U.S. Trade Deficit with Germany Soars to New Record

March 21, 2013

The U.S. trade deficit with Germany shattered the record set only one year earlier, soaring from $49.3 billion in 2011 to $59.7 billion in 2012.  The deficit in manufactured goods was $59.9 billion, completely erasing a small surplus in all other categories of goods.  Here’s a chart of the U.S. trade balance with Germany since 2001:  Germany Trade

Economists say that a strengthening currency with our trade partner should improve the balance of trade in our favor.  They also say that low wages cause trade deficits, and that our trade deficit should improve as wages rise, making theirexports more expensive and our exports more affordable.  Here are two charts that plot our exploding trade deficit in manufactured goods with Germany against their currency (Euro) exchange rate and against the change in their per capita purchasing power parity (PPP) – a measure of their wealth and analagous to wages there:  Germany Trade vs Exchange Rate, Germany Trade vs PPP

As you can see, as our trade deficit with Germany has worsened dramatically, the Euro has been rising, from 1.16 Euros per dollar in 2001 to 0.8 Euros per dollar in 2012.  And German PPP has risen by 44% during that same time frame (while U.S. PPP rose 38%).  Clearly, the currency theory holds no water in this case.  Nor does the theory about low wages.  So much for economists’ usual trade scapegoats.  Furthermore, economists, how do you explain the following?

  1. If low wages cause trade deficits, why is our deficit with Germany, when expressed in per capita terms (thus factoring the sheer size of nations out of the equation), the worst among our top five trade partners (Canada, China, Mexico, Japan and Germany) – almost three times worse than our deficit with China – in spite of the fact that they are a wealthy nation, second only to Canada? 
  2. And why is our next worst deficit with Japan (again, almost three times worse than our deficit with China), also a wealthy nation?
  3. Why does Canada have a large trade deficit in manufactured goods with the U.S. when U.S. wages are higher than those in Canada? 
  4. Of these top five U.S. trading partners we’ve examined so far, why has our trade imbalance responded to changes in currency valuation as economists would predict with only one country – Mexico? 
  5. And why has our trade imbalance responded to rising incomes as economists would predict in only one case – Canada?

In contrast to economists’ theories on trade imbalances, the disparity in population density between the U.S. and these top five trading partners has accurately predicted the trade imbalance in every single case.  With the one nation less densely populated than the U.S. (much less), the U.S. enjoys a healthy trade surplus in manufactured goods.  With all four other nations – all of whom are more densely populated than the U.S. – we endure big deficits. 

If you’re new to this blog and don’t understand why population density disparity is by far the single biggest determinant of the balance of trade between the U.S. and other nations, making free trade with badly overpopulated nations tantamount to economic suicide, please read my book, Five Short Blasts, and explore the other data presented on this site. 

My next article will summarize in a similar fashion U.S. trade with our top 15 trade partners.


Trade Deficit with Japan Grows 22% in 2012

March 18, 2013

We now turn our attention to Japan, America’s 4th largest trade partner (by total imports and exports), accounting for 5.7% of all U.S. trade in 2012.  In 2012, the U.S. imported $141 billion in manufactured goods from Japan, an increase of $16.7 billion, while our manufactured exports to Japan rose by only $6.3 billion.  The result was that our deficit in manufactured goods with Japan worsened by 12.6%, contributing the lion’s share to an overall worsening of our trade balance with Japan of 22%.  If you’re president Obama, with his myopic focus on exports, the $6.3 billion increase can be ballyhooed as great news – as long as you’re dumb enough to turn a blind eye to the much worse increase in imports. 

It should come as no surprise that automobiles account for $37 billion of the imports from Japan, dwarfing the next biggest category of products – motor vehicle transmission and power train parts, at $6.2 billion.  That’s a $7 billion increase in imports of Japanese vehicles over 2011.   In comparison, the U.S. exported less than $1 billion worth of automobiles to Japan in 2012.  No suprise.  The Japanese auto market is so badly stunted by overcrowding that even Japanese auto companies have trouble selling vehicles there. 

Here’s a chart of our overall balance of trade with Japan, dating back to 2001:  Japan Trade

In response to my suggestion that the U.S. needs to change its trade policy and return to the use of tariffs to assure a balance of trade, people sometimes reply that “tariffs don’t work; they’ll just raise their tariffs too and we’ll lose all our exports.”  Or I hear that “you can’t do that; it’ll start a war.”  Well, here’s a link to an article that appeared on Reuters just a couple of days ago, reporting on Democratic lawmakers’ alarm that Japan might be included in Obama’s trade talks:

http://www.reuters.com/article/2013/03/15/us-usa-japan-autos-idUSBRE92D14A20130315

“In an industry with razor-thin profit margins, the elimination of the 2.5 percent car tariff (as well as the 25 percent truck tariff) would be a major benefit to Japan without any gain for a vital American industry, leading to more Japanese imports, less American production and fewer American jobs,” the lawmakers said in a letter to Obama.

