Population Density Disparities Drive Global Trade Imbalances

July 14, 2018

In recent posts, we looked at lists of America’s best and worst trading partners in terms of the balance of trade in manufactured goods, and found strong evidence of a link to population density.  The lists of our biggest trade deficits, in both absolute and per capita terms, was dominated by densely populated nations like Germany, Japan and China.  The lists of our biggest trade surpluses was dominated by low population density nations, and by net oil exporters (caused by the fact that oil is traded in American dollars).

Now let’s include all nations*, dividing them equally around the global median population density (which is 194 people per square mile).  Look at this chart:  Balance of Trade Above & Below Median Pop Density.  With those half of nations below the median population density, the U.S. enjoyed a small surplus of trade in manufactured goods of $36 billion in 2017.  However, with those half of nations above the median population density, the U.S. suffered an enormous deficit of $761 billion.  Also, note how the disparity has dramatically worsened over the 14-year time period from 2005 to 2018.  The longer the U.S. attempts to engage in free trade indiscriminately, ignoring the role of population density, the worse the effects become.

One may argue that perhaps dividing the nations of the world around the median population density skews the results, since the more densely populated half of nations includes far more people than the less densely populated half.  Fine.  Let’s divide the world in a way that compares the half of people who live in more densely populated conditions vs. the half of people who live in less densely populated conditions.  If we do that, in 2017 the U.S. had a trade deficit in manufactured goods of $510 billion with the half of people living in more densely populated conditions, and a deficit of only $214 billion – less than half – with the half of people living in less densely populated conditions.  Still a strong correlation to population density.

But maybe that’s not the right way to look at it either.  Perhaps we should divide the world in half according to land mass – that is, the half of the world’s surface area that is less densely populated vs. the half that is more densely populated.  (No, Antarctica is not included in this analysis.)  If we do that, the results are even more dramatic.  With the half of the world’s surface that is more densely populated (accounting for 6.6 billion of the world’s 7.1 billion people), we had a trade deficit in manufactured goods in 2017 of $831 billion.  With the less densely populated half of the world, we had a trade surplus of $107 billion.  (It’s worth noting here that the split occurs at a population density of 56 people/square mile.  That is, the less densely populated half of the world has a population density of 56 or less.  The more densely populated half is greater than 56.  The population density of the U.S. is about 90.)

Think about that.  This means that the U.S. economy would fare much better if the population of the more densely populated half of the world were no greater than the less densely populated half – which would yield a world population of about 1 billion people instead of 7.1 billion.  Instead of a net trade deficit in manufactured goods of $724 billion, we’d have a trade surplus of $214 billion (double the trade surplus that we currently have with the less densely populated half of the world).  One can debate what would be an optimum population density in economic terms, but there’s no question that this is a powerful argument for factoring population density into our trade policy.  Beyond that, it also debunks in a strong way the contention of economists that an ever-growing population is essential to sustaining a healthy economy.  It does nothing of the sort.  Instead, the crowded conditions that characterize a dense population stifle consumption – and thus employment – making people dependent on manufacturing for export to escape poverty.

_____________________________________________

* Not all nations are included in the study.  Tiny island nations have been omitted since they don’t factor into the trade equation and, while such nations tend to be densely populated, they also enjoy unique economies, based primarily on tourism.

Advertisements

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.


Tariff Hysteria

March 3, 2018

https://www.reuters.com/article/us-usa-trade/trade-wars-are-good-trump-says-defying-global-concern-over-tariffs-idUSKCN1GE1PM

Unless you’ve been living under a rock somewhere, you already know about the tariffs on steel and aluminum imports that Trump announced on Wednesday.  The reaction has bordered on mass hysteria, especially among “economists.”  I put that word in quotation marks because those who present themselves as experts in the field, but either lack the curiosity required to examine the effects of population growth, the biggest factor driving the global economy today or purposely avoid it because the findings would destroy their credibility, aren’t worthy of being dignified with the label.  One such “economist,” representing a “think tank” whose purpose it is to advance the cause of globalization (that is, the fleecing of Americans to prop up the economies of grossly overpopulated nations), described Trump’s tariff plan as a “return to 18th century trade policy.”  Apparently he doesn’t understand that the use of tariffs dominated U.S. trade policy through the first half of the 20th century, transforming the U.S. into the world’s preeminent industrial power and the world’s only “super-power.”

