A Trump Victory. Here’s how it happened.

November 9, 2016

 

In the next few posts I’ll be sharing many thoughts about this election.  I’ll begin with the question that is foremost in everyone’s mind.  What the hell happened?  How could every single poll have been so wrong?  All predicted a virtual Clinton landslide.

But there was some tightening of the polls in the final two weeks.  Almost everyone seems to believe that the announcement by the FBI of the discovery of new E-mails on a computer used by Clinton’s top aide swung the election, regardless of whether the FBI announced a week later that it had found nothing new.  That seems to be the conventional wisdom.  But it’s wrong.

Psychologists will tell you that it takes a significant event to change people’s attitudes.  In the run-up to World War II, most Americans wanted to stay out of the mess in Europe.  Then came Pearl Harbor and, overnight, Americans lined up to join in the fight.  They were angry as hell.

Were the E-mails discovered on Abedin’s computer such an event?  Hardly.  It shouldn’t have come as much of a surprise, and there was a lot of skepticism (ultimately proven to be justified) that there was really nothing of much significance there.  But there were three events that took place in the immediate wake of the FBI’s announcement that angered Americans in a big, big way – much more than the media realized:

  1. The government announced that social security checks would rise by only 0.3% next year, after no rise at all in 2016, citing a lack of inflation in the cost of living.  Everyone 62 years and older was absolutely outraged.  How in the world the Obama administration was dumb enough to let this happen only days before the election is mystifying.
  2. Immediately on the heels of that came an announcement that those who were buying health insurance through Obamacare would face enormous premium increases.  Bam!  Another few million Americans were seething.  Hey, they assured the rest of us, if you’re not on Obamacare, don’t worry.  You’re not affected.
  3. Oh, yeah?  Then, only one week ahead of the election, open enrollment in company-sponsored benefit plans began, and the rest of us discovered that the folks on Obamacare may have been the lucky ones compared to what we were now facing.  To cite my own case as an example, since I retired in 2004, the cost of my wife’s health insurance has risen at an annual rate of 43% but I just learned before the election that it would jump by 123% next year!  Every American was seeing the same thing.  So now every American, just one week before the election, was pissed off in a way that, if they didn’t already believe that America was on the wrong track, they sure believed it now.    And it was enough to make a lot of them change their minds and cast a protest vote.

As these events unfolded, I told my wife that Trump didn’t need to say anything.  He barely needed to continue campaigning.  All he had to do was let the daily news cycle play itself out.  The daily drumbeat of bad news about the prospects for our future was just piling on proof that a change was needed in a big way.

More analysis will follow.

 


Make America Great Again

October 25, 2016

I wonder how many post-baby boom Americans – Gen Xers and millenials – can even relate to Donald Trump’s campaign slogan.  “Make America Great Again?”  What’s not great about it now?  We’re the leader of the free world – the most powerful nation on earth.  We have a high standard of living and every modern convenience you can imagine.  We have cell phones, Facebook, Twitter and YouTube.  We make ten bucks an hour schlepping lattes at Starbucks and have nice little apartments where we can go to watch The Voice and Dancing with the Stars in the evenings.  How much better could it get?

Undoubtedly, the once-great America that Trump remembers – an America that anyone under 50 is too young to have ever known – was the post-World War II America.  It was a land of almost unimaginable industrial might.  By the end of the war, the shipyards on the West Coast were building complete destroyers from the keel up in only two days.  The Willow Run bomber plant in Detroit was cranking out a new B-24 bomber every hour, day and night, seven days a week.  Other plants cranked out trucks and tanks by the thousands.  And massive steel mills all around the country that stretched for miles kept all of these plants supplied.  Neither Germany nor Japan nor any other nation on earth could even come close to matching that kind of industrial output.

When the war ended, industry transitioned back to a peacetime economy.  The factories in Detroit resumed making cars and all of the other thousands of factories around the country resumed making appliances and every other product imaginable.  American products were the envy of the world.  European cars were laughable compared to American cars.  I can remember taking Europeans for a ride in my car and their astonishment at the latest feature – cruise control.  Hell, indoor plumbing and sanitation weren’t even commonplace in Europe back then.  And Asia was downright primitive.