… Levin (Michigan senator Carl Levin) … played a major role in persuading the Obama administration to renegotiate auto provisions of a free trade pact with South Korea.

The revised pact, which took force one year ago, allowed the United States to keep its 2.5 percent tariff on South Korean autos until the fifth year and to keep its 25 percent tariff on South Korean light trucks until the eighth year, when it will begin to be phased out.

Has anyone noticed that you don’t see any Japanese or Korean trucks on American roads (aside from Japanese-brand pickup trucks that are built in the U.S.)?  That’s because 25% tariffs have been extremely effective in keeping them out, preserving market share for American truck manufacturers.  And have you heard any Americans complaining about that?  Has anyone complained that shipping costs are too high because we don’t have enough cheap Japanese and Korean trucks in our trucking fleets?  Of course not.  People do complain about shipping costs, but that’s because of the high price of fuel.  Virtually no one in America even knows that we maintain high tariffs on Japanese and Korean trucks, with the exception of people employed in the truck-manufacturing industry – people who owe their jobs to those tariffs.

Why don’t we take the same approach with automobiles?  Since the Japanese and Koreans won’t buy our cars, why don’t we raise our tariffs on theirs?  Why don’t we take this same approach to all of our trade imbalances with other nations? 

As I’ve done in my previous articles on our top three trade partners – Canada, China and Mexico, let’s now take a look at how our trade balance with Japan has responded to changes in Japan’s currency and Japan’s purchasing power parity – or PPP – analagous to Japanese wages.  Economists are fond of blaming trade deficits on artificially low currency values and on low wages.  Here’s a chart of our trade deficit in manufactured goods with Japan vs. the yen-dollar exchange rate:  Japan Trade vs Exchange Rate

As you can see, while the yen held steady in value in 2012, our trade imbalance with Japan worsened dramatically.  In fact, over the past eleven years, while the yen has appreciated in value by 37% – rising in value from 124.4 yen per dollar to only 79.22 yen – our trade deficit worsened by 14%, rising from $80 billion in 2001 to $91 billion in 2012.  This is exactly the opposite of what economists say should happen.

In the meantime, Japan’s PPP has increased by almost 40%, rising from $25,900 in 2001 to $36,200 in 2012.  Of course it’s gone up.  The Japanese are getting richer from their growing trade surplus.  In the meantime, Americans’ median income has actually declined.  Here’s a chart of our trade deficit in manufactured goods with Japan vs. the rise in their PPP:  Japan Trade vs PPP

Once again, we see that the “low wages” theory doesn’t hold water.  Our trade deficit with Japan gets worse as their wages have risen.  And, in terms of PPP, Japan ranks among the top 16% of the wealthiest nations on earth.  They’re not a “low wage” nation at all.  In fact, our trade deficit in manufactured goods with Japan, expressed in per capita terms,  is three times worse than our deficit with China, in spite of the fact that wages in Japan are four times higher than Chinese wages.  How do you explain that? 

The explanation is that low wages and currency valuations have almost nothing to do with trade imbalances, while they have everything to do with disparities in population density between the U.S. and its trading partners.  So far, with America’s top 4 trading partners, accounting for 48.7% of all of our trade, population density accurately predicts the balance of trade with all four, while the currency valuation theory is batting only .500 and the low wages theory is batting .250.

In my next two articles, we’ll focus next on our 5th largest trading partner – Germany, followed by an overall assessment of trade with our top 15 trading partners.  Stay tuned.


The ‘Malo’ Half of NAFTA

March 15, 2013

In the previous two articles, we examined trade with America’s two largest trading partners (by total imports and exports):  Canada and China.  We saw that while the U.S. has a fairly large trade deficit with Canada, all of it and more is due to the fact that Canada is by far our largest source of imported oil.  The U.S. actually enjoys a healthy surplus of trade in manufactured goods with Canada, making Canada the good half of NAFTA – the North American Free Trade Agreement.

