U.S. Trade Deficit with China Continues on Same Trajectory

March 15, 2016

Our trade deficit with China in 2015 continued worsening on the same trajectory that it’s been on since the onset of “free” trade with China that began after Clinton granted them “most favored nation” trade status in 2000.  Our deficit in manufactured goods (other categories of goods are trivial) hit $387.6 billion in 2015.  In 2001, it was $83 billion.  It’s worsened relentlessly by about $20 billion every year since.  Take a look at the chart:  China.

Some would have you believe that such trade deficits are the result of low wages.  Sure, wages are much lower in China.  But if there’s a relationship between trade deficits and wages, then doesn’t it make sense that, if those wages rise, then the deficit should at least begin to moderate?  The fact is that, since 2001, China’s purchasing power parity, or PPP, analogous to the average wages paid there, has risen almost five-fold.  But there’s been absolutely no effect on the trajectory of our deficit.  Look at this chart:  China PPP vs deficit.

There is a relationship there, but it’s exactly the opposite of what economists would have you believe.  What you see is that the Chinese are rapidly growing wealthier as a result of their trade surplus with the U.S.  That surplus is driven by the huge disparity in population density between China and the U.S. – 380 people / square mile vs. 90 people per square mile.  Their high population density makes it impossible for the Chinese to consume at the same level as the U.S., but they are every bit as productive.  When a country comes to the trade table with a bloated, hungry labor force, but no proportional market to offer in return, the result is inevitable – a huge trade deficit for the less densely populated nation – the U.S.

Others would have you believe that our trade deficit with China would go away if only the Chinese stopped manipulating their currency, keeping it weak in order to make imports from the U.S. expensive for its consumers while making its exports cheaper for American consumers.  That seems to make sense, but the data doesn’t support it.  Look at this chart:  China Xch rate vs deficit.  The fact is that, instead of getting weaker, the Chinese yuan has actually gotten stronger vs. the dollar by 36% since 2001, rising from 8.28 yuan per dollar to 6.09.  And instead of reversing or even moderating our trade deficit with China, it’s worsened by 367%.

How can that be?  It’s because trade imbalances have absolutely nothing to do with currency valuations any more than they are caused by low wages.  They may affect profit margins somewhat for the exporting country, but no one is going to stop exporting just because currencies change in value a little bit.  The fact is that, like wages, the currency valuation is a product of the trade deficit, not the cause.  China’s currency is getting stronger because their economy is getting stronger – thanks to their trade surplus with the U.S.

There’s only one effective remedy that can restore a balance of trade with a nation that is badly overpopulated – tariffs.  What started the trade deficit with China in the first place?  Lowering tariffs in 2000 – their prize for attaining “most favored nation” status.  Isn’t it only logical to conclude that that was where we went wrong and to correct the mistake?

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A Slug in The Face

March 14, 2016

Like the member of a choir that practices the same hymns over and over, I suppose that I sometimes get a little bored with taking the analytical approach to making a case for sensible trade and immigration policy.  It’s refreshing to step outside of that every once in a while.  The events of the past few days have prompted me to do exactly that.

As a kid, I guess I’d characterize myself as a fun-loving, happy kid who just wanted to be everybody’s friend.  A little meek and timid too, I suppose.  Most kids were nice kids, but there were some that weren’t, and I just couldn’t understand that.

I remember vividly the day that changed, at least to some extent.  I attended a Catholic elementary school and, on this particular day, we studied Christ’s teaching about turning the other cheek.  “If a man strikes you on the cheek, offer him the other.”  (Maybe not a direct quote, but close enough.)  “OK,” I thought, “that’s what I’ll always do.”  That very afternoon, as I walked home from school, a kid that I didn’t like – the kind of kid that I would eventually learn was known as a bully – jumped me for absolutely no reason and began to beat the hell out of me.  Remembering the day’s lesson, I didn’t fight back.  And I got it on both cheeks.

Upon my arrival home, it was obvious from the black eye and scrapes on my face that something had happened.  I explained and my Mom was upset.  Then Dad came home.  Instead of being proud of me for abiding by the day’s teaching, he was angry – perhaps even ashamed of me – and lectured me about standing up for myself.  I was confused, but concluded that he was probably right.  People have to stand up for themselves in such situations.

