Michigan Throwing in the Towel

April 16, 2009

http://www.freep.com/article/20090415/BUSINESS06/904150404

Today it was announced that unemployment in the state of Michigan jumped to 12.6% in March, the worst in the nation.  Bankruptcy is now almost a sure thing for General Motors.  For Chrysler, it’s more than a sure thing.  It might as well have happened yesterday and there will be no reorganization.  They’ll go straight to liquidation.

Against this backdrop comes this report from “Michigan Future, Inc.”, an Ann Arbor based think tank.  (See the above link.)  The following paragraph is of special interest:

“The decline in autos is part of an irreversible new reality that manufacturing is no longer a sustainable source of high-paid jobs,” the report from the Ann Arbor think tank Michigan Future Inc. states. “The world has changed fundamentally. We either adjust to the changes or we will continue to get poorer compared to the nation.”

“Manufacturing is no longer a source of high-paying jobs.”  I guess somebody forgot to tell China, Germany, Japan, South Korea, Taiwan, Ireland and every other nation that has built a high standard of living using manufacturing as its back-bone.  These are all nations where manufacturing workers are very well paid and receive benefits that are as good or better than any in the U.S. 

So what’s the solution proposed by “Michigan Future, Inc.”?  They want Michigan to become a “knowledge-based economy,” employing the following strategy:

• Build a culture that highly values learning, an entrepreneurial spirit and being welcoming to all.

• Create places where talent wants to live by making public investments.

• Increase public investments in higher education.

• Transform teaching and learning so that it’s aligned with the realities of a globalized world.

In other words, we’re going to retrain everyone to do something else.  We’re going to pump them full of the kind of “knowledge” that the global community so desires.  Have you done your knowledge-shopping today? 

Knowledge is useless unless it’s put to work – primarily for making things.  Oh, sure, I suppose we could train more people to be economists, teaching them 18th century economic theories and other “knowledge” that is now a proven failure.  Or we could train more MBAs to run more hedge funds, operate more off-the-books accounting schemes and design more investment vehicles like mortgage-backed assets and credit default swaps. 

But what “Michigan Future, Inc.” probably has in mind is more software developers.  No doubt, we need people to do the coding that makes our computers work.  For example, consider the period at the end of this sentence.  It took some sophisticated programming to make that dot appear on your screen.  But nobody thinks about everything else that was involved.  What about the sprawling, multi-billion dollar, computer-controlled chemical complex that was required to make the acrylo-butadiene-styrene plastic that went into making that particular key on your keyboard?  Or the injection molding plant that shaped that plastic into the key?  Or how about the enormous boiler and steam turbine required to move the electrons from my keyboard to your display? 

Let’s go back to the subject of auto manufacturing.  Low tech stuff, right?  High school dropouts bolting stuff together, right?  Is that what you think?  Think again.  Think about huge factories crammed full of computer-controlled robotic equipment, and the people trained to design, build and maintain those robots.  Think about the engineering skills and computer applications involved in designing the chassis to crush perfectly in a collision, absorbing the impact while protecting the occupants.  Or just think about the bolts themselves:  the heavy equipment involved in mining iron ore, the steel mill required to turn that ore into raw steel wire or bars, the maching equipment required to turn that bar stock into fasteners with hex heads and perfect thread patterns.  Now think about the engineering and manufacturing that went into making all of that equipment.  Doesn’t sound so simple now, does it? 

Manufacturing is an absolutely essential ingredient to a healthy economy and a high standard of living.  The demise of manufacturing in the U.S. goes a long way toward explaining the steady decline in our standard of living.  The only knowledge that’s in short supply in Michigan and the U.S. in general is the knowledge of the role that misguided trade policy has played in exporting our manufacturing jobs to nations that fully appreciate the value of manufacturing. 

 


More “Free” Trade-Induced Job Losses

May 2, 2008

http://www.reuters.com/article/ousiv/idUSN0255111920080502?sp=true

The Labor Department this morning announced the loss of another 20,000 jobs in April, which should come as a surprise to no one.  At the same time, in spite of the fact that our population grows by nearly 300,000 per month (thus yielding a growth in the labor force of about 150,000 per month), somehow this loss of jobs translated into a reduction in unemployment from 5.1% to 5.0%, yet one more distortion of the economic facts by the Bush administration.  Look for both numbers – the jobs losses and the unemployment rate – to be revised upward once next month’s data pushes this month’s data out of the headlines.

Here’s some excerpts, followed by my commentary: 

“April’s job reductions followed upwardly revised losses of 81,000 jobs in March and 83,000 in February. Employers also cut 76,000 jobs in January.”

Thus proving my point about the administration’s penchant for issuing phoney numbers and then revising them later, after they’re out of the headlines and won’t have as much effect on the stock market and consumer psyches.  Also, continuing the statistic that I’ve been tracking each month with the release of this data, the tally for the shortfall of jobs (job losses added to growth in the labor force), we have now fallen behind by 859,000 jobs since the beginning of the year.  If the adminstration was honest, this should have raised the unemployment level by 0.6% to a level of 5.3% or 5.4%.  But, apparently, honesty isn’t the best policy when it comes to managing the national economic psyche. 

