(What’s Left of) Our Economy: What Free-Trading Economists Can Learn from Main Street


, , , , , , , ,

So you think that, even after the global financial crisis and ensuing painful recession predicted by hardly any leading economists, American leaders should keep taking this profession seriously on key issues like trade? Then you need to check out this new article by Alan S. Blinder.

It’s especially striking because Blinder is about as big in economic circles as they come, occupying a full professorship at Princeton University and having served as second in command at the Federal Reserve. But if he’s right – and by definition, someone like him should know – the consensus among economists about trade  stems from views about national economies that should disqualify those holding them from shaping policy.

According to Blinder, here’s how economists generally view an economy’s purpose: “to churn out the goods and services that people want, efficiently and at low prices, so that standards of living will be high. That’s why, for example, the Soviet Union failed and we succeeded.”

What about the public at large? “[T]he citizenry seems more attracted to the producers’ perspective: The fundamental purpose of an economy is to provide jobs.”

Thus when it comes to international trade, “Almost all economists favor open trade. It gets Americans cheaper and sometimes better goods, and enhances the efficiency of our economy. Trade isn’t, we insist, mainly about creating jobs or destroying them. It’s about deploying the labor of every nation where it is most productive. Economists see imports as the rewards for trade, exports as the cost.

Public and political opinion often takes just the opposite perspective. Exporting is seen as the good part of trade—it creates jobs. Importing is a problem—it destroys jobs.”

The key term here is “producers’ perspective” – which, if you think about it for more than a moment, inescapably entails far more than the “jobs” on which Blinder somewhat condescendingly fixates. Of course, workaday folks are thinking first and foremost of their ability to earn income (overwhelmingly through jobs, since most aren’t wealthy heirs and heiresses). But a genuine producers’ perspective must involve all of the institutions and wherewithal needed to create jobs – i.e., a nation’s wealth-creating base.

Blinder does state that economists prize a nation’s ability “to churn out…goods and services…efficiently and at low prices, so that standards of living will be high,” and that by “deploying the labor of every nation where it is most productive,” trade contributes to this goal. But the consumers’-first devotion he attributes to economists points to a crucial truth: Such economists count heavily, at least, on low prices, not incomes, to create and even increase those high living standards.

Which is largely why, as Blinder and so many of his economics colleagues have written, they’re so indifferent to trade balances, and especially to trade deficits. Otherwise, they’d have to explain how economies significantly and/or chronically in the red – and thus by definition way short of earned income – can secure the resources needed to keep living standards at an acceptable level, much less raise them, without heavily borrowing, or selling off big chunks of their assets.

In other words, what Blinder is really saying is that economists believe that the consumption-led model of a national economy is sustainable, independent of whether that economy can generate enough income (from production) to pay for its spending responsibly (i.e., without running up excessive debt). What the public believes is that, without adequate sources of earned income (from a healthy production base), an economic system not only can’t produce jobs or high living standards. It can’t be viable in the first place.

Blinder is famous in part for what he calls “the Lamppost Theory, which holds that “Politicians use economics the way a drunk uses a lamppost—for support, not for illumination.” But their consumer-centric views raise the question of why responsible policymakers would use free trade-cheerleading economists for any reason.


(What’s Left of) Our Economy: Historic Labor Shortages and Few Wage Hikes?


, , ,

Share of American companies with job openings amid “worst” skilled labor shortages in a decade: c. 90%

Share of these companies responding by “increasing pay”: c. one-third

(Source: “Open jobs, few takers: Good help hardest to find in a decade, hiring survey shows,” by Jeffry Bartash, Marketwatch.com, April 23, 2018, https://www.marketwatch.com/story/open-jobs-few-takers-good-help-hardest-to-find-in-a-decade-hiring-survey-shows-2018-04-23)

Our So-Called Foreign Policy: The Trump-Kim Summit is a Spectacular – but Dangerous – Distraction


, , , , , , , ,

The more the circumstances surrounding the North Korea nuclear crisis change, the more they remain fundamentally the same – and that includes the dramatic recent news that President Trump and North Korean dictator Kim Jong Un have decided to hold the first ever meeting between the top leaders of the two countries presumably to energize efforts to reach some kind of negotiated solution. As a result, it’s still the case, as I’ve argued repeatedly, that America’s only sane course of action is not to plunge even more deeply into the potentially deadly affairs of this far-off peninsula. It’s to disengage, especially militarily, and let North Korea’s big, wealthy neighbors deal with Pyongyang’s nuclear forces any way they wish.

Before the historic announcement of the Trump-Kim summit – which is far from certain actually to be held – the case for U.S. disengagement was growing more compelling by the day. The North’s rapid progress toward building a nuclear-tipped missile that could strike targets in the continental United States meant that America’s decades-old strategy of deterring Northern aggression against the South had become dangerously obsolete. Before North Korea had reached this stage, this U.S. defense guarantee was risk-free for the American homeland. Because Pyongyang could pose no threat to the United States itself, Washington could even safely afford to station nearly 30,000 combat troops directly in harm’s way in South Korea literally to trap a President into using nuclear weapons to defend the South against attack from the North and its superior non-nuclear military. And precisely because of America’s nuclear weapons monopoly, the promise was supremely credible.

With that monopoly nearly gone, the tables are turning completely. Once the North gains reasonably reliable intercontinental nuclear attack capability, America’s policy will become one of risking the complete destruction of U.S. cities for the security of another country – and a relatively unimportant one at that. And since even the landing of a single warhead one such a target would create a catastrophe never even remotely approached in American history, the current U.S. strategy will become completely non-credible. Even worse, however: As long as such a large American military force remains in South Korea, a U.S. President still may have no real choice but to proceed down the nuclear road – or accept mass American military casualties inflicted by a North Korean invasion.

