“The shadow of crisis has passed.” Or has it?

January 21, 2015

Last night, at the beginning of what can best be described as a victory lap, President Obama began his State of the Union message by declaring that “…the shadow of crisis has passed …”  The crisis he spoke of included lots of things, but foremost was the economy which, at the time he inherited it, was indeed in a full-blown crisis.  Perhaps two decent quarters of GDP (gross domestic product) growth are enough for him to declare “mission accomplished,” but has the crisis passed or has it merely been swept under the rug?

Three sentences later, he asked, “Will we accept an economy where only a few of us do spectacularly well?”  Yeah, that pretty accurately sums up the state of the economy.  But that’s not stuff worthy of a victory lap, so he then went on to make some claims that merit closer scrutiny.

  • “We believed we could reverse the tide of outsourcing, and draw new jobs to our shores. And over the past five years, our businesses have created more than 11 million new jobs.”  The implication here is that we did, in fact reverse the tide of outsourcing and bring eleven million jobs home.  If only it were so.  The fact is that, while the economy has grown by 15% in real (inflation-adjusted) terms in the last five years, the trade deficit in manufactured goods has widened by 72%.  The only explanation for that is that the “tide of outsourcing” has actually gotten worse.  That’s no surprise when you look at Obama’s record on trade, especially the terrible deal he signed with South Korea.  And “eleven million new jobs?”  According to the household survey, the employment level has grown by only 9 million.  And, during those five years, the population has grown by 11.4 million.  In other words, almost all of the growth in the employment level is due purely to population growth, and not a matter of putting people back to work.  In fact, during those five years, of the 18.3 million Americans who were out of work in January, 2010, only 3.2 million have been put back to work.
  • “More Americans finish college than ever before.”  That’s because we have more Americans than ever before.
  • “… we’ve seen the fastest economic growth in over a decade … a stock market that has doubled and health care inflation at its lowest rate in 50 years.”  We have had two good quarter of GDP growth, preceded by a really bad quarter at the beginning of 2014, but the president didn’t mention that.  The best in the past decade?  That’s not saying much when you look at the past decade.  The stock market has doubled thanks to the Federal Reserve pumping $4 trillion into the bond market, crowding investors out of that market, leaving the stock market as the only place to invest.  And health care inflation is at its lowest rate in 50 years because overall inflation is also down that much.  Relative to everthing else, especially stagnant wages, the inflation in health care is still pretty bad.
  • “Wages are finally starting to rise again. We know that more small-business owners plan to raise their employees’ pay than at any time since 2007.”  Wages are rising – barely – until expressed in real (inflation-adjusted) terms. In those terms, they’re stagnant.  And planning to raise wages isn’t the same thing as actually raising them.
  • “We set up worker protections, Social Security, Medicare, Medicaid to protect ourselves from the harshest adversity. We gave our citizens schools and colleges, infrastructure and the Internet, tools they needed to go as far as their efforts and their dreams will take them.  That’s what middle-class economics is: the idea that this country does best when everyone gets their fair shot, everyone does their fair share, everyone plays by the same set of rules.”  True, we did all that.  Then we signed the Global Agreement on Tariffs and Trade, initiating a trade regime that completely undermined all of the aforementioned programs, deprived American workers of their “fair shot” and gave away millions and millions of our best jobs.  Is that “middle-class economics?”
  • “Of course, nothing helps families make ends meet like higher wages. That’s why this Congress still needs to pass a law that makes sure a woman is paid the same as a man for doing the same work.”  While I agree that women should be paid the same as men, this would do nothing to raise wages.  No company is going to raise its overall cost of labor.  If forced to equalize the pay between men and women, companies will simply lower the wages for men.  The only thing that can drive wages higher is a higher demand for labor, like we’d have if we really did turn the tide on outsourcing.
  • “… to make sure folks keep earning higher wages down the road, we have to do more to help Americans upgrade their skills.”  Here we go again.  Job training as a solution to unemployment.  No one ever takes note of the fact that we lost our manufacturing jobs to people who were uneducated and practically devoid of job skills.
  • “…  we still live in a country where too many bright, striving Americans are priced out of the education they need.”  That’s because far too many of the seats in our college classrooms are filled with foreign students.
  • “… 21st century businesses, including small businesses, need to sell more American products overseas. Today, our businesses export more than ever, and exporters tend to pay their workers higher wages.”  We don’t sell more American products overseas because so many countries are so badly overpopulated that they can’t even consume their own productive capacity.  Yes, we export more than ever, but not much more.  In the meantime, imports have exploded, draining our economy of those manufacturing jobs that the president admits pay more.  In the past five years, manufactured exports have grown by $27 billion per month.  But imports have grown by $47 billion – all thanks the president taking the chicken’s way out on trade and deluding himself into thinking that exports can be grown by just wishing it so.
  • “I’m asking both parties to give me trade promotion authority to protect American workers with strong new trade deals from Asia to Europe that aren’t just free but are also fair.”  Following this assertion, the president admitted that trade deals have gone badly for American workers.  And now he wants to double down on that trade policy.  (Mr. President, if it doesn’t make any sense to continue the same policy with Cuba that has been a proven failure for 50 years, why does it make sense to continue pursuing trade deals that have been proven a failure for just as long?)  There is no “free” trade.  There is no “fair” trade.  There is only trade, and trade with overpopulated nations is a sure-fire loser.  But bend over America.  Here comes more of it!
  • “… 95 percent of the world’s customers live outside our borders. We can’t close ourselves off from those opportunities.”  This is the very heart of our trade problem – the pursuit of more customers – customers capable of producing more than they consume.  That’s good for companies who couldn’t care less where their products are manufactured, as long as they sell more products.  But it’s an absolute disaster for American workers and the American economy.
  • “More than half of manufacturing executives have said they’re actively looking to bring jobs back from China.”  We’ve heard this for years, but how many of them actually do it?  Very, very few.
  • “I want Americans to win the race for the kinds of discoveries that unleash new jobs: converting sunlight into liquid fuel; creating revolutionary prosthetics, so that a veteran who gave his arms for his country can play catch with his kids again.”  We do win those races, but every time we do, the manufacturing of those new products very quickly ends up in some badly overpopulated country.