There was another boy in our school, one who probably wasn’t the “sharpest tool in the shed” and so, at the age of 16, found himself still stuck in elementary school after flunking several grades.  Perhaps because of that or for whatever reason, he was a hot-head and everyone feared him.  (I’ll have to admit, though, that he was quite an asset on the football team.)  But one day on the playground, I somehow crossed him, and he began shoving me, finally cornering me against the wall of the school.

At this point, I figured, there was nothing to lose.  I was going to get a beating one way or the other.  And here was an opportunity to make my Dad proud of me again.  Though I was three years younger, I was still a pretty good-sized kid.  I hauled off and slugged him square in the face as hard as I could!  I can still remember the shocked look on his face as the blow rocked him backward.  And the fight was on, but somehow broken up quickly by the nuns.

As I sat in detention later that day, I found myself being cheered by the other kids who were also there for one infraction or another.  They couldn’t believe that I had done what so many of them wanted to do.  I was a hero to them.  Lesson learned.  The only thing a bully understands is a slug in the face.  They’ll only respect people who stand up for themselves.  It was a valuable lesson, though the whole “turn the other cheek” thing would forever lurk in the back of my mind, moderating any urge to lash out unless absolutely necessary.

There were only two other such instances.  A kid who made it his mission to begin taunting me every single day as I delivered newspapers on my route.  After taking all I could stand, he paid the price.  So did another kid from my boy scout troop who, during a game of soccer on the playground where we had gathered before a camp-out, taunted me in the same way.

Decades later, my own son found himself in the same situation.  Certain kids were bullying him and making him miserable.  “Here’s what I want you to do,” I told him.  “The next time he does that, slug him right square on the nose as hard as you can.”  My wife was horrified.  “He can’t do that!  He’ll get in big trouble and so will we!”  I assured her that, though he might get in a little bit of trouble, it would be nothing permanent and would be well worth the lesson he’d learn from the experience.

As it turned out, it was some other bully who chose to pick on him soon after that, and my son had taken his lecture to heart.  He did get in a little trouble, but no one ever bullied him again at that school and he learned a valuable lesson about standing up for himself.

Those were school-yard bullies, the kids with the brawn to act out on their sociopathic tendencies.  In adult life, all of us found ourselves confronted by an entirely different kind of bully.  These were the kids with similar sociopathic tendencies who lacked the brawn, but learned other methods of bullying – lying and manipulation – and weaseled their ways into positions of power where they could enhance themselves by bullying the rest of us.

Who am I talking about?  The ones who, with a twinkle in their eye, would stand there and tell you that free trade was good for you, that a rising tide in Mexico or China or Japan would somehow eventually lift your boat too, even though you may be losing your job right now.  “Change is a good thing and you need to embrace it,” they would say, trying to make you feel like a stubborn goat who wasn’t bright enough to understand what was good for him.  (Any time someone tells you that you need to embrace change, you can be sure that it’s a change that works for him and not for you.)  They would even bring in the foreign workers from the country where your job would be going and make you train them.

These same bullies want to explode the population with immigrants, not because it’s for your benefit, and not even out of compassion for the immigrants, but because it swells the ranks of consumers and grows their bottom line while at same time keeping downward pressure on wages by keeping the labor force in a constant state of over-supply.  “This wave of immigrant workers we’re bringing in is a good thing,” they say, with that same twinkle in their eye.  “Immigrants are great entrepreneurs and create lots of new jobs.”  The implication is that you’re too stupid to do the same.  And, of course, your job is now gone.

Then there’s the globalist bullies and the leaders of countries who thrive on running huge trade deficits with the U.S.   “Free trade benefits all,” they say, pooh-poohing any notion that a trade deficit is somehow a bad thing for you.  But suggest that maybe it’s their turn to run a trade deficit for a while and watch their reaction.  Here come the threats.

For decades now, American workers have been faced with corporate bullies, led by functioning sociopaths who lay off thousands of workers and sleep like babies at night, snoozing in gilded beds with satin sheets and dreaming of even greater profits, free of a guilty conscience because they have none, rationalized away by any twisted logic that works in their favor.