Now we turn to the other half of NAFTA – Mexico.  Mexico is a fairly densely populated nation – almost twice as densely populated as the U.S.  Mexico isn’t a wealthy nation but, by world standards, they’re not poor either.  With a per capita purchasing power parity (PPP) of $15,300, Mexico ranks 83rd out of 228 nations, placing them in the top 40%.  However, 51% of its people live in poverty, though it’s not for lack of jobs.  Mexico currently enjoys a rather low unemployment rate – 4.5% – a rate that is the envy of the United States.

Here’s a chart of overall trade with Mexico, through 2012:  Mexico Trade.

Since 2007, our overall trade deficit with Mexico has moderated somewhat, dropping from $73 billion to $61 billion in 2012.  But all of that decline is due to a drop in oil imports.  Our deficit in manufactured goods rose in 2012 to $46.1 billion, only $0.8 billion shy of the record deficit set in 2007.  Expressed in per capita terms, that’s a deficit of $401 with every Mexican citizen.  In 2011, our per capita deficit with Mexico in manufactured goods was our 14th worst – worse than China, with whom our per capita deficit is “only” $258.

So, of our top three trading partners in 2012 (who together account for 43% of all U.S. trade), the U.S. enjoys a surplus in manufactured goods with only Canada, a nation with a population density of less than ten people per square mile.  The U.S. suffers large deficits with China and Mexico, nations with population densities of 361 and 151 people per square mile respectively.  You should be starting to get suspicious that population density may be a factor.

As we did with Canada and China, let’s consider the other factors that economists like to blame for trade deficits – weak currencies and low wages.  The following is a chart of our trade deficit in manufactured goods with Mexico vs. the peso-dollar exchange rate:  Mexico Trade vs Exchange Rate.

As the peso has weakened from 9 per dollar in 2001 to 14 pesos per dollar in 2012, our trade deficit in manufactured products with Mexico has worsened dramatically, almost doubling during that 11-year span.  This is the effect that economists would predict but, so far, the exchange rate theory is only batting 2 for 3, while the population density theory is batting a thousand.  Mexico’s weakening currency may explain why our enormous deficit with Mexico is so out-of-proportion to their population density. 

And I won’t deny that low wages also play a role.  Many American companies have set up shop just across the border for that very reason.  Here’s a chart of our balance of trade in manufactured  goods with Mexico vs. their PPP:  Mexico Trade vs PPP.

As you can see, Mexico’s PPP (analagous to wages in Mexico) has risen by over 50% since 2001.  But, instead of our balance of trade improving as economists would predict, our trade deficit in manufactured goods with Mexico has nearly doubled.    If the “low wages” theory really held water, we should be seeing at least some improvement in our balance of trade with Mexico as their incomes have risen dramatically.  Instead, it has gotten much worse.  Once again, we see that economists have the cause and effect backwards.  Mexicans are growing wealthier because of their surplus with the U.S., instead of rising incomes in Mexico improving our balance of trade.   So far, economists’ “low wages” theory is batting zero.

Taken together, the 55% decline in the value of the peso since 2001 essentially cancels out the 50% rise in PPP (and wages) during the same period in Mexico.  So traditional economic theory should predict that our trade imbalance with Mexico should have held steady instead of nearly doubling.  The real explanation for that is that the effects of the population density disparity are becoming more pronounced the longer we attempt to apply free trade in a situation where it’s a hopelessly inappropriate trade strategy. 

Free trade with sparsely populated Canada – the good half of NAFTA – makes sense and has been enormously beneficial to the U.S.  Free trade with Mexico – the “malo” (or bad) half of NAFTA – has been a trade policy disaster, draining hundreds of thousands of manufacturing jobs from the U.S.  And it’s getting worse as the Obama administration stands idly by and renegs on its promise to fix NAFTA.

Next up, our 4th largest trading partner:  Japan.


U.S. Trade with China: A Trade Policy Disaster

March 13, 2013

In my last article, we examined trade with Canada, America’s largest trading partner.  We saw that free trade with Canada, a nation with a population density of less than 10 people per square mile, is a resounding success.  America actually enjoys a significant surplus of trade in manufactured goods with Canada. 

Today we turn our attention to America’s second largest trading partner (in terms of total imports and exports) – China.  China is a large nation, almost exactly the same size as Canada.  But, while Canada has a population of 34 million people, China’s population is 1.35 billion people – 40 times as many – yielding a population density of 361 people per square mile.  They are more than four times as densely populated as the U.S. and 37 times more densely populated than Canada.

China is still a relatively poor nation, with a per capita purchasing power parity (PPP, essentially their GDP divided by the population) of $9,100 per year.  (America’s is approximately $48,000 per year.)  But their economy is the fastest growing in the world, and their PPP is double what it was only ten years earlier.  In fact, China now ranks 118th out of 228 nations in terms of its PPP.  At today’s rate of growth, they will rank in the top 50% of nations next year in terms of wealth. 

