Real Per Capita GDP Declines at 0.9% Annual Rate in 4th Quarter

The Bureau of Economic Analysis released its preliminary estimate of 4th quarter GDP this morning.  Since third quarter GDP had grown at an annual rate of 3.1%, economists were expecting it to have grown further in the 4th quarter, but at a slower rate – about 1.0%.  So the financial community was shocked to learn that 4th quarter GDP actually fell at an annual rate of 0.1%, well below the low end of the range of expectations. 

Of course, thanks to population growth, this means that real per capita GDP – your slice of the pie – fell even further, at an annual rate of decline of 0.9%.  (The population grew at an annual rate of 0.8% in the 4th quarter.) 

When the big jump in 3rd quarter GDP was released in the fall, just prior to the election, I accused the Obama administration of deliberately manipulating the timing of government expenditures to trump up the data and support the president’s claim that the economic recovery was gaining steam and that we needed to stay the course.   The breakdown of 4th quarter GDP provided in the BEA news release corroborates that claim:

Real federal government consumption expenditures and gross investment decreased 15.0 percent in the fourth quarter, in contrast to an increase of 9.5 percent in the third.  National defense decreased 22.2 percent, in contrast to an increase of 12.9 percent.

Such a huge swing in expenditures – especially the defense spending – is no accident. 

But wait, what about exports?  One of the cornerstones of Obama’s economic plan was to double our exports in five years (as announced in January of 2010).  Didn’t exports help?  If you’ve been following this blog, you probably already know the answer:

Real exports of goods and services decreased 5.7 percent in the fourth quarter, in contrast to an increase of 1.9 percent in the third.

Exports are declining – 3.8% in the past 6 months.

The question now is whether the decline in GDP will continue.  Two consecutive quarterly declines constitutes a recession.  Is this the start of the double-dip that has been held at bay by massive stimulus spending, spending that’s now drying up as a result of the fiscal cliff resolution and upcoming big defense spending cuts?  Maybe.  Personal consumption expenditures held up pretty well in the 4th quarter as they usually do, fed by the holiday shopping frenzy.  But that’s not likely to continue now that tax rates have risen by 2%. 

Real per capita GDP, though it has recovered somewhat from the 2008/2009 “Great Recession,” remains almost $1,000 below its pre-recession level, and this may be as good as it gets.  In a society that has already breached its economically optimum population density – the point at which per capita consumption is driven into decline by over-crowding – it comes as no surprise that everyone’s slice of the economic pie is diminishing.

Immigration Reform and The “Stupid Party”

At a meeting of Republican leaders this past week, Louisiana governor Bobby Jindal told his fellow Republicans that the GOP needs to “stop being the stupid party.”  Jindal was referencing comments made by a few GOP candidates about rape and the party’s growing reputation as an anti-science party, thanks to pandering to far right elements that deny evolution and climate science.

But the Republican party holds no monopoly on stupidity.  I could cite a litany of stupid moves and policy positions on the part of Democrats, including trade policy, budget policy and foreign policy.  Among the stupidest of the Democratic positions is its advocacy for immigration reform.  How stupid is it to reward illegal aliens with amnesty and citizenship?  How stupid is it to swell our population yet again with another tidal wave of immigrants when all of the problems caused by overpopulation, driven almost entirely by immigration, grow worse by the day:  unemployment, overdependency on foreign oil and the deterioration in our climate, just to name a few? 

But there’s two kinds of stupid.  There’s real stupidity of the sorts mentioned above.  And then there’s political stupidity – the kind that involves not using the first kind to your advantage with the electorate.  It’s this latter kind of stupidity that Jindal and Republicans are contemplating.  In the case of immigration reform, Republicans seem to have concluded that, although the Democrats’ position on immigration is stupid, their position plays well with those elements of Latino voters who favor illegal immigrants over the best interests of their newly-adopted homeland.  So now, instead of trying to parlay their opposition to illegal immigration and amnesty for illegals into an advantage with the rest of the populace by making a better, more coherent argument for opposing illegal immigration, Republicans have decided it best to simply negate Democrats’ advantage with Latino voters by joining them in their stupidity. 