It’s entirely possible that the big new twist in this story could wind up bringing the United States (and South Korea and East Asia in general) the best of all possible worlds: a verifiably denuclearized North and the preservation of American security alliances that Washington has long prized (with little evidence to be sure) as guarantors of decisive American influence in this economically vibrant region. President Trump’s stance toward the North is indeed a striking contrast to the can-kicking Obama posture of “strategic patience,” and a case can be made that the new administration’s combination of stronger military threats and economic sanctions has convinced the North that its historic truculence and defiance has become too risky. In this vein, it’s also possible that, as erratically as he’s often acted, Kim is a North Korean leader with a difference – specifically, one who significantly values his country’s economic well-being and who might be willing to trade some regained access to the world economy for his nuclear arsenal.

Sadly, it’s at least as easy to make the case that Kim will never give up his nuclear weapons (because he views them as his best guarantor of survival given the United States’ recent record of miltarily deposing other despots like Iraq’s Saddam Hussein and Libya’s Muammar Qaddafi), and that a U.S. administration ardently desiring the semblance of diplomatic victory will accept a compromise that leaves at least much of Kim’s nuclear arsenal in place, that provides valuable economic support for his regime, and that leaves at least many of the American forces in harm’s way in Korea. But this outcome would simply leave the United States in the same position as today – hostage to events in a region retaining far too many powder keg characteristics, and vulnerable to entrapment in a nuclear war if its reading of Kim and his ultimate intentions isn’t largely accurate.

Alternatively, President Trump could well continue insisting on full, verifiable denuclearization by the North, end or suspend negotiations if he’s persuaded that he’s getting conned, tighten the sanctions further in the hope that they’ll ultimately push Kim to accept U.S. terms – and even resume talk of preventive attack to (try to) make sure that the North never finishes building nuclear weapons that can be used against the America’s homeland or any of its territories, or simply to coerce greater cooperation from the North. Of course, this outcome would also leave the United States in substantially the same perilous position as at present.

As a result, the only way to drive down the risk of nuclear attack from North Korea to an acceptable level – and to enable Washington to run this risk in the first place as a matter of choice and not necessity (in order to save the troops deployed in the South) – is to pull those troops out ASAP, or by some date certain.

As I’ve noted, continued nuclear progress could still bring North Korea the ability to attack the United States with these weapons. But with the United States playing no military role in his backyard, why would it do so? Moreover, although in these circumstances an American promise to defend the South with nuclear weapons lacks would lack needed credibility (because of America’s own vulnerability), an American promise to defend itself with these devices would be supremely credible.

U.S. disengagement would indeed leave North Korea’s neighbors with many of these dangerous dilemmas. But because they’re neighbors, they have far greater stakes in dealing with them successfully than the distant United States. And because they’re among the world’s leading powers (China, Japan, and Russia, as well as South Korea), they surely have ample capabilities, or at least potential, to meet the North Korea challenge.

Are they guaranteed to succeed? Absolutely not. In fact, as supporters of the U.S. policy status quo keep insisting, an American withdrawal could destabilize the region, and even trigger conflict. But the real choices facing the United States are not between the good and the bad, but between the bad and the worse. And when the worse carries any significant possibility of a nuclear attack on American soil, the call shouldn’t even be close.

Im-Politic: My Maryland Town Seems Keen on Non-Citizen Voting – & on Weakening Democracy


, , , , , , , , , , , , , , , , ,

How thoroughly depressing to report that my town of Riverdale Park, Maryland seems about to join post-borders and post-citizenship America– that is to say, post-America America. Early next month, the town council is almost sure to approve legislation that will grant the vote in local elections to non-citizens both legally and illegally present in the United States. For good measure, the bill would lower the voting age for such elections to sixteen.

The above description should suffice to point to many of the proposal’s worst flaws. By extending the franchise to illegal immigrants, the town would create another reward for individuals who have broken U.S. law, and add insult to injury to all those outside the country’s borders who have been waiting in line and playing by the rules in order to enter. Even permitting legal non-citizens to vote on the local level would greatly empower many residents who, for various reasons, have chosen to avoid this kind of binding commitment to the American political community. In other words, both categories of canon-citizens would be able to weigh in on decisions with long-term implications for the town’s well-being without much skin in the game.

In addition, in the case of both legals and illegals, the vote would be rewarded based on residing in Riverdale Park for a grand total of 45 days. And despite the legislation’s creation of a “supplemental voter registry,” it looks like a great recipe for voter fraud given that applicants merely need to “submit a signed registration form with the town clerk in a form prescribed by the clerk.” The measure does specify that verification be provided that “the individual is eligible to vote in town elections” (by showing residency for 45 days). But how reassuring can this requirement be given that undocumented immigrants are – by definition – undocumented? Even more troubling: Applicants will be able to complete this registration process (including the supposed verification) on the very day elections are held.

As for lowering the voting age to sixteen, anyone who has ever parented an adolescent should understand why this idea should have been a non-starter.

I attended a town council meeting on March 26 to listen to and participate in debate over the bill. All manner of legitimate and specious arguments were made on behalf of legal and illegal non-citizen voting by the smallish number of residents present. Heading the first category was the compelling (though still controversial) claim that the non-citizen voting legislation would be completely acceptable on Constitutional grounds, since the Constitution says nothing explicit about the overall subject. 

Moreover, although citizenship has more recently been established as a nearly absolute requirement for voting in federal elections, the National Council of State Legislatures holds that it’s the states, with important qualifications (such as Constitutional bars on various forms of arbitrary discrimination) that posses “the ultimate authority” over elections within their borders. 

