America’s Worst Trade Partners in 2016

July 6, 2017

America’s trade policy is a disaster.  There’s just no other way to describe it.  In 2016, our trade deficit rose to almost $505 billion, beating the old record set in 2015.  We can’t continue on this path.  An economy that has that much money drained from it can only avoid a permanent state of recession through deficit spending, which is exactly what we’ve done for decades, and it’s bankrupting us.  Our infrastructure is crumbling.  The Social Security trust fund is on a path to bankruptcy.  Medicare is already there.  Household incomes and net worth are declining.  And the government can’t come up with a scheme that makes health care affordable.

But what to do?  How did “free trade,” the darling of economists, back-fire so badly for the U.S.?  A quick glance at the balance of trade data, which is broken into “services” and “goods,” reveals a nice surplus in services.  It was in this category that the U.S. economy was really expected to shine, and it has.  But the “goods” part of the equation has run completely off the rails, with the deficit in goods dwarfing the small surplus in services.

What’s the problem with “goods?”  Is it oil?  There was a time, decades ago, when the deficit in goods was due almost entirely to oil imports.  But no more.  It has shrunk dramatically and now accounts for less than 25% of the goods deficit.  The vast majority of our deficit in goods is due to manufactured products.  So let’s focus there.

Let’s begin with a look at which nations account for our biggest trade deficits in manufactured goods.  Here’s a list of the top twenty in 2016:  Top 20 Deficits, 2016.  China is at the top of the list, yielding a trade deficit that’s more than four times as large as the next nation on the list, Japan.  In fact, so large is the trade deficit with China that it is larger than all of the nations of the rest of the world combined.  It would seem that China must be doing something underhanded.  Some say that the problem is low wages in China.  Others claim that China manipulates its currency, keeping it artificially low, thus making its exports cheaper for American consumers and making American imports too expensive for Chinese consumers.  Or maybe it’s just the sheer size of China, a big country with one fifth of the world’s population.

What is it about this list of nations that they have in common?  The list includes nations from Asia, Europe, the Middle East and Central America.  It includes some of the wealthiest nations on earth – like Germany, Switzerland and Ireland – casting doubt on the “low wage” theory.

I mentioned China’s size.  But geographic size can’t be much of a factor.  Without any people, we wouldn’t even have trade with any particular country or region.  Take Antarctica.  It’s bigger than China, but we have no trade with that continent at all.  People are what’s important.  It’s their consumption of products that drives trade.  So maybe that’s where we should start looking.  Perhaps the number of people in a country – or their population density – is a factor.  So let’s take a look.  Let’s express the trade deficit with each one of those countries in per capita terms.  Now look at the list:  Top 20 Per Capita Deficits, 2016.

The median population density of the 165 nations* included in this study is 184 people per square mile.  The population density of the U.S. is apprximately 90 people per square mile.  Seventeen of the twenty nations on this list have population densities above the median.  The odds against that happening are 128:1.  Conversely, the chances of that happening are only 0.7%.  Clearly, population density is a factor.  The average population density of these nations is 522 people per square mile – almost three times the world median and more than five times the density of the U.S.

In per capita terms, China barely even makes the list, ranking 19th out of these twenty nations. Eleven of the twenty nations are European Union nations.

And what about the claim that low wages are to blame for trade deficits?  That’s clearly nonsense.  The average “purchasing power parity” (roughly analogous to wages) is just over $46,000 – on a par with the U.S.

On average, the per capita trade deficit with these nations has risen by 88% in the past ten years.

The fact that America’s deficit with Ireland, with a population density close to the world median, is almost three times that of Switzerland, the number two nation on the list, is an indication that something else is going on that tilts trade in favor of Ireland, and indeed there is.  Ireland is a tax haven and America is a fool to tolerate it.

Why is population density such a dominant factor in determining the balance of trade?  It’s because of the inverse relationship between population density and per capita consumption.  It’s because people living in crowded conditions consume less but are just as productive.  The result is that they come to the trade table with a bloated labor force and an emaciated market.  To understand more about why this happens, read Five Short Blasts.  It’s also the theme of this blog.

Any trade policy that fails to account for the role of population density in driving trade imbalances and fails to employ tariffs to maintain a balance of trade with overpopulated nations is doomed to failure.  America’s free trade policy is blind to this factor.  The resulting trade deficit is inevitable.

Next we’ll take a look at the list of America’s twenty best trade partners.  If population density is a factor, we should see the opposite results on that list.  It should be dominated by nations with low population densities.  Stay tuned.