It’s a common misconception that American manufacturers fled for China in order to take advantage of cheap labor there.  The end results certainly seem to corroborate that theory, but that’s not really how it happened.  American manufacturers did indeed flock to China to set up shop, not to save a few bucks on cheap labor (much of which is offset by high logistics costs), but to position themselves in an untapped market of 1.35 billion new consumers.  But, once there, Chinese consumption was very slow to develop, leaving all those newly established Chinese manufacturers with lots of product to sell.  Naturally, they exported it back to the U.S.  American manufacturers, already running on thin profit margins and dependent on maintaining market share for their survival, were driven out of business in droves.  The belief among economists has been and continues to be that, if we’re just patient enough, the Chinese will develop into American-style consumers and the whole process will reverse itself.

Folks, it ain’t happenin’!  It’s not going to happen – ever.  With each passing year our trade deficit with China worsens dramatically.  The year 2012 was no different.  Here’s a chart of trade with China since 2001, shortly after they were granted “most favored nation” status by the U.S. and were admitted into the World Trade Organization:  China Trade.  In 2012, our overall trade deficit with China worsened by another $20 billion.  Of course, the Obama administration, with its myopic focus on exports, is quite pleased with the $9.7 billion increase in exports to China (of which, only $2 billion were manufactured products).  They completely ignore the $26.3 billion increase in imports from China – and the corresponding loss of manufacturing jobs. 

This is an economic and trade policy disaster for the U.S.  Our trade deficit with China alone has cost us five million manufacturing jobs and probably an equal number of ancillary, supporting jobs.  What’s going wrong?  Economists can’t admit that there may be a flaw in free trade theory that makes free trade with badly overpopulated nations a losing proposition.  Instead, they have two popular scapegoats.  The first is that the Chinese currency is kept artificially low, making their exports cheaper and making our exports more expensive to Chinese consumers.  It sounds logical.  But, if the theory is valid, then any strenghtening of their currency should begin to reverse our trade deficit with China or, at the very least, begin to slow its growth.  Here’s a chart of our trade deficit in manufactured goods with China, plotted against the Chinese yuan – U.S. dollar exchange rate:  China Trade vs Exchange Rate

Since 2005, the exchange rate has fallen steadily from 8.22 yuan to the dollar to 6.31.  (A drop in the exchange rate means that the yuan has gotten stronger.)  That’s a drop of 23.3% – enough that we should begin to see some effect.  But, aside from an improvement in the trade deficit in 2009 that was due entirely to the global slow-down in trade resulting from the deep global recession, there’s been absolutely no slowing of the growth in our trade deficit.  Does the stronger yuan hurt Chinese manufacturers’ profits?  Absolutely.  But does it make them stand idly by and watch their U.S. market share erode?  Of course not.  They respond as our own manufacturers do when profits are squeezed; they cut costs in order to hold onto (and even grow) their market share.  The result is that our trade deficit with China has actually gotten worse as their currency has strengthened.

We saw the same thing happen in trade with Japan.  While the yen-dollar exchange rate plunged from approximately 300 in the late ’60s to about 90 today, our trade deficit with Japan, instead of shrinking as economic theories suggest should happen, actually exploded.  The data shows that economists have the cause and effect backwards.  Instead of trade deficits falling in response to a falling exchange rate, it’s actually the exchange rate that falls in response to a worsening trade deficit. 

So much for that theory.  What about the claim that low wages in China are to blame for our trade deficit?  Again, it sounds logical.  But then it’s also logical that rising wages in China should be reversing or at least slowing the growth of our trade deficit with China.  Here’s a chart of our trade deficit in manufactured goods with China vs. China’s PPP, a good approximation of Chinese incomes:  China Trade vs China PPP.  Instead of our balance of trade improving while China’s PPP grew by 348%, our deficit in manufactured goods has exploded by 380%, from $83 billion in 2001 to $315 billion in 2012! 

And, by the way, if low wages are what’s fueling our trade deficit with China, then how does one explain that, in per capita terms, we have much larger trade deficits with fifteen other nations (including Ireland, Switzerland, Israel, Taiwan, Denmark, Austria, Japan, Germany, S. Korea, Mexico and Italy), all of whom have much higher incomes than the people of China?

