Trump vs. Biden on Immigration

July 22, 2020

https://www.reuters.com/article/us-usa-election-immigration-factbox/factbox-trump-and-biden-take-sharply-different-paths-on-immigration-idUSKCN24L122

The above-linked article is a comparison of Biden’s positions on immigration and Trump’s position and record on the same issue.  The article has a pro-Biden bias, casting his positions as having compassion for immigrants, while casting Trump’s positions as being more heartless and cruel.  Putting aside that bias, however, the comparison is relatively accurate.

Before going further, for the benefit of those new to this web site, my purpose is to bring attention to an economic consequence of population growth that has escaped economists because of their refusal to even consider the subject.  Simply put, beyond some optimum population density, further population growth begins to erode per capita consumption and, with it, employment.  While the macro economy continues to grow, it doesn’t grow at the same pace as the population.  The result is a bigger pie, but smaller slices for everyone.  Incrementally worsening poverty is the inescapable result.

With that said, let’s now talk about immigration.  Many claims are made about the supposed benefits of immigration and why it should continue.  It’s often said that immigrants are the engine of our economy, that they account for 25% of all new business start-ups, for example.  Just in the last few days, I heard it said that 19% of all long-haul truck drivers in America are immigrants.  Immigrants are doctors, engineers, scientists, professors, and so on.  At the other end of the scale, immigrants pick our crops, clean our hotel rooms, and do all of the other jobs that Americans seem loathe to do.

Regarding that last point, there’s some element of truth.  Few Americans work those jobs, but is it because they don’t like to work hard, or is it because the pay is too low?  I’d argue that many American workers would eagerly leave minimum wage jobs to do those other jobs if they paid more.  The wages are low because of the unlimited supply of immigrants who see those wages as a huge step up from what they can aspire to in their own countries.

As for those other workers – the entrepreneurs, the professional people, the long-haul truckers and skilled tradesmen, it’s true that a significant percentage are immigrants, but that’s only because a significant percentage of the population is immigrants.  They’re no more likely to fill those roles than native-born Americans.  Immigrants don’t possess any unique skills or powers to boost the economy.  They’re just people, and they want the same thing that all people want – to make a living and provide for their families.

Another claim often made is that America is enriched by the diversity that immigration provides.  Diversity, it is said, is a source of strength for our economy.  America is enriched by people with different backgrounds and different perspectives.

It can’t be argued that it isn’t interesting to learn about different cultures.  But the claim that diversity is a source of economic strength?  Baloney.  That’s a myth, invented and perpetuated by those who stand to benefit from never-ending population growth.  Who are they?  Corporations.  More people equate to more total sales and a bigger bottom line, while all of the negative consequences of population growth be damned.  Don’t believe me?  Go to the CIA World Fact Book web site and bring up a list of countries ranked by GDP per capita.  You’ll find the top of the list dominated by countries practically devoid of diversity.  Ranking high on the list is Ireland, a nation with virtually no diversity but, in terms of trade balance per capita, kicks America’s ass in trade far worse than any other country.  Diversity has nothing to do with economic prowess.

In the final analysis, the ONLY effect of immigration is to grow the population.  Growing the population makes sense only if you believe that we need more people – bigger and more crowded cities, more traffic, more demand on resources, more carbon emitters,  more trash in the landfills, and so on.  Worst of all, if you believe in the premise of this web site – that a growing population will doom the U.S. to worsening poverty by eroding per capita consumption – further population growth is tantamount to slow-motion economic suicide.

Joe Biden is an advocate for more immigration and, thus, more rapid population growth.  That position isn’t surprising and it’s not something unique to Democrats.  Virtually every Republican takes the same stance, though they tend to pay more lip service to opposing illegal immigration.  Both parties are in agreement on immigration.  Why?  Because that’s the stance that their corporate benefactors pay them to take.

Only very recently have some environmentalists begun to awaken to the fact that they’ve been hoodwinked by the faux-environmentalists who would have you believe that the planet can be saved from the vast array of negative consequences of worsening over-population through technological gimmicks like cutting carbon emissions, paving the way for more “sustainable development,” a corporate euphemism for more population growth.  In light of this awakening, policies that promote population growth may soon seem out-of-step with the reality of the challenges that confront this planet.

Trump is unique in being opposed to both legal and illegal immigration alike.  If we can believe him, his motivation is his belief that immigrants hold down wages and take jobs from American workers.  Is there an element of racism?  He denies it.

I wish Trump were a more likable person – more eloquent, more compassionate, less hot-tempered, a better role model.  Would I vote for Biden over Trump if Biden took a hard line on immigration like Trump?  You bet, especially if he also favored restoring a balance of trade through the use of tariffs, as Trump does.  If there were no differences in their positions on these two critical issues, I’d vote for Biden in a heartbeat.  But that’s not the case.

 

 


How Population Density Drives Trade Imbalances

June 15, 2020

Now that an analysis of America’s 2019 trade results has revealed that population density is the biggest factor in driving our trade imbalance – just as we’ve seen in every year previous – it’s time for an explanation of how that happens.  How is it that something that seems so unrelated to the economy and trade can have such a dramatic effect, dwarfing the effect of other parameters that would seem to be more influential – things like wages, currency exchange rates, productivity and so on?

Population density is, by far and away, the single most dominant parameter in the field of economics, but one that goes unrecognized by economists because of their cowardly refusal to give any consideration to the subject.  The reason for that dates back to the mocking of economists by other academics in the wake of the seeming failure of the theories of economist Malthus regarding population growth.