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  *  There are 229 nations in the world.  Tiny island nations and city-states have been excluded from the study.  Trade with these nations is minuscule, accounting for less than 1% of U.S. trade.  The U.S. tends to have a surplus with such nations, regardless of their population density, since their economies are primarily based on tourism and not manufacturing.


Trump was right to pull out of the Paris Climate Agreement

June 3, 2017

Let me begin by making clear that I am an environmentalist.  It was my concern for the environment – especially my little piece of the environment that I enjoy in the north woods – that was the genesis of my discovery of the inverse relationship between population density and per capita consumption, which I presented and explained in Five Short Blasts.  It’s a clear-eyed look at just where unending population growth will take us.  Few have devoted as much of their time to trying to save the planet.

Let me also make clear that I’m neither a GOP conservative nor a Democrat.  As I stated in Five Short Blasts, the platforms of both parties – both of which embrace and promote population growth – produce nothing more than weaving left and right along a path to ruin.  So this post isn’t politically motivated.

“Climate change,” the now-politically correct term for global warming, is real.  The link to human activity is undeniable.  I’ve watched Al Gore’s “An Inconvenient Truth”  and agree with its premise.  Greenhouse gases like carbon dioxide (CO2) and methane are building up in the atmosphere and trapping solar heat.  The science is clear.  Kudos to the scientists.

But shame on environmentalists.  The environmental movement has been a colossal failure.  If it weren’t, we wouldn’t now find ourselves in the fix that we’re in.  We wouldn’t be in the midst of a mass extinction.  The dire consequences of global warming are now inevitable.  Environmentalists admit as much.  And who is to blame for all of this?  There’s plenty of blame to go around but it could be argued that no one is more to blame than the leaders of the environmental movement themselves.  There may be a special place in hell for these people for what they’ve done.

Why do I say such a thing?  A little history is in order.  Going back decades, to the ’80s, if my memory serves me correctly, the environmental movement was in trouble.  The Vietnam war was over and young, impatient activists seized upon the environment as a new cause.  Their approach was radical and intolerant.  Industry, the civilian half of the “military industrial complex” that was the object of so much scorn by young radicals during the Vietnam era, was demonized as the enemy of humanity by the environmental movement.  The environmental movement was anti-industry, anti-development anti-everything to the point where they were perceived as being anti-humanity.

At the same time, as a result of new trade policies ushered in by GATT (the Global Agreement on Tariffs and Trade, enacted in 1947), the de-industrialization of America was underway.  Factories were closing.  People were losing their jobs.  And the country was being flooded with imports from Japan.  Eager to find a scapegoat, industry successfully blamed the environmental movement for making it impossible to continue manufacturing in America.  People began to despise these young, impatient, intolerant and uncompromising environmentalist radicals.

Industry had its own image problems.  Both sides saw an opportunity and began to collaborate.   The environmental movement softened its approach to development and, in return for the environmentalists’ endorsement of new development projects, industry began to embrace some of their more reasonable demands and causes.  The environmental movement made a deal with the devil and the concept of “sustainable development” was born.

Soon after, the company I worked for served up an example.  They announced plans to build a new plant on a pristine “green field” site – a piece of undeveloped property they owned.  At the same time, they also announced that another such piece of property was being set aside as a sort of wildlife refuge, never to be developed.  This, they proudly proclaimed, was a prime example of “sustainable development.”  “How the hell is that sustainable?” I wondered.  Half of the property in question was now gone.  It didn’t take a genius to figure out where that will ultimately lead if such “development” is “sustained.”

The term is an oxymoron and there is no such thing as “sustainable development.”  It makes me bristle every time I hear it.  By it’s very definition, “development” means putting natural resources to work to enhance the lives of human-kind.  There’s nothing wrong with that, as long as you recognize that, in a finite world, the process has to stop at some point.  It can’t be sustained forever. A finite resource can only sustain a certain number of people at a high standard of living.  Even a child should be able to understand this.  Yet, that is exactly what corporate leaders and their environmentalist lackeys would have you believe – that we can continue growing our population and continue to consume more and more, and thus grow their profits – “sustainably.” Forever.

Of course, the leaders of the environmental movement responsible for this mess won’t find themselves alone.  If there’s a hotter place in hell, it’s occupied by economists – those people who, in the wake of their Malthusian black eye, proclaimed that there is no limit to man’s ability to overcome all obstacles to growth, and vowed never again to even consider that population growth could present challenges.  It is yet another claim unable to stand up to even the most rudimentary scrutiny, but is the foundation upon which the concept of “sustainable development” is built. Incredibly, the environmental movement has bought into this.