Yeah, yeah, I know – recent polls have shown that something less than 50% of voters now oppose a pathway to citizenship for illegals.  But not opposing it isn’t the same thing as enthusiastically favoring it.  If given a choice and if armed with intelligent arguments why our worsening overpopulation is a real problem, the vast majority of voters – perhaps even Latino voters – would prefer that we simply enforce the borders and force illegals back home. 

What’s really stupid is that we’ve made this mistake before and we’re about to do it again.  In 1986, Congress passed the “Immigration Reform and Control Act” which granted amnesty to millions of illegal immigrants.  The following were the key provisions of that Act:

• required employers to attest to their employees’ immigration status.
• made it illegal to knowingly hire or recruit unauthorized immigrants.
• legalized certain seasonal agricultural illegal immigrants.
• legalized illegal immigrants who entered the United States before January 1, 1982 and had resided there continuously with the penalty of a fine, back taxes due, and admission of guilt.

It was supposed to be a one-time deal and a permanent fix for the problem of illegal immigration.  Now according to an article just published this morning, here’s the framework of the “immigration reform” deal that Democrats and Republicans have struck in the Senate:

• Creating a path to citizenship for illegal immigrants already here, contingent upon securing the border and better tracking of people here on visas.
• Reforming the legal immigration system, including awarding green cards to immigrants who obtain advanced degrees in science, math, technology or engineering from an American university.
• Creating an effective employment verification system to ensure that employers do not hire illegal immigrants.
• Allowing more low-skill workers into the country and allowing employers to hire immigrants if they can demonstrate they couldn’t recruit a U.S. citizen; and establishing an agricultural worker program.

Point for point, it’s almost exactly the same as the “immigration reform” that was passed 27 years earlier, except that the provision for automatically awarding green cards to foreign students who earn degrees will make it that much harder for American students to find work, and that much harder for American students to afford seats at the universities that are increasingly taken by foreign students. 

Regarding the first point of the plan, there’s already a pathway to citizenship.  It involves going home and applying for a visa.  And we don’t need “immigration reform” to enforce the border and track people with visas.  Those are already provisions of existing law that merely lack the resources and funding. 

Regarding the 2nd point, a study just released this morning found that half of all Americans with college degrees are working in jobs for which they’re overqualified.  And approximately half of all recent college graduates can’t find work at all.  Why do we need to import more students?  How much more affordable would college be if our universities actually had to compete for students instead of filling the classrooms with immigrants?  How much could we cut federal spending on tuition aid?

Regarding the third point, we already have the E-verify system.  What we don’t have are states that require its use.

And regarding the last point, we already have this and employers routinely claim that they can’t find workers without even making any valid effort.

Immigration reform is stupid, plain and simple.  We already have all of the laws we need.  All we lack is the will to enforce them and the backing of economists who understand what worsening overpopulation does to our economy.  Swelling the ranks of the unemployed with more unemployed immigrants is stupid.  Making our over-dependence on foreign oil worse is stupid.  Negating all of our gains in energy efficiency and emissions by growing the population is stupid.  Filling our universities with foreign students we don’t need is stupid.  Destroying the credibility of our immigration laws with round-after-round of amnesty is stupid. 

What’s really stupid is ruining our economy and our country in an effort to court a minority of ill-informed voters, something that has never bothered the Democrats much.   And now  Republicans have concluded that if you can’t lick ’em, join ’em.  It’s easier than standing on principle.

Over-valuing Immigrants

http://blogs.reuters.com/reihan-salam/2013/01/22/fixing-immigration-but-not-the-rubio-way/

This above-linked editorial appeared on Reuters a couple of days ago.  The topic of immigration “reform” (liberalization) has picked up a lot of steam since President Obama’s re-election, as Republicans have concluded that they need to out-do Democratic pandering to the Latino demographic (which both parties have stereotyped as valuing the importation of more Latinos over the interests of their newly adopted home) as their pathway back to the white house.  (By the way, I wonder how many Latinos are actually fooled into thinking that this push for immigration reform will actually benefit Latinos instead of opening the flood gates to a tidal wave of Chinese and Indian immigrants?)

The point of the editorial is to argue the merits of giving illegals a sort of “premanent noncitizen resident” status instead of a more difficult “path to citizenship.” 