No, the crisis hasn’t passed.  Nothing has been done to fix the problems that caused it in the first place – our trade deficit and our use of population growth as a crutch for economic growth.  In fact, these issues have gotten worse.  The crisis has been swept under the rug and will slither back out sooner than most people – especially the president – think.


A Happy Day for Illegals, a Sad Day for Americans

November 22, 2014

Obama finally did it, granting amnesty to roughly 5 million illegals.  In the recent mid-term elections, Democrats were trounced by voters who, more than anything else, were incensed by the president’s amnesty plan.  He did it anyway.

So, for five million people who made a mockery of our immigration laws and made fools of those back home waiting in line to enter the U.S. legally, life has gotten much better.  But for 320 million Americans, life just got incrementally worse.  More competition for their jobs.  More downward pressure on wages.  More crowding, more traffic, more burden on the public school systems that are already short on funding.  The economy is incrementally worse.  In general, the quality of life for Americans has just declined.  Like polls have been telling us, America is on the wrong track – toward a dead end.  And immigration is the engine that’s driving us there.

Republicans are indignant about the president breaking our laws and failing to uphold the constitution, or so they say.  What they’re really indignant about is that the president beat them to the punch on pandering to the Hispanic vote.  Neither party is any better than the other when it comes to immigration.  Both parties have two constituencies to deal with.  Both parties have the voters to contend with, voters who are pretty much split on the issue.  But the Democrats have big labor on their side, and big labor loves the influx of unskilled labor that illegal immigration brings, which translates into potential growth in their membership.

Republicans, on the other hand, are in the pockets of big business, who loves the huge influx of skilled workers that H1B visa immigrants bring, keeping downward pressure on wages.  So, with Republicans you get posturing (and maybe a little more border enforcement) on the illegal immigration issue, but a huge influx of legal immigrants.  With Democrats you a huge influx of illegals, each wave attracted by the amnesty granted to the previous.  They all know that U.S. immigration laws are practically meaningless.

