Those Stubborn Facts: Why Trade-Related Job Loss Really Does Matter


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Number of net U.S. jobs lost to “expanded trade with China”, 1999-2016: 2.65 million

Number of net U.S. jobs lost to “adoption of industrial robots,” 1999-2016: 1.40 million

(Source: “Explaining the Decline in the U.S. Employment-to-Population Ratio: A Review of the Evidence,” by Katharine G. Abraham and Melissa S. Kearney, NBER Working Paper No. 24333, Labor Studies Program, National Bureau of Economic Research, February, 2018,


Im-Politic: Gunsense


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Monday’s post on the Parkland, Florida high school shooting generated some vigorous debate both in RealityChek‘s comments section and on other social media platforms on which it was posted. And since for the foreseeable future, we’ll all rightly be discussing this tragedy and how to prevent or cut the number of repeats, here are some further thoughts, in no particular order.

First, I have no credentials as a moral or any other kind of philosopher, but it strikes me that President Trump’s characterization of the shooting as an “evil massacre” misses the point, and in fact clashes with his focus on dealing with the gun violence issue largely through improving the nation’s mental health system. For nothing could be more obvious to me, anyway, than that Nikolas Cruz is an example of a deeply disturbed, and probably broken, individual, not a villain. Of course, that’s not to excuse his actions, but can anyone seriously doubt that he fits the description made – and pretty compelling so, in my opinion – in the President’s initial post-Parkland remarks of children “who feel lost, alone, confused or even scared,” and who need to know that “You have people who care about you, who love you, and who will do anything at all to protect you”?

Second, despite the clear mental health dimension of the school shootings problem, no one should assume that even massive action on this front will solve or even ease it any time soon. After all, therapy is an imperfect science at best. When it succeeds, it tends to work slowly. It’s especially difficult with youth who don’t fully buy in – which young people in need almost by definition tend to resist, at least at first. (The same of course applies to adults.) Requiring suspects to submit to treatment necessarily entails curbs on their individual rights, and therefore a society that prizes such rights naturally sets relatively high bars. Incidentally, these rights considerations apparently greatly slowed the process of transferring Cruz from a regular public school to a special school for kids with serious psychological issues.

I have no doubt that expanding the treatment system will solve some of these problems, and that it’s possible to somewhat ease the barriers to mandatory treatment, and to improve the communications among schools, law enforcement, and social service agencies tasked with identifying “red flag” situations. But I’m also impressed by the conclusion of this California mental health professional that “Even if all potential mass shooters did get psychiatric care, there is no reliable cure for angry young men who harbor violent fantasies.” (I disagree with her claim that “mental illness is rarely the cause” of mass shootings due to my aforementioned belief that committing violence on this scale, especially against the innocent victims of these attacks, is prima facie evidence of mental illness.)

Third, I strongly disagree with calls responding to the school shooting outbreak by arming teachers or school administrators. Even if these educators were experienced with firearms, the vast majority surely would have no experience conducting what could well wind up being protracted gunfights. Moreover, in order to succeed, schools would have to be harboring lots of guns. Even if virtually all were securely stored virtually all the time, the inevitability of exceptions creates the possibility of discharges, accidental or not, by students, along with serious injuries or fatalities.

There’s obviously a real school problem with school security, but it overwhelmingly entails overly easy access to campus by outsiders, and by enrolled students carrying guns. So the best response would seem to be ending the practice of open campuses, and monitoring and restricting access via limited numbers of entrances and exits and professional armed security guards who would be authorized to search any students or visitors. In principal, students could still be exposed to shooters during outdoor recess periods, but other armed guards could be regularly patrolling schools’ perimeters.

For those concerned that the nation’s private security services couldn’t be trusted to handle these responsibilities because their own profit motives would bring onto school grounds too many guards with threadbare training or dicey backgrounds, the National Guard could be made available. Alternatively, taxes could be raised to enable local police forces to get the job done adequately.

None of these insights or measures would address the social and cultural problems I emphasized Monday. But they do hold the promise of saving lives, and at an eminently reasonable cost – i.e., of making sure that the perfect isn’t made the enemy of the good.

