We Need Better-Trained Workers to Compete with The Rest of The World?

November 26, 2012

It’s often said by our political leaders and economists that the United States needs a better-trained work force in order to compete with other nations and bring manufacturing jobs back home.  If that’s true, then how do you explain the following? 

Regarding illiteracy among the world’s population, the CIA World Fact Book notes that:

… over two-thirds of the world’s 793 million illiterate adults are found in only eight countries (Bangladesh, China, Egypt, Ethiopia, India, Indonesia, Nigeria, and Pakistan) …

I did some checking.  Of these eight highly illiterate nations, the United States actually has a trade deficit in manufactured products with five of them.  It has surpluses with  Egypt, Ethiopia and Nigeria.  (These surpluses are almost entirely in the form of aid.  The U.S. counts aid as exports.) 

In fact, these five relatively illiterate nations – Bangladesh, China, India, Indonesia and Pakistan – accounted for over 77% of our entire trade deficit in manufactured products in 2011.  Clearly, the outsourcing of our manufacturing jobs can’t be explained by companies seeking out highly-trained work forces.  If training were the issue, then why did our manufacturing jobs leave the best-trained work force in the world in the first place in favor of work forces that were completely illiterate? 

The temptation is to say that these jobs actually left not because of better-trained work forces but in search of cheap labor.  However, that argument falls flat when you consider that our trade deficits with high-wage nations like Japan and Germany are even worse than any of these five afore-mentioned nations. 

What they all have in common is an extreme population density, making them incapable of reciprocating our consumption of their imports with consumption of American goods.  We have trade deficits with these nations not because of the training of their workers or because of cheap labor or even because of manipulated currency exchange rates, but because of American trade policy that fails to account for the role of population density in driving global trade imbalances.


2013 Predictions

November 22, 2012

I’ve just published my annual predictions for 2013.  There’s a link on the right hand side of the blog.  Here’s another:  https://petemurphy.wordpress.com/more-good-stuff/predictions/2013-predictions/.

It’s shaping up to be another economically gloomy year, thanks to the effects of our worsening population density and free trade with badly overpopulated nations.  However, the willingness of central banks around the world to prop up sagging economies with unlimited infusions of monetary easing mucks up the picture and, at least temporarily, mutes the effects. 

Take a look and we’ll have some fun seeing who is right – me or the economists who always default to predictions of quickening economic growth coming to the rescue of our deteriorating fiscal condition.

“Fiscal Cliff” or The Bottom of The Canyon?

November 12, 2012

The looming economic crisis that we face on January 1st, when tax cuts expire and big spending cuts kick in, has been popularly dubbed the “fiscal cliff.”  I think the cliff analogy is a poor one, implying that if we stop short of the cliff, we’ll be resting on a level plateau where everything is fine. 

Everything won’t be fine.  Even if we extend all the tax cuts and cancel the spending cuts, we’ll then be faced with exploding the national debt at a rate that’s unsustainable and sure to prompt credit downgrades from every ratings agency.  (By the way, even if all of the tax cuts are allowed to expire and the spending cuts take hold, we still won’t even be close to balancing the budget.)  Pulling back from this situation only delays the inevitable. 

It’s not a “fiscal cliff” that approaches on January 1st.  We drove off that cliff in 1947 with the signing of the Global Agreement on Tariffs and Trade (“GATT”), heralding the dawn of “globalization” and its massive global trade imbalances that have now completely bankrupted the nation.  When we drove off that cliff, no one noticed what was happening.  Like the passengers in a car that suddenly encounters a dip in the road, everyone shouted “wheeee” as we sailed along.  No one looked down to see that the road had suddenly vanished beneath us.  The descent began slowly at first, as our trade surplus was slowly whittled away, replaced by – at first – seemingly small and harmless trade deficits. 

Rather, what we’re approaching on January 1st is the bottom of the canyon.  Now the passengers’ collective “wheeeee” has been replaced by “holy s___t!” as the canyon floor has come into view.  The decision Congress and the President face on January 1st is not whether to drive over a cliff but whether to re-energize the team of excavators that has been digging a deep hole at the bottom of the canyon to delay the inevitable “splat.”