We’ve been powerless.  As much as we’d have liked to line up all of these bullies and literally slug them in their faces for ruining lives, our better natures and maturity and laws that impose serious penalties instead of an hour in detention prevented it.  Not to mention that it would be completely ineffective.  They would laugh in your face as the police slapped you in cuffs, and now wouldn’t even feel compelled to provide any severance.  Month after month, year after year, Americans have been bullied by globalists and corporate elites – the top 1% who get richer and richer by squeezing all the rest of us. We feel powerless.  We’re cornered against that wall.

Along comes Donald Trump.  He seems to be an enigma, someone who emanates from the ranks of these bullies and seems to be one himself, but a strange sort of bully, one who seems to have taken offence to the bullying of his fellow Americans and now relishes the opportunity to give those other bullies a taste of their own medicine.

I think this might explain his ascent to front-runner status in the Republican race.  Some blame it on the ever-worsening turn toward the right that the Republican Party has been courting for years now.  But I think that’s off the mark.  Trump’s rise has been fueled not only by Republicans who are increasingly realizing that they’ve merely been played by the mantra of “conservative principles” espoused by the bought-and-paid for representatives of the bullies I spoke of above, but also by independents and even Democrats who see his campaign as a metaphorical “slug in the face” for the globalists and corporate elites who have bullied them into submission and economic decline for decades.

So here’s some advice for Mr. Trump.  Americans are eager to see their oppressors get the “slug in the face” that they’ve deserved for so long.  Though we’ve had all we can take from these bullies and long for someone with the backbone to stand up to them and undo what they’ve done to us, it will all be lost if the slugs in the face go beyond the metaphorical and become something that our better natures can’t be proud of.  You can be tough as nails and take them on without crossing the line into advocating actual, physical violence.  Be presidential, get elected, and then let’s put these bullies in their place.

 

 

 

 

 


Recession Omen Lurking in Trade Data

March 9, 2016

I’ll get to the recession omen in a moment, but there’s something else about the January trade data released by the Bureau of Economic Analysis on Friday that I need to get off my chest first.  If you’ve followed this blog, you know that there may be nothing that galls me more than Obama’s broken promise to fix our trade problems.  In the wake of his spanking by Mexico when he tried to broach the subject early in his first term, Obama took the chicken’s way out and, instead of focusing on reducing imports – something that would make him a turd in the punch bowl at G20 meetings, he decided to focus instead on exports, vowing in January 2010 that, within five years, the U.S. would double its exports.

Well, that five year period lapsed a full year ago now, and we know how that turned out.  But I’m not letting it go because his failure is growing much worse by the month.  Exports fell again in January to their lowest level since July of 2011.  Manufactured exports (where the jobs are) led the way, falling by $3 billion to the same level of manufactured exports in December, 2010.  Instead of rising by 100% in five years, manufactured exports have now risen by only 17% in six years – and are falling fast.  Look at the chart:  Manf’d exports vs. goal.

If you pay attention to these sorts of things, you’ve heard the “experts” blame the decline on exports on the strong dollar.  But you’ve also heard me consistently maintain that currency valuations have virtually nothing to do with trade imbalances.  So why the decline in exports?  There are two explanations.  The first is the decline in the price of oil.  How has that impacted manufactured exports?  Oil is priced in dollars and because major oil exporters are then flush with American dollars, they repatriate those dollars by being major consumers of American-made products.  When they get fewer dollars for their oil, they have less to spend on imports from America.

The second reason – and now we get to the subject of this post – is that the rest of the world is slipping into recession.  There’s already been plenty of evidence of that in data coming out of China, Europe and Japan, where central banks are actually experimenting with negative interest rates in a desperate bid to prop up flagging economies.  So the rest of the world is importing less from us.

But look again at the above chart.  Not only are our exports declining, but so are imports.  Declining imports would be a good thing if the decline were matched by growing manufacturing activity in the U.S. – in other words, a shift of manufacturing back to the U.S.  But there’s no evidence of that.  American manufacturing remains mired in deep recession.  So the decline in imports is an ominous sign of a pull-back in consumer spending in the U.S. – a sign that the U.S. is teetering on the brink of recession like the rest of the world.

No surprise.  In January, our deficit in manufactured goods was $57.8 billion, hovering near the record worst level of $63.7 billion set ten months earlier.  Over the past twelve months, our deficit in manufactured goods was $682 billion.  Here’s a chart of our deficit in manufactured goods, dating back to when Obama vowed to double exports:  Manf’d Goods Balance of Trade.