Our So-Called Foreign Policy: More Upside-Down U.S. Thinking on the Korea Crisis


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It was great to see earlier this month that Walter Russell Mead was chosen by The Wall Street Journal to be its regular foreign affairs columnist. Mead has often (though not always) been an important voice for a broadly realist approach to American foreign policy (meaning one that understands the need to set at least some finite priorities because not all good things are possible simultaneously). He’s also been a serious and insightful student of U.S. diplomatic history. Therefore, his new position seemed to guarantee that some badly needed diversity would be added to a Mainstream Media pundits lineup that has long been completely dominated by globalists of the left and right. (The Journal has specialized in the latter.)

That’s why it was so disappointing to see that in his recent, second Journal offering, Mead has lapsed into the thoroughly bizarre (but characteristic) globalist habit of viewing America’s security alliances as mattering more to the United States than to the allies.

The passage in question comes about a third of the way in. According to Mead, the real diplomatic winner of the current Winter Olympics in South Korea is not, as widely reported, Kim Yo Jong, the visiting sister of North Korean dictator Kim Jong Un. Instead, it was South Korean President Moon Jae In. That’s a perfectly reasonable conclusion. So was the first part of Mead’s explanation: “Mr. Moon got a political boost from Ms. Kim’s visit and the appearance of a thaw between the Koreas, but he avoided the backlash from appearing naive or overeager.”

It’s the second part of the author’s analysis that has gone off the deep end: Moon “also reminded the Americans that South Korea cannot be taken for granted; without Seoul’s support, the Trump administration’s North Korea policy is unsustainable.”

Actually, in a narrow sense, Mead makes a novel and (disturbingly) convincing case for this proposition: The campaign to force North Korea to the nuclear bargaining table

has been Mr. Trump’s most effective diplomatic and political effort to date. The administration has moved B-1 bombers and F-35 fighters to the Korean Peninsula during annual military exercises. It has reached out diplomatically to countries ranging from China to Indonesia. It has coordinated speeches by officials at the Pentagon, State Department and White House to keep the government on message.

This is the sort of orchestration that the Trump administration, and the president in particular, is supposed to be too undisciplined to carry out. The relative success of the North Korea process suggests that Mr. Trump and his staff may be more capable than critics expected in operating the complex machinery of American power.”

It’s certainly possible that, at least in an unwitting way, the President and his aides place precisely this value on their North Korea strategy. But if so, the administration would be prizing image-making over elements of strategy that are not only fundamental, but existential – and needlessly exposing the United States to the risk of nuclear attack in the process.

For even if the Trump-ers are clinging to the appearance of success or competence in their North Korea policy, the overriding reality is that American power right now is the only obstacle currently blocking a North Korean military conquest of the South, or a South Korean future dominated by endless blackmail from the militarily superior North.

Consequently, although a successful American North Korea strategy could burnish the Trump administration’s resume, and possibly shore up its domestic political support, for South Korea, it’s literally a matter of national survival at worst and of genuine independence at best.

Unfortunately, moreover, Mead’s column also explicitly makes the broader and completely ludicrous globalist argument that allies like South Korea enjoy at least as much leverage in these relationships as the United States. And as a result, he too overlooks the yawning asymmetry in the respective sets of national interests involved.

Hence his contention that crucial to any diplomatic effort to denuclearize North Korea is “the need to keep America’s alliances united. The Winter Olympics kerfuffle should remind the White House that maintaining coordinated policies with Mr. Moon will be vital in the months and years to come.”

Far more important to recognize, however – and especially given the emergence of nuclear risk to the U.S. homeland – is that by virtue of geography and military power, the United States boasts inherent options in the Korean crisis that South Korea lacks. And the principal such option is washing the nation’s hands of this entire mess.

So if any party to this relationship needs to avoid taking the other for granted, it’s South Korea. All the more so because, as I’ve written, the “tripwire” mission of U.S. forces in South Korea aims to ensure that, in the event of war, Washington comes to the South’s rescue with nuclear weapons – and before too long could thereby trigger a successful North Korean nuclear strike on an American city.

That’s not to say that South Korea lacks the right to take the lead in Korean Peninsula diplomacy, or any legitimate interests in doing so. It merits exactly these rights and interests, precisely because no country outside the peninsula has remotely comparable stakes in a peaceful resolution.