It was almost amusing to listen to the banter on the political talk shows yesterday morning.  Much of the discussion focused on tax policy – whether additional revenue should be generated by raising tax rates on the wealthy or by eliminating their deductions.  If you’re wealthy, does it really matter if, in the final analysis, you’re going to be paying more taxes?  And what difference does that make to the economy?  Either way, the deficit is reduced only marginally and the economy is just a little worse off.  As I’ve said before, it makes absolutely no difference what kind of scheme is employed to collect revenue.  Regardless of whether it’s done with income taxes, property taxes, sales taxes, excise taxes, gasoline taxes – you name it – the end result is the same.  You have less money in your pocket to spend on other things.  Among the fifty states, some have no income tax at all, relying instead on property taxes and sales taxes.  Other states do the opposite.  As one who has lived in states on both ends of the spectrum, I can tell you that it doesn’t matter. 

None of this matters as long as the real driving force behind the deficit spending – the trade deficit – goes unaddressed.  I watched every political talk show on Sunday morning and not once in all of the discussions did the subject of the trade deficit ever come up.  As long as there’s a trade deficit, deficit spending is essential to return to the economy those dollars that the trade deficit sucked out of it.  Here’s a chart that tracks our cumulative trade deficit together with the growth in our national debt since our last trade surplus in 1975:  Cumulative Trade Deficit vs Growth in National Debt.  Note that every time that the growth in the national debt has slowed to a rate less than the growth in the cumulative trade deficit, it’s resulted in a recession. 

Without addressing the trade deficit, the real choice that lawmakers will be making in the approach to the bottom of the canyon on January 1st is between two bad outcomes – an exploding national debt or recession.  The choice they’ll make is not whether to put our fiscal house in order but whether we should crack the whip harder across the backs of the excavators digging the hole.  The problem is that we’re now beating a dead horse.  The excavators are exhausted.  The “splat” is inevitable.

September Trade Data More Evidence of Trade Policy Failure

November 9, 2012


As reported yesterday by the Bureau of Economic Analysis, the U.S. trade deficit improved in September, dropping to $41.6 billion – the lowest level since December, 2010.  (See above link.)  The report cites a $5.4 billion increase in exports as one of the main reasons for the improvement. 

This all sounds like very good news until you look into the details.  Yes, exports rose.  But an increase in exports of food and oil account for the bulk of the increase.  In fact, exports hit a record in both categories.  Exports of manufactured goods rose by $2.1 billion.  However, that figure was swamped by an increase of $3.6 billion in imports of manufactured goods.  The net result was yet another worsening of the trade deficit in manufactured goods, continuing its steady downward trend.  Here’s the chart:  Manf’d Goods Balance of Trade.  It’s not a pretty picture and it explains why jobs in the manufacturing sector have been stagnant at best for over a year now. 

The overall rise in exports wasn’t enough to put us back on track for meeting the president’s goal of doubling exports in five years.  Exports lagged the goal for the 14th consecutive month.  Here’s the chart:  Manf’d exports vs. goal.

Perhaps the best evidence that the president’s plan to double exports in five years (the real goal being the doubling of manufactured exports, since that’s where the jobs are) is that, in the past 13 months, exports in that category have risen by only $1 billion.  To keep pace with a plan to double them, they should have risen by $16 billion in that period.  During that same period, manufactured imports rose by $6 billion.  In other words, the manufacturing sector of our economy has contracted by $5 billion per month in the last 13 months, thanks to the president’s failure to take action on our trade policy failures.

Republican Party Needs to Shift Focus

November 8, 2012

In May of 2009, I predicted that if President Obama failed to address the trade deficit in a meaningful way, he’d be a one-term president.  (See https://petemurphy.wordpress.com/2009/05/12/obama-approach-to-economy-faltering/.)  I was wrong.  Although, predictably, unemployment is no better today than it was in 2009, it didn’t doom Obama to a one-term presidency as it should have – as it did to every president in the past.

It was clear from the polls that the economy and high unemployment were the biggest issues in the campaign, and that Americans were dissatisfied with Obama’s meager progress.  When Reagan campaigned against Jimmy Carter in 1980, he asked Americans “Are you better off than you were four years ago?”.  The answer was a resounding “hell, no” and Carter lost in a landslide.  In 1992, the Clinton campaign’s mantra was “it’s the economy, stupid” and George Bush, presiding over a recession, was summarily drummed out of office after one term.  How is it possible that Republicans couldn’t parlay similar circumstances into a Republican victory on Tuesday?  Mitt Romney was a good candidate – articulate, handsome, a successful businessman, a successful governor and savior of the olympics – perhaps the best Republican candidate since Ronald Reagan.