The reaction on Wall Street was swift, with market indexes falling several percent.  But not the stocks of U.S. steel producers.  Those actually rose several percent.  So what does that tell you?  Unlike “economists,” investors are people who put their money where their mouth is.  Investors fear what this move could mean for inflation and the broader economy, but they know very well it’ll be a big boost to steel and aluminum producers.  If tariffs are good for that industry, doesn’t it stand to reason that they’d be good for others if applied to those products as well?  How about autos?  Electronics?  Appliances?  The fact is that every U.S. producer of every category of product where the U.S. has a trade deficit would benefit from tariffs.

Virtually every media outlet since Trump “tweeted” about the tariffs soon after announcing them has quoted him as saying “… trade wars are good and easy to win …” in an effort to make him sound like a buffoon.  At least the above-linked Reuters article does provide the full quote further down in the article:

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump said on Twitter on Friday.

Put in the context of our massive trade deficit which, in terms of manufactured goods, isn’t just billions but is now approaching a trillion dollars a year, he is exactly right – a trade war would be a good thing and not only would it be “easy to win,” it’d be impossible to do anything but win and win big.  “Economists” and other countries don’t want you to know that.  They want to scare you with warnings of retailiation by other countries:

Europe has drawn up a list of U.S. products on which to apply tariffs if Trump follows through on his plan.

“We will put tariffs on Harley-Davidson, on bourbon and on blue jeans – Levi’s,” European Commission President Jean-Claude Juncker told German television.

Wow, that shows you how far down the list of products they had to go to find some that they actually import from the U.S.  And “blue jeans?”  Seriously?  Don’t they know that even Levis aren’t made in the U.S. any more?  Regardless, do you really want to go there, Europe?  Go ahead.  Slap tariffs on Harleys and bourbon.  We’ll retaliate with tariffs on cars.  See how you like that!  How long would Mercedes, BMW, Volkswagen, Porsche and all the others survive without access to the U.S. market?

Another popular warning among the globalist fear mongers is that higher prices will be passed along to U.S. consumers.  The cost of every product that uses steel and aluminum will soar.  That’s utter nonsense.  When foreign steel producers have to raise their prices by 25% to cover the tariffs, will their customers continue buying their steel or will they simply turn to American suppliers that weren’t that much more expensive in the first place?  That’s the whole purpose of a tariff – not to collect revenue and make American consumers pay more, but to force the buyers of those products to switch to American suppliers.

There is a legitimate fear among manufacturers that forcing them to pay more for steel and aluminum, even if it’s only slighly more when they switch to American suppliers, will make them less competitive with foreign imports.  Here’s one example quoted in the article:

But home appliance maker Electrolux (ELUXb.ST) said it was delaying a $250 million expansion of its plant in Tennessee as it was worried U.S. steel prices would rise and make manufacturing there less competitive.

OK, Electrolux, would you change your mind if Trump also levied a tariff on imported appliances?  Not only would you go forward with your planned expansion, you’d probably rush to develop plans for more and bigger expansions.  My point is that these tariffs on steel and aluminum are a good start, but to have a real impact on the economy, they need to be levied on virtually every imported product so that, in every case, American consumers will choose the less expensive U.S.-made products.  Will that stoke inflation?  Sure, but not as fast as the demand for labor would send wages up.

Other fear mongers have raised the spectre of another scary scenario, where heavy buyers of U.S. debt, like China, would retaliate by dumping their bond holdings, driving up interest rates and inflation along with it.  Could they do that?  Sure, if they wanted to shoot themselves in the foot.  They’d be driving down the value of their biggest investments.  And let’s not forget that, as the U.S. trade deficit shrinks in response to the tariffs, the U.S. will be issuing less debt.  So the U.S. will be pulling bond issues off the table as fast as China and others try to sell theirs.  The end result is a wash and their “retaliation” will end up only hurting themselves.