But the flurry of bogus arguments for permitting non-citizens to vote, and the conspicuous failure of most council members to challenge them, convinced me that this scheme is a done deal – unless it can be overturned by a referendum. For example, supporters claimed that enabling non-citizens of both types to vote was needed to establish Riverdale Park as a “welcoming community.” None responded to my objection that any resident is currently free to bring any concerns to the attention of any current town official, and that surely these officials would take them seriously regardless of that resident’s legal status.

I was also of course told that both legal and illegal residents were subject to taxation, and thus deserved representation (as 18th century patriot Patrick Henry famously insisted). But of course, legal non-citizens are already eligible for a wide variety of benefits at many government levels, and illegals are eligible for a narrower but hardly negligible range – in addition to benefits (like public school attendance and food stamps eligibility) they can access indirectly because their children are permitted to attend public schools and, if born in the United States and therefore citizens. And let’s not forget – both categories of non-citizens also enjoy the less tangible but no less significant benefits of living in a freedom-loving democracy that, however flawed, ensures that power is exercised through the rule of law, not arbitrarily. Indeed, isn’t that largely why they’re here in the first place?

But most disturbing were two other categories of arguments – the first because it reflected absolutely no interest in political values central to the country’s historic success, the second because it suggested unmistakable contempt for these values.

This indifference – or what certainly sounded like it – came from the measure’s sponsor, Council Member Marsha Dixon, and was expressed after I described the legislation as a perfect example of poor governance. As I see it, a politician takes it on him or herself to solve a problem that’s been proactively identified by no one else in the town (even the non-citizens), according to all available evidence, and thus to fix a local political culture that has showed no signs of being broken.

Dixon’s response? (This is a paraphrase, since the official minutes of the meeting haven’t yet been posted.) She thought the town’s population had “evolved” (that I remember for sure), and therefore its voting rules needed to evolve accordingly.

But there’s evolution and there’s evolution. And Dixon’s version simply ignored one of the most important lessons taught by the Founding Fathers: The only hope for the long-term survival and health of an American democracy worth preserving is creating and nurturing a community of shared democratic values. And achieving this goal inevitably requires a process of assimilating immigrants that is inescapably protracted if it to be taken seriously.

Hence the fears expressed by Thomas Jefferson in 1782 about the encouragement of mass immigration:

It is for the happiness of those united in society to harmonize as much as possible in matters which they must of necessity transact together. Civil government being the sole object of forming societies, its administration must be conducted by common consent. Every species of government has its specific principles. Ours perhaps are more peculiar than those of any other in the universe. It is a composition of the freest principles of the English constitution, with others derived from natural right and natural reason. To these nothing can be more opposed than the maxims of absolute monarchies. Yet, from such, we are to expect the greatest number of emigrants. They will bring with them the principles of the governments they leave, imbibed in their early youth; or, if able to throw them off, it will be in exchange for an unbounded licentiousness, passing, as is usual, from one extreme to another. It would be a miracle were they to stop precisely at the point of temperate liberty. These principles, with their language, they will transmit to their children. In proportion to their numbers, they will share with us the legislation. They will infuse into it their spirit, warp and bias its direction, and render it a heterogeneous, incoherent, distracted mass.”

George Washington shared many of these concerns, and believed that only exposure to American ways – a process that he suggested could take generations – could mitigate them:

My opinion, with respect to emigration, is, that except of useful mechanics and some particular descriptions of men or professions, there is no need of encouragement, while the policy or advantage of its taking place in a body (I mean the settling of them in a body) may be much questioned; for, by so doing, they retain the Language, habits and principles (good or bad) which they bring with them—Whereas by an intermixture with our people, they, or their descendants, get assimilated to our customs, measures and laws:—in a word, soon become one people.”

Alexander Hamilton has been portrayed in the recent blockbuster musical as a champion of Open Borders and immigrants’ rights, agreed with Jefferson and Washington, and argued strongly in 1802 against a (Jefferson) proposal to completely eliminate a fourteen-year requirement for naturalization (stemming from widespread alarm about excessive foreign influence in American affairs at a time when the new nation was threatened by both British and French ambitions). Alluding to those resulting insecurities and tensions, Hamilton allowed that

The present law was merely a temporary measure adopted under peculiar circumstances and perhaps demands revision. But there is a wide difference between closing the door altogether and throwing it entirely open; between a postponement of fourteen years and an immediate admission to all the rights of citizenship. Some reasonable term ought to be allowed to enable aliens to get rid of foreign and acquire American attachments; to learn the principles and imbibe the spirit of our government; and to admit of at least a probability of their feeling a real interest in our affairs. A residence of at least five years ought to be required.”

Riverdale Park Council Member Dixon’s threadbare 45-day residency requirement demonstrates just how unconcerned about this history, and these essential considerations, so many of our politicians have become – as well as how thoughtless.

Nevertheless, her arguments at least didn’t explicitly scorn the view that the Founders’ deserve any hearing. That belief was expressed by several town residents who spoke in favor of expanding the franchise. Responding to my summary of this history, one youngish woman dismissed the Founders as figures who favored denying women the vote and treating enslaved African-Americans as three-fifths of a person (as stated in the Constitution’s Article I, Section 2) for the purposes of allotting the number of Congress members for each state. (Hamilton, of course, was “accused” by many contemporaries of having a mixed race background). A similarly youngish man smirked that, he “had no idea what was in the minds of the Founding Fathers,” and suggested he didn’t especially care.

This is of course a classic instance of “presentism” – the mistake of judging historical figures entirely by contemporary standards. Worse, such sneering overlooks how leaders whose views on race and gender would of course (rightly) be regarded today as racist and sexist nonetheless recognized that times could change momentously for the new nation – and included in their new nation’s organizing framework procedures for approving comparably momentous changes.

