Example of an Immigrant-Run Business in Detroit

A couple of days ago, I posted “The Dumbest Idea Yet for Revitalizing Detroit” – reporting on Michigan Governor Rick Snyder’s plan to help the city by petitioning the federal government for 50,000 immigrant visas specifically for Detroit, the rationale being that immigrants start businesses.  (They do, of course, but the suggestion that they are more likely to than native-born Americans is preposterous and insulting.)

Last night, this story appeared on the local news, and it occurred to me that here’s an example of an immigrant-run business in Detroit.  Check it out.  (Be sure to play the 2nd video, not the one that begins with a picture of a space heater.)  http://www.wxyz.com/dpp/news/apartment-building-with-no-heat-in-detroit.  Operating an apartment building is a business.  And the immigrant lady who owns the building is what’s known as a slum-lord. 

I’m not suggesting that this is typical of immigrant-run businesses, but rather that we should be skeptical of any claim that immigrants possess some magical power to breathe life into our economy that native-born Americans lack.  Immigrants are just more people, the same as the rest of us, and increasing immigration will bring in the bad with the good.  In the final analysis, the only effect of immigration is to grow the population, swelling the labor force faster than any increase in jobs that they generate.  If that isn’t true, then why is unemployment rising and why are incomes declining despite decades of liberal immigration policy?

7 Ways Obama Has Failed the Middle Class

http://money.cnn.com/2014/01/24/news/economy/middle-class-economy/index.html?hpt=hp_t2

In the run-up to the State of the Union message, in which Obama reportedly will focus on increasing upward mobility, it seems that there are others who don’t buy into the Obama b.s. about the “economic recovery.”  (See the above-linked CNN article.)  It’s heartening to see that there are others who have taken note of some of the same things I’ve been hammering on in this blog.

Here are the seven economic failures hi-lited in this article:

1.  Workers are taking home their smallest slice of U.S. income on record.

… corporate profits now account for their largest slice of that pie on record, whereas the slice for workers has been steadily declining.

2.  Inequality has widened.

… The richest 1% of American families have captured 95% of the income gains in the recovery period spanning 2009 to 2012 …

3.  The job market still faces a gaping hole.

The economy needs about 1.2 million jobs to get back to the 2008 level, and once population growth is added to the mix … the economy still needs about 7.9 million jobs to get back to pre-recession conditions.

… the unemployment rate would be closer to 10% today, rather than its current 6.7%.

Where have you heard that before?  I’ve been countering the employment report every month with a realistic estimate of unemployment – 10.3%, as of December.  (See https://petemurphy.wordpress.com/2014/01/10/december-employment-report-a-big-disappointment-again/.)

4.  The poverty rate remains high.

… the first time it has remained at or above 15% for three consecutive years since 1965.

5.  Record number of Americans are on food stamps.

…  48 million Americans … the highest number since the program began in 1969.

6.  The manufacturing revival was a mirage.

Overall, manufacturers have added only 568,000 jobs since 2010, about a quarter of those cut in the prior two years.

7.  Global trade isn’t helping much.

Remember when the president unveiled an ambitious goal to double U.S. exports over a five-year period, starting in 2010? With one year left to go, he’s far from getting there.

After Obama signed a free trade agreement with South Korea in 2011, exports grew, but imports … grew even faster.

The president talks about trade and lifting exports, but ignores imports. That’s like reporting the results of a football game by giving the score of just one of the teams.

This has been one of my biggest pet peeves with the Obama administration, another that I’ve reported on monthly.  (See https://petemurphy.wordpress.com/2014/01/07/manufactured-exports-lag-obamas-goal-by-record-margin-in-november/.)

The Obama administration has been an utter failure when it comes to fixing what ails the economy.  He reneged on his campaign promise to address our trade imbalance and he turns a blind eye to illegal immigration while actively promoting further immigration liberalization.  Wouldn’t it be wonderful to see him admit his failure and then step aside to make room for a real leader?  Of course, in all likelihood, all we’ll get is another bench-warmer president like Obama and those who’ve preceded him for decades.

The Dumbest Idea Yet for Revitalizing Detroit

http://www.freep.com/apps/pbcs.dll/article?AID=2014301230069

The above-linked article details what may be the most hare-brained scheme ever devised for resuscitating Detroit’s economy, or the economy of any city, for that matter.  The plan is the brain-child of Michigan Governor Rick Snyder who, before being elected governor, served for a few months as interim CEO of ailing Gateway Computers until a more competent chief executive could be found. 

Detroit’s woes are no mystery.  Its economy was built on the auto industry which, until about the 1960s had a virtual lock on the domestic auto market.  Thanks to a change in U.S. trade policy in the late 40s, which opened the doors to our market without gaining access to equivalent markets, the share of the auto industry held by domestic manufacturers has shrunk to barely 50%.  The demise of the auto industry, together with escalating racial tensions, led to a mass exodus from Detroit.  Since 1960, Detroit has lost nearly two thirds of its population.  Last year, the state of Michigan experienced a net loss of 9,000 new college graduates.