With all of this said, I decided to do my own objective evaluation of the Paris Climate Agreement to decide for myself the wisdom of Trump’s move.  I started with Wikipedia’s take on the agreement, but then decided to go right to the United Nations’ web site that documents the whole thing.  I wanted to read the agreement for myself.  But, try as I might, I’ll be darned if I can find it.  There’s lots of explanation from the UN about the agreement, but I couldn’t find the agreement itself.  That kind of thing always makes me a little suspicious.

Anyway, here’s some key aspects of the agreement:

  • Certain few developed countries – most notably the U.S. – are targeted to generate all of the reduction in greenhouse gases.  Many undeveloped nations are actually allowed to increase their emissions in order to allow them to develop.  China, the world’s worst polluter, committed to only 25% of the reductions in greenhouse gas emissions, in per capita terms, that the U.S. committed to achieving.
  • Aid, beginning at a minimum of $100 billion per year above and beyond aid that nations are already receiving, must be provided by developed nations to help undeveloped nations develop faster and to help them deal with the effects of climate change.
  • Each nation sets its own goals, consistent with the overall goal to limit global temperature rise to 2 degrees Celsius or less, but then must report annually on their progress toward meeting their goals.

Already, I was beginning to have my doubts.  Forcing dramatic emissions cuts on the U.S. while allowing other nations to increase their emissions seems to preclude the U.S. from ever re-balancing trade and rebuilding the manufacturing sector of the economy, even if it meant producing products in plants that operated under strict environmental regulations as opposed to the filthy factories spewing smog in China.  This feels like some sort of “eco-trade barrier.”

Secondly, the requirement that wealthy nations boost their aid to developing nations by a minimum of another $100 billion per year to help them develop seems like a money grab.  We all know where the vast majority of funding would come from – the U.S. – just as the U.S. funds a disproportionate share of the U.N., the World Trade Organization, the World Bank, NATO, and virtually every other multi-national organization.

Finally, as I scanned through the many web pages that the UN serves up, I found the real goal of the agreement.  In the UN’s own words, here it is:

  • The ultimate objective of the Convention is to stabilize greenhouse gas concentrations “at a level that would prevent dangerous anthropogenic (human induced) interference with the climate system.” It states that “such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened, and to enable economic development to proceed in a sustainable manner.”

And there it is!  “… enable economic development to proceed in a sustainable manner.”  This agreement isn’t about saving the planet or the environment.  It’s about keeping environmental degradation just tolerable enough that we can continue to pack the planet with more corporate customers.

If climate change is the result of human activity, then isn’t it logical that any effort to combat it should begin with a focus on limiting the number of humans or their activity?  What is gained if we all cut our greenhouse gas emissions per capita by 50% but then double the population?  Absolutely nothing!

The U.S. has already made strides in reducing greenhouse gas emissions. But it isn’t even close to being enough.  To achieve the cuts that President Obama committed to in the Kyoto protocol – cuts of 80% or more – the plan relies heavily on “carbon capture.”  That is, CO2 would be extracted from exhaust stacks and stored in tanks or underground.  Essentially, it’s a process of creating a CO2 “landfill” which, if we all cross our fingers and toes and hope real hard, maybe it’ll never leak and create such a catastrophic jump in atmospheric CO2 levels that the planet is almost instantly cooked!

Any approach to the climate change problem that doesn’t begin with a plan to stabilize and gradually reduce the human population to a level where we can all enjoy a high standard of living without threatening the planet is a hoax.  Climate change is real, but this Paris agreement is just that – a hoax.  It has little to nothing to do with fighting climate change.  Instead, it’s globalization and “sustainable development” on steroids.  There is an old saying that goes something like this:  “If you can’t bewilder them with brilliance, then baffle them with bullshit.”  That’s exactly what “sustainable development” does.

Critics have mocked President Trump, saying that he is incapable of grasping the complexities of the Paris agreement.  It could be argued that perhaps it was President Obama who didn’t understand that the agreement he proclaimed to be such an accomplishment actually does nothing for the climate and simply suckered the U.S. into yet another self-destructive deal.  And it’s time for all people who are concerned about climate change and the environment to wake up to the fact that the environmental movement has been hijacked by those who profit from plundering the planet and that they, too, are being suckered by the concept of “sustainable development.”