But by the same token, the United States has the right to insist that any country expecting America to run catastrophic risk on its behalf pay a price in the form of deferring to its judgment. And for the sake of the American people’s security, their leaders have an overriding obligation to remind such allies that, if they’re unhappy with these terms, they will be more than welcome to handle whatever threats they face on their own.

Im-Politic: Listen Closely to the Florida Students


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As I’ve written before, the upsurge in school shootings and other mass shootings in America must surely stem from multiple causes. Aspects of U.S. gun laws clearly are defective. But broader social and cultural trends are at work as well.

The student survivors of last week’s Florida school shootings who are demanding that their elders more effectively protect them and their generation – and of course all other potential victims – deserve major credit not only for the passion and eloquence with which they are pressing the case, but for recognizing that better mental health care is essential along with better ways of keeping guns from the other Nikolas Cruz’s in U.S. classrooms.

Nonetheless, there’s a gap between their clear prioritization of gun control on the policy level, evident in their anger at the National Rifle Association, and an emotion that seems much more elemental – and compelling. Moreover, it’s doubtful that any single new law or set of new laws will make a major difference on this particular front. Consider the following statements:

>From a student survivor: “We had been doing drills on this in the past month. In every single class period, my teachers had gone through safety protocols. We have safety zones, we have protocols for every single emergency….”

>From another student survivor: “If our legislators don’t take action, how can we ever feel safe?” (Same source.)

>From that same survivor: “…I will not feel safe going back to school myself until reasonable mental health care legislation and gun control legislation is passed. Because, at this point, it’s unacceptable. How many more students are going to have to die and have their blood spilt in American classrooms, trying to make the world a better place just because politicians refuse to take action?” (

>From a student at a neighboring school: “I’ve seen these shootings happen my whole life. I’ve grown up with them. I remember Sandy Hook. I remember every single one.” (Same source as the second quote.)

It’s painfully obvious, at least to me, that what we’re being told here is that these young people are literally terrified that the kid sitting next to them, or the one sitting alone at the far end of the lunchroom, or the one who was just expelled, or one of the aimless, surly slightly older kids or twenty-somethings hanging around the neighborhood or the mall, literally is a ticking time bomb capable of exploding at any times. Moreover, the adults who have raised them and teach them are alarmed by these threats, too.  And these (all too believable) fears reinforce can’t help but reenforce the contention that something terrible has happened in America in recent decades that has turned entirely too many adolescent boys in particular into actual or potential killing machines.

Columnist Peggy Noonan made this point with her characteristic common sense and eloquence in The Wall Street Journal last week. It’s definitely worth your while. (For the record, however, I’m not entirely convinced about the abortion point.) And if you think such claims are simply right-wing talking points, take a look at this 2002 piece in The Atlantic – no conservative stronghold.

As I’ve written, it’s absolutely true that school and other mass shootings don’t happen in other high-income countries where young people are exposed to the same kind of toxic pop culture that prevails in the United States (although where the breakdown or family and community haven’t been nearly so advanced?) – which strongly supports the belief that tighter gun control is the key to stopping them or dramatically reducing the numbers. But it’s also true that these tragedies were much rarer earlier in American history, when guns were much more widespread.

So again, I strongly applaud the activism of the Florida students. I hope it doesn’t fade. I hope it helps shame American leaders into taking more productive action. But I also hope the students, their peers, and other Americans start asking more persistently not only why so many young people can so easily buy or otherwise access shockingly destructive weapons, but why they want to.

Im-Politic: Where’s the Collusion?


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Although you wouldn’t know it from the Mainstream Media coverage (see the especially egregious front page or home page of yesterday’s Washington Post), the biggest story told by the Justice Department indictments of Russians said to have meddled in American politics and the 2016 presidential election was not the additional evidence of this campaign’s existence, and how it undermines President Trump’s numerous statements denying or belittling Moscow’s efforts.

Instead, it was the evidence that, after eight months of investigation, Special Counsel Robert S. Mueller III has presented no reason to believe that anyone connected with the Donald Trump’s presidential campaign colluded with Russia to help him win the White House; that what his probe has found is a Russian meddling campaign with multiple, overlapping objectives that aimed to help several 2016 presidential hopefuls and roil American politics in many ways even (and especially?) after Election Day; and that this apparent Russian effort began long before anyone other than (possibly) Mr. Trump thought he would seek the presidency.