The density of the population in which you live has an enormous impact on your ability to consume products.  That impact varies depending on the product in question.  In the case of food, there’s no impact at all.  Everyone needs to consume a certain amount of calories each day to survive.   At the other end of the spectrum, the impact on the consumption of housing, or dwelling space, is huge.  For example, the average citizen in Japan – a nation ten times more densely populated than the U.S. – lives in a dwelling space that’s less than one third the size of the average American.  When people are packed together so tightly, there’s simply no room for anything else.  So the average Japanese citizen’s consumption of everything used in building, furnishing and maintaining a home is less than one third of the average American’s.  Actually, it’s even worse than that when you realize that a much greater percentage of Japanese families occupy multi-family housing, like apartments.  In those cases, walls and foundations are shared, ceilings become floors for the apartment above, etc.

The effect on every single product you can imagine is to reduce its per capita consumption.  Cars?  There’s no room to drive or park them for most people in Japan.  You’ve all seen news stories of Japanese trains carrying commuters literally packed together so tightly that they can barely breathe.

Boats?  In spite of the fact that Japan is an island nation, their per capita consumption of boats is close to zero.  The same is true for Denmark, a nation consisting of one large peninsula and many islands, but which is also very densely populated.

Lawn care and gardening equipment?  On a per capita basis, lawns and gardens virtually don’t exist in Japan.  Sporting goods?  There’s little room for golf or tennis or anything else that requires much real estate.  Even things like electronics are affected, since such cramped quarters as you find in places like Japan force people to share them.

So you get the idea.  A dense population absolutely strangles per capita consumption.  On the other hand, when someone in Japan (or China, or Germany, or South Korea, or any densely populated nation) goes to work, they are every bit as productive as an American worker.  It takes no more or less labor to manufacture something, like a car, for example, in Japan than it does in America.

People make things and people buy things and that, in a nutshell, is what makes an economy tick.  But what happens if people aren’t able to buy as much as they’re able to make?  Now you have a situation where the supply and demand for labor are out-of-balance.  Less demand for labor translates into higher unemployment.  Higher unemployment means lower wages for everyone, and it necessitates greater government spending to provide a safety net for the unemployed.  It’s a recipe for disaster for any nation’s economy.

However, there’s an escape mechanism for nations that find themselves in this fix.  They can put their excess labor capacity to work making products for export.  Of course, that requires a trading partner who’s willing to share their market.  If that partner has a shortage of labor – perhaps because they are very sparsely populated and lack the labor force needed to manufacture everything they need – then it can be a beneficial situation, one that is likely financed by the sparsely populated nation selling natural resources like food, oil, lumber, minerals, etc. to the densely populated partner.

But what if that trading partner isn’t sparsely populated and has no shortage of labor?  To welcome imports from that densely populated nation will inevitably put its own people out of work and create a big trade deficit.  It’s absolutely inescapable.  The densely populated nation won’t buy products from the less densely populated nation in equal measure because they can’t even consume their own domestic manufacturing capacity, much less take in more from other countries.

Either a densely populated nation sustains its economy by manufacturing for export, or it lapses into abject poverty because of extreme unemployment.  Look around the world and you’ll see that this is true, although I should point out that there are a couple of exceptions.  Many small island nations, though they tend to be densely populated, maintain vibrant economies that are based on tourism.  And some small but densely populated nations have oceans of oil beneath their feet and trade that oil for all the other products its citizens require.  But these are the exceptions.  Any densely populated nation of any size is either dirt poor or is totally dependent on manufacturing for export.   Attempting to trade freely with such nations is economic suicide.  A big trade deficit and a loss of manufacturing jobs is inevitable.

What is the point of trade policy that only serves to erode our economy?  The purpose of trade is to make available products that can’t be obtained domestically.  For a nation like the U.S. – big and rich in resources – there isn’t much we need.  Tropical fruits, out-of-season produce, and a few rare minerals are examples.  But manufactured products?  There are none that we can’t make domestically and more efficiently, especially when you factor in the five billion barrels of oil burned annually by ships bringing in products from half-way around the world.  It makes absolutely no sense.

Tariffs are the only remedy available to maintain a balance of trade.  Trade deals don’t work, because there is no motivation for a nation dependent on manufacturing for export to abide by them.  The reduction in the trade deficit with China is proof that they work.  Those tariffs need to be expanded to include all Chinese imports, not just half of them like we have now.  Beyond that, their implementation needs to be spread to other densely populated nations that prey on the American market to sustain their bloated labor forces – Germany, South Korea, Ireland, Vietnam and other Asian and European nations.

Virtually every problem in America, beyond unemployment and low wages, in which a lack of funding is a factor, can ultimately be traced back to our trade deficit – inadequate funding of schools, neglected infrastructure maintenance and improvements, inner city blight, health care – the list can go on and on.  Ultimately, the federal budget deficit and national debt can be attributed to the federal spending needed to offset the financial drain of the trade deficit.

And still economists keep their heads in the sand and insist that population growth plays no role in economics.


Trade Deficits Not Caused by Low Wages

May 19, 2020

In my previous posts, we’ve seen that trade imbalances are caused by disparities in population density, and that low wages don’t appear to be a factor at all.  To prove the point, let’s now look at America’s trade with the 20 poorest nations on earth and contrast that with it’s trade with the 20 wealthiest nations.  Surely, if low wages cause trade imbalances, we’ll have big trade deficits with the poorest nations where wages are the lowest.  Here’s the list:  trade with 20 poorest nations, 2019.

As you can see, if anything, the U.S. tends to have a very tiny surplus of trade with such nations, not a deficit.  The reason for the surplus is foreign aid.  All aid is booked as exports.  The fact is that the U.S. essentially engages in no trade whatsoever with these poor nations.

Now look at U.S. trade with the 20 wealthiest nations:  trade with 20 richest nations, 2019.  Now we do see some trade deficits – some big ones – with Ireland, Switzerland, Denmark, Taiwan, Sweden, Germany and Austria, in that order.  Ireland and Switzerland – the two nations on this list with whom the U.S. has the biggest trade deficits per capita – are actually wealthier than the U.S.  The others aren’t far behind.