But that’s not the point of this post.  What caught my eye is found near the beginning of this piece, a relatively new justification for growing our population:

“But first, it is important to understand why the immigration issue is gaining momentum. Back in 2011, J.P. Morgan released a report that found that U.S. households own $70 trillion in physical and financial assets. This same report found that America’s stock of human capital, i.e., the collective education and experience of all U.S. workers, amounted to $700 trillion. Rather than pouring hundreds of billions of dollars into new roads, bridges and housing units, the surest and cheapest strategy for increasing our collective wealth is to import talented workers.”

So J.P. Morgan (one of our nation’s “too big to fail” banks) is saying that each American is actually worth ten times the amount of tangible financial and physical assets they’ve managed to accumulate.  Sure, a tiny fraction of this can actually be measured in terms of the money that’s been spent on their education.  But the vast majority of this intangible “wealth” is obviously arrived at by assigning some dubious value to Americans’ “experiences.” 

If this were true – that each of us is far more valuable to society than our net worth indicates – then why is no one willing to pay for it?  U.S. households’ net worth of $70 trillion works out to about $500,000 per household, a figure that’s about four times as much as the median net worth, giving you some idea of just how much wealth is concentrated in the hands of the top one percent.  But never mind that; let’s say that your net worth is about $500,000.  J.P. Morgan’s report says that your real value to society is about $5 million. 

So why isn’t Canada offering each American $5 million to move there?  Or even $1 million?  I’d happily move there for that much.  Or, for that matter, why isn’t any country making such an offer? 

Why aren’t there corporate “breeding farms” where women can choose to be treated like animal breeding stock in return for being paid millions for each baby they produce?  A repugnant idea, to be sure but, no doubt, there’d be no shortage of women willing to sign up. 

Even if the J.P. Morgan report is correct – that people’s education and experience is worth ten times as much as their net worth – shouldn’t the real conclusion be that money spent on education and experience is largely squandered – that people shouldn’t bother with attaining an education because wages are too low to justify it?  If the 20 million unemployed Americans are worth so much, why is no one willing to hire them?  And why spend good money on an education, only to join their ranks?

The conclusion of this report is blatantly false, yet immigration advocates – those who stand to profit from growing our population – use it to their advantage.  As is true with any such study, one must consider the motivation of those who have funded or produced it.  What is J.P. Morgan’s real motivation for so blatantly over-valuing our collective education and experience?  It’s not the supposed $700 trillion in intangible  value to the economy that they’re interested in.  Rather, like any other bank, it’s the $70 trillion in real assets that they’re after, and they’d like to see that figure grow with the population. 

In 1976, the U.S. population was 218 million and the median family net worth was $113, 000 (in 2010 dollars).  In 2010, the population had grown by nearly 50% to 309 million, yet the median family net worth had fallen to $77,300.  But over the same time frame the average net worth rose from $184,000 to $499,000.  So, during that time frame, while the median American was worse off, the collective net worth (the amount that banks are involved in managing) rose dramatically from about $20 trillion to $70 trillion.  In other words, while the population grew, most Americans grew poorer while the banks grew much richer, especially as the top few percent of people grew much, much richer – profiting from the growth in the economy. 

But the poverty-inducing effect of worsening overpopulation is reaching higher into the ranks of top few percent.  From 2004 to 2010, even the average net worth declined.  That’s because of the Great Recession in 2008 and the plunge in home and stock market values, one might claim.  True, but was that contraction an anomaly or the bursting of a bubble built on debt to maintain an illusion of prosperity?  I’d contend it was the latter. 

To put it in simpler terms, banks – like all other corporations – profit from a growing macroeconomy that accompanies population growth.  But, because of the worsening unemployment and poverty that that growth brings, the fortune of average citizens gets worse.  But, if the banks can convince you and your elected representatives that growing the population faster – and liberalizing immigration is a good way to do it – is in your best interest (as it most certainly is theirs), then so much the better for them.

China’s Economy: Heavy on Stimulus, Light on Consumption

http://www.reuters.com/article/2013/01/20/us-china-economy-idUSBRE90J0I820130120

The above link will take you to an interesting piece that appeared on Reuters this weekend.  Much of the celebrated growth in China’s economy has been driven by debt-fueled infrastructure spending and other private investment-funded development in anticipation of western-style consumption by its 1.2 billion consumers – consumption that has yet to materialize.  The article also notes that the explosion in property values there, while a boon to the developers, is taking a big bite out of the Chinese consumers’ ability to afford anything other than their cramped, overpriced living quarters.  This should come as a surprise to no one, since the price of dwelling space reaches exhorbitant levels in every other densely populated area of the world, whether it’s New York City or the entire country of Japan.  People who spend all of their income on rent and food have little left for the purchase of other products. 