In his state-of-the-city address, newly-elected Mayor Mike Duggan proclaimed that his tenure should be judged by one criteria – that within four years the population of the city of Detroit would be growing again.  Fair enough. 

But there’s a right way and a wrong way to go about it.  The right way is to improve city services, reduce crime, eliminate the blight, clean up the city, and attract businesses back into the city.  That’s the mayor’s job.  If he does it well, then Detroit will once again be judged a desireable place to live, and its population will grow.  And Mike Duggan will be seen as a successful mayor. 

Then there’s the other way – the lazy way – the wrong way – Governor Rick Snyder’s way.  Let’s just bring in 50,000 immigrants, says Rick.  Immigrants with advanced skills who can start businesses, says Rick.  (The insulting implication is that Detroit’s current residents are too dumb to start businesses.) 

But this begs a question for anyone who is familiar with Detroit.  Detroit already has one of the largest immigrant populations in the nation.  If immigrants arrive on our shores with this magic elixir for curing the economy, as politicians, corporations and the Chamber of Commerce would have us believe, then Detroit’s economy should be flourishing instead of floundering.  What happened?  Did we let in the wrong immigrants – the dumb ones?  Will the new batch of 50,000 immigrants be better-screened to identify their possession of the magic economic elixir?

The fact is that immigrants possess no such powers for curing the economy.  They are just people, no different than the rest of us.  They’re no smarter about how to establish businesses and grow the economy.  Nor are they dumber, thus being inclined to become a net drain on social safety net resources, as some anti-immigration groups claim.  In the final analysis, the only effect of immigration is to grow the population. 

And that’s just what those who benefit from a growing population – corporations who want to see growth in total sales volume – want.  Those 50,000 immigrants will set up households and consume the products necessary to do that.  And that will “create” jobs.  There’s a lot of work involved in meeting the needs of a growing population.

But no debate of immigration policy is complete without giving equal consideration to the other economic consequences.  The inverse relationship between population density and per capita consumption dictates that, once a critical population density has been breeched (a population density that liberal immigration policy helped us reach decades ago), the now-larger population will, on an average per capita basis, consume just a little less as they are forced into more crowded conditions.  Out of the 50,000 people added to the population, they’ll add to the labor force just slightly more than are absorbed by the new job opportunities created.  The end result will be declining wages and rising poverty.  Detroit will have a bigger economy, but it will merely be a bigger version of what it has now.

December Employment Report a Big Disappointment – Again

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

Given all of the bullish economic news at the end of 2013, expectations were high for a robust December employment report.  Wednesday, those expectations were boosted further when payroll processing firm ADP announced that, based on its data, it appeared that the economy added 238,000 jobs in December. 

Me?  I wasn’t buying it.  Virtually no one noticed when, yesterday, polling firm Gallup announced that its data showed that the payroll-to-population ratio actually declined in December.  There’s no reason to believe that the employment picture is brightening in the U.S.  Our trade picture is as bleak as ever and the labor force continues to grow more out-of-sync with demand as the population rose by another 135,000 in December. 

So it should come as no surprise that, this morning, the Bureau of Labor Statistics (BLS) announced that the economy added only 74,000 jobs in December.  (See the above link to the report.)  That’s the “establishment survey” figure.  The “household survey” says that the employment level rose by 143,000.  Whichever figure you choose to believe, both are anemic and insufficient to make a dent in unemployment. 

Yet, unemployment fell significantly, dropping to 6.7% from 7.0% a month earlier.  Why?  Once again, the BLS claimed that another 350,000 workers vanished from the labor force.  Listening to the radio this morning, the reporter covering the story openly questioned whether the government lies about the unemployment rate.  (This was a national radio broadcast, mind you.) 

The BLS’s nose grew longer this morning, as evidenced by what I call the “detachment from reality index” – a measure of the difference between the BLS’s unemployment rate and one that holds the size of the labor force at a constant percentage of the population.  In December, it ticked up again, to a level just shy of it’s record high two months earlier.  Here’s the chart:  Detachment from Reality Index.  A true measure of unemployment was unchanged in December at 10.3%. 

Per capita employment was stagnant in December.  Here’s the chart:  Per Capita Employment.  In fact, it’s unchanged in 14 months and has risen less than 1% since the worst level of the recession. 

There’s been a lot of talk about a renaissance in manufacturing.  In 2012, manufacturing added 154,000 jobs.  In 2013, that fell to 77,000.  Both figures are puny in the face of 16 million unemployed workers, of which at least six million manufacturing jobs fell victim to our trade policy. 

I don’t see the employment picture brightening any time soon as our trade policy continues to be ignored and as immigration continues to swell the ranks of the labor force.

Cramer on Free Trade and Immigration

Did you watch NBC’s “Meet the Press” on Sunday?  For those of you who didn’t, check out this roundtable discussion of the economy with Gene Sperling, Director of the National Economic Council and Jim Cramer, host of CNBC’s “Mad Money” and former hedge fund manager.  Approximately 5 minutes and 40 seconds into the discussion, the topic turns toward globalization, free trade and immigration.  I was pleasantly surprised – stunned, actually – (and I think you will be too) at Cramer’s comments.  Essentially, he asked “why do we continue to pursue free trade” and, regarding immigration, asked “why don’t we worry about putting our own people back to work first?”