How can this be?  If companies move manufacturing offshore in search of the lowest cost of labor, why do we have virtually no trade at all with the poorest nations, and have massive trade deficits with some of the richest?  Look again at the list of the wealthiest nations.  The average population density of those nations with whom we have deficits is 565 people/square mile – six times more densely populated than the U.S.  The rest of the list is a mish-mash of oil exporters, low population density countries, and a couple – the Netherlands and Belgium – that, as we previously established, are anomalies because of how imports and exports are booked for those countries.

If anything, these two lists prove that there is a relationship between wages and trade imbalance, but the cause and effect is exactly the opposite of what you’ve been told.  Low wages don’t cause trade deficits.  Trade deficits cause high wages.  It only makes sense.  Manufacturing creates a high demand for labor which drives wages up.  Any nation whose economy has a strong manufacturing sector is going to be a wealthy nation.  It may start out as a poor nation, but quickly grows in wealth as its manufacturing sector grows.

Trade imbalances are determined by whether or not a nation’s manufacturing output is absorbed by its domestic economy, or whether it is dependent on growing its manufacturing sector beyond that point in order to gainfully employ its labor force.  We’ll more fully explore what causes that situation in an upcoming post.

 


America’s Worst Trade Partners in 2019

May 11, 2020

In a previous post, we looked at a list of America’s biggest trade deficits and China was at the top.  But China is a very big country with one fifth of the world’s population – more than four times the population of the U.S.  Sheer size alone accounts for much of that deficit.  But which countries, man-for-man (or person for person, if you prefer) do the most damage to the U.S. economy by siphoning away manufacturing jobs through a big trade imbalance?  To determine that, we need a list of our worst trade deficits in per capita terms.  So here is a list of our twenty worst per capita trade deficits in 2019:  Top 20 Per Capita Deficits, 2019.

Little Ireland is at the very top of list, with a $9,615 per capita surplus in manufactured goods with the U.S. that is nearly three times the size of the next worst on the list – Switzerland.  If we assume that an average manufacturing job pays $50,000 per year, and that two thirds of the cost to manufacture something is labor, then the math tells us that for every eight citizens of Ireland an American citizen has lost his/her job.  Thankfully, there are only 5.2 million people in Ireland, so the damage done to the American economy’s manufacturing sector by Ireland is limited to “only” 650,000 jobs.  But think of that.  America has lost 650,000 manufacturing jobs to tiny Ireland.  No wonder Ireland is the wealthiest nation on the list – significantly more wealthy than the U.S. in terms of purchasing power parity (or “PPP”).

The list is noteworthy for other reasons.

  1.  This list is dominated by wealthy countries.  The average PPP of the nations on this list was almost $38,000 in 2018.  The average of the top ten on this list is almost $47,000 – on a par with the U.S.  It’s the same phenomenon we saw on the list of our biggest deficits in absolute dollar terms.  Clearly, low wages play no role at all in driving our trade deficit.
  2. Exactly half of the nations on this list are members of the European Union.  Another, Switzerland, is a European country, though not a member of the EU.
  3. On average, America’s per capita trade deficit with these twenty nations has grown by 148% over the past ten years, led by Vietnam and Slovakia.  Only one has declined – Israel.  (All of that decline has happened in the past two years.)
  4. Noteworthy for its absence from the list is China.  China has been on the list every year since I began publishing this list in 2010, though near the bottom of the list.  But this year they’re gone, falling to number 25.  Why?  Because of the effect that Trump’s tariffs on China have had on reducing the trade deficit with them.

The most noteworthy takeaway from this list, however, is this:  with only three exceptions, the nations on this list are very densely populated.  The average population density of these twenty nations is 524 people/square mile – more than 5-1/2 times as densely populated as the United States.  Regardless of whether we look at the balance of trade in absolute dollar terms or in per capita terms – no matter how we look at it – population density pops out as the overriding factor in driving trade imbalances.

In the case of Ireland, it must be recognized that there is another factor.  Ireland is a tax haven for companies.  They get a free ride in Ireland.  It’s a grossly unfair trade practice designed to siphon companies away from the U.S.  It’s unbelievable that the U.S. continues to turn a blind eye to this shake-down.  Ireland is growing rich at America’s expense.

Before we explore exactly why population density is such a huge factor, we’ll take a look at the other end of the spectrum – our best trade partners in 2019 – the nations who, man-for-man, are the best customers for American-made products.  That’ll be the subject of the next post.  Stay tuned.


U.S. Balance of Trade in 2019 vs. Population Density

May 1, 2020

So far we’ve looked at the two ends of the spectrum of America’s 2019 balance of trade – our worst trade deficits and our best trade surpluses.  We found that the list of our worst trade deficits is heavily dominated by nations with a high population density.  Conversely, we found the list of trade surpluses is dominated by two groups of nations – low population densities and net oil exporters.  Now let’s look at the whole 2019 trade picture, which includes 165 nations.  (The CIA World Fact Book lists a total of 229 nations in the world.  Not included in my study are tiny island nations and city-states which, combined, account for less than 1% of trade.)  Here’s a chart of America’s balance of trade with all nations that are more densely populated than the U.S. vs. all nations that are less densely populated, from 2005 through 2019:  Balance of Trade Above & Below U.S. Pop Density.

The difference in the results couldn’t be more stark.  With those nations that are less densely populated than the U.S., we enjoyed a small surplus of $111 billion in 2019 – down slightly from $119 billion in 2018 and essentially flat for the past ten years.  With those nations that are more densely populated than the U.S., we suffered an enormous deficit of $941 billion in 2019 – a deficit that has exploded over the past decade, more than doubling from $428 billion in 2009.