Let’s do some math.  Approximately two thirds of the cost of manufactured products is labor (on average).  Two thirds of this deficit is $457 billion.  Manufacturing jobs pay well – about $50,000 per year.  Divide $457 billion by $50,000 and you find that our deficit in manufactured goods accounts for nine million jobs.  Nine million jobs lost to idiotic trade policy!  That’s enough to put nearly every unemployed American back to work.  Is it any wonder that our economy is struggling?

And, by the way, that represents a loss of federal revenue of $100 billion just in personal income taxes alone.  That’s matched by an increase in federal spending of an equal amount – another $100 billion – to cover unemployment and other safety net programs for the unemployed.  So if you’re a person concerned about federal deficit spending, you really need to turn your attention to the trade deficit.

Or maybe you’re someone concerned about climate change and greenhouse gas emissions.  Think about the fact that approximately five billion barrels of oil are consumed every year running ships back and forth across the ocean carrying products that could just as easily be made right in your neighborhood.  And those ships are powered by steam turbines that are, in turn, powered by oil-fired boilers burning heavy oil and virtually devoid of any emissions controls.  How much sense does that make?  (Oh, by the way, all trash generated by the crews of those ships is dumped overboard during the journey.)

OK, now I’m getting way off on a tangent.  The point is that running such a massive imbalance of trade (and we’ve been doing it for decades) is a massive drain on our economy, and the latest data contains signs that it’s about to bite us again.

 

 


Employment report has lost all credibility

March 5, 2016

The employment report for February, released yesterday by the Bureau of Labor Statistics (BLS), has completely lost all credibility.  I’m not talking about the headline numbers – the gain of 242,000 jobs or the fact that unemployment held steady at 4.9%.  It’s how the latter number was arrived at.  And it’s the little-noticed (because it’s not a headline number) jump in the labor force participation rate.

According to the BLS, the “employment level” (the number of people in the household survey who report having work) soared again in February by 530,000 – far in excess of the 242,000 jobs added by the establishment survey – many of which are part-time jobs that were likely held by people already working other part-time jobs.  In other words, the rise in employment level should be less that the number of new jobs created – not more, and especially not more than double.

This is almost a duplicate of the situation reported in January, when the BLS reported that the employment level rose by 615,000.  That’s a gain in employment level of 1.15 million people in only two months!  (Don’t believe me?  Here’s a link to that part of the household survey:  http://data.bls.gov/timeseries/LNS12000000?years_option=all_years&periods_option=all_periods)  Folks, these numbers are simply impossible.  They would be impossible in a healthy economy.  How much more impossible are they when GDP is running at 1.0%, when manufacturing is in steep decline and when other economic indicators -aside from auto sales and construction spending – are completely flat?  Even this report itself found that wages fell in February, along with the average work week.  Those aren’t numbers that are consistent with huge gains in the employment level.  Finally, if the economy were doing that well, polls wouldn’t be consistently finding that 80% of Americans, representing both the left and right of the political spectrum, believe that the country is on the wrong track.

It gets weirder.  This huge jump in the employment level would have sent the headline unemployment number plunging so much that it would have raised all kinds of red flags about the report.  Unemployment would have fallen from 5.0% in December to 4.4% in February – a number that no one would have believed and a number that would have sent the Federal Reserve into a mad scramble to raise interest rates – right at a time when global markets were in a major sell-off.  Instead, the unemployment rate held steady because the BLS also claimed that 1.05 million workers flooded back into the labor force.  In other words, in only two months time, 1.05 million people suddenly began looking for work and every single one of them – plus an additional 100,000 (where did they come from?) found work.

There’s something very fishy going on with these employment reports.  I can see three possibilities:

1)  Throughout the “recovery,” the Obama administration has continued to receive flak for a low labor force participation rate.  In other words, the economy wasn’t adding enough jobs to put back to work all of the people laid off in the Great Recession.  Are they now rigging the numbers so that that won’t be part of the president’s legacy?

2)  The only plausible piece of this data is that, in fact, a million people have begun looking for work again but, if the employment level didn’t rise in lockstep, the unemployment rate would be skyrocketing – setting off alarm bells about a recession that markets have already begun sensing.

3)  The BLS is in cahoots with the Federal Reserve, now practically in a panic mode to make itself appear relevant to the economy again, and is helping it with justification for doing just that.