Anyone who was a high school graduate could get a good job at the local mill or assembly plant making enough money to buy a home and a car – as much money as a college graduate, though the college graduate would eventually earn more with experience and advancement.  Not only was the pay good, but health care was often provided for free as a benefit.  Co-pays and deductibles?  Those concepts didn’t exist.  And a good pension was a given.  Companies competed for college graduates.  Each could choose from a half dozen different offers.

The U.S. space program quickly left the Russians in the dust, putting men on the moon while the Russians had barely moved beyond sending monkeys up for a couple of orbits.  America was the world’s bread basket.  Even the Russians were dependent on American grains.  And everything about American culture – our clothing, music, movies and magazines were the envy of the world.

That’s when America was great, in a way that those who didn’t live it can’t even imagine.  But even while all this was going on, the seeds of America’s decline had already been sown.  Weary of two world wars in as many decades, the time had come to address the high rates of unemployment in overpopulated nations like Germany and Japan that had fostered the rise of its fascist leaders.  Eager to put their new, untested theory of free trade to the test, economists convinced world leaders that free trade was the route to global peace and prosperity.  So in 1947 the U.S. signed the Global Agreement on Tariffs and Trade, or “GATT,” beginning the process of dismantling the tariff structure that had helped build America into the world’s preeminent industrial powerhouse.

What could it hurt?  Sharing a little of the wealth seemed a small price to pay to prevent the next war, one that might doom humanity, in light of how the last one just ended with the dawn of atomic weapons.  Besides, the economists convinced us, growth in the world economy would only add to the demand for American products.

It started innocuously enough.  A few Volkswagens from Germany.  Toys and souvenirs and trinkets from Japan.  The words “made in Japan” became synonymous with “cheap junk.”  Then came small Honda motorcycles, soon to be followed by cars of the same brand – cheap, two-cycle, chain-driven death traps that were painted paisley and sold as novelty items.

But that trickle quickly evolved into a tidal wave.  By 1975 our trade surplus had vanished and our national debt, which had been shrinking dramatically since the end of World War II, began to rise again.  In the 1990s, the Clinton administration passed NAFTA, exploding our trade deficit with Mexico and then, as its closing act, granted China “most favored nation” trade status.  We all know how that went.  2016 marks our 40th consecutive year with a trade deficit.  And the $13 trillion growth in our national debt during that period can be blamed entirely on the trade deficit’s cumulative drain on the economy.

Returning to post-war America, we were a nation of 150 million people with a seemingly boundless supply of resources and wide open spaces.  During the morning rush hour, you had to wait through two traffic light changes to clear the intersection instead of one.  President Eisenhower had just commissioned the construction of the interstate highway system.  Freeways were virtually devoid of traffic.

The term “illegal alien” didn’t exist in those days.  There were migrant workers who came to harvest crops that had to be hand-picked and, when the harvest was over, they were gone.  Then, something changed.  They didn’t leave.  We began to notice large groups of Mexicans gathered in parking lots – “day laborers” waiting for pickup trucks to take them to some job site – probably a house under construction – where the contractor was happy to have the “off the books,” tax-free labor.  Now, people who had lost their jobs in the auto industry and needed construction work found themselves displaced yet again.  And our population that once grew by a million people per year began growing at two or three times that pace – even ten times that pace when you include the results of the amnesty programs for illegal aliens.  Now we’re a nation of 325 million.  In spite of that population growth, which economists call a driver of economic growth, good-paying full-time jobs are scarce and household incomes and net worth, for all but the top few percent, are declining.

Born two years after the signing of GATT, at the age of 67, I can honestly say that I have never once seen my country stand up for its citizens and workers.  Oh, there’s been plenty of times when our military has asserted itself, often ill-advisedly, in some foreign conflict.  But I’m talking primarily about trade negotiations, but also other diplomatic negotiations, like deals to keep North Korea in check or, more recently, Iran.  Not one damn time do I remember the U.S. coming away with a deal that was good for American workers.  Can you?  If so, please feel free to refresh my memory.

