(What’s Left of) Our Economy: New Fed Figures Show U.S. Manufacturing Blowing Past Hurricane Setbacks

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The Federal Reserve’s new industrial production figures for October (released last Thursday) illustrated the perils of measuring economic performance month-by-month – especially where hurricanes and other individual shocks are concerned. For most of the industries hit hardest by the recent storms staged strong and even record sequential production bouncebacks in October.

At the same time, the data also make clear that the strong output momentum exhibited by America’s domestic manufacturing before the hurricanes continued even as they undercut sectors highly concentrated on the Texas and Louisiana Gulf coasts; and that this strength extended into October.

The month’s strong (1.29 percent) monthly inflation-adjusted production gain, combined with upward revisions, lifted manufacturing out of its latest output recession. And the October year-on-year in real output increase (2.73 percent) was industry’s best July, 2012’s three percent. The technical recession into which the automotive sector has fallen continued into its fifteenth month in October, but even here some good news emerged, as constant dollar output rose for the fourth straight month – the best such stretch since last May through October.

Overall, manufacturing’s strong recent after-inflation output performance has brought the sector to within 2.56 percent of the production levels it reached just before the last recession struck – nearly ten years ago, at the end of 2007.

Here are the manufacturing highlights of the Federal Reserve’s October industrial production report: 

>American domestic manufacturers overcame their hurricane-related losses and then some in October, according to new Federal Reserve industrial production data that show month-on-month real output gains and revisions strong enough to life the entire sector out of its latest technical recession.

>After-inflation production rose by 1.29 percent on month in October, the Fed reported – the best such improvement since April’s 1.37 percent.

>Positive revisions buoyed manufacturing as well. September’s constant dollar production – which was initially reported to have advanced by 0.10 percent sequentially despite the hurricanes – is now estimated as a 0.38 percent rise. August’s monthly real output decline was revised down again, from a 0.20 percent dip to 0.16 percent. And rather than decreasing by 0.35 percent in July, that month’s real manufacturing output is now judged to have flat-lined.

>Keying the October monthly real production surge in manufacturing were the sectors hit hardest by the recent hurricanes because they are heavily concentrated along the Texas and Louisiana coasts of the Gulf of Mexico, and especially because they rely on oil and natural gas as feedstocks.

>For example, price-adjusted production in organic chemicals cratered by a downwardly revised 14.92 percent on month in September. But in October, the sector’s after-inflation production skyrocketed by 28.05 percent – the biggest improvement on record (in this case, going back to 1986).

>Inflation-adjusted petroleum refinery output dropped sequentially in September by an upwardly revised 2.11 percent. October’s monthly 4.60 percent increase was the sector’s best since October, 2008’s 17.72 percent.

>In the huge chemicals sector in which many of these hurricane-impacted industries are located, constant dollar output in August and September is now reported to have dropped month-to-month by 2.57 percent and 2.22 percent – slightly better results that initially pegged, but still the worst since recessionary December, 2008’s 4.85 percent shrinkage. But October’s 5.82 percent sequential real production increase was its best monthly figure on record (in this case, going back to 1972).

>And in the non-durable goods sector in which chemicals are found, two sizable monthly production fall-offs in August and September were followed by a 2.33 percent sequential spurt in output in October – its best such performance since January, 1983.

>Nonetheless, some hurricane-affected sectors continued to lag. In plastics materials and resins, September real output tumbled by 8.16 percent sequentially – its worst month since recessionary December, 2008 (11.72 percent).

>In October, however, inflation-adjusted production slipped by another 4.65 percent sequentially, making for the worst two-month drop (12.43 percent) since November and December, 2008 (23.31 percent).

>In the automotive sector, a technical recession (more than two straight quarters of cumulative real output decline) continued into its fifteenth month in October. Since July, 2016, inflation-adjusted production is off by 0.23 percent.

>But the industry, which led manufacturing’s overall early recovery comeback from its sharp recessionary downturn, has shown some signs of life in recent months.

>The October Fed figures showed that its constant-dollar output is now up for three straight months. That kind of improvement hasn’t been seen since the May-October period of 2016.

>Further, revisions have been positive, including a September upgrade all the way from 0.07 percent to 1.69 percent.