Interestingly, finding number two dovetailed with my post from a week ago, which spotlighted a New York Times story which made the point about Russia’s post-election aims going far beyond propping up President Trump.

Despite the media focus on the indictment’s description of the Russian campaign and its contrast with the president’s alleged indifference to it, it’s crucial to remember that this document is an indictment, not a legal conviction. The defendants still deserve the presumption of innocence when their day in court comes (assuming any will ever stand trial).

And despite the media focus on the Trump denial angle, it’s even more important to recognize how devastatingly the indictment undermines the collusion charge that’s constituted the main fear about Russia’s interference.

First, the indictment makes only one mention of any contacts of any kind between anyone involved in the Trump campaign and these alleged Russian operatives. It comes in paragraph 45:

Defendants and their co-conspirators also used false U.S. personas to communicate with unwitting members, volunteers, and supporters of the Trump Campaign involved in local community outreach, as well as grassroots groups that supported then-candidate Trump. These individuals and entities at times distributed the [interference] ORGANIZATION’s materials through their own accounts via retweets, reposts, and other means. Defendants and their co-conspirators then monitored the propagation of content through such participants.”

Of course, the word “unwitting” is decisively important. It means that, the view of Special Counsel Mueller, the Trump-ers who were communicating with the Russians had no idea that they were dealing with agents of a foreign government. So by definition, they couldn’t have been colluding with Moscow.

Just as important, even though by now of course Mueller and his team know about controversial contacts between obvious agents of the Russian government and various Trump-ers that previously have ignited major controversy, the indictment never mentions them. These include the Russian U.S. ambassador’s two encounters with then-Senator Jeff Sessions, which ultimately led to Session’s recusal as Attorney General from the “Russia-Gate” investigation and Mueller’s appointment in the first place; and his conversations with former Trump administration national security adviser-designate Michael Flynn during the transition.

Nor does it mention the meeting in Trump Tower in New York City between one of Mr. Trump’s sons, his son-in-law and now senior White House aide Jared Kushner, and then-Trump campaign manager Paul Manafort, with a lawyer Donald Trump, Jr. was told was “a Russian government attorney.” Trump, Jr. was also told that this attorney (who, for what it’s worth, has denied any connections with the Kremlin) was offering what was described by the Trump, Jr. friend who instigated the eventual meeting as

some official documents and information that would incriminate Hillary and her dealings with Russia and would be very useful to your father. This is obviously very high level and sensitive information but is part of Russia and its government’s support for Mr. Trump…..”

Reportedly, the Special Counsel is investigating the meeting. But also, reportedly, his focus is not on the event itself but on statements that the President himself and top aides made on the subject that appear to be misleading, and that therefore could represent obstruction of justice. Obstruction of course is a serious offense, but the Trump Tower meeting itself clearly is more germane to the all-important collusion charges.

Moreover, the Special Counsel has had full access to the contents of all the wiretapped conversations between the other aforementioned prominent Trump supporters or advisers and the Russians with whom they met. (According to the CNN post linked above, the Trump Tower meeting was not wiretapped.) And apparently – again after months of investigation – nothing said at these meetings has convinced Mueller and his staff that collusion, or any indictable offense related to the Russia-Gate narrative, took place.

The second way in which the indictment undermines the collusion charge is by specifying that Mr. Trump was not the only political candidate that the Russians supposedly sought to bolster in the 2016 campaign, and that they actually began working against him immediately after the election.

According to paragraph 2, the Russian defendants:

conspired with each other (and with persons known and unknown to the Grand Jury) to defraud the United States by impairing, obstructing, and defeating the lawful functions of the government through fraud and deceit for the purpose of interfering with the U.S. political and electoral processes, including the presidential election of 2016.”

In paragraph 6, the indictment states that “Defendants posted derogatory information about a number of candidates, and by early to mid-2016, Defendants’ operations include supporting the presidential campaign of then-candidate Donald J. Trump…and disparaging Hillary Clinton.” This charge restates the preceding point that supporting Mr. Trump was not the interference operation’s only goal. So does paragraph 10 (e), which refers to the Russians’ “stated goal of ‘spread[ing] distrust towards the candidates and the political system in general.”