On Wednesday morning, pundits cited all kinds of factors, including Romney’s position on issues and demographic factors.  But I believe there’s a more fundamental and more powerful factor involved – one that becomes evident when you examine the electoral college map and the state maps showing the blue and red counties.  Densely populated states went heavily in favor of Obama, as did densely populated counties in the more sparsely populated red (Romney) states.  Back in September, I noted the huge discrepancy in the average population density of the projected Obama states vs. the projected Romney states.  (See https://petemurphy.wordpress.com/2012/09/12/the-population-density-factor-in-the-national-election/.)  To summarize, Obama’s states had an average population density of 928 people per square mile, while Romney’s states averaged only 60.  We’re not talking some 60-40 demographic split here.  This difference is greater than an order of magnitude.  That’s huge – far too big to be shrugged off as mere coincidence.

In Five Short Blasts, I wrote of a divergence of interests that occurs when population density breaches some critical level.  While it remains advantageous for corporations to see the population continue to grow, stoking total sales volume, worsening population density begins to erode per capita consumption, employment and the quality of life of individual people.  The Republican party, above all else, serves the interests of corporations, believing that “what’s good for General Motors is good for the country.”  (A quote from Charles Wilson, head of General Motors, while testifying before a Senate subcommittee in 1952.)  Back then, it was probably true.  But no more.  While no one understands this divergence of interests, people living in crowded conditions sense it, just as animals that have never experienced a tidal wave sense danger as one approaches.  While the Republican message may still resonate with people in rural conditions who have never experienced overcrowded conditions, it falls flat in urban settings, and America is steadily becoming a more urban country.  For these people, the Republican message of placing faith in corporate growth while being stripped of government safety nets doesn’t ring true.  They know instinctively that they’ll be left high and dry.

The irony is that the Republican Party finds itself stewing in its own juice.  The growth that it so fervently championed for decades, stoked by a flood of H1-B visa immigrants, has resulted in an urban America where the supply of labor is out of balance with demand, leaving workers and unemployed alike more heavily dependent on safety net programs.

Of course, both parties embrace free trade and globalization.  They’re equal partners in crime in the decimation of America’s manufacturing base and the corresponding decline in wages and cuts in benefits.  It’s one thing to take away people’s ability to make a decent living, but at least the Democratic Party provides a backstop with safety net programs.  Republicans would take that away too, still believing that, like half-a-century ago, the unemployed are simply people too lazy to work.  That’s not the world we live in today – the world that the Republican party helped to create.

So how does the Republican Party distinguish itself once again from the Democratic Party, appealing to urban voters, while holding true to its “conservative” philosophy?  It can begin with a return to true conservative values and turn away from the brand of conservatism that favors corporate interests over the interest of the common good.  If it wants people to embrace the virtues of hard work and self-reliance, it needs to champion policies that give people a real opportunity to earn a decent living in the private sector.  The only way that’s possible is by promoting a return to sensible trade policy that employs tariffs to assure a balance of trade and to bring our manufacturing jobs back home, abandoning the radical free trade experiment begun in 1947.  That’s true conservatism. That’s a clear difference from the policy of the Democratic Party.

If the Republican Party wants to promote less government intrusion in our lives, then it needs to promote a return to a less crowded America where that was once possible, the America it foolishly destroyed to satisfy corporate benefactors.  Nobody likes living in crowded conditions.  The promise of escape from such conditions will be appealing to many urban voters who feel trapped there.

If the Republican Party doesn’t like government health care, then it needs to offer a real alternative, not another government health care version that carries its own brand.  We need to return to the days when employers offered health plans at affordable prices because they had to in order to remain competitive.

If the Republican Party wants to balance the budget, then it needs to address the real driving force behind deficit spending – the trade deficit – and stop pretending that the two aren’t related.  That’s true conservatism.  That’d be a real distinction, one that’d send people flocking away from the Democratic Party and back to the Republican Party.

Much has been made of the Republican Party’s failure among certain demographic groups, notably Latinos.  It can hold strong to its opposition to illegal immigration, but it needs to do a better job of explaining to Latinos how illegal immigration harms them, as Americans, just as much as any other American.

Beyond these things, there are other changes the Republican Party needs to make.  It needs to distance itself from the extreme elements that are increasingly characterizing the party, and it needs to more quickly repudiate weird and offensive statements.

The Republican Party has a choice to make.  It can remain the party of corporate interests and try to fool the populace into believing that growing corporate bottom lines will translate into success for them as well.  There’s obviously mountains of campaign finance money to be had there.  But what did it buy them in this election?  Nothing.  Not the presidency.  Not even any seats in the House or Senate.  They actually lost seats in both.  People aren’t buying the message any longer.  They work for those corporations and can see very well the disconnect between growing profits and their wages and benefits.  The idea that the government should cut spending on the very programs they now increasingly rely upon to keep them afloat, just so that tax rates on corporate profits can be cut further, makes no sense to more and more voters.

