“Embrace change,” corporate America!

September 3, 2019

I was there, working in manufacturing in the 1980s, when a cold wind swept across America.  I was there when our corporations, until then led by manufacturing and the engineers who rose up through its ranks, kicked manufacturing to the curb and replaced their leadership with marketing people, skilled in the art of B.S., and bean counters, focused on nothing but cutting costs.  I was there when the United Nations and the World Trade Organization embarked on their campaign of raising poor nations out of poverty through the systematic plundering of jobs from the U.S. – as many jobs as possible without tipping the balance of power in favor of bad actors who might threaten this new concept of “globalism” and the “New World Order” – the new regime of parasites dedicated to keeping its U.S. host alive just enough to keep the blood flowing.

I was there when they began scaling back manufacturing operations, laying off good workers and closing plants.  “Embrace change,” we were told constantly by business managers with an air of condescension, as though they were addressing fools too dumb to recognize good things and good opportunities when they see it.  We had made careers of embracing change – change for the better – changes that automated our factories, boosted production, cut emissions, improved quality and grew profits.  Now we were being insulted by con men whose only goal was the next promotion, which required laying off more people than the next guy.

I was there at a big division-wide meeting – one of those meetings whose purpose was ostensibly to gather input, but it was clear from the start that input was the last thing they wanted.  What they wanted was “buy in” for the new direction of the company.  In other words, you’d better accept what’s coming enthusiastically, with a big smile on your face, if you know what’s good for you.  The leader, the division manager, asked, “what are we going to need to succeed?”  I raised my hand and replied – perhaps naively or perhaps in a thinly-veiled attempt to stand up for what I and many others present had built our careers around.  “We’ll need excellence in manufacturing.”  I was stunned by his arrogant, dismissive reply.  “Why?  We don’t need that.  We can buy that!”  I thought to myself, “you dumbass, you can buy it if you want, but you still need it, and now you’re at the mercy of your supplier.”  But it would have been a pointless example of falling on your own sword to come right out and say it.  “Embrace change.”  Here it comes.

Our final days before closing the doors were spent writing operating procedures, documenting every detail of our operations, and then training workers brought over from foreign subsidiaries.  We were forced to facilitate the widespread technology transfer that played a critical role in ruining the American economy.

It’s decades later and the tables have turned.  As it always does, the pendulum swung too far.  The globalist corporations over-played their hand, planting the seeds of political change.  Americans are sick of working for minimum wages and being the world’s chumps.  America itself can no longer fund massive trade deficits.  The wind has shifted and now blows cold on globalist dreams of reaping big profits from a China transformed into western-style consumers and from plundering the American market with cheap products.  Those dreams never had a chance.  China will never be more than a sweat-shop labor pool with their gross over-population dooming any hope of a western-style, consumer-driven economy.

In the meantime, a lot of weeds sprouted in the devastated American economic landscape.  By “weeds,” I mean business models that bring so little value to the table that they are dependent on virtual slave labor wages.  Cheap junk of poor quality has perpetuated a throw-away mindset among consumers.  Cheap clothing made of thin, flimsy fabric.  Tools that break after one use.  Auto parts and appliances that break as soon as the warranty expires.  An economy dependent on consumers burning through their severance packages.  A retail economy that employed laid-off workers manning check-out lines until everyone had burned through their savings.  An economy totally dependent on consumers buying stuff that they had no hand in producing.  All the while the economy grew.  It didn’t matter if the growth was flowers or weeds, as long as the color was green – money pouring into corporate coffers.

In the wake of Trump’s tariffs on China, retailers are having a hissy-fit when their suppliers ask for a price increase to cover the cost of the tariffs.  Products with high perceived value needn’t fear.  They’ll always find a way to be marketed successfully even if their prices do rise a few percent.  Those with low value will bite the dust.  Good riddance.  And retailers who turn their backs on good products just because the supplier needs to raise prices to make a profit – whether to cover the cost of the tariffs or, better yet, to begin manufacturing domestically – will lose out to retailers who understand their value, and they too will fail and vanish.  Again, good riddance.  It’s not like there’s a shortage of retailers.