There’s a very solid reason why free trade and globalization have failed Americans.  It’s the inverse relationship between population density and per capita consumption at work.  Instead of being an engine of economic growth, our population growth has been cancerous and toxic, eating away at per capita consumption.  And by co-mingling our economy with those of grossly overpopulated nations, the effect has been accelerated.  The result is that young Americans face the prospect of being the first generation to fare more poorly than their parents.

By far, the two factors most critical to restoring America to its nearly-forgotten greatness are first a dramatic shift in trade policy away from “free” trade to a focus on balance.  All trade deals must be based on the premise that the U.S. will buy from its trade partners no more than they are willing to buy from us.  Contrast that with today’s trade policy that says, “If you can make it and get it here, we’ll buy it.”

Second, run-away population growth that is fueled almost entirely by equal parts of both legal and illegal immigration must be reined in.  Illegal immigration is the place to start.  But even legal immigration needs to be dramatically curtailed.

Donald Trump is the first candidate in my long memory who has promised to do exactly these two things – to tear up existing trade deals and start over, putting America first, and putting an end to illegal immigration.

I personally don’t much like Donald Trump.  Never have.  It’s a shame that this message has been overshadowed by some of his antics and the things he’s said that have been caught by open mics.  But as someone who attended an all-male high school, followed by an all-male university, followed by three years in the navy, you can believe me when I say I’ve heard worse things spoken more commonly than some would like to believe.  But that’s not an excuse for his behavior.

It’s like this:  imagine that we’re at war, and it’s going badly.  We need to replace the general in charge.  He’s a nice guy, one we’re all proud to serve under and be associated with, but ineffective.  We have two candidates in mind to replace him.  One is similar – a great person but just as ineffective and likely to yield the same results.  The other is a foul SOB, but one who knows how to kick ass and get things done.  Like I said, it’s a war.  Do we want to win or don’t we?  There are times when the latter choice is the right one, and this is one of those times.

In two weeks we have a chance to reverse America’s decline.  We have a chance to put an end to our role as the host in globalization’s host-parasite relationship.  It’s a chance that I began to doubt would ever come.  It may not come again. Let’s stand up for America for a change.

 

 

 


Americans Growing Poorer

September 19, 2015

Click to access p60-252.pdf

The above-linked report – “Income and Poverty in the United States:  2014” – was published by the Census Bureau a couple of days ago.  The news isn’t good.  In spite of the supposed decline in unemployment and all the talk of economic recovery, the median household income fell once again and the poverty rate remained at or near the highest level in fifty years.

There’s tons of data to sift through in the report, so I’ll simply quote a few of the key findings of the report:

“Median household income was $53,657 in 2014, not statistically different in real terms from the 2013 median of $54,462 (Figure 1 and Table 1). This is the third consecutive year that the annual change was not statistically significant, following two consecutive years of annual declines in median household income.”

“Median household income … in 2014 … 6.5 percent lower than the 2007 (the year before the most recent recession) median ($57,357), and 7.2 percent lower than the median household income peak ($57,843) that occurred in 1999.”

“In 2014, the official poverty rate was 14.8 percent. There were 46.7 million people in poverty.”

“The 2014 poverty rate was 2.3 percentage points higher than in 2007, the year before the most recent recession (Figure 4).”

Median household income has declined every year since 2007, and even the median income in 2007 was less than the median income in 1999.  This is the longest period of decline since the Census Bureau began tracking the data in 1967.  From 1967 to 1999, the median household income (for all races) rose from approximately $42,000 to $57,843 – a increase of 38%.  Since 1999, however, it has declined by 7.2%.

This is exactly what the inverse relationship between population density and per capita consumption would predict – that as our population density (including our “effective” population density) rises beyond a critical level, worsening unemployment and poverty is inescapable.

So what was it that happened after 1999 that threw median incomes into what increasingly appears to be a permanent state of decline?  Our population density has been rising by about 1% a year for decades but our “effective” population density – the population density that we take upon ourselves when we combine with another nation through “free” trade – skyrocketed in 2000.  That was the year that the Clinton administration granted China “permanent normal trade relations” satus, opening the door to “free” trade with China.