>October’s Fed figures still left domestic manufacturing considerably smaller than at the onset of the Great Recession – which began in December, 2007. But the October monthly figures plus the revisions produced major catch-up. Last month’s Fed industrial production report showed that real manufacturing output remained 4.26 percent lower than when the last recession broke out. The October report shows the gap has narrowed to 2.56 percent.

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Those Stubborn Facts: How U.S Manufacturing Helps the Whole Economy – Except for its Own Workers

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Manufacturing share of U.S. employment: 9%

Manufacturing share of U.S. GDP: 12%

Manufacturing share of U.S. productivity growth: 35%

Manufacturing share of U.S. exports: 60%

Manufacturing share of U.S. private sector R&D spending: 70%

Manufacturing share of decline in labor share of GDP since 1990:      more than 2/3

 

(Source: “In Labor vs Capital, Manufacturing Plays an Outsize Role, Report Says,” by Harriet Torry, The Wall Street Journal, November 13, 2017, https://blogs.wsj.com/economics/2017/11/13/in-labor-vs-capital-manufacturing-plays-an-outsize-role-report-says/)

(What’s Left of) Our Economy: Where are the Wages?

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Today’s new Labor Department data make clear that inflation-adjusted American wages are now performing so badly that just remaining flat month-to-month could justify a passing grade. For in October, real hourly pay in both the private sector overall and in manufacturing floundered below recovery era peaks they’d reached in July (resulting from painfully slow progress over those eight years). In industry, moreover, after-inflation wages fell on a year-on-year basis for the first time since September, 2014.

The 0.09 sequential drop in constant dollar private sector wages was the third straight monthly decline in a row. Since July, after-inflation wages are down a total of 0.46 percent. And year-on-year, October’s increase was a mere 0.37 percent. Between the previous Octobers, these wages rose by 0.75 percent.

As a result, since the recovery technically began, in mid-2009, inflation-adjusted private sector wages are up 4.36 percent.

In manufacturing, price-adjusted pay flat-lined sequentially for the second straight month. Since July, they’re off by 0.82 percent. And since last October, real manufacturing wages have fallen by 0.46 percent – much worse than their 1.87 percent improvement between October, 2015 and October, 2016.

So during the current economic recovery so far, constant dollar manufacturing wages have advanced by only 1.21 percent.

Just as the recovery was starting, then House Republican leader John Boehner, caustically asked Democratic President Barack Obama – and the nation – “Where are the jobs?” They eventually came. But with unemployment driven way down to near-multi-decade lows, pay was supposed to follow. Until they do, claims that the economy is (finally) normalizing will continue having a hollow – and politically tin-eared – ring. And expect to hear more and more Americans ask, “Where are the wages?”

Our So-Called Foreign Policy: Is Trump Isolating the U.S. in Asia? Apparently No One’s Told the Asians

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Ever since President Trump kept his campaign promise and nixed U.S. participation in the Trans-Pacific Partnership (TPP) trade agreement, America’s chattering classes have been charging that his decision has opened the door wide to China to expand its influence in East Asia at America’s expense, and shunted the United States to the sidelines of the regional and international economy. Mr. Trump’s just completed visit to Asia has revived all these accusations – and not so coincidentally, afforded yet another opportunity to demonstrate just how ludicrous they are.

Most embarrassingly, if the president’s approach to “this vital region,” in the words of Barack Obama’s national security adviser, Susan E. Rice, even has much potential to leave “the United States more isolated and in retreat, handing leadership of the newly christened “Indo-Pacificto China on a silver platter,” no one seems to have told Asia’s leading powers. For they have been hard at work helping Washington develop a new grouping that’s obviously aimed at frustrating Beijing’s ambitions.

So even as Rice and the rest of the foreign policy establishment were bemoaning the United States’ supposedly declining influence in the first year of the Trump presidency, representatives of Japan, Australia, and India were meeting with American counterparts in the Philippines, site of the latest series of regional summits, to breathe life into longstanding plans to foster greater cooperation among their four democracies.

And if you don’t think that the effort is amply capable of worrying the Chinese, don’t take my word for it. Take China’s. Just as the meeting was concluding, Beijing was out with a statement warning that no joint ventures among regional countries should target or damage a “third party’s interest.”