So, corporate America, the shoe’s now on the other foot.  EMBRACE CHANGE!  Think of the possibilities and opportunities – the opportunity to cut your shipping costs dramatically, to be in charge of your manufacturing again instead of being at the mercy of Chinese companies, to boost sales to American consumers with more buying power thanks to rising wages.  EMBRACE CHANGE!!  Maybe you can mitigate some of the increased cost by cutting fat at the top layers of your organizations – those con men who grew fat and rich by ruining the lives of the people who actually did the work.  EMBRACE CHANGE!!!  Maybe you’ll survive.  If not, good riddance and adios.  Don’t let the screen door hit you on the way out.  Your workers will be fine.  The winning companies will snap them right up.


Trump Tariff Policy and the Risk of Recession

August 21, 2019

Early this month, Trump announced that a 10% tariff would go into effect on September 1st on all remaining imports from China.  (Half of Chinese imports were already subject to a 25% tariff.)  Stock markets plunged amid warnings of a global slowdown, inflation and the possibility of recession in the U.S.  Investors rushed to buy safe-haven bonds, sending the yield on 10-year bonds below that of 2-year bonds, producing the dreaded “yield curve inversion,” which has often been a harbinger of a looming recession.  So the warnings of recession intensified.  Every weaker-than-expected economic report blames the “trade war” and Trump’s tariffs, while every stronger-than-expected economic report – most notably a strong labor market and good GDP growth (the exact opposite of recession) is shrugged off as happening in spite of the tariffs and trade war.  The globalist media is desperately stoking fear of a recession in the hope of creating a self-fulfilling prophecy.

Is there actually a risk of recession related to Trump’s tariff policy?  You bet there is.  But the relationship is exactly the opposite of what economists and the media would have you believe.  Trump’s “slow turkey” approach to the use of tariffs – imposing them only on China – so far hasn’t yielded anything in terms of reducing the trade deficit and bringing manufacturing jobs back to the U.S.  Don’t get me wrong.  The tariffs on China are definitely working – reducing the trade imbalance with China by nearly 25% this year.  But companies aren’t convinced that this is anything other than a blip in U.S. trade policy or that it could extend beyond China.  So, instead of bringing jobs back to the U.S., it has shifted them to other overpopulated nations hungry for work.  It appears that countries like Mexico and Vietnam have been the big beneficiaries so far, where our trade deficit with each has grown by approximately 25%.

Our overall trade deficit hasn’t budged.  In  June (the most recent month for which data is available), our deficit in manufactured goods was $73.1 billion – the 2nd worst figure ever recorded and only $3.6 billion below the record set in December of ’18.

Trump appears to be walking a fine line, taking the “slow turkey” approach to tariffs to avoid roiling markets but, at the same time, not realizing any of the benefit of bringing back manufacturing jobs, leaving the economy dependent on deficit spending to counteract the drag of the trade deficit, making it susceptible to a recession.  It’s a huge gamble.  A recession will doom any hope of a 2nd term and, with it, any hope of sustaining this badly-needed turn in trade policy.

 


How did unemployment fall in February?

March 13, 2019

On Friday, the Labor Department reported that the economy added only 20,000 jobs in February.  In spite of that number being significantly lower than what’s needed to keep pace with growth in the labor force, unemployment fell – not by just 0.1%, but by 0.2% – to 3.8%.  How can that happen?

It happened in large part because of some really good news – a piece of data that isn’t even a part of the unemployment report.  The official explanation is that the labor force actually shrank a little in February, while the employment level, as measured by the household survey portion of the report, actually grew by 253,000 workers.

But you have to look beyond the employment report to find the really good news that made this happen.  The employment report depends a great deal on the population estimate determined by the Census Bureau.  And in December, the Census Bureau adjusted it’s estimate downward by nearly 1.2 million people – an unusually large adjustment.  Why?  A combination of factors that include the birth rate, death rate and, probably most importantly, the growth in the immigrant population, whether through legal or illegal immigration.  It’s evidence that Trump’s crackdown on both categories of immigration is beginning to have an effect.

As a result, per capita employment has now grown for six consecutive months – something that has happened only  three times in at least the past twelve years.  (The longest such streak was July, 2011 through March, 2012 which occurred as the U.S. emerged from the “Great Recession” of 2008.)  Here’s a chart of per capita employment since November, 2007:  Per Capita Employment.

In addition, the Labor Department reported that hourly wages rose by an annual rate of 3.4%, the fastest pace of increase in quite a long time.