Moreover, similar views have been expressed by someone who wasn’t a slaveholder or sexist. In fact, he’s a deserved icon of American progressivism – early twentieth century Supreme Court Justice Louis Brandeis. In a 1915 speech with a title – “True Americanism” – whose use by the left half of the political spectrum these days would be almost inconceivable, Brandeis spoke at length on the importance of assimilation.

He was no simple melting pot advocate. In fact, Brandeis explicitly stated that:

America has believed that we must not only give to the immigrant the best that we have, but must preserve for America the good that is in the immigrant and develop in him the best of which he is capable. America has believed that in differentiation, not in uniformity, lies the path of progress. It acted on this belief; it has advanced human happiness, and it has prospered.”

But Brandeis (whose parents were foreign born) also insisted that immigrants undergo Americanization, and that at its core, this concept entailed ensuring that a newcomer’s “interests and affections have become deeply rooted here. And we properly demand of the immigrant even more than this. He must be brought into complete harmony with our ideals and aspirations and cooperate with us for their attainment. Only when this has been done, will he possess the national consciousness of an American.”

Brandeis was emphatically optimistic that this task could be accomplished – not least because he credited many immigrants are “already truly American in this most important sense; who has long shared our ideals and who, oppressed and persecuted abroad, has yearned for our land of liberty and for the opportunity of abiding in the realization of its aims.”

But Brandeis also understood that the “E pluribus” (out of many) part of America’s national motto needed to become some meaningful form of “unum” (one) If only Riverdale Park – and all the other jurisdictions in Maryland and elsewhere in the United States that have either jumped on this bandwagon or are actively mulling this step – weren’t acting so determined to evolve beyond that vital ideal, too.

(What’s Left of) Our Economy: Beware the Fear-Mongering on the Trump Tariffs


, , , , , , , , , , , , , , ,

Well, there can’t be any doubt about it now. President Trump’s trade policy course changes – and especially his determination hike U.S. tariffs – are already harming American manufacturers and the broader economy. After all, this Bloomberg News post just told us so. Except if you examine it carefully, and add a little common sense info, there’s no reason to believe any of these claims – especially for the manufacturing sector.

According to this Bloomberg report, “Confidence gauges spanning small businesses, factories and the public at large are coming off the boil as U.S. tariffs on imported metals — along with threats and counterthreats over Chinese goods — roil the stock market and cast a cloud over what was otherwise a bright economic outlook.”

Manufacturers reportedly face especially serious threats:

The Philadelphia Fed’s index of business activity six months from now dropped 7.2 points to 40.7 in April, the lowest level since July. Earlier this week, a similar report from the New York Fed showed its future business conditions index registered the steepest one-month drop since the Sept. 11 terrorist attacks. Meantime, factories in both regions are reporting rising prices.”

And Bloomberg conveniently provided a chart displaying these reported “rising costs amid tariffs on imported metals.”

But the chart, and related macroeconomic data, actually represent compelling evidence that metals prices so far have had no discernible impact on U.S. manufacturing’s fortunes. Consider the following:

As the chart shows, the prices paid by inputs for factories in the Northeast sank significantly between 2014 and 2015. Steel prices fell especially sharply (largely because the Chinese government was fueling a massive global glut in this metal).

And according to official U.S. data, how did American domestic manufacturing fare? It grew in real value-added terms ( a measure of output preferred by many economists) by all of 0.90 percent.

The following year, according to the chart, prices these factories reported paying stayed very low, but began rising. Steel prices rebounded significantly, too. Manufacturing’s real value-added growth that year? About half the 2014-15 rate – 0.47 percent.

Those factory prices rose even faster the following year, and steel prices kept increasing. But the impact on America’s domestic manufacturing wasn’t exactly catastrophic. In fact, its annual real value-added growth nearly quadrupled – to 1.89 percent.

How on earth could this be? How about this as a starting point for an answer? Prices of steel or any other inputs aren’t the only influences on business performance. And they’re probably not the most important. For example, demand (aka “customers”) matter, too. In the United States, when those metals prices were dropping sharply between 2014 and 2015, price-adjusted economic growth turned in a solid 2.90 percent growth. The following year, when metals prices stayed unusually low, the real economic growth rate halved. And guess what also nearly halved? Manufacturing’s real value-added increase.

Even more interesting – between 2016 and 2017, when metals prices kept bouncing back, manufacturing’s real value-added jumped. Maybe in part because the economy’s overall growth rate increased by more than 50 percent, to 2.30 percent?

Looking at global growth (i.e., including foreign customers) yields similar conclusions. During that 2014-15 year of greatly reduced metals prices, pretty good U.S. growth but lousy manufacturing growth, the International Monetary Fund tells us that the global economy expanded by (a pretty poor) 3.10 percent. Chances are that feeble growth didn’t help America’s manufacturers, many of whom make much of their money by exporting.

Global growth only picked up to 3.20 percent the following year, but America’s growth tanked. The latter, then, seems to have mattered more to domestic manufacturers, as their own expansion rate fell by 50 percent. Between 2016 and 2017, however, when both the U.S. expansion and the global expansion sped up (the latter to 3.80 percent), American  manufacturing’s growth experienced that impressive takeoff. 

Now it’s true that the Trump metals tariffs could inflict greater harm on U.S. domestic manufacturers going forward, as they could impose on metals-users new costs that come on top of whatever global prices they need to pay at a given moment.  Nonetheless, it’s not like industry is exactly helpless to respond. For instance, it could start improving its productivity performance – which has been lousy on balance during this economic recovery. More productive sectors and companies of course can pass on input price increases without charging their customers more – and thereby undercutting their competitiveness.