How can this be?  It seems completely illogical – that is, until you understand that, once again, economists have the cause and effect backwards.  Instead of rising incomes producing an improvement in our balance of trade, incomes are rising in China because of our trade deficit.  Incomes in China will continue to rise as China drains more money from the American economy.

So, economists, now you’re left with nothing – no explanation whatsoever for why the same trade policy so highly successful with Canada has yielded such disastrous results with China.  The answer lies where economists dare not go – overpopulation.  People living in crowded conditions are incapable of consuming products at the same rate as Americans or Canadians.  On a per capita basis, Canadians import 135 times more from the U.S. than the Chinese.  The problem is not that Americans import too much from China, but that China imports far too little from the U.S.  They can’t.  Their overcrowding renders them incapable of absorbing their own manufacturing capacity, let alone importing more from the U.S.

When it comes to America’s trade deficit, China gets all of the attention simply because of the sheer magnitude of their trade imbalance.  But in upcoming articles we’ll see that our trade results with China are consistent with other overpopulated nations and are exactly what should have been expected when we applied a failed trade policy to a nation with one fifth of the world’s population.  China isn’t the problem.  The problem is our own trade policy, rooted in a flawed, antiquated and failed 19th century theory.


The Good Half of NAFTA

March 11, 2013

This article marks the beginning of my annual update of trade data for 2012, about a month behind schedule.  Sorry about that, but it’s not my fault.  I’ve been waiting for the Foreign Trade Division of the Census Bureau to publish its annual update of country-by-country trade broken down by the 5-digit “end use code” for all products.  After waiting a month beyond that time when it’s usually published, it became apparent that, for whatever reason (budget cuts, perhaps?), it’s not happening. 

So I’ve had to adjust, switching to data broken down by the 6-digit NAICS code (North American Industry Classification System).  It classifies products in much finer detail than the 5-digit end use code – more detail than necessary for my purposes.  So it’s ballooned my spreadsheets and made my data gathering more difficult.  But for me, at least, it’s fascinating data and interesting work, and so it goes on.

As in the past, I’ll begin with America’s top trading partner, the nation that accounts for 16.1% of all of our exports and imports.  Some may be surprised that it’s not China.  The title of this article should tip you off.  The North American Free Trade Agreement (NAFTA) went into effect in 1994 and established a trilateral free trade zone encompassing the United States, Canada and Mexico.  In terms of total imports and exports, Canada is our biggest trading partner, beating China by $80 billion per year who, in turn, beats Mexico (the other half of NAFTA and our 3rd largest trading partner) by $42 billion. 

Our trade results with Canada stand in stark contrast with our balance of trade with the rest of the world in the critical category of manufactured products.  Here’s a chart of the data for the past twelve years, broken into five categories –  food, feeds and beverages; energy resources (oil, gas, coal & nuclear); metals & minerals; forestry products (lumber, logs, etc.); and manufactured products:  Canada Trade.

Our trade deficit with Canada improved slightly in 2012, declining to $32.5 billion from $35.7 billion in 2011.  The reason for the deficit is no mystery; Canada is, by far, our largest source of imported oil.  Our deficit in that category alone was $83 billion in 2012.  In the category of manufactured products, it’s an entirely different story.  In 2012, we had a trade surplus of $66 billion in manufactured goods with Canada – much larger than with any other nation.  Why do we have such success with Canada when the U.S. suffers a trade deficit in manufactured goods of over $500 billion with the rest of the world?  It’s a matter of population density.  Canada’s is one tenth of the U.S.’s. 

Especially when it comes to our trade deficit with China, economists are fond of blaming low wages in China and a Chinese currency that is kept artificially weak by Chinese manipulation.  But, just as the laws of physics must be valid regardless of one’s frame of reference (the foundation of Einstein’s theory of relativity), so too must the laws of economics.  They should apply to trade with every nation or, if it appears that they don’t, there should be a good explanation.  So let’s see how these claims hold up in the case of trade with Canada.  The following is a chart of our balance of trade with Canada vs. the exchange rate between the Canadian and U.S. dollars:  Canada Trade vs. Exchange Rate.

If economists’ claim that a stronger currency makes imports cheaper for our trading partner and makes their exports more expensive, thus helping our balance of trade, then what we should see is an “X” pattern in this chart.  As the exchange rate drops, the U.S. balance of trade should rise.  (The exchange rate can be a little tricky to understand.  A drop in the rate means that the other country’s currency has gotten stronger.  If it once took two Canadian dollars to buy an American dollar, and now it only takes one, then the Canadian dollar has become twice as strong.) 