But, if you’re out of work and find yourself competing with immigrants for a job, does it really matter to you whether they have green cards or not?  You’re out of a job just the same.

It’s pointless to be angry with one party or the other.  Our anger needs to be directed toward economists and their idiotic reliance on population growth to stoke macroeconomic growth, a strategy that is ultimately doomed to failure.  If population growth is such an economic cure-all, then Japan, a nation ten times as densely populated as the U.S., should have an economy that’s not mired in decades of stagnation.

Nothing will change until the field of economics pulls its head from the sand and considers the full range of economic  implications of population growth.  Until then, we’ll get more of the same – presidents who hand their economic policy over to academic economists – the blind leading the blind.


Japan Plunges Back into Recession

November 20, 2014

http://www.usatoday.com/story/money/markets/2014/11/16/japan-says-economy-contracted-16-pct-in-july-sept/19147417/

It was reported on Monday (see above-linked article) that Japan officially slid back into recession in the 3rd quarter.  The economy contracted 1.6% (annual rate) in the 3rd quarter, following an even larger contraction of 6.7% in the 2nd quarter.  This came as a shock to the business community, which had expected a resumption of growth.

Japan is a poster-child for what happens to an economy that is badly overpopulated.  Japan is approximately ten times as densely populated as the U.S.  Because its people live in such dense, overcrowded conditions, per capita consumption there is a fraction of what it would be otherwise.  Low consumption would mean low employment, were it not for the fact that Japan runs a massive trade surplus in manufactured goods.  (It actually runs a deficit for overall trade because it’s also heavily dependent on imported raw materials in order to manufacture those goods.)  Without that surplus of trade in manufacturing, Japan’s economy would collapse into something resembling a third world country.

Once South Korea, followed by China, began muscling in on its export business, growth in Japan’s economy ground to a halt.  It’s been in a state of recession more often than not for the past two decades.  During that time, it has racked up an enormous national debt, the largest in the world, in order to prop up its economy.

In 2012, Shinzo Abe was elected prime minister of Japan, thanks to his promise to revitalize the economy through a combination of tax cuts, a huge boost in spending on infrastructure, and massive money-printing by Japan’s central bank – a program that came to be known as “Abenomics.”  Once the economy was kick-started, then the plan was to raise sales taxes in order to once again begin addressing the debt issue.

At least that was the plan.  It worked great at first.  The Japanese people were given lots of free money and they spent it.  The Japanese stock market soared.  But then came the tax hikes and the party was over.  The economy quickly collapsed back into a deep recession.

What economists don’t understand is that macroeconomic growth in a society plagued by severe over-crowding is impossible, and nowhere is this more evident than in Japan, one of the most densely populated nations on earth.  A point is reached where falling per capita consumption erases any gains that further population growth may provide.  This effect can be masked by deficit spending, but that tactic can only be sustained for so long.  Ultimately, the Japanese people are doomed to a failing economy and worsening poverty.

This opinion piece by James Saft does a good job of illustrating how boxed-in the Japanese economy has become, and how he and economists still don’t get it – that population growth is the root of the problem, not the cure – by implying that all would be well if Japan’s central bank could simply “print people.”

What Japan’s people need, more than anything else, is simply room to breathe.  Less densely populated, they could live in real homes instead of rabbit hutches.  They could drive real cars and park them in their own garages.  They could have lawns and gardens.  They could play golf on golf courses that currently don’t exist.  The quality of their lives would improve by leaps and bounds.  But, with fewer of them, the Japanese macroeconomy, as its traditionally measured, would be smaller and economists would be sounding the alarm.

It never ceases to amaze me how economists are incapable of recognizing or acknowledging how dumb their reliance on never-ending population growth in a finite world is.  Japan is a perfect example.


The End of Growth

October 22, 2014

http://www.reuters.com/article/2014/10/16/us-cenbanks-markets-policy-idUSKCN0I501120141016

Last week, markets were in a steep sell-off, driven largely by increasing worries about global economic growth.  (See the above-linked Reuters article from last week.)  In the wake of the Great Recession, years of interest rates at zero and money printing by the central banks of the U.S., Europe and Japan have yielded pretty disappointing results.  Europe is once again on the brink of recession.  And Japan has either been in recession or been on the brink for decades.  And slowing economic data in the U.S. is making it look as though we won’t avoid backsliding into recession either.