The tariffs on steel and aluminum, on top of a few other small, targeted tariffs (like the recent tariffs on washers) are good, small steps.  But they’re nothing compared to what really needs to be done – the application of tariffs across the entire spectrum of manufactured goods.  To do that, the U.S. needs to withdraw from the World Trade Organization.  Or perhaps it doesn’t matter.  The only power the WTO has is to authorize other nations to retaliate – nothing more than they would do anyway, even if the WTO never existed.

A trade war?  We’ve been in a trade war ever since our country was founded.  The problem is that, with the signing of the Global Agreement on Tariffs and Trade in 1947 – the forerunner of the World Trade Organization – the U.S. gave up the fight.  The U.S. laid down and let others begin feeding on it like a swarm of parasites.  It’s high time we put up a fight again.


Trump’s “Shithole Countries” Remark

January 17, 2018

I’ve been torn about whether or not to comment on this controversy since, by its nature, the topic violates my own site rules about the use of profanity.  Since it has now become so central to the debate over immigration, however, it’s impossible for me to ignore, since immigration is one of a few topics that lies at the core of my campaign against destructive population growth.

Let’s back up a bit and examine what it was that elicited such an angry response from Trump.  In exchange for generously offering to not just change the temporary status of DACA immigrants (“deferred action childhood arrivals” – kids brought here by illegal aliens) to permanent status, but to even grant them a path to citizenship, Trump insisted on three additional things:

  • an end to “chain migration,” the visa program that allows immigrants to apply for visas for family members, who then are eligible to bring in more family members – creating an endless and exponentially expanding flow of immigration,
  • an end to the “diversity visa lottery” program, which brings in another 50,000 immigrants per year from countries who are “under-represented” in the general U.S. population,
  • funding for the border wall, currently estimated at $18 billion.

These are reasonable immigration reforms that most Americans agree with.  He had said that he was willing to sign any bill that met these criteria.

So here’s the bill that senators Dick Durbin (D) and Lindsey Graham (R) brought to him:

  • DACA immigrants would be barred from the chain migration process.  The 690,000 DACA “kids” would not be able to apply for re-entry for their parents.  Otherwise, chain migration continues as usual for other immigrants, probably numbering somewhere around 25-30 million.
  • The “diversity visa lottery” program would end, but the 50,000 immigrants would be reallocated to other visa programs.
  • Only about 10% of the border wall funding was included, plus a little more funding for other “non-wall” border security.
  • Extending “temporary protected status” to 437,000 immigrants from El Salvador, Honduras, Haiti, Nicaragua, Sudan, Somalia and Yemen.

In other words, Durbin and Graham tried to play Trump for a fool, offering him a bill that did absolutely nothing to rein in our out-of-control immigration, if anything making it worse.  It’s no wonder that he was incensed enough to lapse into the use of a vulgarity in a “behind the doors” meeting.  Most people would in that situation.

Durbin saw an opportunity to stir up hysteria, characterizing Trump’s remark as “racist.”  It was nothing of the sort.  While there is no formal definition of the word “shithole,” it’s clearly a vulgar term used to describe a foul place, not a person or people.  In terms of poverty, political corruption, violence, extremism, a failure to meet basic human needs and a denial of human rights, these are foul places.  Places like El Salvador, Honduras, Nicaragua, Sudan, Somalia, Yemen and others (unfortunately disproportionately represented by Africa) are, in fact, “shitholes.”  That’s not meant to demean the people of those countries, but their unfortunate circumstances.  If a country is so bad that no one – not even its own citizens – wants to live there, then it is a shithole.

Trump then reportedly went on to ask, “why don’t we bring in more people from places like Norway?”  (Trump had just visited with the prime minister of Norway and, reportedly, was highly impressed.)  It’s this contrasting of Norway with the aforementioned places that may have hinted at racism, a suspicion that has dogged Trump beginning with this comments about Mexican immigrants early in his campaign.  Is Trump a racist?  I don’t know.  What I do know for sure is that Trump is a “money-ist.”  He’s been all about money his whole life.  So while African countries are black and Norway is snow-white, it’s also true that African countries generally rank right at the bottom in terms of GDP (gross domestic product) per capita while Norway ranks at the very top – well above the U.S.  So was he really expressing a preference for wealthy, merit-based based immigrants or a preference for white immigrants over black immigrants?  He has said all along that he wants a more merit-based immigration system.  (By the way, just as an aside, Norway is one of many countries that does not have birthright citizenship, unlike the U.S.  Just being born there doesn’t make you a citizen.  Birthright citizenship is something else I’d like to see Trump address.)