The point of all of this is that, in spite of the rate of growth in the U.S. population slowing and contrary to assertions by economists that population growth is vital to economic growth, there’s been absolutely no negative impact on workers or on the economy.  Per capita employment is rising, along with wages.  It’s evidence that the scheme of using high rates of immigration to suppress wages is beginning to unravel.


Debt Denial

February 18, 2019

https://www.cnbc.com/2019/02/13/that-22-trillion-national-debt-number-is-huge-but-heres-what-it-really-means.html?recirc=taboolainternal

A few days ago, the national debt hit $22 trillion for the first time, and the above-linked article appeared on CNBC, essentially downplaying the seriousness of the situation.

  • What matters is the debt-to-GDP level, which is not in the danger zone now but threatens to get there before long.

Baloney.  When the people holding that debt – China, Japan, Germany and all the others who use our trade deficit money to buy U.S. debt decide to cash out and demand their money back, are they going to say “Hey, U.S. GDP, we want our money?”  Of course not.  U.S. GDP is an economic measure, not a holder of money.  They’re going to come to you.

Take another look at the picture in the article of the man looking up at the national debt clock.  Not mentioned in the article are the words just below the national debt figure:  “YOUR family share 086858.”  That’s right, the average American family now owes $86, 858.  Measured in terms of debt-to-average household net worth, the national debt has skyrocketed far beyond the average household’s net worth and ability to pay.  The reason that expressing the national debt as a percentage of GDP is so bogus is that, although the GDP has been growing steadily, the average net worth of American households has been stuck at about the same level for decades.

The source of all this debt?  The article provides a half-truth:

The main culprit of public debt is budget deficits, …

Well, yeah, but that’s like saying you owe money on your mortgage because you borrowed it.  The real question is “why do we have to keep running such huge budget deficits?  Why don’t we just stop doing that?”  Think about it.  What would happen to the economy if the federal government suddenly stopped putting a trillion dollars per year into it?  Instant recession – probably one that would quickly spiral into a depression.  Without the federal government putting that money into the economy – and it’s no coincidence that it’s almost exactly the same as the amount that the trade deficit takes out – the economy would collapse.  There are those who would tell you that balancing the budget, without addressing the trade deficit, would somehow prove to be an economic stimulus.  Don’t listen to them; they’re idiots.  The only way to deal with the budget deficit and the national debt is to eliminate the trade deficit.  Period.  Plain and simple.  There are no other options.  Let the trade deficit continue to grow and we’re soon headed for a real disaster.

It’s astonishing to me and scary how few people in the media, and even economists, understand this basic truth.


Economy’s Good, Not Great. Tariffs Not Yet a Factor.

October 20, 2018

I’m back from my annual fall fishing trip up north.  Much has happened and it’s time to get caught up.

The economy’s doing quite well.  In September, the unemployment rate fell yet again to 3.7%.  Economists are wringing their hands over the tight labor market.  Every month, the Federal Reserve proclaims the economy to be at “full employment,” a condition likely to yield rising labor costs, fueling unwelcome inflation.  Yet, every month the economy adds more jobs and somehow manages to find workers to fill them.  Now we’re really at full employment, says the Fed.  Another month.  More jobs added.  “Now we’re really, really at full employment.”  And on it goes.  This supposedly tight labor market is the Fed’s chief justification for raising interest rates.

It’s almost as though there’s a conspiracy to stir up hysteria about an over-heating economy.  On Tuesday, the Fed released its “JOLTS” report of the number of job openings, noting that the number of job listings exceeded the number of people reported to be actively seeking employment.  What they don’t tell you is that that’s perfectly normal.  “Job seekers” is a figure taken from the unemployment report.  But if you’re simply changing jobs and never filed for unemployment, you’re not counted.  Many job opening listings are simply positions opened up by people who have left for other jobs, often because they have decided to simply relocate from one place to another.  It’s a weak measure of the health of the economy.  Nevertheless, ECONODAY had this to say about the report:  “Jerome Powell (head of the Federal Reserve) concedes that it’s a mystery why wages haven’t been going up very much as demand for labor grows and the supply of labor declines. Yet sooner or later, the law of supply and demand is bound to assert itself, at least this is the risk that the Fed is guarding against in its rate-hike regime.”