I’m not terribly concerned.  I believe that if the world doesn’t wake up to the inverse relationship between population density and per capita consumption, then the unemployment, poverty and rising death rate that it fosters are going to do more to put a lid on greenhouse gas emissions than the Paris agreement could have ever hoped to achieve.

In the meantime, other world leaders have rushed to the defense of the Paris agreement.  No surprise.  They can kiss goodbye the $100 billion (per year!) they were counting on.  Plus, championing the Paris agreement is all upside for politicians with no downside.  Everyone loves them for their concern for the planet and they can never be held accountable, since it’s impossible to gauge success under the agreement.  It’s like a campaign promise that never has to be kept because no one can tell whether or not you’ve delivered.

Americans have been fleeced far too much in the name of globalization.  Clearly, Trump wasn’t baffled by this BS.  I applaud him for having the guts to walk away from this deal and for being willing to take the political heat for doing so.

 

 


Per Capita U.S. Auto Sales Declining

January 9, 2016

New vehicle sales were released a couple of days ago.  The headline of the story is that sales set a new record in 2015 – 17.47 million, beating the previous record set in 2000.  It got me wondering.  2000 was fifteen years ago.  Since then, the U.S. population has grown by about 13%.  So the new record should have easily topped the 15-year-old record, right?  Wrong.  It barely beat the 2000 record by only about 100,000 vehicles, or by about 0.6%.

So I couldn’t help but wonder:  is it possible that we’re already beginning to see a decline in the per capita consumption of vehicles in the U.S., which is what the inverse relationship between population density and per capita consumption that I presented in Five Short Blasts would predict?  In Chapter 10 of the book I theorized that the U.S., though much less densely populated than many other nations, had already crossed the threshold where a growing population density begins to erode per capita consumption and, with it, the economy, and that this happened sometime perhaps in the ’50s or ’60s when our population was half of what it is today.

New vehicle sales is one piece of consumer data that’s readily available and not a closely-guarded secret of some market research company.  So it was time to find out how new vehicle sales have changed over time as our population has grown.  I plotted such sales going back to 1968 versus the U.S. population and here’s the result:  auto sales 1968-2015.  The following are some observations about this chart:

  1. New vehicle sales tend to swing up and down pretty wildly, dropping precipitously during recessions and shooting back up during recoveries.
  2. I don’t know what  happened prior to 1968, but it’s clear that between 1968 and 1978, the per capita consumption of new vehicles was rising quickly, jumping 44% to .067 vehicles per person, which is about one vehicle for ever 15 people.
  3. That figure of .067 vehicles per person in 1978, when our population was about a third lower than today, still stands as the record level.  The next peak of per capita consumption of new vehicles in 1986 didn’t quite rise to the same level, reaching 0.66.  The next peak in 2000 – the record that was just broken this year – reached only 0.62 new vehicles per person, well short of the 1978 peak.
  4. This total vehicle sales record set in 2015, when expressed in per capita terms, even misses the 2000 mark by quite a large margin.

Clearly, per capita consumption of new vehicles is in decline, and has been declining since as far back as 1978.  One could argue that 2015 may not be a peak, that vehicle sales have been climbing steadily since 2009 when they reached their lowest level of the entire 1968-2015 period.   The auto industry projects that sales could go higher in 2016.  I think that’s unlikely.  First of all, though 2015 was a record year, the sales rate in December fell to its lowest level since June, and December is typically one of the strongest sales months of the year.  Secondly, 2015 was the sixth consecutive year of sales volume increases, the longest of the 1968-2015 period.  Previously, the longest period of annual sales volume increases was four years, from 1983-1986.  Finally, look at what’s happening in the economy in general beginning in December.  Many economic indicators are now turning negative.  Most would agree that the auto industry’s expectations of a stronger 2016 are a pipe dream.

So just how fast is per capita consumption of new vehicles declining?  To find out, I re-plotted the data beginning with 1978 and had the computer generate a trend line with an equation to describe it.  Here’s the new chart:  auto sales 1978-2015.  Now you can see the clear downward trend.  Of the four different mathematical formulas that could be used to describe the trend – linear, logarithmic, exponential and power – the best fit was a linear equation.  The formula is included in the chart:  f(x) = -.0003x + .06.  (I’ve rounded off the two constants for clarity.)  This means that as our population continues to grow at the same rate – about 1% per year – per capita new vehicle sales will decline by .0003, which is about a 0.5% decline.