Paragraph 33 accuses Moscow of writing “about topics germane to the United States such as U.S. foreign policy and U.S. economic issues. Specialists were also instructed to create ‘political intensity through supporting radical groups, [social media] users dissatisfied with [the] social and economic situation and oppositional social movements.”

Paragraph 43 refers to “operations primarily intended to communicate derogatory information about [Democratic nominee] Hillary Clinton, to denigrate other candidates such as Ted Cruz and Marco Rubio, and to support Bernie Sanders and then-candidate Donald Trump.” (Green Party candidate Jill Stein was also identified, in paragraph 46, as a politician backed by the operation.)

It’s clear that one of the Russians’ top priority was defeating Clinton. And the possibility still remains that Moscow believed it had so compromised Mr. Trump – e.g., through the salacious, though unverified, information in the Steele Dossier (compiled by a former British intelligence agent whose work of course was funded by the Clinton campaign) – that its ultimate aim was a Trump victory and an American president it could blackmail and manipulate on an ongoing basis.

Yet there’s another more obvious explanation for the anti-Clinton focus: She was widely viewed not only as the overwhelming favorite to win the Democratic nomination, but as the overwhelming favorite to win the fall election. Indeed, the latter belief lasted till election night itself. In other words, had one of the other Republican candidates defeated Trump, and become fully competitive with Clinton, it stands to reason that they would have become a major Russian target, too.

Further, the narrative emphasizing that the Russians viewed Mr. Trump as an ideal Manchurian Candidate completely falls apart upon considering two other indictment findings. First, the Russian interference campaign was conceived considerably before Mr. Trump declared his presidential candidacy – which on that day in 2015 was, to put it mildly, viewed as a long shot.

As stated in paragraph 3, “Beginning as early as 2014, Defendant ORGANIZATION began operations to interfere with the U.S. political system, including the 2016 U.S. presidential election.” More specific references to a gearing up period in 2014 can be found in paragraphs 9, 10 (d) and (e), 29, 42, 58 (a), and in numerous descriptions of indicted individuals joining the operation and of their specific activities.

Moreover, as common sense would indicate, for an operation (especially one this substantial) to be running in 2014, planning, and the original formulation of the plan, would have needed to start even earlier. That’s why in paragraph 10, the indictment tells of the umbrella organization registering as a “Russian corporate entity” with the Russian government “in or around July, 2013.” If you had any inkling then that a Trump candidacy in 2016 was remotely conceivable, patriotism should impel you to join a U.S. intelligence agency immediately.

The second finding undercutting the idea of placing a manipulable traitor in the White House is the evidence presented that, almost immediately after Election Day, the Russians began stoking and coordinating both pro- and anti-Trump activities. You can read about them in paragraph 57. And then ask yourself how “protesting the results” of the election and fostering the idea that “Trump is NOT my President” were supposed to enable the victor to aid and abet a pro-Moscow agenda, as opposed to reducing his effectiveness?

For all I know, a new collusion bombshell charge, or an actual smoking gun, could be produced tomorrow in the media. New Mueller announcements or the various Congressional probes may seal the collusion case as well – perhaps with new evidence about the activities of Sessions or Flynn, or other individuals implicated in these events in various ways. (Although again, why haven’t the contents of the wiretapped conversation sufficed?)

But as long as they don’t, especially given the intense hostility of the President’s opponents – including those inside the government – the collusion case is going to look increasingly flimsy, and increasingly political. For if there really might be a traitor in the Oval Office, there’s simply no time to lose.

In the meantime, the “Russia-Gate” theory that looks best is the one I described last week – a chaos-focused operation aimed at whipping up as much American political division and sheer anger as possible, through whoever could advance this goal at any given moment, and whoever prevailed in 2016. Perhaps it’s too cynical (and partisan) to venture that the longer the scandal charges remain in the air, the more the Democrats and Trump’s establishment Republican foes benefit. But there’s no doubt that, the longer the Russia-Gate fight drags on, the better for Moscow and all of America’s foreign adversaries.

Making News: Yesterday’s CNBC Interview on Trump Tariffs, & Edward Harrison on Populism’s Roots!