Look back at Chapter 7 of Five Short Blasts (especially Figure 7-5 on page 130), where we examined what happened to our effective population density as we combined our economy with other nations through “free” trade.  The effect of trading with Ireland – the nation with whom we have the largest per capita trade deficit in the world – is negligible.  They’re so small that it makes no change to our effective (combined) population density.  Add Mexico to the list, and our density rises from 85 people per square mile to 118.  Add Germany and it rises to 132.  But, when China, with one fifth of the world’s population, is added to the mix, our effective population density rockets to 242!  The downward pressure on our labor market and incomes suddenly becomes overwhelming.

As long as we continue to blindly apply “free” trade policy to all nations with no consideration of the effect of population density, the resulting downward spiral in our economy is inescapable.  With each passing year, the data on incomes and poverty in America bears this out.

 

 

 

 

 


U.S. Trade with Japan: Predictable Results with a Parasistic Economy

March 16, 2009

Returning to our analysis of trade with America’s major trading partners, we now turn our attention toward Japan. 

There hasn’t been much focus on our deficit with Japan lately, since our exploding deficit with China sucked up all the attention.   In 1994, President Clinton granted MFN (Most Favored Nation) trade status to China, essentially establishing a unilateral free trade relationship with China (unilateral because China was under no obligation to reciprocate).  At that point in time, the theory presented in Five Short Blasts was already taking shape in my head and I was positively horrified at this development, fearing it would lead to economic collapse.  Our relationship with Japan was already slowly moving us in that direction.  Now that process would be put into warp drive.  It was easy to envision a trade deficit with China that was ten times worse than our deficit with Japan at the time, something that was difficult to comprehend, and which no one else anticipated.  Check out this article from 1994.  You can see just how naively it was believed that China represented a huge opportunity for exports.  Clinton’s move was clearly one of the most collosal foreign trade blunders in American history. 

Until China took over as the trade deficit king, Japan was the focus of the same kind of concerns.  They were constantly accused of subtle protectionist trade policies and currency manipulation, just as China is today.  What changed?  Nothing.  The results of trade with Japan are as egregious as ever, but China has diverted our attention.  The fact is that, when our trade deficit is translated into per capita terms (adjusting for the size of the nation in question), our balance of trade in manufactured goods with Japan is almost 3-1/2 times worse than our deficit with China.  The following graph depicts our balance of trade with Japan, broken into several major categories.

trade-with-japan

Given that Japan is ten times as densely populated as the U.S., none of this is surprising.  This is exactly what my theory predicts.  In 2008, our trade deficit in manufactured goods with Japan was just shy of $90 billion.  Of that deficit, nearly half is due to auto imports.  In 2008, we imported over $43 billion worth of cars, while exporting only about $0.5 billion.   This is the predictable consequence of attempting to trade freely with a nation that is badly overpopulated, where over-crowding has decimated per capita consumption and, thus, their domestic market.  It has made them utterly dependent on exports to gainfully employ their glut of labor, rendering them a parasitic economy, feeding on the U.S. market and sapping it of jobs and wealth.  Japan exports the unemployment and poverty that their gross overpopulation would otherwise force them to bear. 

Because much of the deficit with Japan is in products where we still have some American-made alternatives, like cars, significant progress could be made if Americans would simply choose to buy American.  But that’s just not going to happen.  Offer people a choice between two equivalent alternatives, and they’ll choose them in roughly equal proportions.  Very few Americans will make an auto purchase with any patriotic considerations.  They simply don’t understand the connection between their purchase and the state of our economy, choosing to rationalize that competition is good and makes our own manufacturers healthier in the long run. 

There is only one real remedy in such situations:  a tariff structure on manufactured goods that is indexed to population density.  It’s not protectionism.  It’s common sense.  There is nothing virtuous about the blind application of free trade when it fails to account for factors that make it impossible to work.  The scrap heap of history is piled high with theories and policies, and nations and organizations that clung to them too long, that refused to acknowledge reality.

We’ve now examined the results of trade with our seven largest partners and have found that my theory has correctly predicted the results in each instance. 

Next up:  Korea