The economy picked up in the fourth quarter as a spurt of infrastructure spending orchestrated by Beijing broke seven straight quarters of a slowdown. Consumption’s contribution to growth fell in the fourth quarter for the third straight quarter even though retail sales were rising in each of the last three months.

Retail sales, or total consumption, continues to grow but consumption’s share of the Chinese economy is declining.  It’s exactly what happens in a society whose population density is beyond that critical point where over-crowding impairs per capita consumption.  It’s happening not only in China, but throughout the world as the global population continues to grow.  While the sum total of the world’s economic output continues to grow, consumption’s share of the economy is declining as unemployment rises, making the world ever more dependent on deficit spending to maintain an illusion of prosperity.  Deficit spending has grown to the point where there aren’t even enough investors willing to fund it, forcing all of the world’s central banks to accelerate their money printing to buy up their nations’ own debts. 

And it’s all to no avail.  Deficit spending is increasingly less effective in stimulating the economy because people living in cramped conditions can’t consume more products no matter how much money you give them to do it.  China’s no different and the world is in for a rude awakening when the big plans for China’s economic growth go bust.

Walmart’s “Buy American” Push a Publicity Stunt

http://www.reuters.com/article/2013/01/15/us-walmart-us-idUSBRE90E0MB20130115

As reported in the above-linked article, Walmart announced a new “buy American” push in which it plans to boost its purchases of American-made products by $50 billion over the next ten years.  Sounds great.  It conjures up images of American factories adding shifts and hiring more workers.  That’s the American spirit, Walmart!  Man, this is a great American company!  Let’s all go shopping at Walmart today!

Not so fast.  This is just another example of a trend that has swept the government and corporate America – creating an illusion of supporting American manufacturing in cynical attempts at political or commercial gain.  In this case, Walmart is trying to break  its image of selling cheap Chinese junk at the expense of American workers.  In actuality, as the above-linked article points out, the majority of products sold at Walmart are already “made in America.”  That’s hard to believe until you remember that Walmart is a major grocery retailer – products that are heavily sourced locally. 

“Last year, 55 percent of Walmart U.S. sales came from groceries like food and drinks as well as other products that are typically sourced locally.”

Walmart coud easily meet this goal of boosting its sales of American-made goods by simply running sales on grocery items and cannibalizing sales from Krogers and Winn-Dixie.  The impact on American jobs?  Zip.

So don’t be fooled.  Here’s how you can tell when a company is sincerely interested in promoting made-in-America manufactured goods:  when they begin lobbying Congress to change our trade policy, abandon the World Trade Organization and begin slapping tariffs on imported goods.  Anything short of this is nothing more than an image-polishing gimmick.

Exports Lag Obama’s Goal for 16th Consecutive Month

Total U.S. exports lagged the president’s goal (of doubling exports within five years, a goal set in January, 2010) for the 16th consecutive month in November.  The shortfall was $29.8 billion, just shy of the record of $30.5 billion set two months earlier.  Here’s a chart of total exports vs. imports vs. the president’s goal:  Obamas Goal to Double Exports.

Exports of manufactured goods failed to keep pace with the president’s goal for the 14th consecutive month.  In this category, the shortfall was $19.7 billion, only a slight improvement from the record of $20.1 billion set the previous month.  Here’s a chart of manufactured exports vs. imports vs. the president’s goal:  Manf’d exports vs. goal.

While exports were relatively flat in November, increasing only $1.74 billion, imports spiked by $8.4 billion, sending the U.S. trade deficit sharply higher in November, rising to $48.7 billion in November from $42.1 billion a month earlier.  Here’s a chart of the total balance of trade:  Balance of Trade.

The balance of trade in manufactured goods hit its worst level since President Obama set that goal of doubling exports.  The deficit in manufactured goods jumped to $44.0 billion in November.  Here’s a chart of the balance of trade in manufactured goods:  Manf’d Goods Balance of Trade.

In November of 2009, deep in the near-depression following the global financial collapse (catalyzed by huge global trade imbalances), the Obama administration told the Chinese,

“That (exporting large amounts of goods to the United States) is not a sustainable model and we have been very clear to the Chinese government about that, that recovery would require different models, different steps by both sides.”