There are 114 nations more densely populated than the U.S., and 51 nations that are less densely populated.  So, you might think, maybe the uneven distribution of countries was a factor in skewing the results.  Fine.  Let’s divide the countries evenly – 82 nations that are more densely populated vs. 83 that are less densely populated.  The results are little different.  With the half of nations more densely populated, the U.S. suffers an enormous trade deficit of $842 billion, vs. a trade surplus of $129 billion with the 83 nations that are less densely populated.  By the way, the median population density is 193 people/square mile – about double that of the U.S.

I should point out that, divided around the median population density, the half of nations that are above the median account for 5.6 billion people, while the half of nations below the median population density account for only 1.7 billion people.  One might argue that, to be a fair analysis, there should be an equal number of people on each side, and not an equal number of nations.  OK, let’s look at it that way.  In order to do that, because it has such a large population, China has to be divided, allocating 59% of its population to the more densely populated half, and 41% of its population to the less densely populated half.  The deficit with China will be divided proportionately.  If we do that, the U.S. has a trade deficit of $557 billion with the half of the world’s population that lives in more densely populated conditions vs. a trade surplus of $273 billion with the half of the population living in less densely populated conditions.

But splitting the population evenly, as we did above, results in a huge discrepancy in the land surface area of the world in one half of the analysis vs. the other – 5.2 million square miles vs. only 0.7 million square miles.  If we divide the world evenly in terms of surface area, the U.S. has a trade deficit of $924 billion vs. a trade surplus of $94 billion with the more densely populated half of the world’s surface area vs. the less densely populated half.

No matter how you look at it, population density is consistently the biggest driving force in determining the balance of trade.  So if the U.S. wants to achieve a balance of trade with the rest of the world, it’s only logical to employ a mechanism aimed at population density – a tariff structure, for example, that’s indexed to a nation’s population density.  Applying tariffs on any other basis isn’t fair.  Should a nation be punished because it’s big instead of little?  Developed vs. undeveloped?  “Free trade” is an example of an unfair tariff system – unfair to the U.S.  It applies a tariff of zero to everyone on no basis whatsoever – without any justification – and the results speak for themselves.  The U.S. is being killed with a huge trade imbalance that has destroyed its manufacturing sector.

Who would (or should) be hit hardest by a population density-indexed tariff structure?  We’ll look at that next.

 

 


America’s Worst Trade Deficits in 2019

April 19, 2020

I’ve just finished the long, tedious process of analyzing the international trade data for 2019, which was posted by the Commerce Department in late February this year, instead of the mid-summer release caused by the government shutdown last year.  We’re going to look at this data in a lot of different ways in this and upcoming posts, so let’s begin with the basics.  The biggest problem with international trade is that the U.S. has been running a massive, ever-growing trade deficit for the past forty-five years.  All of the deficit is due to imports – and very weak exports – of manufactured products, and this category of products is where it hurts the most.  A deficit in manufactured products hurts the most because that’s where the most – and the highest-paying jobs – are lost.

So let’s begin this analysis with a list of our worst trade deficits in manufactured goods:  Top 20 Deficits, 2019.  The deficit with these 20 nations is almost $1 trillion!  It’s no great surprise that our deficit with China leads the list, by a wide margin.  And it would be worse by $20 billion if I hadn’t included Hong Kong with China.  (The Commerce Department tracks them separately, but we’re kidding ourselves to think that Hong Kong is an independent city-state.)  What’s new and interesting however is that the deficit with China is actually down substantially – by $73 billion – from 2018.  This is thanks to the Trump administration’s program of imposing tariffs on Chinese imports.  Look at how much the deficit with China has changed over the past ten years.  Though it grew rapidly for the first nine years of this period, it fell enough last year to yield only a 24% growth in the last ten.  That’s the 2nd slowest growth among the twenty nations on this list.

The deficit with Mexico has grown rapidly – 154% over the past ten years – to become our 2nd worst trade deficit.  However, if we are to believe the President, this should begin to change as the new USMCA agreement with Mexico and Canada – which replaces the now-defunct NAFTA agreement – begins to take effect this summer.  We’ll see.

Note that, contrary to the belief that low wages cause trade deficits, this list of our worst trade deficits is actually dominated by wealthy, developed nations, including many European nations.  In fact, if we add up the EU nations on this list, the combined deficit is $187 billion.  (The UK and Switzerland are not in the EU.)  By the way, the growth in the deficit with the U.K. – 3,125% in ten years – isn’t a typo.  When I first wrote Five Short Blasts in 2007, the U.K. was one of a few anomalies where, in spite of the high population density, we actually enjoyed a trade surplus with them.  But that trade surplus evaporated and, in 2010, the U.S. actually had a very small trade deficit with the U.K.  The deficit of $9.6 billion in 2019 is more than thirty times larger than the small deficit in 2010.  It’s growing rapidly.

As we’ve seen every year, it’s not low wages that cause our trade deficit.  So what does cause it?  I just gave you a hint.  Look at the population density of the nations on this list and compare it to the population density of the U.S. – 93 people/square mile.  The average population density of the nations on this list is almost seven times greater.  The combined population density of the nations on this list – the total number of people divided by the total land mass – is more than five times greater.  Only Sweden, near the bottom of the list, is less densely populated.  Nineteen of these twenty nations are more densely populated than the U.S.  Most are more than four times as densely populated.  Now that’s a powerful correlation to our balance of trade!

