the employment level (the number of people working) actually fell by 190,000, raising the unemployment rate to 9.0% from 8.8% in March. 

Here are the figures that go into the unemployment calculation:

Unemployment Calculation

And here’s a chart of that data:

Unemployment Chart

As has been the case since the beginning of the recession in late 2008, the BLS continues to hold down the official unemployment rate by denying any growth in the labor force.  Until the beginning of the recession, the official size of the labor force corresponded closely with the growth in the population.  But as  soon as the recession began, the official size of the labor force remained stuck at roughly the same level while the population has grown by about six million.  It’s as though the folks at the BLS stopped talking to the folks at the Census Bureau.  You can see what I mean from the following chart:

Labor Force & Employment Level

The net result is that the number of unemployed Americans and the percentage of the population that’s unemployed remain stuck close to the worst levels of the recession:

Unemployed Americans           Per Capita Employment

So what will probably be seen as a bullish report early on today will turn negative as the details of the report get more attention.

Here’s a breakdown of the jobs that were “created” in April according to the establishment survey:

  • Retail:  + 57,000
  • Professional & business services:  + 51,000
    • Temporary help:  + 34,000
    • Management & technical consulting:  + 11,000
    • Computer systems design:  + 8,000
  • Leisure & hospitality services:  + 46,000
  • Health care:  + 37,000
  • Manufacturing:  + 29,000
  • Mining:  + 11,000
  • Construction:  unchanged

This was the fifth consecutive gain in manufacturing.  That’s the good news.  The continued gains in health care – not so much.  Given the pressure to cut health care spending, this sector of the economy is soon headed for a rude awakening.  Most of the gain in leisure and hospitality services was in restaurants and bars.  Remember the day in April when McDonald’s hired 50,000 workers?  That alone would account for all of the jobs added in that sector of the economy. 

The truth probably lies somewhere in the middle of these two surveys, which means that there was virtually no growth in employment whatsoever.  Economic data has been trending down since the beginning of April.  Will employment soon follow?  Time will tell.

Bloomberg: Open the Immigration Floodgates

May 3, 2011

 In case you missed NBC’s “Meet The Press” with David Gregory on Sunday morning, here’s a link:  It was one of those programs that got me fired up.  New York mayor Michael Bloomberg was one of the panel guests, along with David Axelrod and Virginia governor Bob McDonnell.

It was Bloomberg’s soliloquy about how to fix the economy in general and Detroit’s economy in particular that raised my hackles, soon followed by Gregory’s use of the  The Economist magazine’s feature article titled “What’s Wrong with America’s Economy?” to prompt a discussion about the state of the U.S. economy.

The following is the comment I posted on the “Meet the Press” website:

As a remedy for Detroit’s economic woes, Bloomberg suggests filling it with immigrants.  No doubt, that would reverse the decline in Detroit’s population.  But the people who already live in Detroit (including many immigrants) are experiencing the highest unemployment in the country.  What exactly would Mr. Bloomberg have all these new immigrants do for a living?  How would loading up Detroit with more labor capacity fix the problem that has driven people out of the city in the first place – the lack of sufficient work to employ them? 

Mr. Bloomberg also repeated a frequently made and patently false statement when he said that “this country was built by immigrants.”  While it’s true that the U.S., like every other nation on earth (with the possible exception of Iraq, where the garden of Eden is believed to have been located between the Tigris and Euphrates Rivers) is populated by the descendants of immigrants, the vast majority of labor that went into the building of everything you see in the U.S. was provided by native-born Americans.  Sure, immigrants contributed, but to say that the U.S. was built by immigrants is ridiculous. 

David Gregory then went on to prompt a discussion of the economy with the cover of “The Economist” magazine, which asks the question, “What’s Wrong With America’s Economy?”  How ironic.  What’s wrong with America’s economy is that its economic policy is guided by the field of economics which, thanks to its refusal to ever again consider the full ramifications of the biggest factor at work eroding our economy today – population growth – its theories, most notably those regarding trade, are fatally flawed. 

If economists ever get over the beat-down their field took in response to the seeming failure of Malthus’ theory about overpopulation and food shortages, and once again consider the full implications of unending population growth – not just strains on resources and stress on the environment – but other implications as well, they might discover the relationship between population density and per capita consumption.  They might come to understand how extreme population densities erode per capita consumption, driving up unemployment and making overpopulated nations utterly dependent on manufacturing for export in order to gainfully employ their bloated labor forces.  And they might come to understand that this is the driving force behind the trade imbalances that nearly collapsed the global economy. 

But, no, economists continue to foolishly rely upon population growth as an engine for macroeconomic growth and as a way to stoke sales and corporate profits, never giving a thought to the relationship between per capita consumption and employment.  Until economists emerge from the fetal position they adopted in response to cries of “Malthusians!” and open their eyes to the full ramifications of population growth, America’s economy and, indeed, the global economy as a whole will continue to deteriorate. 

Pete Murphy

Author, “Five Short Blasts”