Per Capita GDP Contracts in 1st Quarter

April 29, 2016

Recessions are determined by two consecutive quarters of contraction in the nation’s Gross Domestic Product, or “GDP.”  But what if the GDP grows, but more slowly than the growth in the population?  In that case, your share of the economy has shrunk, as it has for every American, and it’ll feel like a real recession to you.  So that’s how recessions should really be defined – in terms of per capita GDP.

By that measure, the next recession may very well already be underway.  Though GDP grew in the first quarter, though by a paltry 0.5% (as announced yesterday by the Bureau of Economic Analysis), per capita GDP actually contracted by 0.2%, thanks to the population growing at an annual rate of 0.8% in the same time period.

This is the 2nd time in four quarters that per capita GDP declined.  It happened in the same 1st quarter time period last year, falling by 0.2%.  The difference is that last year the economy was already beginning to rebound by the end of the first quarter as we emerged from an extremely harsh winter.  This year, the economy stalled in spite of relatively mild weather and, with the first month of the 2nd quarter already behind us, the economic slowdown appears to be intensifying.

This stagnating of the economy isn’t just a one or two-year phenomenon.  It’s been developing for a long time now.  During the 8-year period beginning with the 1st quarter of 2008 (just before the onset of the “Great Recession”), per capita GDP grew at an annual rate of only 0.5%.  (Check this chart:  Real Per Capita GDP.)  During the 8-year period prior to that (2000-2008), it grew at an annual rate of 1.4%.  And during the 8-year period prior to that (1992-2000), it grew at an annual rate of 3%.  Though the economy continues to grow, albeit ever more slowly, in terms of GDP, per capita GDP has essentially ground to a halt.

This is exactly what the inverse relationship between population density and per capita consumption would predict – that eventually over-crowding would erode per capita consumption to a point where per capita GDP would actually begin to contract.  That’s exactly what we see happening now.  Though we continue to lean as heavily as ever on population growth to stoke the economy, that strategy has begun to backfire. We are all becoming worse off as a result.  It’s time for economists to wake up to the fact that this blatantly-flawed economic strategy is doomed to failure – that population growth has become a drag on the economy.


TTIP is a Horrible Idea for the U.S.

April 23, 2016

The above-linked article reports on opposition in the U.S. to the Transatlantic Trade and Investment Partnership – otherwise known as “TTIP” – another of the Obama administration’s hare-brained trade schemes.  (Geez, I can’t believe I voted for this guy based on his promise to fix America’s broken trade policy.  Boy, was I suckered!)

The TTIP trade deal is a deal with the European Union, or EU.  Here’s a chart of how America’s balance of trade in manufactured goods with the EU has trended since 2001:  EU.  Our trade deficit with the EU was already bad in 2001, but improved some from 2005 through 2009.  Since the onset of the slow recovery from Great Recession, however, our trade deficit with the EU has worsened exponentially as Europe has leaned hard on exports to prop up its economy.  In 2015 this deficit totaled almost $150 billion.  Expressed in per capita terms, that’s a deficit of $247.38 for every man, woman and child in Europe.  That’s little better than our deficit with China, at $283 per capita.

Of the 24 nations represented by the EU (not including tiny Malta), the U.S. has a surplus of trade with only six small nations:  Belgium, Cyprus, Latvia, Lithuania, Luxembourg and the Netherlands.  Together, these countries represent only 5% of the EU’s land mass.  So the U.S. has a trade deficit with 95% of the EU.

It’s often said that low wages are what causes trade deficits.  Then how does one explain such an enormous deficit with the EU, a conglomeration of rather wealthy nations with very well-paid workers?  Or some say that our big deficits with China and Japan are caused by the manipulation of their currencies.  No one accuses the EU of that, and yet we have a huge trade deficit with them just the same.  Or some say that America needs to improve its competitiveness.  Then how do you explain our trade deficit with France – $232 per capita – arguably one of the least competitive nations in the western world?

The problem is that the one thing the EU has in common with others like China and Japan is a high population density.  The EU has 325 people per square mile.  China’s is 380 people per square mile.  Japan’s is 902 people per square mile.  Compare these figures to the U.S. at 87 people per square mile.  It’s this disparity in population density that drives these trade imbalances.  It’s caused by the imbalance in the markets that’s caused by overcrowding.

So the problem with this TTIP deal is that it’s rooted in a relentless pursuit of free trade theory that fails to account for the role of population density in driving these trade imbalances, instead of being rooted in the pursuit of balance.  The U.S. wrongly believes that lowering trade barriers is always good for any nation, since it doesn’t understand the role of population density.  And the EU would never agree to any deal that doesn’t also lower barriers in the U.S.  It’s inevitable that such a deal will only exacerbate America’s trade deficit.