But why?  Why does something so seemingly unrelated have such a powerful effect on the balance of trade?  It’s because people who live in over-crowded conditions are incapable of using as many products as people who enjoy living in more wide open spaces.  They have no place to store them and no place to use them.  (Think cars.  the average Japanese person doesn’t have a garage and the roads are too crowded to drive anyway.)  Yet, they are every bit as productive.  The inescapable consequence is that, in order to be gainfully employed, they must produce far more than they consume, and there’s ony one thing that can be done with their excess production:  export it.  Unless the nation that those excess products are exported to takes some kind of action to keep those products out, their own citizens are now doomed to be put out of work by the market share they’ve lost.  Trading freely with badly overpopulated nations causes a massive shift of manufacturing jobs to the more densely populated nation.

But I’m getting ahead of myself.  Trade deficits are just one end of the trade spectrum.  What about surpluses?  Will we find that those nations are less densely populated, which the population density theory would predict?  Stay tuned.


Emerging Lessons from The Covid-19 Pandemic

March 31, 2020

As the Covid-19 pandemic has played out, lessons have begun to emerge about our society which, in blissful ignorance over the past seven decades, we have evolved in the interests of growth and efficiency in ways that are now proving to be dangerous – dangerous to our health, our economy and even civilization as we know it.

Globalism and Global Supply Chains:

Nothing became more readily apparent as the virus took hold than our inability to produce even the most basic medical supplies – masks, face shields, gowns, medicines and ventilators.  Why couldn’t we just crank up the capacity at our factories?  Because we don’t have any.  Like everything else, we’ve made ourselves totally dependent on foreign sources for these items.  Why couldn’t those foreign sources crank up their factories and just send us what we needed?  Because they were in the same boat and needed them themselves.  The whole world quickly found itself in the same boat.  “Globalism” has provided the perfect mechanism for spreading local outbreaks across the world almost overnight and has rendered us nearly incapable of fighting them.

At the beginning of the outbreak in the U.S., we were critically short of N95 masks, a shortage that, while being addressed, threatens to persist.  So just make more, right?  Some companies are tooling up to do just that.  But that’s the problem.  It takes time to “tool up.”  We haven’t been making any such masks in the U.S., so there’s no factory where we can just add more shifts or crank up the output.  The manufacturing has to be tooled up from scratch.

How hard can it be to make simple masks?  Start with the fabric.  No fabric of any kind is made in the U.S. any more.  It has to be engineered to screen out a minimum particle size.  Now it has to be thermoformed into the shape of a mask.  That takes special molding tooling.  To make that tooling requires sophisticated machining equipment.  We have that equipment, but almost all of it is foreign-sourced.  So what happens when that equipment breaks down?  Multiply that level of complexity a thousand-fold in order to produce ventilators which also aren’t made in this country (at least they weren’t until Ford, GE and GM began building factories recently to do it).

The same goes for test kits and pharmaceuticals, all of which until now have been foreign-sourced.

President Trump recently vented his frustration with this situation in one of his daily White House briefings.  He vowed that while we can engage in trade with everyone, we can never again let ourselves be dependent on anyone.  Others have made the same observation.  Complex global supply chains that depend on pulling together materials from all over the world in order to keep society functioning is a recipe for a disaster.

It’s interesting how quickly those who, in the past have mocked others as “protectionists” and “isolationists,” have resorted to exactly those measures to stem the spread of this pandemic.  Now, isolating ourselves is our only hope for saving hundreds of thousands of people and, while doing so, we’re put at risk by the globalism that they championed.

No Spare Capacity:

Global competition has fueled a relentless drive for efficiency, just-in-time delivery supply chains and cutting costs to the bone.  That means squeezing every ounce from every capacity available, whether it’s labor capacity, factory capacity, and even the capacity of our health care system.  Everything has been functioning with virtually no capacity to spare.  Even in the best of times, the intensive care units and emergency rooms at our hospitals function at near-capacity.  Most of you have visited hospitals before all this started.  How many empty beds did you see as you walked down the halls?  How many times did you pass a patient on a gurney in the hallway?

How many times have you gone to a store – any kind of store – and found that you were fortunate enough to get one of the few remaining items you’re looking for that are left on the shelf?  Maybe there are none, and you’re told that more are arriving tomorrow.  It’s because inventory management systems have cut to the bone the amount of inventory in the warehouse.  We’ve even learned that the stockpiles of critical items maintained by FEMA and the CDC, while sufficient for smaller local or regional disasters, are woefully short of what would be needed for any kind of major disaster.  (And isn’t it interesting how our definition of “major disaster” has just changed?)

That’s all great for minimizing costs, but now we can see just how risky that can be.  People are paying for that kind of efficiency with their lives.  There is a role for government to play in assuring that a certain minimum amount of spare capacity exists throughout our supply chains – supply chains that are not dependent on other nations – that can be readily tapped in the event of national disasters like pandemics, wars, etc.

The Risks of Dense Populations:

Consider where this virus originated and where it’s hit the hardest.  It originated in a country with one fifth of the world’s population, a country so densely populated that it’s people, at least in some quarters, rely on live animal markets as a source of food.  China is four times as densely populated as the U.S.  Pause and think about that.  Imagine if the U.S. had four times as many people.  Imagine New York city with four times as many people.  Or Chicago.  Or any other city you can think of.  Imagine our rural areas with four times as many people.  They’d no longer be so rural.

Where has the virus hit hardest?  Italy is almost twice as densely populated as China.  So too is Germany and the U.K.  Most of Europe is as densely populated as China.  Major cities in the U.S. and around the world are hundreds of times more densely populated.

Even in the best of times, living in a densely populated area is a little risky.  With a sky-high cost of living (especially housing), and with many (perhaps most?) people living paycheck-to-paycheck, you’re at constant risk of finding yourself homeless.  The supply of basic necessities relies on complicated supply chains that are vulnerable to disruptions.  In the worst of times – and what we’re enduring right now, while bad, is probably not even close to being “worst” – living in such densely populated conditions is downright dangerous.  Diseases can spread like wildfire.  Natural disasters or wars could cut off supply lines.