Since the hysteria erupted over the “shithole” epithet, Lindsey Graham has characterized it as a “shithole show,” and has blamed Trump and his staff.  Baloney.  Graham and Durbin are to blame for pushing him over the edge when they tried to sucker him and play him for a fool.  They tried to play the American people for fools, like they always do.  They believe that if you polish a turd shiny enough to make it look like an apple, the American people will swallow anything.  The American people elected Trump to put an end to this crap.

Now they’re trying to back Trump into a corner, threatening a government shutdown if he doesn’t agree to this immigration sham.  I hope he doesn’t.  It’s time to stand firm and force a real change in our out-of-control immigration policy.  Let the government shut down.  If Congress doesn’t want to reform immigration in exchange for Trump’s generous offer to give the DACA kids a path to citizenship, then they don’t really care about the DACA kids.


December Jobs Report Weaker than It Looks

January 12, 2018

https://www.bls.gov/news.release/empsit.nr0.htm

The headline number from the December employment report (link above) was a bit disappointing.  The economy added only 148,000 jobs vs. expectations for approximately 191,000 and vs. 252,000 added in November – especially disappointing considering that this was the peak of the retail shopping season.  Unemployment held steady at 4.1%.  (But not really.)

Look into the details and the report is even weaker.  The employment level, a figure taken from the household survey (vs. the establishment survey, which is where the 148,000 jobs figure comes from) rose by only 103,000.  But that’s not the worst part.  Employment and job creation numbers are meaningless without the context of population.  December is the month when the Census Bureau updates its estimate of population (during non-census years).  This time around it boosted the population by 549,000 (to just under 327 million people) vs. a normal monthly increase of about 170,000.  Of course, the population didn’t jump by that much in December.  It just means that the Census Bureau discovered that it has been underestimating population growth during 2017.  That means that growth in the labor force has been underestimated for the purposes of calculating unemployment.  If the actual size of the labor force was used in the calculation, instead of estimating it based on how many people were looking for work, unemployment actually rose in December by 0.1% to 7.2%, the third consecutive increase in that number.  And per capita employment has fallen for the third consecutive month.  Check the chart:  Per Capita Employment.  And the number of unemployed Americans rose for the third consecutive month to over 12 million.  Here’s the chart:  Unemployed Americans.

Enthusiasm over the Trump administration’s policies will only carry the economy so far.  Without the kind of meaningful trade policy reform that Trump promised during his campaign, it’s going to stall out.  This data may be an indication that that’s beginning to happen.


Family immigration plunged in 2017

January 5, 2018

https://www.reuters.com/article/us-trump-effect-immigration/fewer-family-visas-approved-as-trump-toughens-vetting-of-immigrants-reuters-review-idUSKBN1ET15I

The above-linked article appeared on Reuters yesterday, reporting that in 2017, family-based immigration dropped dramatically.  But it’s not as though few visas are being approved.  The charts embedded in the article also paint a picture of just how out-of-control immigration had gotten since 2000.  Virtually all U.S. population growth is due to immigration, both legal and illegal, and family-based immigration accounts for at least half of that growth.  In 2015, over one million family, fiance and “other relative” visas were approved.  But in 2017:

  1. Family visas fell to 541,000 vs. 755,000 in 2015, a drop of 28%.
  2. “Other relative” visas fell to 62,000 in 2017 vs. 254,000 in 2015, a drop of 76%.
  3. Fiance visas fell to 33,000 in 2017 vs. 54,000 in 2015, a drop of 39%.

In addition, the Trump administration is seeking even more drastic cuts as a condition for allowing DACA immigrants (children brought here illegally by their parents) to remain permanently in the U.S.

And, based upon monthly border arrest data, illegal immigration declined in 2017 by about 40% – roughly equivalent to 400,000 people.

Add all this up and U.S. immigration in 2017 was cut almost in half, by over one million people.

It’s also important to note that, contrary to the dire predictions of economic decline by immigration advocates who claim that immigration is critical to providing needed skills and entrepreneurship, the decline in immigration in 2017 has been accompanied by a surging economy.