Why is this happening?  It’s pretty simple, really.  Most of our population growth is in urban areas where there’s been strong demand for apartment-style housing.  We examined in a recent post how renters are increasingly paying a greater percentage of their incomes on rent.  And people who live in apartments in metropolitan areas face big obstacles when it comes to car ownership – especially the lack and high cost of parking, both at home and at work, not to mention the traffic issues in the cities.  It’s just cost prohibitive to own a car, so many opt for public transportation.  The root cause of this situation, though, is ever-worsening crowding driven by the increase in population density.

Sure, there are many factors that may be at play here but, for each one you can name, I can name another offsetting factor.  Cars are built better and last longer?  Everything about our society pushes people to buy new cars more often – not less.  Cars are less affordable?  Dealers now practically give cars away, with loan durations of six or seven years, when three years was the norm back in ’78.

This decline in the per capita consumption of vehicles is yet another example of the conflict of interest that’s created once a population breaches that critical level and begins to drive down per capita consumption.  If you’re a consumer, it’s in your best interest that the population stabilize or even shrink a bit, increasing your quality of life and enabling you to live in uncrowded conditions where you can enjoy all that life has to offer, including the freedom to own a car and travel at will.  But if you’re General Motors, it’s in your best interest that the population continue to grow because if the population grows by 1% and per capita consumption declines by 0.5%, your total sales volume still increases.  And we saw this happen in 2015.  Sales set a new record in spite of a significant decline in per capita sales.  And so it’s also in the best interests of General Motors to fund candidates who support high rates of immigration.

Immigration-fueled population growth is steadily ruining our quality of life.  Though few really understand why, more and more Americans seem to sense this and it at least partly explains the popularity of the few candidates who at least oppose illegal immigration.

 


Renters financially stressed

December 29, 2015

http://www.cnbc.com/2015/12/09/housings-new-crisis-half-your-income-for-rent.html

I’m finally getting caught up on some things.  One of them is this above-linked article that appeared on CNBC three weeks ago.  It illustrates the fact that, in America, home ownership is declining and housing is becoming less affordable, even for renters.

In Five Short Blasts we saw how a rising population density, as it does with the per capita consumption of virtually everything, dramatically reduces the per capita consumption of dwelling space.  The average citizen of Japan, a nation ten times as densely populated as the U.S., lives in a dwelling less than one third the size of the average American’s.  So it’s only reasonable to expect that, as America grows more densely populated, the same thing will happen:  our homes will get smaller.

Indeed, as the per capita consumption of everything declines, it’s inescapable that employment will decline as well, and poverty will increase.  People who are poor can afford even less, exacerbating the decline in consumption.  Thus, worsening population density and rising poverty work synergistically to spawn a downward spiral.

This article is evidence of the downward spiral in the economic condition of Americans:

“The crisis in the number of renters paying excessive amounts of their income for housing continues, because the market has been unable to meet the need for housing that is within the financial reach of many families and individuals with lower incomes. These affordability challenges also are increasingly afflicting moderate-income households,” said Chris Herbert, managing director of the center.  (Harvard Joint Center for Housing Studies)

… Homeownership is now at the lowest level in half a century, and some expect it could go significantly lower. Household formation is expected to continue its slow rise, but almost entirely on renter households, not owner households.

It’s important to note the relationship here between incomes and housing.  Yes, it’s only natural that poorer people will tend to be renters instead of home buyers and will occupy smaller dwellings.  But the trend toward smaller dwellings also reduces employment in the housing industry, just as lower per capita consumption reduces employment in every industry.  We consume less because we grow more crowded.  We grow poorer when we consume less.  And we then consume even less because we’re poorer.  It’s a process that feeds on itself.

There’s only one way to break this cycle – to stop the rise in population density and level off our population at a sustainable level.


Europe’s Migrant Crisis

October 28, 2015

http://www.citylab.com/housing/2015/10/mapping-the-frenzy-of-the-europes-migrant-crisis/412396/

Much has been made of the migration of asylum-seekers and economic refugees to Europe from conflicts and poverty in the Middle East and Africa.  The above link takes you to a site that maps the flow of people.  It’s pretty interesting and certainly looks alarming, especially to Europeans.  The media has virtually run out of superlatives to describe the scale of this crisis.  “Historic.”  “Unprecedented.”  “Staggering.”  This linked article says that “… it’s hard to grasp the magnitude …”  It’s a serious situation, to be sure, but I thought some perspective might be interesting.

Europe is a continent of approximately 585 million people, not counting Russia.  (After all, none of these people are seeking to migrate to Russia.)  It has a surface area of about 2.3 million square miles – about 2/3 the size of the U.S.  This gives it a population density of about 255 people per square mile, about three times as densely populated as the U.S.