What’s the solution?  Live in a less densely-populated society.  How is that possible?  Modern civilization requires both urban and rural areas.  Cities are needed to pull together labor forces to manufacture goods and provide certain services, while rural areas are needed for farming, forestry, recreation, etc.

The way to achieve this is with fewer, smaller cities and more rural, wide-open space.  Consider countries like Canada and Australia – each with the same size as the U.S. but with one tenth or less population density.  Though each is dealing with coronavirus outbreaks, they’re no where near the scale of what the U.S. is facing.  Why?  Because they were already more isolated to start with.

On the other hand, think about India – a place so densely populated that it’s almost impossible for them to practice any kind of social distancing.  Will they pay the price, or will the fact that India is a hot climate where the coronavirus, like the flu, can’t survive to any great extent spare them?  No one knows.  Only time will tell.

Then there’s cruise ships.  Before any of this happened, we were already hearing constant stories of norovirus outbreaks that sickened passengers, cut cruises short and necessitated thorough cleaning of the ships.  Now we’ve seen that, given a deadlier virus, those ships are death traps.  And each is just a small-scale example of what can happen in a densely-packed society.

Secure Borders:

Together with the advocates of free trade and globalism, the open border advocates have also gone silent.  Our failure to quickly shut down international travel exacerbated the spread of the virus in the U.S.  How much worse could it have been had we not been able to shut down the borders at all?  How much worse could it have gotten had we not already taken steps to secure our southern border?  Now we can see the value in maintaining secure borders, and the need to further tighten down on illegal immigration.

Beyond these, there are many, many other lessons to be learned about preparedness for major disasters.  One lesson that will only become clear as our economy begins to recover is that we’re going to pay for decades for the folly of allowing our economy to be siphoned away to drive growth in the rest of the world.  Our dependence on deficit spending to offset the drain of the trade deficit had already become dangerous as our national debt swelled to an unsustainable level.  We were already bailing as fast as we could to keep our leaky boat afloat.  Now, the $2 trillion stimulus package, together with the $4 trillion in additional debt that the Federal Reserve is issuing, will blow the transom off the boat.  It will prove impossible to keep the economy afloat while maintaining a trade deficit.  It’s critical that we get serious about restoring a balance of trade, both to reinvigorate our manufacturing base and to stop the hemorrhaging of our national debt.

Economists have long boasted that “mankind is clever enough to overcome all obstacles to further growth.”  At the same time, survivalists have built bomb shelters, amassed stockpiles of food, ammunition, batteries and other gear, and have practiced survival skills.  Suddenly, the latter group looks a little less wacky and the economists seem a bit humbled.  Mankind is not clever enough to overcome all obstacles to growth because, in a finite world, it’s impossible for so many reasons that they can’t even be listed.  Try as we might to keep growing the population, nature will find a way to restore balance in ways that we can’t even imagine, and likely with consequences too horrible to contemplate.

We’d better learn these lessons, because next time it could be much worse.  Though this virus is very contagious and much deadlier than the flu, it’s not as deadly as it could be.  In 1918, the Spanish flu killed approximately 50 million people at a time when the world’s population was just 3 billion.  In 2003, the SARS virus killed 10% of the people it infected.  Luckily, SARS was only contagious when it when symptoms became obvious, making it easy to identify and isolate those infected, which limited the number of cases to just over 8,000 world wide.  Then there’s ebola, a virus that kills half of everyone it infects.  Imagine if a virus emerged that was that lethal and was just as contagious as the novel coronavirus.  It could wipe out three billion people or more and threaten the very survival of mankind.  It might be a hundred years from now.  It might be tomorrow.  But fail to learn these lessons from this virus, and that’s what’s going to happen.

 

 

 


Why Population Density Drives America’s Trade Imbalance

November 21, 2019

The Problem:

In my last few posts, we’ve seen a powerful correlation between America’s trade imbalances and the population density of its trading partners.  But how does that work?  It seems odd – something that seems highly unlikely to be a factor.  And you’ve likely never heard of it before.  What you have heard about are a host of other “factors,” things like low wages, trade barriers, intellectual property theft, lax labor and environmental standards, just to name a few.  All of them seem like more plausible explanations for trade imbalances than something like “population density.”

The reason population density has such a powerful effect on trade is what it does to the per capita consumption of products.  Beyond a certain critical population density, over-crowding begins to rapidly erode people’s need for and ability to use (or “consume”) virtually every product you can think of, with the exception of food.  At first glance, you might think that’s a good thing.  Everyone lives more efficiently, reducing their environmental footprint and their demand for natural resources.  However, the real problem is that per capita employment is tied directly to per capita consumption.  Every product not bought is another worker that is out of work.  As population density continues to grow beyond that critical level, an economy is rapidly transformed from one that is self-sufficient and enjoys full employment to one with a labor force that is bloated out of proportion to its market, making it dependent on other nations to sop up its excess labor or, put another way, making it dependent on manufacturing products for export to rescue it from what would otherwise be an unemployment crisis.

Let’s consider an example.  The dwelling space of the average citizen of Japan, a nation ten times as densely populated as the U.S., is less than one third that of the average American.  It’s not hard to imagine why.  In such crowded conditions, it’s only natural that people will find it impractical to live in single-family homes in the suburbs and will instead opt for smaller apartments.  Now think of all the products that go into the construction of dwellings – lumber, concrete, steel, drywall, wiring, plumbing, carpeting – literally thousands of products.  And think of furnishings and appliances.  A person living in a dwelling that is less than one third the size of another consumes less than a third of all of those products compared to someone living in less crowded conditions.  And what about the products used to maintain the lawns and gardens of single-family homes?  Consumption of those products doesn’t just reduce – it vanishes altogether.