In this case, the claim is valid.  As Canada’s dollar has strengthened, from 1.53 in 2001 to being equal to the U.S. dollar in 2012, our balance of trade with Canada (including manufactured goods, as we saw in the previous chart), has improved.  Our deficit has shrunk from $53 billion per year in 2001 to $32 billion in 2012.  But is this improvement really due to the change in exchange rate, or is it due to Canada’s low population density?  The answer to that question will become evident as we explore our trade results with more countries in upcoming articles.

As for the claim that trade deficits are caused by low wages – that is, that manufacturers will move production to where the labor is cheapest –  here’s a chart of our balance of trade with Canada vs. Canada’s purchasing power parity (PPP), a good measure of wage rates relative to our own:   Canada Trade vs. Canada PPP.  As you can see, as incomes have risen in Canada, our balance of trade has improved, just as economists suggest would happen.  But one data point doesn’t validate the theory.  Again, has our balance of trade with Canada improved because of their rising incomes and stronger currency, or has it improved because of Canada’s low population density?

And consider this:  it’s not as though our suplus in manufactured goods with Canada is purely a matter of exporting goods to them while importing nothing.  The U.S. imports more manufactured products from Canada – a high-wage nation – than from any other nation except China.  (We import slightly more from China.)  But China has 40 times more people than Canada.  When expressed in per capita terms, our imports of manufactured goods per Canadian dwarfs those from China!    How do you explain that?  How would economists explain it?  It’s because Canada’s low population density makes them capable of having a high rate of per capita consumption – perhaps even higher than that of Americans.

Free trade with this half of NAFTA – Canada – has indeed been very beneficial to the United States.  This is one situation where it works very well.  There are others, too. But free trade doesn’t always yield such results.  There are situations – as when trading with badly overpopulated nations – when free trade is tantamount to economic suicide. 

So stay tuned.  My next article on our number two trading partner – China – will paint a very different picture.


Great February Jobs Report! (Just don’t look too deep into the details.)

March 8, 2013

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

As reported by the Bureau of Labor Statistics (BLS) this morning, the economy added 236,000 jobs in February.  That’s way more than experts were expecting and will, no doubt, send the stock market soaring today.  That’s the figure from the “establishment survey” half of the report.  The other half of the report – the household survey – the survey used to calculated the unemployment rate – also has great headline news:  the unemployment rate fell two tenths to 7.7%.  If that makes you feel good (as it should), then don’t delve into the details.  I wouldn’t want it to spoil your day. 

The BLS’s “employment situation summary” (link provided above) begins with the household survey.  You’ll immediately notice how often the word “unchanged” appears in the summary:

  • the unemployment rate:  “has shown little movement, on net, since September 2012.”
  • The unemployment rate for whites declined.  All other racial groups?  “Little or no change.”
  • Long term unemployed?  “Unchanged.”
  • Employment-population ratio?  Unchanged.
  • Labor force participation rate?  “Changed little.”
  • Number of persons employed part-time for economic reasons?  “Unchanged.”
  • Persons marginally attached to the labor force?  “same as a year earlier.”
  • Discouraged workers?  “Down slightly from a year earlier.”

Regarding the employment-population ratio, per capita employment rose for the first time in four months, but by only the thinnest of margins – 0.03% – and remains lower than it was five months ago. 

The drop in the unemployment rate was once again aided by a drop of 130,000 in the labor force in spite of the fact that the population grew by 170,000.  (Not a single one of them needs a job for a source of income?) 

Even the headline figure of 236,000 jobs is questionable when you realize that the anemic January figure of 157,000 jobs was revised downward sharply to 119,000.  Can we expect the same next month? 

It’s also worth noting that the 236,000 jobs added in February is 35,000 less than last February. 

Construction added 48,000 jobs in February.  The Federal Reserve’s quantitative easing program (pouring a half trillion dollars per year into mortgage-backed securities) is evidently beginning to have the desired effect. 

* * * * *

The additional 236,000 jobs added in February break down as follows:

  • Professional & business services:  + 73,000
  • Construction:  + 48,000
  • Healthcare:  + 39,000
  • Leisure & hospitality:  + 24,000
  • Retail trade:  + 24,000
  • Information:  + 20,000
  • Manufacturing:  + 14,000
  • Mining:  + 5,000
  • Government:  – 10,000

January Trade Deficit: Two Steps Back

March 7, 2013

http://www.bea.gov/newsreleases/international/trade/2013/pdf/trad0113.pdf

The U.S. Bureau of Economic Analysis (BEA) reported this morning that the trade deficit jumped back up in January to $44.45 billion, the second worst reading of the past eight months.  The $6.3 billion increase in the deficit was powered by a $3.7 billion increase in oil imports (to a more normal level, following an unusually low reading in December) and a $1.1 billion increase in the deficit in manufactured goods. 