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I’m pleased to announce that the video is on-line of my interview yesterday on CNBC on the possibility of Trump administration steel and aluminum tariffs. Click here to see the segment, which includes the teachable moment in which I inform anchors Kelly Evans and Bill Griffeth that much and maybe most of the trade taking place around the world isn’t free.

Also, late last year, I had the fascinating experience of some reverse role-playing – conducting an interview for the Henry George School of Social Science with an exceptionally insightful thinker on economics, finance, and politics:  Edward Harrison.  Our subject?  Edward’s argument that the recent populist wave in the United States and Europe largely stems from public anger over the worsening crony capitalism and related growth of monopolies and oligopolies on both sides of the Atlantic.  Here’s the link.

It’s also great to report that Edward recently joined me on the Board of Trustees of the Henry George School. We’re starting to come out with a series of exceptionally interesting books, studies, and hold compelling conferences, seminars, and similar events. In fact, it’s likely I’ll be conducting some more interviews in the School’s SmartTalk series. So if you’re interesting in exciting new thinking about economics, finance, and their relationships, make the website one of your regular surfing destinations! Ditto for Edward’s own site: Credit Writedowns.

Making News: On CNBC This Afternoon on Steel and Aluminum Tariffs!


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I’m pleased to announce that I am slated to appear on CNBC’s “Closing Bell” program today to discuss the options that President Trump has just received from his advisers on whether to impose tariffs on imports of steel and aluminum. The segment is scheduled for 3:10 PM EST.

Apologies for the late notice – but that’s the news biz! As usual, for those unable to view the program, I’ll post a streaming video of the interview as soon as one’s available.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: Important New Backward Steps Revealed for U.S. Manufacturing Output


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I somehow overlooked the release yesterday of the January industrial production figures, but that’s no reflection on the results’ importance. For they not only revealed that U.S. inflation-adjusted manufacturing output growth has ground to a near halt for the last two months, and has slowed markedly after rebounding strongly after last autumn’s hurricanes. They showed that this weak performance, along with negative revisions, pushed such production farther below its pre-recession peak. Here are the manufacturing highlights of yesterday’s Federal Reserve report:

>According to the Federal Reserve, real sequential growth in U.S. manufacturing in January was a mere 0.08 percent. Combined with a December figure now revised from similar negligible growth to a slight dip, and other negative revisions, domestic industry’s expansion has now slowed to a near-standstill. Moreover, the impressive rebound from last autumn’s hurricane-related setbacks has now petered out.

>December’s manufacturing output figure was downgraded from a 0.08 percent monthly increase to a 0.02 percent contraction. November’s 0.31 percent sequential growth is now judged to be 0.25 percent, and October’s monthly post-hurricane 1.50 percent bounce-back has been reduced to 1.37 percent growth.

>As a result, whereas last month’s industrial production report, reported American domestic manufacturing as 2.25 percent smaller in price-adjusted terms than at its pre-recession peak (reached in December, 2007), it’s now 2.43 percent below that level.

>Constant dollar output in the durable goods super-sector of manufacturing advanced by 0.15 percent on month in January – meaning that its growth has slowed for four straight months. Revisions here were also negative.

>December’s real durable goods production improvement was revised down from 0.27 percent to 0.23 percent, November’s from 0.43 percent to 0.41 percent, and October’s from 0.54 percent to 0.49 percent.

>A similar story has unfolded for the non-durable goods super-sector. Its month-to-month real output was up fractionally in January, and recent months’ revisions were downgrades.

>December’s 0.12 percent monthly after-inflation output dip is now judged to be a 0.29 percent decline, November’s 0.17 percent increase is now estimated at 0.08 percent, and October’s post-hurricane rebound has been revised down from 2.57 percent to 2.34 percent. (Non-durables’ output was most greatly affected by the hurricanes.)

>Year-on-year, manufacturing’s price-adjusted January growth of 2.03 percent was its worst such performance since September’s (hurricane-affected) 1.37 percent.

>In addition, the December monthly downgrade brought the full-year 2017 real growth rate down from 2.64 percent (its best since 2011’s 2.71 percent) to 2.38 percent (now only the best since 2012’s 2.58 percent).

>Durable goods’ yearly January growth was 2.47 percent – its slowest such growth since September’s 2.41 percent.