We’ve all seen cartoons depicting pessimists standing on street corners wearing sandwich-board signs declaring that “the end is near.”  Well, folks, it’s time to face facts.  When it comes to economic growth, the end is, in fact, here.

Let’s begin with a step back – way back – to World War II.  The imperialist ambitions of both Germany and Japan had similar roots.  Both nations were badly overpopulated, short on resources and long on unemployment.  Both embarked on huge land grabs.  In the wake of the war, in 1947, the Global Agreement on Tariffs and Trade – the precursor of today’s World Trade Organization – was implemented, with the primary goal of preventing such wars by giving Germany and Japan easier access to resources and more access to U.S. markets, thus alleviating the high unemployment that fostered Hitler’s rise to power.

No problem, at first.  Americans had done without for years, with the nation’s manufacturing capacity devoted 100% to the war effort.  There was a lot of catching up to do and Americans’ appetite for goods seemed insatiable.  The economy boomed and the federal government was able to cut spending and whittle away the debt it had racked up during the war.

The infrastructure and economies of Germany and Japan were rebuilt.  Slowly, the new trade regime enabled imports from those nations to erode America’s trade surplus.  First came Volkswagens and a sprinkling of Mercedes and BMW’s from Germany.  Those were followed first by motorcycles from Japan, and then Hondas – pathetic little cars that were painted in paisley and sold as jokes, but they got their foot in the door.  By the early 70’s our trade surplus was gone.  We oscillated between surplus and deficit for a few years.  We ran our last trade surplus in 1975.  Since then, we’ve experienced 38 (soon to be 39) consecutive years of trade deficits.

At about the same time, America’s budget deficit began to grow again too.  It had to, to offset the trade deficit’s drain of money from the economy.  Soon, new terms began to creep into the American economic lexicon:  “redundancy,” “down-sizing,” “right-sizing” and “outsourcing.”  American manufacturers began closing their doors en masse, unable to sustain a profit margin in the face of the onslaught of foreign companies snatching up American market share.

Even with their new-found trade surpluses and manufacturing jobs cannibalized from American manufacturers, the Europeans and Japanese both found it necessary to lean heavily on deficit spending, just as America was doing, to keep a lid on unemployment.  Rising productivity enabled manufacturers to meet growing demand without growing employment at the same pace.

At the end of World War II, the world’s population stood at just under 2.5 billion.  Today it has nearly tripled.  All of this growth has been concentrated in urban areas.  Cities have expanded and grown vastly more crowded, and it’s a fact that people living in crowded conditions consume less out of necessity.  Growth in the global labor pool outpaced the rate at which workers were absorbed into the economy, putting downward pressure on wages.  And that situation grew exponentially worse when China was factored into the global trade equation, growing the global labor pool virtually overnight by 25%.

For a time, government deficit spending, used primarily to fund social safety net programs and other programs designed to supplement incomes and prop up a perception of wealth, sustained consumption and kept the economy growing.  But that tactic has run its course.  National debts have risen to worrisome levels.

Developed economies looked to China to pick up the slack by developing its economy, turning 1.3 billion people who had nothing into western-style consumers.  By that measure, China has been a huge disappointment.  Collectively, they consume a mountain of goods, but nowhere near enough to even consume their own productive capacity, much less to develop into a market for other nations.  Their growth is faltering and it looks like their domestic consumption will settle at the same diminished level as Europe and Japan.

Growth is now virtually dead and all the deficit spending in the world can’t prop it up.  Economists won’t admit that fact and adamantly refuse to give any consideration to the fact that population growth lies at the heart of the problem.  But markets don’t care, and what we’re witnessing is an adjustment to a no-growth world.  Interest rates have fallen to zero.  Bond yields, projected to rise as the economy “recovered” never did, and are now sliding backward to near-zero levels.  Central banks’ hands are tied, left only with thinly-disguised money printing programs to fall back on to provide stimulus to the economy, a tactic that’s already begun to make them nervous about unintended consequences.