Trump should be applauded for doing a fantastic job of following through on his campaign promise to rein in out-of-control immigration.


Economy adds 228,000 jobs in November, unemployment holds at 17-year-low rate of 4.1%, but wages are stagnant. Why?

December 9, 2017

Yesterday morning the Labor Department announced that the economy added another 228,000 jobs in November and the unemployment rate held steady at 4.1% – the lowest rate in 17 years.  Yet, wages remain stagnant.  Everyone – economists, the Federal Reserve, business analysts – everyone, seems totally baffled by this phenomenon.  Why isn’t this supposedly strong demand for labor beginning to drive up wages as employers compete for workers?

The answer is that the unemployment rate isn’t really 4.1%.  It’s 7.1%.  The Labor Department would like you to forget that the rapid drop in unemployment following the “Great Recession” in 2008 was fueled in large part by its “mysteriously vanishing labor force” trick, claiming that vast swaths of workers were simply dropping out of the labor force, so they were no longer included in the unemployment calculation.  Take a look at the following chart.  It’s a little confusing, so I’ll explain.

Labor Backlog

Look first at the blue and orange lines.  The blue line tracks the actual growth in the labor force due to growth in the overall population.  The orange line tracks the labor force growth as reported by the Labor Department.  Note that in all but three of the past ten years did the Labor Department’s reported growth in the labor force exceed the actual growth.  It usually significantly under-reports that growth.  The result is a growing “backlog” of unreported workers, represented by the yellow line on the chart.  That backlog peaked at 6.4 million workers in 2014 and fell to 5.1 million in 2016 but, so far this year, has actually begun to rise again, hitting 5.2 million workers in November.

Now, look at the green line, which is the growth in the employment level.  If that growth matches the growth in the labor force, then unemployment will hold steady.  If it exceeds that growth, then unemployment will fall.  Compared to the blue line – the real growth in the labor force – it has consistently exceeded that blue line by a small amount each year, beginning in 2011 – the start of the recovery from the “Great Recession.”  But if you compare the green line to the orange line – the fake growth in the labor force reported by the Labor Department – it has beaten that growth by a significant amount every year beginning in 2010.  The result of that growth in the employment level relative to the fake growth in the labor force is the Labor Department’s reported unemployment rate, represented by the purple line.  Note that it has fallen precipitously to its current bogus level of 4.1%.

That’s why wages are stagnant, because there is a huge, unreported backlog of labor force which eagerly snatches up any extra jobs that are created each month.  The labor force is still pretty grossly out of balance with the demand for labor.  Until that backlog of workers is employed, wages will remain stagnant.

Just to drive home the point about how phony the official unemployment rate is, take a look at these next two charts:

Per Capita Employment

Unemployed Americans

The first chart tracks the employment level relative to the total population.  It’s analogous to what the Labor Department reports as the “participation rate.”  As yo can see, it’s been very slowly recovering from the 2008 recession, but still hasn’t gotten back to its pre-recession level in 2007.  (You can see that, even then, it was already plummeting.  I can’t tell you what it was before that since I didn’t begin tracking it until then.)  In November of 2007, per capita employment was at 48.4% and the unemployment rate was 4.7%.  Last month, per capita employment was at 47.2%, but the unemployment rate was 4.1%.  How in the world could unemployment have fallen at the same time that per capita employment fell?  Sounds pretty bogus, doesn’t it?

The second chart above shows a similar phenomenon.  It tracks the number of unemployed, assuming that the labor force grew along with the population.  In November of 2007 there were 7.2 million unemployed workers.  Last month there were 11.8 million.  And yet the unemployment rate fell?  Baloney.

While some see nothing but good news in yesterday’s employment report, I see some warning signs.

  • The employment level grew by only 57,000, far less than the reported growth of 228,ooo jobs.
  • Per capita employment fell slightly for the 2nd month in a row.
  • An honest accounting of unemployment (one that’s honest about growth in the labor force) finds that unemployment rose for the 2nd month in a row to almost 7.2% after reaching a low of 6.8% in September.  That’s a notable jump.

So now you know why wages are stagnant.  The demand for labor hasn’t caught up to the backlog of unreported growth in the labor market.