>Further, its December downward revision also depressed its full-year 2017 growth from 2.65 percent to 2.59 percent. That’s only a post-2014 (2.72 percent) high.

>In non-durable goods, January’s year-on-year growth was 1.56 percent – its worst such performance since September’s hurricane-impacted 0.13 percent.

>For full-year, 2017, its growth is now pegged at 2.14 percent, not the 2.64 percent reported last month.

>That yearly performance is still the best for non-durables since 2004’s 3.95 percent.

>In the automotive sector, which led manufacturing’s strong initial recovery from its deep recessionary dive, real production rose by 0.58 percent sequentially in January. But that strong figure was just over half December’s 1.13 percent.

>Worse, the January figures mean that real automotive output remained in technical recession – that is, six or more months of cumulative decline. The sector is now 0.27 percent smaller than in April, 2017.

(What’s Left of) Our Economy: America’s Third World Trade Pattern with China


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On Tuesday, I presented the latest data showing that its trade performance makes the United States look like a third world country, with raw materials sectors representing most of its biggest trade winners – and increasingly so.

Today, let’s look at America’s trade with China, which is a country with major first and third world characteristics, and see if U.S. producers perform any better. The answer? Only a little.

Here’s the list of the nation’s top ten export winners in China trade last year – the sectors of the economy that racked up the biggest trade surpluses with China:

1. Soybeans: $12.35 billion

2. Autos & light trucks: $8.24 billion

3. Waste and scrap: $5.49 billion

4. Crude oil & natural gas: $4.43 billion

5. Plastics materials & resins: $2.42 billion

6. Liquid natural gas: $2.42 billion

7. Pulp mill products: $1.69 billion

8. Sawmill products: $1.62 billion

9. Non-poultry meat products: $1.41 billion

10. Timber & logs: $0.97 billion

Four of these are considered commodities in the North American Industry Classification System (NAICS), the U.S. government’s main scheme for slicing and dicing the economy. Waste and scrap might as well be, and (processed) non-poultry meats seem pretty close. Further, the NAICS definition of sawmill products makes clear they add little value to the wood they work with.

As with the global list, the China list excludes aerospace products, since Washington has acceded to Boeing’s insistence that it not release information that distinguishes between final products on the one hand,, and their parts and components on the other.

Still, arguably, this China list is even less impressive than the list for the world at large in terms of containing items that have historically led to big productivity gains, rapid technological progress, and lofty living standards.

Now here’s the China list for 2007 (which can include disaggregated aerospace numbers):

1. Aircraft: $6.35 billion

2. Waste and scrap: $7.26 billion

3. Semiconductors: $4.37 billion

4. Soybeans: $4.10 billion

5. Plastics materials & resins: $2.28 billion

6. Cotton: $1.46 billion

7. Non-poultry meat products: $0.88 billion

8. Autos & light trucks: $0.63 billion

9. Pulp mill products: $0.59 billion

10. Prepared or preserved poultry: $0.57 billion

The NAICS system considers two of these export categories as raw materials. In terms of value creation, I’d add the separate meat and poultry sectors, along with waste and scrap. That actually produces fewer low-value sectors (six) than the 2017 list (seven).

It’s also compelling evidence that as the Trump administration continues its efforts to try to fix America’s trade problems with China, it should focus at least as much on the composition of this trade as well as the size of the bilateral deficits.

(What’s Left of) Our Economy: Why Investors Shouldn’t Blame U.S. Workers for Inflation


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Thanks to the U.S. government’s new inflation data, we can cross one often fingered culprit off the list of developments being blamed for the recent turbulence in American, and therefore global, financial markets – wage inflation. For by a crucial indicator, real hourly pay in the United States is not only failing to lead prices upward – it’s been trailing overall inflation recently and indeed has been in recession lately by one commonsense standard.

Of course, market turmoil (like most big developments) springs from several, overlapping reasons. The first is one I discussed last Friday, and which I consider the most important: Investors fear that the Federal Reserve and other world central banks will start tightening monetary policy faster than expected, in order to prevent (more of) the kinds of reckless investments that tend to mushroom when credit is super cheap, and that can often trigger financial crises like the near global meltdown roughly a decade ago. (Happy Anniversary!)