The world’s economy is reaching a critical and dangerous point, where the inverse relationship between population density and per capita consumption begins to take hold in a big way that can trigger an irreversible downward spiral.  People consume less than they’d like for two reasons – because they lack space to make use of products, and because they are simply too poor to afford them.  When the proportion of people in the first condition reaches a critical level, the downward pressure on wages begins to make everyone poorer, accelerating the downward pressure on consumption.  Governments’ and central banks’ resources and abilities to hold this economic force at bay will soon be exhausted.

Economists had better extract their heads from that place where the sun doesn’t shine, and soon, if this economic fate that they don’t understand and are unable to see is to be avoided.  I fear that they won’t.  Growth isn’t always desirable.  Sometimes it’s cancerous.  Left unchecked, population growth will soon present the one challenge that none of them are clever enough to overcome – worsening poverty that gets so bad that it throws the world population into decline.  In essence, if economists and world leaders aren’t smart enough to manage our population to a level where all can enjoy a high quality of life, their stupidity will surely drive it to a level that no one wants.

 


Americans Continue to Grow Poorer During “Recovery”

September 19, 2014

http://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf

One of the consequences of the inverse relationship between population density and per capita consumption is declining incomes as the demand for labor fails to keep pace with the growth in supply.  As per capita consumption goes, so goes employment.

I published Five Short Blasts in 2007, just before the onset of the “Great Recession.”  That unemployment rose and incomes declined during the recession was no surprise and provided no proof of my theory.  But a report released last week by the Federal Reserve does.  The Fed released it’s 2013 update to its tri-annual “Survey of Consumer Finances.”  (Link provided above.)  The latest survey shows the changes in consumer finances during the 2010-2013 period, a period of recovery, following the previous release which covered the 2007-2010 period of recession.

The survey found that while Americans grew substantially poorer during the 2007-2010 period of recession, they have continued to grow poorer during the so-called “economic recovery.”  Median incomes fell yet another 5% after falling 8% during the recession.

Median net worth fell another 2% during the “recovery” after falling 38% during the recession.

Wealthy Americans, the top few percent of wage earners, have fared much better.  Their incomes have risen 4% during the recovery and they have completely recovered their much-smaller loss in net worth that occurred during the recession.

Economists are baffled.  I’m not, and you shouldn’t be either.  As long as the U.S. continues to mis-apply free trade to nations grossly overpopulated and as long as we continue to exacerbate our own worsening population problem, declining incomes and worsening unemployment is inescapable.  People living in crowded conditions consume less.  It’s impossible to avoid.  When people consume less, less is produced and employment declines.  It’s all really quite simple – simple to anyone willing to open their eyes and ponder the economic consequences of a growing population – something that economists are still unwilling to do.


“The Best and the Brightest”

July 8, 2014

http://www.reuters.com/article/2014/07/04/us-usa-obama-immigration-idUSKBN0F91LX20140704

This story (link provided above) is a couple of days old but still relevant, given the continuing and escalating anger over the illegal immigration situation that has a hundred thousand children per year pouring across our border.  As busy as things have been for me this past week, I couldn’t let it pass.

Commenting on the issue, President Obama remarked that:

It’s in our DNA. … We shouldn’t be making it harder for the best and brightest to come here.

The statement is so illogical and insulting to the American people that journalists should be ashamed for letting it pass without challenge.  First of all, what we’re talking about here is the entry of illegal immigrants.  No one is giving them IQ or aptitude tests upon crossing the border to determine whether they represent the “best and brightest.”

Secondly, the remark implies that America is short on “best and brightest” qualities – that too many Americans are among the “worst and dumbest,” making it necessary to import superior people.  It also implies that the degree of goodness and intelligence is something inherent in one’s make-up – something that can’t be developed through education and training.  It says we’d rather  import people with skills and training that may be in short supply (though the data proves that we have no such situations), rather than invest in training and education.  It says that if you’re in a disadvantaged situation in America – tough.  We’ll import someone else and give them all the advantages.