(See http://www.reuters.com/article/2009/11/06/us-obama-asia-china-economy-idUSTRE5A55F520091106.)

That was in November, 2009, when China’s exports to the U.S. were $27.5 billion.  What’s happened since?  In November 2012, Chinese exports to the U.S. were $39.5 billion, just shy of the record of $40.3 billion set in October. 

President Obama knew very well then, as he does now, that our only hope for bringing manufacturing jobs back to the U.S.  was to rebalance global trade.  Instead of acting, he’s done absolutely nothing.  We need look no further than the president’s inaction on trade for the reason why the U.S. remains stuck in the “new normal” of high unemployment and falling incomes.

Unemployment Rises 0.1% in December

http://www.bls.gov/news.release/empsit.nr0.htm

This may get a bit rambling because much has happened since the holidays, and to break these issues into separate posts would only assure that all but the most recent would quickly scroll out of view.

So let’s begin with the big economic story of the day – the employment report.  The headlines read something like “Economy adds 155,000 new jobs; unemployment rate holds at 7.8%.”  Regarding the latter claim, it’s only technically true because the figure is rounded to only one decimal place.  Unemployment actually rose by 0.1%, from 7.75% in November to 7.848% in December.  That’s thanks to a paltry increase in the employment level compared to the growth in the labor force.  Unemployment remains stuck in the “new normal” of about 8% (the official “U3” rate, manipulated to understate unemployment by claiming that more and more people drop out of the labor force) or, more accurately, around 10-1/2% when the labor force is held steady at a percentage of the population, which is constantly growing.

Here’s the chart:  Unemployment Chart  (Notice how “U3” has been trending down, creating the illusion of a recovering economy, while “U3a” is holding steady around 10.5% – a more accurate depiction of a sour economy stuck in neutral.)

Per capita employment, the employment level as a percentage of the population, remains near its lowest level of the recession.  Here’s the chart:  Per Capita Employment

And take a look at this chart:  Labor Force & Employment Level.  Notice that the employment level remains several million below the start of the recession, while the population and labor force have grown by 13 million and 6 million respectively.  In other words, not a single worker (out of six million) added to the labor force in the last five years has found work.  In fact, three million workers have lost their jobs in the last five years.

And don’t be fooled into thinking that things will improve this year.  Though the “fiscal cliff” deal made permanent the Bush tax cuts for about 98% of Americans, it didn’t stop the payroll tax from rising by 2%.  So virtually every American worker took a 2% pay cut on January 1st.  That’s likely to shave about 1% from GDP – not good for an economy that, by most estimates grew at only a 1% rate in the 4th quarter.  In other words, the economy is likely to stall for that reason alone, not to mention the big spending cuts that were delayed by only two months.

But there’s bigger reasons brewing to be pessimistic about the economy.  We’re facing another debt ceiling crisis in less than two months.  The last time this happened, in August of ’11, the stalemate in Congress very nearly drove the nation to default.  Markets plunged violently and the economy very nearly sank into recession again.  This time, it could happen.  President Obama has already said that he won’t negotiate over the debt ceiling, and House Republicans have already signaled that they won’t raise it without getting big spending cuts in return.

Secondly, the Federal Reserve is getting cold feet about its quantitative easing, which has pumped $3 trillion into the economy in the last few years.  Fed governors are worried about unintended consequences.  It may be no coincidence that their concern is intensifying as the debt ceiling fight approaches.  They may be worried that the Fed’s massive holdings of treasuries may make default seem less scary to lawmakers, who may rightly believe that the U.S. could choose to default selectively on only the debt held by the Fed, sparing foreign investors from any pain.  That would be a truly dangerous precedent.  So, although one of my “long shot” predictions for 2013 was that the Fed may reverse course, only 4 days into the year we’re already hearing rumblings that it could happen.  Any of these scenarios – big spending cuts, another near- or actual default, or an end to quantitative easing by the Fed – would surely drive the economy into recession.

The economy is painted into a corner from which there is no escape without tackling the trade deficit that put it there in the first place.  Mark my words, the economic gimmicks that have been used to create an impression of a recovery following the Great Recession have just about been exhausted.  The economy we have right now – the new normal of high unemployment – may be as good as it gets for a long time.