Consequently, per capita employment in those industries involved in building, furnishing and maintaining dwellings in Japan is less than a third of that in America.  So what are all of those unemployed Japanese to do?  Will they be put to work building cars for domestic consumption?  Hardly.  As you can imagine, the per capita consumption of vehicles by people living in such crowded conditions is impacted dramatically as most opt for mass transit.  So emaciated is the Japanese auto market that even Japanese automakers have trouble selling cars there.  So now add to the workers who aren’t employed in the home industry those workers who also aren’t employed building cars for their domestic market.

And so it goes with virtually every product you can think of.  Japan is an island nation surrounded by water.  Yet their per capita consumption of products for the boating industry is virtually zero compared to other nations, simply because it’s so crowded.  There’s only so much marina space to go around.  Put a town of 100 families next to a marina with 100 slips and it’s likely that every single family will own a boat with a motor and fishing gear.  Put a city of a million families next to that same marina and, though the marina is still full, on a “per capita” basis boat ownership has effectively fallen to zero.

Japan’s only hope for employing its badly under-utilized labor force is to use them to manufacture products for export.  This is exactly why America’s second largest trade deficit in manufactured goods is with Japan.  It’s not so much that we buy too much stuff from Japan.  The problem is that Japan buys so little from us in return.  It’s not that they don’t want to.  They can’t.  Their market is so emaciated by over-crowding that they can’t even consume their own domestic production.  Why would they buy more from us?  The same is true of nearly every major U.S. trading “partner” that is badly over-crowded.  Attempting to trade freely – without tariffs or other barriers – is tantamount to economic suicide.  It’s virtually certain to yield a huge trade deficit.

Why have I never heard of this before?

Few, aside from those who follow this blog or have read my book, have ever heard of this before.  Even if you have a degree in economics, you’ve never heard of it.  In fact, you were likely taught the opposite.  If you studied economics, at some point you were surely introduced to the late-18th century economist Malthus, and were warned to never give any credence to any theories that revolved around over-population, lest you be derided as a “Malthusian,” which would surely doom your career as an economist.

In 1798, Thomas Robert Malthus published his essay titled “Essay on Population” in which he warned that a growing population would outstrip our ability to meet the need for food, effectively dooming mankind to a fate of “misery and vice.”  This led to the field of economics being dubbed “the dismal science,” something that really rankled other economists.  Yet, the idea gained some traction until, that is, as years passed and improvements in farming productivity exceeded the requirements of a growing population.  The other sciences mocked the field of economics unmercifully, proclaiming that mankind is ingenious enough to overcome any and all obstacles to growth.  Economists acquiesced and vowed to never, ever again give any consideration to any concerns about overpopulation.

And so it is today that economists have a huge blind spot when it comes to the subject of population growth.  You can’t discover something that you’re not even willing to look at.  It’s not unlike the medieval Catholic Church labeling Galileo a heretic for theorizing that the earth revolved around the sun instead of vice versa.  Where would we be today if the study of astronomy ended at that point?  Where would we be if Newton was mocked for his theory of gravity and the field of physics ended at that point?  That’s what economists have done.  They’ve turned their backs on what is arguably the most dominant variable in economics.

What does this mean for trade policy?

In the wake of the Great Depression, soon followed by World War II, economists disingenuously laid blame for what had transpired on U.S. tariffs and, eager to put to the test the theory of free trade, promised that it would put an end to such wars and depressions.  So, in 1947, the U.S. signed the Global Agreement on Tariffs and Trade, taking the first step to implement the concept of free trade on a global basis.  Within three decades, the trade surplus the U.S. had enjoyed was wiped out.  In 2018, the U.S. ran its 44th consecutive annual trade deficit which, by the way, set a record in 2018 and continues to worsen.

The problem is that the concept of free trade doesn’t take into consideration the role of population density in making over-crowded nations absolutely dependent on running trade surpluses in manufactured goods, and simultaneously sapping the life from the manufacturing sector of other nations.  No amount of trade negotiations can correct this imbalance.  No nation that is dependent on manufacturing for export would ever agree to anything that would slow their exports and it’s impossible for them to increase their imports because, after all, it’s their emaciated market that has caused the trade imbalance in the first place.  The only way to restore a balance of trade is to force the issue through the use of either tariffs or import quotas.  Any trade policy that doesn’t employ those tactics when trading with badly over-crowded nations is doomed to failure and puts our overall economy at risk.

Since World War II, other presidents have tinkered with tariffs in those rare instances when the World Trade Organization has green-lighted their use to correct for some other nations’ trade transgressions.  But President Trump is the first president in seven decades to implement a significant tariff program aimed at reducing our trade imbalance with China.  But much, much more needs to be done.  There are many other nations whose trade imbalances on a per capita basis are much worse, nations like Germany, Japan, Mexico, Ireland, South Korea, Taiwan and a host of others.  While many are allies, none of them are “allies” when it comes to trade.  All are eager to sustain and even grow their trade imbalances at the expense of American workers and families.  All want the U.S. economy to bear the cost for their overpopulation.  None want to face their own problems.  The U.S. needs to put an end to pointless – even counterproductive – trade negotiations, and do the things that are within our power to force the restoration of a balance of trade.

 


Population Density Effect on Trade Imbalance Intensified in 2018

November 18, 2019

In previous posts, we’ve noted the apparent role of population density at both ends of the spectrum of our trade imbalances – the top deficits and surpluses in manufactured goods.  Now let’s look at the world as a whole.  Let’s include all 165 nations in the study and let’s divide those nations equally around the median population density (which is 192 people per square mile), such that there are 82 nations with densities above the median and 83 nations below the median.  Look at this chart:  Deficits Above & Below Median Pop Density.