And a question that’s never asked is why the “best and brightest” want to come here in the first place.  The stated reasons are because they are fleeing this or that or, more often, because they’re seeking a better life.  What’s unsaid is that those are euphemisms for what they’re really fleeing – the effects of overpopulation in their home countries.  So how much sense does it make to pursue immigration policies that guarantee that our own country will eventually come to the same fate?

The arguments in favor of high rates of immigration are pure BS.  The president is merely caving to business interests who want to maintain downward pressure on wages through an over-supply of labor and who, secondarily, see a growing population as a growing customer base that will swell the bottom line.  Who cares that it steadily erodes the quality of life of everyone but the top 1%?

Immigrants are no magic elixir for our economy.  They are merely people, no different that the rest of us.  In the final analysis, the only effect of immigration, legal or otherwise, is to grow our population.  Any discussion of immigration policy that isn’t in that context makes no sense whatsoever.  We have to begin by asking ourselves whether it makes sense to add workers to the labor force while fifteen million Americans are still out of work.  Does it make sense to add oil consumers when we’re already heavily dependent on imported oil?  Does it make sense to add carbon emitters when the challenge of meeting commitments to reduce carbon emissions already threatens to erode our quality of life?  Does it make sense to increase the demand for social safety net services when we already can’t afford them?  Does it make sense to increase the stress and strain on our resources and environment when they’re already near the breaking point?

I voted for Obama in the first election because I thought he favored the interests of the American people over the interests of global corporations.  What a disappointment.  Contrary to outward appearances, he clearly either lacks the intelligence to connect the dots between population growth and a host of critical issues (perhaps he doesn’t represent the “best and brightest?”), or is just another politician beholden to the deep pockets who put him in office.

 


Per Capita GDP in Decline

July 3, 2014

The country is in an uproar over the immigration crisis that Obama’s refusal to enforce the laws has left us in and, at the same time, I find myself with limited time for writing posts.  You can read opinion pieces on the immigration mess anywhere and everywhere right now.  So I though a better use of my time would be to focus on the recent downward revision in GDP (gross domestic product) and use it as an example as to why America’s ridiculously high rate of legal immigration – not to mention Obama’s refusal to enforce the border and deport illegal immigrants – is so bad for the American economy.

The BEA (bureau of economic analysis) last week dramatically lowered its final reading of GDP for the 1st quarter to an annual rate of decline of 2.9%.  The harsh winter took much of the blame.  Adjusted for inflation, GDP still remains higher than it was in the 3rd quarter of 2013.  And it’s risen by nearly a trillion dollars since the 4th quarter of 2007, when the recession first began.

But you shouldn’t care about overall GDP.  What matters is each American’s slice of the pie, or per capita GDP.  When population growth is taken into account, per capita GDP fell to its lowest level since the 2nd quarter of 2013.  And it’s barely budged in the past seven years (going back to the 4th quarter of 2007 again).  Here’s the chart:  Real Per Capita GDP.

Since the end of 2007, per capita GDP has risen by only $317 per person, an annual rate of increase of only 0.09%.  That includes all Americans, and it’s been widely reported that all of the gains are concentrated in the top 1% of Americans.  Take away that top 1%, and per capita GDP has actually declined during the supposed “recovery” that has taken place since the end of the recession.  And that’s in spite of a trillion dollars in stimulus spending by the federal government and four trillion dollars of stimulus provided by the Federal Reserve.  Imagine how bad it’d be if we took away that $5 trillion that has been poured into the economy in the past seven years.

Declining per capita GDP is one of the outcomes predicted by the inverse relationship between population density and per capita consumption (which is inextricably linked to per capita employment).  As our population continues to grow beyond its optimal level (thanks entirely to both legal and illegal immigration), it’s inescapable that per capita GDP will decline, even as overall GDP continues to grow slowly.

In other words, immigration is the driving force behind a decline in Americans’ quality of life.  Yet, the deep pockets that fund our politicians continue to advocate for increased immigration and population growth.  They want more consumers to grow their bottom lines.


Follow

Get every new post delivered to your Inbox.

Join 53 other followers