If credit becomes more expensive, then economic growth and corporate profits will struggle to maintain their current rates of increase, and stocks will become less attractive investments, all else equal. In addition, the very increase in interest rates almost certain to result from such central bank “tightening” heightens the appeal of bonds and dims that of equities.

To complicate matters further, another engine of higher rates might be a combination of the great increase in federal budget deficits likely from the new tax cuts proposed by the Trump administration and passed by Congress, and the big-spending budget deal reached by the lawmakers and the President. The consequent budget gap will boost federal borrowing needs (and all else equal, push up the rates Washington will need to pay lenders for all this new debt) at a time when the U.S. central bank has started selling the ginormous amount of government bonds it’s been purchasing and holding since late 2008 (a practice called “quantitative easing) in order to halt the Great Recession and speed up recovery . This version of tightening – which also stems from financial stability concerns – will raise the supply of bonds even further.

The second reason for the turmoil is investor concern that rising inflation will spur central banks to raise rates regardless of the above financial stability concerns – because excessive inflation can produce its own economic disaster. And in fact, the proximate cause of the current bout of market instability seems to be those very inflation fears, and in particular, the possibility of wage inflation.

Higher compensation costs could deal their own blow to stock prices by reducing corporate profits; or by sending upward price pressures rippling throughout the entire economy (as companies tried to pass higher costs on to their customers either elsewhere in the business world or in consumer ranks); or through some combination of the two. (Interestingly, the chances seem pretty low that companies could absorb higher wages through greater efficiency, as productivity improvement has been very slow at best recently.)

So that’s why today’s widely anticipated (to put it mildly) U.S. government inflation data is so important. The inflation figures were somewhat “hotter” than most investors were predicting. But it couldn’t be clearer that wage inflation has nothing to do with these higher prices.

The numbers that most observers – whether investors or not – are looking at are the year-on-year numbers, and they do seem to signal some wage inflation. From January, 2017 to last month, the Labor Department’s headline reading showed a 2.14 percent rise in prices nationwide, and a 1.85 percent increase in “core” prices (which stripped out from the headline food and energy prices because they’re considered so volatile in the short-term that they can generate readings regarded as somewhat misleading).

During that same year, wages adjusted for inflation for the overall private sector were up 0.75 percent – which means they rose faster than overall prices. Moreover, between previous Januarys, real wages actually declined fractionally (by 0.09 percent). So in principle, investors (and other economy watchers) have reasons to be nervous about wage inflation.

But a more recent time frame tells a very different story. For since last May, private sector wages have been down on net. Although the cumulative decline is only 0.19 percent, this means that on a technical basis, real wages are in recession. (I feel justified in using this term because when economists talk about growth, a decline for two consecutive quarters is defined as a recession. So a six-month cumulative downturn seems close enough.) Indeed, more accurately, real wages are still in recession, since this development was apparent last month, too.

And the latest month-to-month figures indicate that real wage pressure is weakening, not strengthening. From December to January alone, they dropped by 0.19 percent, after rising by that amount from November to December.

The picture looks even grimmer when you go back to the start of the current economic recovery – in mid-2009. Since then, real private sector wages have risen by only 4.07 percent. And that’s over more than eight years!

But private sector real wages are practically torrid when they’re compared with inflation-adjusted pay in manufacturing. Such compensation has been in technical recession for two full years, as it’s fallen by 0.09 percent since January, 2016. On a monthly basis, after-inflation manufacturing pay plummeted by 0.46 percent in January, its worst such performance since August’s 0.64 percent tumble. At least the December figure was revised up – though only from a 0.09 percent dip to a 0.09 percent increase.

Over the current economic recovery’s eight-plus years, real manufacturing wages have risen by a mere 0.37 percent – less than a tenth as fast as those of the private sector overall.

Yet although inflation – and especially wage inflation – doesn’t seem to warrant a quicker pace of Federal Reserve interest rate hikes (or even the current, “gradual” pace), a case can still be made for tightening on a financial stability basis. And those massive federal deficits, which will need to be funded by equally massive increases in bond supplies, seem here to stay for many years. So as has been the case for so long, assuming these moves do slow U.S. economic growth, American workers appear certain to pay many of the costs for disastrous policy mistakes they never made.