It’s a sign of cracking support for globalization and immigration when someone of Cramer’s influence begins to challenge these economists’ sacred cows.  Good for you, Jim!

Manufactured Exports Lag Obama’s Goal by Record Margin in November

http://www.bea.gov/newsreleases/international/trade/2014/pdf/trad1113.pdf

Once again, at first blush, the November trade deficit, announced this morning by the Bureau of Economic Analysis, seems to be great news.  The deficit fell a steep $5.0 billion to $34.3 billion, the lowest reading since 2009 when global trade was still in a big slump. 

However, almost all of the improvement can be attributed to a $4.3 billion improvement in the trade in oil.  The trade deficit in manufactured goods improved by only $0.4 billion.  Manufactured exports rose by $0.9 billion, but they needed to rise by $1.7 billion in order to keep pace with Obama’s goal of doubling exports by January, 2015.  As a result, manufactured exports lagged the president’s goal in November by $34.4 billion, beating the previous shortfall, set only 2 months earlier, by $0.5 billion.  And, it should be noted that this shortfall exceeds the total trade deficit by $0.1 billion.  In other words, November’s trade deficit is due entirely to Obama’s failure to follow through on his promise – something we should all be used to by now – his broken promises on trade policy. 

Manufactured exports have risen by only $0.3 billion since March, 2012.  (To keep pace with Obama’s goal, they needed to rise by $30.1 billion during that period.)  Here’s a chart of trade in manufactured goods, followed by a chart of the balance of trade in that category:  Manf’d exports vs. goal ,     Manf’d Goods Balance of Trade.

None of this is surprising since. like presidents before him for the past six decades, Obama has done nothing to stop the mindless application of free trade policy to situations where it makes absolutely no sense – trade with badly overpopulated nations incapable of providing us access to equivalent markets.

2014 Predictions

Later than usual, on New Year’s Day I finally published my predictions for 2014. 

2013 ended with a bang.  The S&P closed at a record high on New Year’s Eve, the 50th record close for the S&P in 2013.  And 3rd quarter GDP was recently revised upward to 4.1% – a healthy figure by any measure.  Home prices are rising at an annual rate of 13.6% and, in many regions, have nearly returned to their pre-recession level.  Auto sales are at near-record levels.  Unemployment, if you can believe the data (which you shouldn’t) has fallen to 7.0%, the lowest level of the Obama presidency. 

Economists are forecasting the economy to continue to build on these gains in 2014.  Given all of that, it seems a bit reckless for me to take a contrarian view, but I see a far less rosy outlook in the year ahead.  The underlying problems that have been eating at our economy for decades and yielded a near-total collapse of our economy a few years ago – a collapse arrested by massive stimulus by both the federal government and especially by the Federal Reserve – have gone completely unaddressed.  We are still trying to stoke economic growth by throwing fuel on the fire with more population growth, primarily through immigration, and our laissez faire trade policy is constantly exacerbated by more ill-conceived trade deals, further eroding the manufacturing sector of the economy.  History has shown that economic recoveries that are based on gimmicks don’t last – that our economy inevitably slips back into recession when lawmakers and economists grow queasy over our exploding debt. 

And that’s what I see happening in 2014.  The sudden growth we witnessed in the 3rd quarter of ’13 was a “flash-in-the-pan,” the result of the wealth effect of a soaring stock market and consumers growing weary of austerity, suddenly willing to take on more debt.  Neither is sustainable. 

The Federal Reserve has already begun to take away the punch bowl, supposedly because the economy is liquored-up enough to keep the party going.  I suspect that there are other unspoken reasons, however.  The Federal Reserve still likes to pretend that it can operate like a real bank and that, someday, it can sell all of the bonds and mortgage-backed securities back into the economy.  When that happens, it’s going to be just as big a drag on the economy as the stimulating effect was when it bought them.  The more they buy, the bigger the drag in the future.  No one even wants to think about it.  So, I don’t see the rally in the stock market continuing much longer. 

Nor can consumers continue to pile on the debt, especially when median incomes are actually declining.  And they’ll likely decline further as the labor supply grows more out-of-balance with the demand and as our trade deficit continues to erode the manufacturing sector. 

Things won’t go completely south in 2014.  But the process will begin.  The economic recovery will begin to falter by the end of the year once again.  Within a couple more years, the Obama presidency will end in recession just as the Bush and Clinton presidencies did before him, when lawmakers grow tired of all of the stimulus used to juice the economy when he first took office. 

My 2013 predictions didn’t do so well, thanks mostly, I believe, to an underestimation of the effects of the Federal Reserve’s quantitative easing.  Which just goes to show that pumping money into the economy will inevitably stimulate it, and pulling money out (the effect of cutting the deficit and reducing quantitative easing, not to mention the trade deficit) will have the opposite effect.  That’s what I see beginning to happen in ’14. 

So check out my 2014 predictions.  It’ll be fun to see who’s right, me or the so-called experts.