Yesterday, commenting about the weak report of existing home sales, ECONODAY had this to say: “The lack of wage gains, however, is a negative for home buyers not to mention a great mystery of the 2018 economy given the increasing scarcity of available labor. And another great mystery of this year’s economy is the lack of interest in home ownership.”

Is it a lack of interest in home ownership, or a lack of the wherewithal to buy a home in the face of rising interest rates (driven by the Fed) combined with the “great mystery” of a “lack of wage gains?”  People don’t just lose interest in owning a home.  Everybody wants a place they can call their own.  The problem is that not everyone can afford it.

There’s really no mystery here.  Anyone who has followed this blog or has cast a cynical eye on the employment statistics ever since the “Great Recession” knows that the unemployment rate is completely bogus, driven down artificially by the Labor Department claiming that people have dropped out of the labor force.  During the Obama administration, 6.4 million workers mysteriously vanished.  Since Trump took office, that figure has shrunk by over a million workers, but an honest tally of the unemployed still stands at 11 million workers (including those who were unemployed before the “Great Recession”) and unemployment is actually at 6.6% instead of 3.7% – a rate nowhere near low enough to begin driving wages higher.  Per capita employment remains exactly 1% below the level it was at before the onset of the “Great Recession” – a figure that was already depressed.

So the economy is doing well – better than it has done in the past ten years – but that’s not saying a lot.  The tax cut that went into effect this year gets the credit, but that will only carry the economy so far.  To keep it going – to accelerate the economy even further – we need progress toward cutting the trade deficit, especially the deficit in manufactured goods.  The Trump administration has made a lot of moves in that direction, imposing 10% tariffs on steel and aluminum, tariffs on $25 billion of Chinese imports, followed by 25% tariffs on an additional $225 billion of their imports, the renegotiation of the North American Free Trade Agreement (NAFTA) and threats to impose tariffs on all auto imports.

But there’s no evidence of any improvement in our trade situation, at least not yet.  The most recent trade data show that the rapid erosion of American manufacturing continues, yielding a trade deficit of $70 billion in manufactured goods in August – a new record – with new record trade deficits with China and Mexico.

That’s not an indication that Trump’s tariffs are a failure.  Aside from the small tariffs on aluminum and steel, none of the above-mentioned initiatives have taken effect yet.  The biggest chunk of the tariffs on China went into effect in September, so the effect on trade with China won’t show up until new trade data is released next month.  The “USMCA” agreement – the replacement for NAFTA – hasn’t been enacted yet.  And the trade deficit with China was artificially swollen by a rush to beat the tariffs.

It’s going to take a lot of patience to realize the real benefits of Trump’s trade policy.  The purpose of tariffs is to provide an incentive to manufacture products domestically.  The immediate effect will be to raise prices for American consumers, just as economists have warned.  Longer term,  companies will begin to realize that they can improve profits by manufacturing in the U.S., thus avoiding the tariffs.  It’s going to take time for that realization to sink in, and time for companies to implement plans to build factory capacity in the U.S.  Ultimately, when that capacity comes on line, we’ll see a real boom in the demand for labor and a corresponding rise in wages, more than offsetting any increase in prices.

Hopefully, the Federal Reserve won’t torpedo the economy in the meantime.  It can’t have any impact on price increases driven by tariffs, so it would be pointless to even try.  All they can do is drive the economy into recession with their high interest rates, raising doubts about the president’s economic policies, and increasing the chances that America will shrink back into its role as host in the global host-parasite trade relationship.  That would be a disaster.

Again, it’s going to take time and patience.  It took seven decades of globalism (beginning with the signing of the Global Agreement on Tariffs and Trade – GATT – in 1947) to get us into the fix we’re in.  It’s going to take more than a year or two to get us out.


The Federal Reserve Thinks Unemployment Is Too Low!

September 13, 2018

https://www.reuters.com/article/us-usa-fed-rosengren/fed-says-it-whipped-u-s-unemployment-maybe-too-well-idUSKCN1LT0F0

As reported in the above-linked Reuters article, Boston Fed bank president Eric Rosengren worries that the Federal Reserve has been “too successful” is lowering unemployment.  He explains:

“The recurrent pattern (of recessions) was one where the tightening of monetary policy was expected to slow the economy down gently…to full employment,” Rosengren and three Boston Fed co-authors noted. But “Once the unemployment rate starts to rise by a relatively modest amount, dynamics take hold that tend to push the economy into a recession.”