In January of 2010, President Obama set a goal of doubling exports in five years in order to breathe life into the manufacturing sector of the economy and to whittle down our enormous trade deficit, which played a major role in the global financial collapse of 2008.  So, three years into this program, how are we doing?  Not well.  Consider the following:

  1. Our overall trade deficit has worsened by 20%.  Here’s the chart:  Balance of Trade.  However, the trade deficit has shown some improvement in the past year.  But all of that improvement is due to a slowdown in oil imports.
  2. No improvement is evident in the deficit in manufactured goods.  In fact, since January of 2010, the deficit in this category has steadily worsened by 38%.  Here’s the chart:  Manf’d Goods Balance of Trade.  In the past 12 months, manufactured exports have remained flat while imports have risen by 4%.  Here’s a chart of manufactured imports and exports:  Manf’d exports vs. goal
  3. Overall exports fell by $2.2 billion in January and now lag the president’s goal by $33.4 billion, the worst performance since the president set the goal for exports.  In fact, this shortfall in exports is now approaching the magnitude of the overall trade deficit. 
  4. Manufactured exports fell by $0.9 billion in January and now lag the president’s goal by $20.4 billion – also the worst performance since the president set his goal.

None of this is a surprise.  Exports are determined by foreign demand  and neither the president nor anyone else in the United States has any control over that.  Imports, on the other hand, are determined by our own demand and by our willingness to allow them in.  The United States has total control over the latter (through the use of tariffs), but has made a conscious decision to give foreign manufacturers unfettered access to our market – our own manufacturers be damned.  The president and congress could turn this situation on a dime if they were so inclined.  But that’s not what their global corporate benefactors pay them to do, and neither has the courage to do what’s right for the American economy and American workers.


Life Expenctancy for Some U.S. Women Declining

March 5, 2013

http://www.usatoday.com/story/news/nation/2013/03/04/study-life-span-women/1963093/

It’s not just “some.”  Life expectancy for women is declining in 43% of the nation’s counties. 

This above-linked USA Today article reports on a University of Wisconsin study of federal CDC (Center for Disease Control) mortality data.

They found that nationwide, the rate of women dying younger than would be expected fell from 324 to 318 per 100,000. But in 1,344 counties, the average premature death rate rose, from 317 to about 333 per 100,000. Deaths rates rose for men in only about 100 counties.

“We were surprised” by how much worse women did in those counties, and by the geographic variations, Kindig said.

The study wasn’t the first to reach those conclusions. Two years ago, a study led by the University of Washington’s Dr. Christopher Murray also looked at county-level death rates. It too found that women were dying sooner, especially in the South.

In Five Short Blasts, I hypothesized that it would be poverty that would eventually stabilize the world’s population.  It’s only logical.  Beyond a critical level, increasing population density erodes per capita consumption.  This is a fact – not theory.  (Just because it hasn’t been recognized yet by the field of economics doesn’t make it any less factual.)  As per capita consumption declines, per capita employment must also decline, resulting in increasing poverty.  And poverty has, throughout history, been the world’s number one killer.  As poverty intensifies, it’s inescapable that life expectancy will decline.

 Some other studies that focused on national data have highlighted steep declines in life expectancy for white women who never earned a high school diploma. Meanwhile, life expectancy seems to be growing for more educated and affluent women.

… the proportion of women who failed to finish high school is also highest in the South.

Note the disparity between “white women who never earned a high school diploma” and “more educated and affluent women.”  There seems to be no agreement among experts as to the exact cause of falling life expectancy in these (predominantly rural) counties, but it seems obvious that the factors that seem to be involved can ultimately be traced back to poverty. 

I’ve been wondering how long it would be before the CDC’s mortality and life expectancy data would begin to reflect the rise of poverty in America.  The CDC seems content with merely reporting the data by age range and race, which is unlikely to expose poverty as a factor (although the data clearly demonstrates that the death rate is highest for blacks where, not coincidentally, the unemployment rate is highest as well).  But these deep-drill studies of the CDC data by independent researchers is beginning to show a clear trend of falling life expectancy among the poor.


Economists’ Next Big Idea: The “Invisible Foot” (?!?)