At the same time, the metal-users’ loud complaints about the Trump tariffs point to a longstanding weakness of U.S. trade policy and especially the related body of trade law that the President has needed to rely on so far because the chief executive’s unilateral tariff-imposing authority is so limited. Because the trade law system, like U.S.-style legal systems generally, springs into action only when a specific complaint from private business is filed, its remedies are confined to that industry’s predicament. Not even the few trade cases initiated by the Obama administration or even the Trump administration have changed this pattern. (The sweeping tariffs on China sought in the President’s Section 301 intellectual property-centered action have come closest.) The tendency of such narrow-bore measures to enable foreign trade rivals to respond with divide-and-conquer tactics shows that two improvements should be made.

First, as proposed by my previous organization, the U.S. Business and Industry Council, industry-specific tariffs approved by the trade law system should be accompanied by similar protection for the “downstream” (i.e., user) industries. As a result, they would be much less likely to be victimized in the American market, anyway, by foreign competitors not saddled with higher input prices. 

Second, and even better, the administration should revive the Border Adjustment Tax that was part of the tax reform plan initially introduced by the House of Representatives’ Republican leaders. This measure, which would have worked much like the foreign Value-Added Taxes (VATs) used by most trading economies, would not only have provided the equivalent of protective tariffs for all U.S. goods and services facing import competition.  It would have boosted the competitiveness of all American exports in all foreign markets by providing the equivalent of a subsidy.   

Although President Trump initially (and weirdly) was cool to the Border Adjustment Tax, reportedly more recently he’s been changing his tune. Adopting this plan in particular could solve most of the economic as well as the political problems currently threatening his trade policies. 


(What’s Left of) Our Economy: Puzzling New Glimpses into U.S. Manufacturing


, , , , , , , , , ,

Two important sets of economic statistics came out today that shed lots of new light on the health of American manufacturing. Unfortunately, little of it is especially encouraging. In fact, some of it’s pretty mystifying.

The Commerce Department’s Bureau of Economic Analysis issued its annual report on the growth rates of different sectors of the U.S. economy. The main manufacturing finding: Industry’s annual growth rate did pick up last year according to a measure called real value-added (which leads off the report, and which attempts to eliminate the double-counting of output that occurs when broader gauges fail to distinguish between final products on the one hand, and their parts, components, and other inputs on the other). Yet the acceleration from a 0.5 percent yearly expansion in 2016 to 2017’s 1.9 percent trailed that output increase of the economy as a whole – which improved from 1.5 percent to 2.3 percent. As a result, the economy became slightly more manufacturing light in 2017.

In addition, within manufacturing, growth leadership shifted dramatically. Whereas the non-durable goods super-sector outperformed its larger durable goods counterpart in 2016 (with the former’s real value-added improving year-on-year by 1.2 percent while the latter’s slipped by 0.2 percent), durable goods rebounded to a 3.4 percent annual growth rate in 2017 while non-durables’ real value-added inched up by just 0.1 percent.

The American economy’s overall growth leader in 2017 in real value-added terms? The mining sector, which jumped by 8.5 percent after plummeting by 13.3 percent the year before. The next fastest-growing industries were administrative and waste management services (4.9 percent), corporate management (4.6 percent), and information services (four percent even).

Today’s second data set (from the Labor Department’s Bureau of Labor Statistics) shows which sectors within manufacturing last year excelled in terms of labor productivity (the narrower of economists’ two main measures of efficiency), and which lagged and, once more, many of the results were surprising. (We already know that industry in toto had a dreary labor productivity year last year.) For instance, computer and computer peripheral equipment led the way last year, generating eleven percent more output per employees hour worked. But next came apparel knitting mills, at 10.5 percent, followed by agriculture, construction, and mining machinery at 10.4 percent, and cutlery and handtools at 9.4 percent.

The biggest productivity loser in 2017? Miscellaneous transportation equipment, where it nosedived by 11.5 percent. In ascending order, the next worst performers were electric lighting equipment (down 9.2 percent), sugar and confectionary products (down eight percent), and beverages (down 7.8 percent).

Other manufacturing sectors whose labor productivity worsened on year in 2017? Pharmaceuticals and medicine (down seven percent), metal-working machinery (which includes machine tools – and where labor productivity declined by 1.3 percent), communications equipment (down 2.2 percent), semiconductors (down 0.7 percent), motor vehicles (down 4.1 percent), and aerospace products and parts (down 3.1 percent).

And if you’re thinking that this list of productivity losers includes lots of so-called industries of the future, you’re of course right. Kudos also if you’ve noted that aerospace is the economy’s biggest trade surplus industry. It’s enough to instill a little humility in those of us who think we’re getting a handle on this gargantuan, complex American economy, or heighten for those who had some already.

(What’s Left of) Our Economy: Some Surprising New Data on Manufacturing and Trade


, , , , , , , , , , , ,

That was some chart in this week’s newest International Monetary Fund (IMF) update on the world economy on how different countries (including the United States) have fared when it comes to increasing or maintaining their manufacturing employment and their manufacturing output. (The detail in the below reproduction is tough to see, but for the original, see p. 5 in the third chapter of the Fund’s April World Economic Outlook.) 

Quill Cloud


Looking at performance for 20 high-income countries and 20 low-income countries, it makes clear that, contrary to the conventional wisdom, there’s nothing unusual about national economies boosting manufacturing jobs as a share of total jobs, and manufacturing output as a share of total output, at the same time. So it’s a powerful retort to claims from American globalization cheerleaders that all over the world, in rich and poor countries alike, both manufacturing indicators are bound to fall in relative terms as economies inevitably evolve in more services-oriented directions.