And let’s not forget that this is an election year.  A low unemployment rate supports the Democratic candidate.

Too bad that these employment reports are simply taken at face value by the media with no one bothering to scrutinize the details.

 

 

 


Pope OKs Contraceptive Use for Zika

March 2, 2016

http://www.cnn.com/2016/02/18/health/zika-pope-francis-contraceptives/index.html

This is stale news, but I can’t let it pass without comment.  A couple of weeks ago, Pope Francis was asked whether it’s permissible to relax the Catholic Church’s ban on the use of contraceptives in places like Brazil where cases of microcephaly among newborns has skyrocketed as a result of the Zika virus, which is spread by mosquitoes.

For those unaware, the Catholic Church has long opposed virtually all methods of contraception except for “natural” family planning – avoiding sex when the woman is most fertile.  As stated in the above-linked article, the Catholic catechism states that anything that works to “‘render procreation impossible’ is intrinsically evil.”

Over the centuries, the Catholic Church has gone well beyond Christ’s charge to spread the gospel, and has interpreted some of his teachings as empowering the pope to make rules and pass judgment on aspects of our lives that have little or nothing to do with Christ’s teachings.  This has led to various forms of abuse and corruption over the ages.

Many dumb rules persist.  Excluding women from the priesthood.  Forbidding priests to marry.  Forbidding divorce.  But this rule about contraception is probably the dumbest of all.  The rationale offered by the church breaks down no matter which way you look at it.

This rule is rooted in the belief that it is God’s will that humanity thrive and grow.  OK, fair enough.  I won’t argue that point.  Beyond that, however, who’s to say how that plan fits into God’s plan for the world?  Obviously, God created an extremely complex ecosystem with checks and balances to keep everything on an even keel.  In the early days of man’s existence, our ability to have offspring every nine months, year-in and year-out, was necessary to assure the survival of the species in the face of disease and famine and other factors that kept infant mortality high and life spans short.  But God gave us brains that He expected us to use to tame these forces and improve our lives.

So which was God’s will – that starvation, disease and exposure to the elements kill us off prematurely, or that we employ such things as medicine to counteract them?  It seems clear to me from Christ’s parable about the talents that He expected us to use our brains to better ourselves.  So if He expects us to use our brains to reduce our death rate, isn’t it logical that He would also expect us to use our brains to rein in the excess procreative capacity that we’re left with?  Surely He doesn’t expect us to procreate ourselves to the point of becoming like a plague of locusts, whose population then collapses when resources are exhausted.

So how did regulating our procreative capacity become “intrinsically evil?”  What about the vow of chastity that the clergy take?  That surely renders procreation impossible.  So how is that not evil?  Suppose everyone decided that they wanted to be a priest or nun, and took a vow of chastity?  The human race would soon be extinct.  Wouldn’t that be evil?  Even if it was only Christians who took such a vow, Christianity would soon be wiped from the face of the earth, extinguishing Christ’s message.  That would be evil.

Natural family planning, if done with discipline, can be very effective in avoiding procreation.  So does God really care whether one employs that method over some other form of contraception to prevent unwanted pregnancies if the result is the same?  Doesn’t that seem a bit silly and illogical for someone like God?

Back to the example of the Zika virus.  It seems that not every case of Zika among pregnant women results in microcephaly.  So the use of contraception will make procreation impossible, while rolling the dice with Zika could still yield healthy babies.  Which does God prefer in this case?  Is Zika itself “evil,” or is it just one of those factors that nature uses to maintain balance in the world?  If God wanted to, couldn’t He intervene and protect the unborn from the ravages of this disease?  So why doesn’t He?  Is it possible that He expects us to put our intellects to work in fighting the disease and avoid giving birth to damaged babies when possible?

No one knows the answers to such questions.  In the same way, no one can claim to know God’s will when it comes family planning or the larger issue of stabilizing our population.  The Church’s ban on the use of contraceptives is stupid and has probably done more to perpetuate and proliferate poverty and misery than any other human-imposed factor.  I suspect that this Pope would be perfectly happy to strike down this ban (as one of his predecessors nearly did at the request of bishops years earlier), if it wouldn’t result in an uproar among the ever-shrinking conservative wing of the Church.  I think more people would be attracted to the Catholic faith if it weren’t for all of the dumb rules like this one. As a Catholic, I find this whole controversy to be downright embarrassing.