As the article points out, approximately 680,000 people have arrived in Europe so far this year.  That’s an annualized rate of about 750,000.  So that rate would grow Europe’s population by about 0.13%.  Now, let’s compare that to the United States, which admits approximately one million legal immigrants per year and is also invaded by a roughly equal number of illegal immigrants, many of whom are deported, but roughly half remain and are eventually granted amnesty.  That’s an annual influx of approximately 1.5 million migrants each year, growing the U.S. population by 0.5% (more than three times the rate being experienced by Europe).

Put in that perspective, Europe’s migrant crisis pales in comparison to what the U.S. has been experiencing year-in and year-out for many decades.  The scenes of border crossings in Europe are no different than the situation at our own southern border.  Yet somehow it’s a crisis of historical proportions in Europe, worthy of constant global media attention, while America’s migrant crisis is completely shrugged off.  It’s become routine.  It’s become our duty to suck it up and take them all in.

Still, this is a serious situation, cause for major concern for Europeans and even for Americans.  Consider:

  • Europe is already very densely populated.  Take away Russia and the Scandinavian countries, and the rest of Europe is as densely populated as China.  Many European nations, especially Germany, are already heavily dependent on manufacturing for export to sustain their economies and avoid high unemployment.  The very last thing Europe needs is more population growth.
  • Americans should also be concerned by a surge in population growth in Europe.  It will exacerbate our large trade deficit with Europe as its market is further eroded by over-crowding and as its exporters become more desperate to increase foreign market share.
  • The days when the western world could serve as a relief valve for overpopulation are long since past.  Our ability to absorb immigrants without doing economic harm to our own people has been exhausted.  The inability of western economies to sustain economic growth or even maintain their present levels of consumption is becoming more evident every day.

The sad fact is that as long as the world’s population continues to grow exponentially, driven primarily by explosive growth among third world nations, we are rapidly reaching the point where all we can do is stand by helplessly and watch as more and more crises unfold.

 


Americans Growing Poorer

September 19, 2015

http://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-252.pdf

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

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

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

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

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

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

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

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

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

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

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

 

 

 

 

 


Real Unemployment Holds at 8.8% in August, Unchanged Since April

September 5, 2015

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

During an interview with Hari Sreenivasan on the PBS Newshour last night, Diane Swonk, Chief Economist at Mesirow Financial was asked about today’s August jobs report.  Specifically, she was asked to comment on the drop in the unemployment rate to 5.1%, a level that Hari noted has traditionally been associated with “full employment.”  With a tone of cynicism in her voice, she responded by saying that, “yeah, but it sure doesn’t feel like 5.1% unemployment used to feel, does it?”  She then pointed out that, at that level of unemployment in the past, jobs were much more plentiful, the labor market was much stronger and wages were rising.  You don’t see that now.

The reason for that, of course, is how this administration has gamed the system to arrive at such a low unemployment level.  Instead of people being put back to work, they’ve arrived at that low figure largely by claiming that workers have dropped out of the work force, apparently having found some magical method of providing themselves with an income without working.  It happened yet again yesterday.  The unemployment rate is determined by the household survey, and is a function of the “employment level” and the size of the “civilian labor force.”  The employment level rose by 196,000, which is enough to have reduced the unemployment rate to 5.2%.  However, once again, the civilian labor force declined by 41,000 instead of rising by 115,000 along with the growth in the population.  Voila!  Another tenth whacked off of the unemployment rate!

Here’s why 5.1% unemployment doesn’t feel like it used to.  Look at these charts:  Per Capita Employment, Unemployed Americans.  Per capita employment, though improved, is still nowhere close to where it was before the recession.  And the number of unemployed Americans remains millions higher than it was.

A factual calculation of unemployment – one that grows the labor force in proportion to growth in the population – now has unemployment at 8.8%, exactly where it was in April.  The official unemployment rate has fallen 0.3% since April because not a single person has been added to the civilian labor force (according to the Obama administration) in spite of the fact that the population has grown by 900,000 people since then.

The difference between the official unemployment rate and the real unemployment rate (which grows the labor force along with the population) is what I call the “detachment from reality index.”  This index has risen steadily during the Obama administration and is now near its record high level.  Here’s the chart:  Detachment from Reality Index.  Doesn’t the current economy feel more like 8.8% unemployment than 5.1%?  Anyone who was in the work force more than ten years ago knows the answer to that question.