The Fed considers an unemployment rate of 4.5% to represent “full employment.”  The current rate of unemployment, as reported by the Labor Department on Friday, is 3.9%.  So the Fed worries that there’s no place for the unemployment rate to go but up, and even a small rise could start a recessionary downward spiral in the economy.

This is ridiculous for two reasons:

  1.  The Fed ignores its own role in choking off the economy and precipitating recessions by constantly tightening monetary policy (i.e., raising interest rates) as unemployment drops, and
  2.   The Fed has bought into bogus employment figures propagated by the Labor Department in an effort to stabilize confidence in economic policy in the wake of the Great Recession.

Regarding point 2 above, consider the following:

  • In November of 2007, just before the collapse of Lehman Bros. triggered the Great Recession, 48.4% of the U.S. population was employed and the unemployment rate stood at 4.7%.
  • As of August of 2018, the U.S. population has grown by 25.6 million people.  But, according to the Labor Department, the work force has grown by only 7.9 million workers, and the nation’s employment level has grown by only 8.9 million workers.  And in August of this year, only 47.4% of the population was employed.  Yet, thanks to the unnaturally low rate of growth in the labor force reported by the Labor Department, instead of rising, official unemployment has fallen to 3.9%
  • An honest accounting of the labor force that grows proportionately with population growth would produce a current  unemployment rate of 6.8% – nowhere close to “full employment.”
  • In spite of the decline in unemployment, wages have barely risen, confounding economic experts.  They haven’t risen because unemployment is still quite high – not anywhere close to being low enough to put upward pressure on wages.

Even the definition of “full employment” used by the Fed – 4.5% – is subject to debate.  If that level is “full employment,” how do you explain that some states and some countries routinely operate well below that level?  During World War II, unemployment fell to approximately 1% in the U.S.

The Federal Reserve is making a big mistake with its program of hiking interest rates just because the economy is doing better.  President Trump has been right to criticize its policies.  How can he “Make America Great Again” when the Fed’s policy is to “Let America Get Just a Little Bit Better – But Not Much?”


U.S. Employment Picture Darkening?

May 9, 2018

There was a lot of hoopla that accompanied the April employment report, released last Friday by the Bureau of Labor Statistics.  The economy added another 164,000 jobs and the unemployment rate fell to 3.9% – the lowest rate since December of 2000.  Much discussion ensued in the media over the effects of “full employment.”  Will there now be upward pressure on wages, prompting the Federal Reserve to raise interest rates?  Where will employers find the workers they need?  Will the shortage of labor constrain economic growth?

Less notice was taken of some not-so-rosy news in the report.  Wages rose less than expected – only 0.1%.  The labor force participation rate fell by 0.1%.  And literally no one took notice of some even darker news in the report.  The employment level (from the household survey) rose by only 3,000 after falling by 37,000 in March.  And the civilian labor force has fallen by nearly 400,000 over the past two months, reversing much of the spike that occurred in February, and contributing to the drop in unemployment.  Without that decline in the labor force, unemployment would actually have risen by two tenths over the past two months.

In fact, per capita employment has risen only twice in the past seven months – a two-month spike that occurred in January/February – and remains at exactly the same level as in September.  And the number of unemployed has actually risen slightly.

The fact is that there remains a lot of slack in the labor force.  An accurate reading of unemployment – one that grows the labor force along with growth in the population (instead of erasing people from the labor force if they give up looking for work) – has unemployment at 6.8% and U6 unemployment (a less reported measure that includes discouraged workers) at 12.0%.  This Reuters article, contrary to the title of the article, admits as much – that the job market is “hot” only if you don’t count all the people who have been left behind.

The current expansion is among the longest ever and brought national unemployment to an 18-year low. Yet over 6.3 million are still out of work, many of them clustered in cities with chronic, high unemployment.

6.3 million people is the number that were unemployed before the “Great Recession” of 2008.  It doesn’t even count the additional 5 million people who still haven’t been put back to work since then.

None of this is surprising.  Though the Trump administration is making moves in the right direction with the process of renegotiating NAFTA (the North American Free Trade Agreement), with the imposition of tariffs on steel and aluminum, and with threats of a trade war with China, there has yet to be much in the way of meaningful results.  Our trade deficit is as bad as ever.  Further delay in progress on trade will risk a return to a stagnating economy.