Or, Republicans can choose a different path, one that offers a conservative, viable alternative to the Democratic platform, focused not on corporate interests but on the interests of the common good.  They can offer to bring our manufacturing jobs home, to balance the federal budget painlessly and to stop the cancerous growth that’s choking our quality of life.  The Democrats offer an assurance that people will be taken care of as they eke out a meager existence.  Republicans could offer so much more.

Hadas: Admit Economic Ignorance

November 3, 2012


This above-linked editorial by Edward Hadas appeared on Reuters this week.  Hadas calls for economists to admit that they’re “stumped” and that ignorance reigns in the field of economics.

Rather than repeat myself, the following was my reply (which you’ll find several comments down):

Good article, but the whole focus on financial machinations is illustrative of the problem with the field of economics. It focuses all of its attention there while maintaining its self-imposed ban on considering the effects of what is, by far, the biggest driving force behind economic trends today – population growth. If economists ever did consider the full range of effects – beyond mere resource issues – they might come to recognize the inverse relationship between population density and per capita consumption and its role in driving unemployment and global trade imbalances.

As rising population density chokes the life out of per capita consumption (which is inextricably linked to per capita employment), governments are becoming increasingly dependent upon deficit spending to maintain an illusion of prosperity. And even that tactic is rapidly becoming more impotent.

In conclusion, Hadas says:

Economists who can answer any of these questions deserve Nobel prizes. There is a generation’s worth to be won. Unfortunately, while the prizes can wait, policy has to be made now, in confusion and ignorance.

Can the field of economics, so bent on defending its precious mathematical models, ever wake up to reality?  I wonder.  They’re much more likely to resort to a tactic that we in the engineering world used to jokingly suggest as a solution to difficult problems:  multiply by zero and add the answer.  The Nobel prizes will likely go to economists who develop “fudge factors” that make all seem right with their models.

Perhaps only after the field of economics finds the mocking and insults that’s heaped upon them because of their ignorance greater than the derision they endured over Malthus’ theory will they decide to open their minds a little.  In the meantime, they will continue to wallow in ignorance and our political leaders, under their advisement, will continue to serve up ignorant economic policy.

Surprise! More Great Jobs News in October! (Just before the Election)

November 2, 2012


Although all the “experts” maintain that it’s impossible for the federal government to manipulate the monthly employment report figures, you can’t help but wonder.  At a time when all other economic data shows a stalled or barely-growing  economy, we suddenly get two months of rosy employment reports.  Last month it was the household survey that claimed that the employment level grew by 873,000 jobs, cutting the unemployment rate a whopping 0.3% in one month to exactly 0.1% better than when President Obama took office.  This month, it’s the establishment survey’s turn, claiming that payrolls grew by 171,000, far exceeding expectations of about 125,000.  And, once again, the household survey added another 410,000 jobs.  But, probably fearing that people would begin to take seriously those who claim that the figures are massaged, the household survey also claimed that 578,000 people re-entered the work force, resulting in a small rise of 0.1% in unemployment, raising that figure to 7.9% – exactly where it stood when the president took office. 

To top it all off, per capita employment rose to the highest level since the recovery from the “Great Recession” began in 2010.

Come on, you have to admit that all of this seems just a little fishy.  Casting more suspicion on the data is the fact that the average workweek shrank by 0.1 hours and average hourly earnings fell by one cent.  Those aren’t things that happen in periods of robust job growth.

Nevertheless, here are the charts of the data:  Unemployment Chart     Per Capita Employment     Labor Force & Employment Level     Unemployed Americans

* * * * *

The breakdown of the new jobs, according to the establishment survey is as follows:

  • Professional & business services:  + 51,000
  • Retail trade:  + 36,000
  • Health care:  + 31,000
  • Leisure & hospitality:  + 28,000
  • Construction:  + 17,000
  • Manufacturing:  unchanged
  • Wholesale trade:  unchanged
  • Transportation & warehousing:  unchanged
  • Information:  unchanged
  • Financial activities:  unchanged
  • Government:  unchanged
  • Mining:  – 9,000

The growth in construction jobs is the first in a very long time.  The report also points out that manufacturing jobs have been flat since April.  The report also notes that job growth in August and September was revised upward significantly, by a total of 84,000 jobs.