March 2, 2013

http://blogs.reuters.com/reihan-salam/2013/03/01/to-create-growth-unleash-the-invisible-foot/#comment-330

This is the 21st century.  An unmanned vehicle roams the Martian terrain, beaming back analyses of soil samples.  The human genome has been mapped, opening the door to incredible medical advances.  Human organs can be reproduced on a 3-D printer with ink of living stem cells.  We carry incredible computing and communication technology in our shirt pockets.  Physicists work on nano-structures and discover ever-smaller particles while unlocking the mysteries of the universe. 

Then there’s the pseudo-science of economics.  As central banks feverishly shovel money into the economy in a clumsy effort to fend off global economic collapse, economists grope in the dark to find explanations that fit their gilded 19th century theories.  The above-linked article by Reuters columnist and economist Reihan Salam reports on economists’ latest and greatest answer – the “Invisible Foot” – apparently the long-ignored but newly rediscovered and dusted-off counterpart to Adam Smith’s “invisible hand.” 

Can you believe this?  Here we are, in the 21st century, with the global economy collapsing all around us, and we’re talking about invisible hands and feet.  This is the best that the progeny of our best economics universities can come up with?  Invisible hands and feet?  It seems more suited to a Harry Potter movie than 21st century economic reality.  (Not that I’ve ever seen a Harry Potter move.)

The idea goes something like this:  as opposed to Adam Smith’s “invisible hand” of consumption driving economic growth, the “invisible foot” (brainchild of mid-20th century economist Joseph Berliner) aims to give productivity a swift kick in the pants.  Here’s how the author of the article explains it:

… This invisible foot of new competition is what drives incumbent firms to either step up their games ‑ a process that often involves burning through stockpiles of cash and shrinking profits ‑ or go out of business.

… Unfortunately, this reallocation of resources ‑ from inefficient incumbents to innovative upstarts and the incumbents that manage to keep up with them ‑ stops when incumbent firms succeed in erecting regulatory and legal barriers to shield themselves against competitors, which is why regulatory reform and patent reform are so important. It is also why we ought to take care not to give large incumbents any undue advantages in our tax code.

… the tax-deductibility of interest expenses and not dividends gives the entrenched corporate Goliaths that have the option to borrow a big boost, while doing nothing for the would-be corporate Davids eager to take them on.

… With this in mind, Robert Pozen of the Brookings Institution and Harvard Business School and his research associate, Lucas Goodman, have devised an ingenious plan to level the playing field.  First, they call for cutting the corporate tax rate from 35 percent to 25 percent. … To finance this substantial cut, Pozen and Goodman propose a modest 60 percent to 85 percent cap on the amount of interest companies can deduct from their tax bills, sharply reducing debt bias and keeping the proposal revenue-neutral. … The end result could be an entrepreneurial renaissance, as lumbering corporate dinosaurs that had used cheap credit to scare off competitors are forced to reckon with innovative new rivals.

The following is the comment I posted in response to this article (which you can find by scrolling down to about the 7th comment), repeated here for your convenience:

There seems to be no limit to the goofy places that economists’ tortured logic will take them. The “Invisible Foot?” Here we are in the 21st century and this is what we get from the field of economics – the “Invisible Foot?”

The real problem has, for many decades now, been economists’ inability to distinguish true, healthy economic growth from macroeconomic growth, a large component of the latter being a malignant growth fed by nothing more than population growth. If the macroeconomy grows by 1%, but the population has grown by the same amount, no one is better off. In fact, all are worse off.

Because of their self-imposed blindness to the economic ramifications of population growth (no self-respecting economist dares risk being labeled a “Malthusian”) the field of economics is blind to the very real inverse relationship between population density and per capita consumption, and its implications for worsening unemployment, poverty and global trade imbalances. Economists can’t see that, beyond some critical population density, while population growth continues to stoke total sales volumes and corporate bottom lines, the cost of dealing with rising poverty while maintaining an illusion of prosperity through deficit spending is bankrupting local and national governments across the globe.

Instead, the field of economics maintains its “see no evil” posture and dreams up things like the “Invisible Foot,” an idea that might have played well during the dawn of economics in the 18th century. Are we really to believe that a revenue-neutral reshuffling of the tax code will spawn some sort of economic renaissance? Has no one noticed that the economies of those countries with lower corporate tax rates are still dominated by the same global mega-corporations as the U.S.? Are we to believe that these corporations grew as they did by being sloppy and inefficient, instead of mercilessly boosting productivity by cannibalizing the competition and slashing redundant workers?

The cowardly refusal of the pseudo-science called “economics” to even consider the most dominant factor driving economic trends today makes it the laughing stock of the 21st century. This nutty idea is just one more example of why.