With the half of nations with population densities above the median we had a deficit of $815 billion in manufactured goods in 2018.  With the other half of nations we had a deficit of only $0.5 billion (the first deficit with that group of nations since 2005).  $815 billion vs. $0.5 billion.  Same number of nations.  How much more obvious can it be that population density is, by far and away, the single biggest force in driving trade imbalances?  How much more evidence do you need?

More?  “That’s not a fair comparison,” you might say.  “The half of nations that are more densely populated have a lot more people than the other half.  There needs to be the same number of people included in each group.”  OK, fair enough.  Let’s divide the world in half by population.  Half of the world’s population lives in more densely populated conditions, and half lives in less densely populated conditions.  In order to divide the world that way, however, the dividing line falls on China.  Not surprising since that country has one fifth of the world’s population.  So to make the populations of the two halves equal, almost 40% of China’s population – a nation with a population density four times that of the U.S. – must be included with the half of people living in “less densely populated” conditions.  Nevertheless, if we do that, and if we allocate 40% of our trade deficit with China to the less densely populated half, the result is that we still have a trade deficit (in manufactured goods) of $557 billion with the half of people living in more densely populated conditions and a trade deficit of $259 billion with the less densely populated half of the world’s population.  The trade imbalance is still more than double with the more densely populated half.

If we include all of China in the more densely populated half of people, then the split of people is 4.15 billion vs. 3 billion.  If we do that, the deficit with the more densely populated “half” of people is $730 billion vs. $86 billion for the less densely populated “half” – 8-1/2 time bigger.

I would argue that an even better comparison is to divide the world in half by land area:  the half of the world that is more densely populated vs. the half that is less densely populated.  If we factor out Antarctica and the United States (because we are evaluating our trade partners), the world’s land surface area is 47.3 million square miles.  If we divide that in half by population density, we find that 6.66 of the 7.15 billion people occupy the more densely-populated half of the world’s surface area while the other half of the world holds only 0.49 billion people.  With that more densely-populated half of the word we have a trade deficit in manufactured goods of $923 billion and a trade surplus of $107 billion with the less densely populated half.  That’s a difference of over one trillion dollars in trade with the more densely populated half of the world vs. the less densely populated half.

Finally, let’s look at one more split – probably the most relevant:  the nations more densely populated than the U.S. vs. the less densely populated nations.  The U.S. has a population density of approximately 92 people per square mile.  114 of our trading partners are more densely populated and 41 are less densely populated.  With those more densely populated we have a trade deficit in manufactured goods of $934 billion vs. a surplus of $119 billion with those less densely populated.  Again, that’s a difference of over one trillion dollars!

Clearly, any trade policy that doesn’t take population density into account is virtually guaranteed to yield absolutely horrible results, yet that’s exactly what the U.S. does.  It completely ignores population density and attempts to trade freely with everyone regardless of population density.  And in a few decades it’s transformed the U.S. from the world’s preeminent industrial power and the wealthiest nation on earth into a virtual skid row bum, plunging us into $20 trillion of debt.

But why is population density such a factor?  I could write a book on the subject.  Actually I already did.  It’s what this blog is all about.  But I’ll summarize it for you in the next post.  Stay tuned!


America’s Best Trading Partners

November 12, 2019

In my last post, we looked at a list of America’s worst per capita trade deficits (in manufactured goods) in 2018 and found a strong correlation with population density.  Nearly every nation on the list was much more densely populated than the U.S.  Conversely, there was virtually no correlation with low wages, as measured by those nations’ “PPP” or Purchasing Power Parity.

Now it’s time to look at the other end of the spectrum – America’s best per capita trade surpluses in manufactured goods.  If population density is a factor in driving trade imbalances, then this list should be populated with more sparsely populated nations.  Here’s the list:  Top 20 Per Capita Surpluses, 2018.

Well, we do indeed see many nations that are more sparsely populated, but there are some very densely populated nations on this list too.  Many of them can be explained by the fact that they’re net oil exporters and, as we established in my post from October 23rd about our largest trade surpluses, oil exporters use their “petro-dollars” to buy American-made goods.  In that same post, we also noted that The Netherlands and Belgium appear on this list because they take advantage of their location to make themselves into European trading hubs and, as such, are a destination for American goods that will ultimately be distributed throughout Europe.

Still, there is solid evidence that population density plays a major role in driving trade imbalances on this list, just as it did on the list of our worse deficits, but this time driving surpluses in our favor.  Here are more observations that support that:

  • The average population density on this list is 216 people per square mile, compared to an average of 540 people per square mile for the nations on the list of our largest per capita trade deficits.  The population density of the nations on the list as a whole – total population divided by total land mass – is only 22 people per square mile.  Compare that to the population density of the twenty nations on the list of our biggest per capita deficits, which is 377 people per square mile.
  • The average PPP for the nations on this list is $45,995.  Factor Qatar out of this list and the average drops to $41,842 – nearly the same as the average PPP of $39,040 for the nations on the list of our biggest per capita deficits.  So which seems more likely to be driving trade imbalances – the 1600% disparity in population density or the 18% disparity (leaving Qatar in the average) in PPP?
  • Over the past ten years, our per capita surplus in manufactured goods with the top twenty nations has grown by 84%.  Meanwhile, our per capita deficit with our worst trading partners has grown 114%.  Our trade deficit is eroding the manufacturing sector of our economy, leaving us with fewer and fewer products to export.

That’s the two ends of the trading spectrum, a total of forty countries with whom we have the biggest per capita deficits and per capita surpluses in manufactured goods.  It’s already pretty strong evidence that trade imbalances are driven almost entirely by population density and by very little else.  But what about the other 124 nations that are included in the study?  Will the correlation look as strong when we throw them all together?  Stay tuned, that’s coming up next.