“Brexit” Another Failure of Economics

June 30, 2016

Why is it that all the big stuff happens while I’m on the road and unable to comment?  So it was with the “Brexit” vote last week when Britons voted to split from the European Union – the EU.  Well, better late than never.  So the following are some thoughts regarding the “Brexit” vote.

There has already been a lot of analysis of the underlying reasons for the surprising results of this vote.  They focus on three main issues:  immigration, trade, and the fact that Britain was being fleeced by the EU to the tune of about $350 million per day – only about half of which was returned to Britain in the form of “subsidies.”

The real root cause goes much deeper.  For decades, the main thrust of the United Nations has been the eradication of hunger and poverty among undeveloped nations – a noble goal.  But instead of helping such countries by fostering real, organic economic growth that begins with self-sufficiency and nurtures domestic industrialization to meet the growing wants and needs of the people, economists decided on an easier route.  They relied instead on “free” trade and population growth.

There was once a time when nations were free to strike trade deals with one another that were of mutual interest to both.  Both sides benefited.  Each gave something and each got something on terms that worked out to the best interests of both.

But faced with the challenge of elevating the fortunes of undeveloped countries, the United Nations and the World Trade Organization seized on a quick fix – the implementation of a trade regime that would tilt the playing field such that jobs and money would slide from the developed world to the undeveloped world.  “Don’t worry,” they assured the developed world.  “It’ll benefit you, too, when these nations develop into customers for your goods.”

Well, they haven’t, and now we have a system of trade where the rules are rigged in favor of one country over another – where developed countries are forced into trade relationships that are actually detrimental to them and their citizens.  This situation is now referred to as “free trade” while the previous system in which countries were free to make their own trade deals is decried as mercantilism.

The other tool in economists’ bag of tricks is population growth.  Population growth translates to GDP (gross domestic product growth), something that business loves, so the economists found ready and willing allies among global corporations, chambers of commerce and others.  None recognize that such cancerous growth actually degrades the quality of life of individuals and fuels more poverty.  The EU is no different and has seized upon immigration-driven population growth as a tool to prop up GDP.

There is just one problem with this grand scheme – democracy, and the fact that all of the ballyhooed intangible benefits of these approaches couldn’t obscure from the people the fact that they’re getting screwed.  I’ve occasionally high-lighted cracks that have been appearing in “globalization,” mostly in the form of skepticism about whether “free” trade was really any benefit at all for the donor countries or if it was actually dragging them down.  Now comes the “Brexit” vote, ripping a gaping hole in it.

Congratulations to the British people who rejected the econo-babble of the EU elites and applied common sense to their evaluation of what’s become of their country.  And it doesn’t stop with Britain.  Other EU nations who find themselves being fleeced to prop up the likes of Greece and Spain are also ready to jump ship.  In the wake of “Brexit,” EU leaders commented that, with the loss of British revenue, the EU may now be forced to raise taxes and implement even more austerity.  Smooth move, Brussels!

Speaking of dumb moves (dumb from the perspective of the globalists), how about Obama’s trip to Britain in which he chastised the “leave” supporters and threatened that the U.S. would relegate them to 3rd class status in trade negotiations if they did, in fact, leave the EU?  If any Brits were on the fence on this issue, Obama’s comments offered proof that Britain had been subjugated to the interests of the global elite.  Obama may very well be responsible for pushing Brits over the edge.  Yet another foreign policy blunder on his part (right on the heels of his disastrous trip to Japan, during which he was publicly berated by the Japanese president).  Continuing down that tangent, just yesterday he met with the Canadian and Mexican leaders in support of NAFTA, a meeting that the press hailed as “the three amigos.”  Could he possibly have made a more tone-deaf move when the nation is already fed up with illegal immigration from and job losses to Mexico?  Now Obama is known as an “amigo?”

As proof that sentiments that drove the “Brexit” vote go beyond the EU, Donald Trump has also blown a big hole in America’s one-party Republi-crat support for free trade and mindless pursuit of population growth as a crutch for a sick economy that was long ago ceded to the World Trade Organization.  The Republican elite are abandoning him in droves, but voters couldn’t care less.  They’re fed up with their leadership, just as the Brits were fed up with theirs.  America’s “Brexit” from globalization may come in November.




May Employment Report Was Bad; Reality is Worse

June 10, 2016

Just back from a couple of weeks in the north woods, so it’s time to get caught up on things.  First on the agenda is the May employment report, which was released a week ago.  So the news is a little stale, but can’t be allowed to pass without comment since, as bad as the headline number was – only 38,000 jobs added to the economy – the reality of the situation is even worse.

Just how much worse didn’t hit home until I loaded the BLS (Bureau of Labor Statistics) data into my spreadsheet.  The BLS tried to soften the blow of that headline number by claiming that unemployment actually dropped by a whopping three tenths of a percent to 4.7% – the lowest level since the  onset of the “Great Recession” in late 2007.  But nobody’s buying it, since it was done in the usual fashion (usual since President Obama took office) of using the “mysteriously vanishing labor force” trick once again, claiming that another 458,000 workers dropped out of the labor force, in spite of the fact that the population actually grew by 214,000 in May.

The Obama administration has transformed 100,000 into the new zero.  What do I mean by that?  It’s the methodology used to calculate employment and jobs added to the economy.  When one full-time job is replaced by two part-time jobs, that counts as a gain of one job – one job lost, replaced by two jobs.  Never mind the fact that no additional work is being done or that a well-paid worker with benefits has been replaced by lower-paid workers without benefits.  And never mind the fact that performing one hour of work for some kind of compensation counts just the same as a full-time job.  You may feel unemployed, but the BLS statistics don’t see it that way.

So when 38,000 jobs are added (according to the establishment survey, 26,000 according the household survey) then that’s really a loss of 62,000 jobs in the “100,000 is the new zero” economy – a truly recessionary figure.  It’s no coincidence that, since the population grew by 214,000 people, meaning that the labor force, if truth be told, grew by about 107,000 people, the addition of 38,000 jobs to the economy means that it came up about 69,000 jobs short of keeping pace with the labor supply.

If the growth in the labor force in the BLS’s statistics kept pace with the growth in the population, then the real unemployment rate would have risen in May to 8.1%.  This chart is a measure of just how heavily the Obama administration has leaned on the “mysteriously vanishing labor force” to make the unemployment rate appear artificially lower than it really is:   Detachment from Reality Index.  This index is a montly measure of how much the unemployment rate is distorted by the claim that the labor force has shrunk in the face of a growing population.  In May the index was 3.4.  Add 3.4 to the claimed unemployment rate of 4.7 and you arrive at a true unemployment rate of 8.1%.

May marked the second month in a row that per capita employment has contracted.  It hasn’t contracted by three months in a row in over three years.  It’s likely to happen in June.  It hasn’t contracted four months in a row since October, 2009 – at the depth of the “Great Recession.”  It looks likely that it will in July.

In the wake of the decline in per capita GDP in the first quarter, evidence that the U.S. is slowly sinking back into recession is mounting.