“‘It looks like the economy is in better shape than we thought,’ said Owen Fitzpatrick, head of the U.S. equity group for Deutsche Bank Private Wealth Management in New York. ‘I think a lot of people were expecting it to be a lot worse.’”

Wrong, Mr. Fitzpatrick.  The economy is not “in better shape than we thought.”  It’s in less worse shape than we thought, and only because the government isn’t being honest with the data.  How can unemployment be running at 5% when weekly filings for unemployment are running at an annual rate of about 13%? 

“Goods-producing businesses cut 110,000 jobs in April, the largest number of job reductions since January 2002, after trimming 88,000 in March.”

Where are the economists now who were telling us that the decline in the dollar was good news for manufacturing and that exports would be rising while imports declined?  Not a peep from them lately.  Undoubtedly, they’re busy concocting a new explanation and yet another list of intangible benefits of free trade (intangible because they don’t exist).  Manufacturing jobs continue to decline because the value of the dollar vs. other currencies never had anything to do with the trade deficit. The trade deficit is caused by the gross disparity in population density and per capita consumption between the U.S. and some of its grossly overpopulated parasitic trade welfare recipients.  The only thing that can be done about this factor is a return to tariffs – a tariff structure on manufactured goods that is indexed to population density.  Anything short of this will keep our country on the path to economic ruin. 

Pete


Relationship Between Population Decline and Recession

March 29, 2008

I was just reading an article about the recently reported decline in the population of major cities in the “rust belt” – cities like Detroit, Cleveland, Buffalo and Pittsburgh.  It’s no secret that these cities are losing population and the reason is no secret either.  The loss of manufacturing jobs is driving people to seek employment elsewhere in the U.S., primarily throughout the South.  This is especially true of young people who, upon graduation, find work wherever they can. 

This isn’t the first time we’ve seen this kind of population shift.  In the ’30s it was people fleeing the dust bowl, looking for work in California.  In the 1800s, people fled the potato famine in Ireland.  I’m sure each of you can identify other such situations.  In every case, a population decline has been precipitated by some tragic event.

But it suddenly dawned on me; people have come to accept that a declining population is a bad thing because, in the past, it has always been caused by something bad.  The cause and effect have become synonymous.  This is almost surely part of the reason that many people tend to recoil in horror if you suggest that the population needs to decline.  It immediately conjures up images of conditions that have driven population declines in the past.  In their minds, the cause and effect relationship has been reversed.

An economic recession, like we are experiencing in the “rust belt,” can certainly drive a population shift away from that area.  But there is no inverse relationship.  A population decline cannot cause an economic recession, at least not in per capita terms.  Certainly, if the population of a country declines by 50%, then its GDP will decline too, meeting the technical definition of an economic recession.  But, for the remaining population, the per capita GDP will be just as high, if not higher.  They will not be worse off economically.  In fact, if such a country were over-populated to begin with, the remaining population will actually experience a dramatic improvement in their quality of life. 

This is something we all need to be aware of when we broach the subject of population management with people – the fact that they have been conditioned to think of it in negative terms because of the muddling of cause and effect in situations that they’ve seen before. 

Pete


Sell-Off of American Assets to Finance the Trade Deficit

November 28, 2007

Here’s just one small example of how American assets are sold off to finance the trade deficit:

http://money.cnn.com/2007/11/27/markets/sovereign_funds/index.htm?section=money_mostpopular

Abu Dhabi’s state investment fund has come to Citigroup’s “rescue” with an infusion of $7.5 billion for which, in return, Abu Dhabi acquires 4.9% ownership of Citigroup (on top of whatever ownership they already have).  Everyone is happy that another rug has been found under which the trade deficit problem can be swept.  No one questions what will happen when there are no more American assets to sell off.  

The relationship between this deal and the trade deficit may not be apparent, but it works like this.  (1) Americans spend money on foreign goods.  (2) The flow of dollars into and out of the U.S. has to balance.  Therefore, there must be a corresponding inflow of cash from foreign countries to finance the trade deficit.  (3)  Those countries then invest the dollars they’ve received for their exports in stocks and bonds in the U.S.  In this case, Abu Dhabi chose to buy part of Citigroup.

The relationship can be viewed from another more subtle perspective.  (1) With the loss of manufacturing jobs, worker compensation and household finances have been in a 3-decades-long decline.  (2) The average American family now finds that it must resort to loan terms it can’t really afford in order to purchase an average home.  (3)  Such families then default on the loans.  The banks then run short on cash and have to raise money.  (4) Foreign entities then step in with money and obtain partial ownership in return. 

No one asks the question “What happens when America has nothing left to sell?”  No one knows, but it’s conceivable that, at that point, the global economy will grind to a halt.  Certainly, as that point is approached, it will become ever more difficult for institutions to find financing because American assets will become more worthless and foreign investors will want higher returns.  It kind of sounds like the “credit crunch” and the falling dollar situation that we find ourselves in right now, doesn’t it?

The only long-term solution to this situation is that America must find a way to balance trade.  A tariff structure indexed to population density is the only way to accomplish that.

Pete