Boston Globe Satire of Trump

April 12, 2016

A few days ago, the Boston Globe published this hypothetical, satirical front page dated April 9, 2017, which would be three months into a Trump presidency.

Boston Globe

I’ll be the first to admit that some of the kinds of things that Trump has proposed – the same things I’ve advocated for years – a drastic reduction in immigration (especially illegal immigration) and a total overhaul of trade policy that would rely on the targeted use of tariffs to restore a balance of trade – is scary stuff to a lot of people and to the media as well.

In fact, the April, 2017 edition of the Boston Globe could actually look very much like what the Boston Globe has proposed, at least in terms of the headlines.  (I didn’t bother to read the accompanying articles, not having that much time to waste.)  No doubt, deportations would begin – as they well should.  And we could very well witness a drop in the stock market – “Markets sink as trade war looms.”  Big deal.  The market sinks about every other day for one reason or another, usually followed the next day by a headline that reads “Markets jump as … ”  The headline about ISIS?  That’s a ridiculous stretch.

But this satire begs the question as to what the same front page might look like otherwise?  So I took a little time to have some fun with this.  Suppose there were to be a third term of Obama, or perhaps someone like him who would continue the same policies.  Here’s how that front page might look:

Boston Globe Alternative

(I only altered the headlines.)  The point is, is this any less scary?  Some of it may sound a little over-the-top, just as the original Boston Globe satire did, but it’s merely an extrapolation of where we’re headed if we keep pursuing Obama’s policies on immigration and trade.

Or maybe it would be more helpful to ponder what a Trump presidency (or any presidency willing to tackle illegal immigration and trade policy) would look like a year down the road, on Monday, April 9, 2018 after all the hysteria has settled down.  Maybe then the front page of the Boston Globe would look more like this:

Boston Globe Alternative 2

(Again, only the headlines have been altered.)  Wouldn’t you love to see those kinds of headlines?  That’s the kind of news we haven’t read in a long time – for decades.  It’s the kind of headlines that could only be made possible by a president with the backbone to tackle the trade and immigration issues.

February Uptick in Exports Swamped by Imports

April 6, 2016

A $1.8 billion rise in manufactured exports in February – the first rise in five months – was swamped by a $3.5 billion jump in imports, sending America’s trade deficit in manufactured goods to its third worst reading ever – $59.7 billion vs. the record of $63.7 billion set in March, 2015.

Since president Obama vowed in January, 2010 to double exports, the overall trade deficit has held fairly steady, thanks only to a slowdown in oil imports.  But the trade deficit in manufactured goods continues to worsen exponentially.  Here’s the chart:  Manf’d Goods Balance of Trade.

Manufactured exports haven’t risen in five years.  In February they were actually below the March, 2011 level.

If America were a business and Obama was the CEO, he’d have been fired long ago for such a pathetic performance.

Troubling Signs in the March Employment Report

April 4, 2016

This time around I’m going to focus less on the headline numbers and more on the details of the March employment report.  (Link provided above.)  Although the headline numbers appear strong – 215,000 jobs added with the unemployment rate up slightly at 5.0% – there are troubling signs in the details which hint at a looming economic slowdown.

First of all, the job gains are concentrated in retail, health care and food services.  Among the higher-paying categories of jobs that really drive the economy – manufacturing, mining (largely oil drilling), construction and business – only construction saw gains in jobs.  Manufacturing and mining employment fell yet again and business jobs were flat.  The latter is an especially troubling sign, as it was one of the sectors that had been propping up employment for some time, averaging gains of 52,000 per month during 2015.  This year, however, there have been virtually no gains in business employment at all.

Secondly, the large gain in retail jobs – 48,000 in March – is inconsistent with other data on retail sales and consumer spending, both of which have been hovering around an annual rate of gain of 1-2%, barely enough to keep pace with inflation and population growth.  In other words, there appears to be no justification for such gains in retail employment.  I’m looking for this trend to reverse soon when company executives wake up to the fact that their sales forces have grown out-of-proportion to sales volumes.  I also expect employment in the food services industry to soon reverse course as the explosion in fast-food establishments that always happens at the tail end of a recovery goes bust.

Beyond the employment report, there are other red flags waving, like heavy advertising for easy mortgages and “title loans,” where you bring in the title to your car and they’ll loan you money with the promise that you get to keep driving your car as long as you make the loan payments.  Already, auto sales were being propped up with sub-prime loans.  So now, not only are people who can’t afford them getting new cars, but they’re then using those cars as collateral for loans that they also can’t afford.  And it’s a fact that when people have their cars repossessed (the “title loan” people and the dealerships will have to fight over who actually gets the car), they also tend to lose their jobs.

This economy’s been running on fumes for quite a while, as the federal budget has been lagging the rate at which the trade deficit is sucking money out of the economy.  Something’s going to give soon.