And at the very least, it calls into question the notion that trade balances in manufacturing have little or nothing to do job loss in the sector in particular. For example, according to the chart, 22 of the 40 countries examined have boosted manufacturing as a share of their employment and their real value-added (a measure of output) from 1960 through 2015. And 11 of these were high-income countries, where the conventional wisdom says manufacturing’s economic importance is likeliest to shrink over any significant time frame.

Of these 22 countries, 17 ran surpluses in their combined goods and services trade in 2015. And nine were high-income countries.

Not that trade surpluses are automatic indicators of economic success: This group does include economically stagnant Italy as well as economically collapsing Venezuela. Spain, which experienced a terrible stretch during the last recession, is on this list, too – although it’s been a strong grower more recently. And there’s one country whose failure to qualify sure surprised me: Germany. Nonetheless, the countries that have excelled at manufacturing during this period also include major success stories like Chile, the Netherlands, Sweden, Ireland, Singapore, South Korea, Malaysia, and of course China (along with Japan, which is currently in the midst of its best growth stretch in nearly three decades).

Of course, the 1960-2015 time frame is still problematic at best, especially for China – since in 1960 it was still being run by leaders enamored with ideas like making steel in peasants’ backyard furnaces. But more recent comparisons between China and the United States look much more instructive – and supportive of the idea that a strong manufacturing trade performance is a great way to maintain robust manufacturing employment and production – and of its converse.

Let’s examine the post-2002 period – with the baseline chosen because that’s the year China actually joined the World Trade Organization, and began receiving WTO-style protection for its predatory, surplus-building trade practices. And for manufacturing output, let’s use pre-inflation value-added, since I wasn’t able to find inflation-adjusted data for China.

According to World Bank figures, manufacturing by this measure dipped from 31.06 percent of China’s economy in 2002 to 29.38 percent – a 5.72 percent decline. For the United States, between 2002 and 2015 manufacturing value-added as a share of gross domestic product (GDP) fell from 13.74 percent to 12.27 percent. That 10.70 drop-off was nearly twice that of China.

As for employment, Sinologist Nicholas Lardy of the Peterson Institute for International Economics (and no hardliner on China) has compiled Chinese statistics dating from 2003, and covering employment in the country’s cities. They show that manufacturing jobs as a share of this China total rose from 15 percent that year to 20 percent in 2014. In the United States during those years, manufacturing employment as a share of total non-farm jobs (the U.S. Bureau of Labor Statistics’ American jobs universe), dropped from 11.91 percent to 8.76 percent.

And nowhere have the manufacturing differences between the two economies been greater than in trade flows. For the first year of its WTO membership, China’s goods and services trade surplus (which was mainly in manufacturing) was $30.35 billion. By 2014, it was ballooned to $382 billion. During this period, the American manufacturing trade deficit shot up by just under 74 percent – from $362.64 billion to $629.53 billion.

So the new IMF chart (and related data) by no means ends the debate over whether trade balances impact national manufacturing employment and output. But if I was a globalization cheerleader, I’d sure hope they didn’t attract too much attention.

(What’s Left of) Our Economy: New Fed Figures Show Manufacturing’s Solid Growth Continuing – but Revisions Depress the Baseline


, , , , , , ,

Incorporating revisions going back to 2015, the Federal Reserve’s new March industrial production figures showed that inflation-adjusted U.S. manufacturing output growth has been even weaker recently than previously reported slowed substantially.

Annual constant dollar production for 2015, 2016, and 2017 were downgraded by 1.1 percentage points, 0.4 percentage points, and 0.3 percentage points, respectively. Leading industry down was the durable goods super-sector, where annual price-adjusted production was judged worse during these years by 1.3 percentage points, 1.2 percentage points, and 0.5 percentage points, respectively.

One silver lining: Manufacturing’s overall poor recent performance has helped produce strong year-on-year after-inflation growth figures for 2018, including a 3.25 percent March read that was the best annual gain since June, 2012’s 3.73 percent.

The new figures dragged inflation-adjusted manufacturing output down to 3.27 percent below its pre-recession peak – achieved more than eleven years ago, at the end of 2007. This March’s constant-dollar sequential production gain was a meager 0.07 percent. Recent monthly revisions were positive for February but negative for January.

Here are the manufacturing highlights of the Federal Reserve’s release on March industrial production:

>The big story in today’s new Federal Reserve industrial production figures were the annual revisions, which revealed that U.S. domestic manufacturing’s growth in recent years has been even slower than reported.

>According to the Fed, after-inflation manufacturing output for 2015, 2016, and 2017 was lower by 1.1 percent points, 0.4 percentage points, and 0.3 percentage points than previously reported.

>The revisions were even worse for the manufacturing’s durable goods super-sector – which accounts for more than half of industry’s production. It’s real annual output was judged to be 1.3 percentage points, 1.2 percentage points, and 0.5 percentage points lower than previously reported during this period.

>The reduced 2017 constant dollar output figures in particular, however, have helped produce strong yearly production growth in manufacturing so far this year, as March’s 3.25 percent annual inflation-adjusted output growth the sector’s best such performance since June, 2012’s 3.73 percent.

>Between the previous Marches, constant-dollar manufacturing output rose by just 0.64 percent.

>Nonetheless, the negative revisions mean that price-adjusted U.S. manufacturing production is now 3.27 percent below the level it hit just before the last recession hit – more than eleven years ago, at the end of 2007. As of the Fed’s last pre-annual revision monthly production report (for February), industry was only 1.49 percent smaller in price-adjusted terms than at the recession’s onset.

>Despite this annual performance, after-inflation manufacturing output edged up by only 0.07 percent sequentially in March.

>February’s robust monthly real growth was revised up from 1.27 percent to 1.51 percent – its best such performance since July, 2009’s 1.61 percent – at the very beginning of the current recovery.

>Although its 2015-2017 was unimpressive, the durable goods sector has fared well this year, too.

>Its March monthly growth was a solid 0.39 percent, and February’s blistering 1.78 percent figure was revised up to 1.84 percent – the biggest such increase since May, 2010’s two percent.

>One recent blot on the durable goods’ 2018: January’s monthly output change was revised down for a second time – from a 0.18 percent decline to a 0.25 percent drop-off.

>Durable goods production has shone this year on an annual basis, too. The March 3.82 percent upsurge in price-adjusted terms was the strongest such performance since July, 2014’s 5.79 percent.

>Between the previous Marches, real durable goods production improved by only 1.23 percent.

>After inflation, durable goods production is now 1.20 percent above its December, 2007 pre-recession peak.

>Real production in the non-durable goods sector for the 2015-17 period as a whole was revised down, too, but not as significantly as in durables or manufacturing as a whole. Annual production for 2015 and 2017 by 0.8 percentage points and 0.1 percentage points, respectively. But real output was revised up by 0.4 percentage points for 2016. 

>In non-durables, a relatively poor 2017 has helped produce much better 2018 annual growth. March’s year-on-year output increased by 2.67 percent in real terms – its best such performance since June, 2010’s 2.98 percent. Between the previous Marches, inflation-adjusted non-durable goods production rose only fractionally.

>On a monthly basis, however, non-durable goods’ real output slipped by 0.27 percent. Yet February’s previously recorded 0.71 percent sequential improvement was upgraded to 1.16 percent – the best such performance since October’s 2.37 percent, which reflected a rebound from hurricane-related setbacks suffered by many key sectors highly concentrated near the Gulf of Mexico.

>Still, the non-durables super-sector continues to struggle to recover from the Great Recession. Its real output remains 8.45 percent below its pre-downturn peak, hit in July, 2007.

(What’s Left of) Our Economy: Why Trump was Still Right to Nix Obama’s TPP Trade Deal


, , , , , , , , , , , , , , , ,

At first I was irritated with President Trump for his expressions of interest this year in reviving U.S. efforts to join the Trans-Pacific Partnership (TPP) – the Pacific Rim-wide trade agreement that former President Barack Obama couldn’t persuade Congress to ratify, and that Mr. Trump removed from America’s policy agenda during his first week in office.

I still wish the President had kept the TPP consigned to the proverbial ash heap of history. But I do see one silver lining in his apparent about-face: the new opportunity it creates to remind how awful the Obama TPP was, and in particular how cynical the case that it represented a masterful ploy to contain the rise of Chinese power regionally and globally, and even shape it to serve America’s goals of sustaining an open world trading system.

In fact, it’s entirely possible that Mr. Trump’s apparent new openness to TPP results at least partly from widespread claims from mainstream politicians and analysts that its multilateral nature endowed the deal with much more potential to curb China’s trade predation than the unilateral tariffs he’s announced.

Yet this contention is the one that’s most easily refuted. First, the version of the treaty signed by Obama contained a wide open back door for many Chinese exports by allowing goods that contained high levels of content produced outside the TPP zone to be traded freely within the zone. Given how central China is to Asia-wide production chains, these loose rules of origin were bound to enable China to enjoy crucial benefits created by the TPP without incurring any of the obligations.

Second, until the eve of its departure from office, neither the Obama administration nor any TPP supporters in Congress or the mainstream media or the think tank world lifted anything more than the occasional pinky even to protest perhaps the principal source of China’s rising economic and military power – the massive transfer of cutting edge knowhow, along with capital, from U.S. tech companies to Chinese business partners or other institutions, either voluntarily (including through shortsighted training programs and investments in Chinese entities) or involuntarily (due to Beijing’s widespread practice of linking access to the China market to the handover of critical technology).

The sudden transformation of these corporate panda-huggers and their hired American guns into China skeptics and even hawks has demonstrated nothing more than that national security is the last refuge of a trade policy scoundrel – especially since by all accounts, U.S. technology and investment continue pouring into China – including defense-related tech. (See here and here for some evidence.)

Third, there’s no reason to believe that most of the other key TPP members have any interest in turning China into a free-trading economy. Quite the contrary. Whether it’s Japan or Singapore or Vietnam or Malaysia, most of the treaty’s most important countries have followed China-style economic development models (except when they’ve borrowed from Japan’s somewhat different but of course much earlier blueprint). And economic openness emphatically isn’t in the recipe. What’s central to these strategies is amassing trade surpluses with the United States and the rest of the world to help generate adequate levels of growth and employment.

The bottom line: Most TPP countries knew that effective disciplines on the trade predation largely responsible for China’s surpluses could be used against their own subsidies and non-tariff barriers. Conversely, it’s surely the reason that these economies accepted the paper curbs on mercantilism that are mandated by TPP. They’re rightly confident that thanks to the secretive bureaucracies that keep their economies effectively closed – and their barriers difficult for outsiders even to identify, much less litigate – none of these curbs is remotely enforceable.

Even better for TPP’s mercantile majority, the treaty’s dispute-resolution system ensured that the United States would be repeatedly outvoted when it sought to advance or defend its interests.

That’s why the TPP was so likely to supercharge America’s already enormous and economically damaging trade deficits. The TPP mercantilists’ liberalization promises would do nothing substantial to open their markets and increase U.S. export opportunities. But America’s TPP commitments, carried out by a government characterized by transparency, would be very effective guarantees that the American market would remain wide open to the TPP majority’s products.

President Trump has demonstrated that he recognizes many of these fatal flaws in the Obama TPP. His stated preference for bilateral over multilateral trade deals suggests an understanding that the former give the United States much more legal authority in dispute resolution. Moreover, he has explicitly tweeted that he’d only back rejoining the TPP if major fixes were made.

Precisely because he’s the only American President in recent memory to show any interest in changing the nation’s ill-considered trade status quo, and any awareness that the United States retains ample leverage to achieve its trade objectives unilaterally, I can’t rule out the possibility that Mr. Trump might turn TPP into a winner for the U.S. domestic economy (as opposed to the importing and offshoring lobbies).

But the main lesson that should be taken from decades of American trade diplomacy with Asia is that economies structured to promote exports and limit imports are going to stay substantially closed no matter what promises they make. Therefore the best course for the United States to make is to expend its energy and resources on reducing its economic engagement with Asia, rather than trying to remake the region in anything like its own image.

Our So-Called Foreign Policy: Syria, Round II


, , , , , , , , , , ,

About a year ago, when President Trump first ordered airstrikes to punish Syria for using chemical weapons in its civil war, I made the case for not jumping to the conclusion that the chief executive had betrayed his promises to carry out an America First-style foreign policy. This weekend of course came a second set of Syria strikes, with the same declared objective, and I still believe that they don’t herald a new burst of (futile, if not counterproductive) interventionism in the Middle East. My main reason: Mr. Trump’s own words in announcing the attacks.

At the same time, don’t think that I’m incredibly confident that I’m right.  

First, the reasons for some confidence about where Syria policy is headed. According to the President, he’s under no illusion that either limited American uses of military force or more comprehensive policies will cure what ails Syria or the completely dysfunctional and failed Middle Eastern neighborhood in which it lives. In his words, not only is he opposed to “an indefinite presence in Syria.” He declared more broadly:

Looking around our very troubled world, Americans have no illusions. We cannot purge the world of evil or act everywhere there is tyranny.

No amount of American blood or treasure can produce lasting peace and security in the Middle East. It’s a troubled place. We will try to make it better, but it is a troubled place.”

In other words, Mr Trump is rejecting the globalist premises of his post-World War II predecessors. Reflecting the ostensible (and, it seems, eternal) lessons of appeasing fascist dictators during the 1930s, they have held that aggression or turmoil or instability or (fill in the upsetting development of your choice) anywhere are all too likely to escalate into crises that will eventually threaten the United States.

As a result, American forces repeatedly have been ordered into backwater conflicts with no intrinsic potential to affect U.S. security, prosperity, or freedom in any tangible way. But given the consequent globalist resolve both to nip these problems in the bud, as well as to address their underlying causes, they have demonstrated plenty of potential to mire the country into a series of costly quagmires.

Therefore, even though Mr. Trump – like former President Barack Obama before him – has described the airstrikes as essential for upholding a global norm (decades-long international bans on the “ghastly,” “barbaric,” and “brutal” use of chemical weapons), he seems to believe that this military practice can be isolated not only from whatever deep-rooted economic, social, and cultural failures have produced the strife that has occasioned their use, but from that consequent conflict itself.

But I’m worried about three big caveats. First, as long as the Syria civil war lasts, the more apparent it will become that limited actions like airstrikes won’t prevent atrocities like chemical weapons use, and the greater the temptation for more ambitious measures judged likelier to achieve their aims – but also capable of triggering a conflict with Russia, which like the United States has officials and military personnel in Syria.

Second, although the President has portrayed Syria as a conflict from which the United States can soon walk away, this analysis depends on claims that deserve major skepticism, to say the least – like the final defeat of ISIS (and, by extension, all jihadist terrorism?), and the possible emergence of a regional coalition of Sunni Arab states that “can ensure that Iran does not profit from the eradication of ISIS” and spread its influence across the Middle East.

After decades in which the American people have been told (rightly) that the region can endanger their security (via that terrorism) and their prosperity (via its gargantuan oil supplies), these positions will invariably look like naive hopes if the President’s rosy scenario doesn’t pan out. In fact, they could well spur calls for deeper and more dangerous U.S. involvement – even from an understandably skeptical public.

What’s of course supremely ironic about that dilemma is that important elements of the Trump domestic programs look like much more promising ways to shield the nation from Middle East threats than the globalist strategy he’s partly embraced of “fighting ’em there so we don’t face ’em here,” and promoting prosperity by trying to control a dizzying array of events abroad.

As I’ve written repeatedly, it makes much more sense to deal with terrorism by “keeping them out of here” through the kinds of serious border security programs the President endorses, and to continue breaking the region’s strong choke hold on global energy supplies by supporting the production revolution that American energy companies have engineered at home.

The third reason for concerns about a more interventionist Trump foreign policy has to do with his appointment of John R. Bolton as his national security adviser. Bolton, a former (interim) U.S. UN ambassador during George W. Bush’s presidency, is a strong, lifelong supporter of using the American military to solve all manner of national security challenges abroad.

It’s true that, unlike most globalists, Bolton seems to believe that these challenges will stay solved without any kind of nation-building- or democracy promotion-type follow-on. Hence his unrepentant support for the Bush administration overthrow of Iraq’s Saddam Hussein  – without a serious plan for the war’s aftermath. In all, it’s worrisome for believers in an America First approach to foreign policy that Bolton’s often trigger-happy voice could often be the last one Mr. Trump hears before making a momentous strategic decision.

Bottom-line: The slope leading from America’s current approach to Syria and the Middle East’s turmoil in general to another major war isn’t completely slippery. But it’s hard to be confident that President Trump’s footing is completely secure, either.