Just as interesting: Plans for such a “Quadrilateral Security Dialogue” were first advanced by Japan in 2007. But Australia and India weren’t especially interested – the former for fear of antagonizing the Chinese. Apparently nothing that Washington did during the ensuing Obama years changed their minds. Now, however, they’re at the table.

At least two overlapping developments appear to be responsible. First and most unmistakably, America’s pushback against China under Obama on both the national security and economic fronts was so feeble and ineffective that the PRC’s power grew tremendously. So the Australians and Indians no doubt now view the need to contain China more seriously. Second, it’s entirely possible that President Trump’s indications that the United States will no longer assume the bulk of the burden and risk of maintaining Asian security while getting shafted continuously by Asian trade policies has convinced those two countries in particular that they’d better get into a proactive mode.

And maybe most interesting of all, the Trump decision to exit TPP (whose signatories included Australia and Japan) apparently did nothing to discourage Canberra, New Delhi, or Tokyo from teaming up with the United States.

The main reason could not be more obvious (except to the American establishment): Keeping America engaged however possible is the only alternative conceivable for the time being to greater Chinese control. And herein lies a crucial lesson that Mr. Trump may have grasped but that his establishment critics have unmistakably ignored: The United States is not a superpower because of what it does on the world stage. It’s a superpower because of what it is.

That is, the source of American strength is not how many alliances it joins or trade treaties it signs or international regimes it creates – or even how many conflicts it enters. Instead, the source is strength itself – in all of its interlocking forms: military, economic, and technological.

So as long as the United States maintains this strength – which of course can be and has been greatly undercut by the kind of Asian mercantilism winked at by American presidents for decades but protested loudly by President Trump – it will remain a player wherever it wishes. But nothing is likelier to limit America’s global reach – and threaten its interests – than the apparent establishment belief that international activism per se can somehow substitute for power.

Not that I’m a supporter of what may be an emerging American strategy here. For as I’ve written, the nation’s essential interests in East Asia are economic – creating satisfactory terms of trade and commerce. And as long as the United States serves as an irreplaceable final market for Asia’s export-heavy economies (that is, as long as it remains soundly and sustainably wealthy), it will be able to lever that power to achieve its goals whoever runs Asia politically.

And as I’ve also written, East Asia’s major powers (e.g., Australia, Japan, and India) should be strong enough, especially together, to resist China’s designs on their own. Further, to give them an extra edge, the United States can always sell them advanced weapons, and if need be drop its insistence that they forswear (in the case of Australia, Japan, and South Korea) nuclear weapons.

But if Mr. Trump is going to double down on the United States’ traditional strategy of Asia’s stabilizer and defender, his apparent understanding – expressed most often during the campaign – that America’s economic ties with the region will need to change dramatically provides the only hope of enduring success.

(What’s Left of) Our Economy: America Keeps Getting More Manufacturing-Lite

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The Commerce Department’s “GDP [Gross Domestic Product] by Industry” reports aren’t considered market movers by those in the know in economics, business, and finance. Still, I find them well worth following because they provide the most authoritative evidence available on whether numerous claims about the economy’s strengths and weaknesses meet the reality test.

The big takeaway here? For all the post-financial crisis talk from politicians across the political spectrum about the need to reindustrialize the U.S. economy, manufacturing remains a major growth laggard. Indeed, by two key measures, it still hasn’t recovered fully from the Great Recession.

Commerce’s latest report takes the story up to the second quarter of this year, and revises the previously published results back to 2014. For some reason, the new 2014 numbers won’t come out till next month, but we do have the 2015, 2016, and first quarter 2017 revisions. Here’s what they say.

From 2015 through the first quarter of this year, manufacturing’s inflation adjusted growth rate – according to a gauge called “real value added,” which aims at eliminating unintentional double-counting – has been a few ticks lower than originally judged. The 2015 performance was revised down by 0.6 percentage points, the 2016 growth was upgraded by a full percentage point, and the first quarter 2017 result was downgraded by 0.8 percentage points. As for the latest, second quarter 2017 number, it’s a healthy four percent at an annual rate.

Manufacturing real value added’s contributions to growth have been a little more modest, too – which means that it’s been growing more slowly than the rest of the economy. That trend comes through more clearly from the Commerce data showing industry’s actual share of GDP. The main numbers are presented in current dollar terms, meaning that they don’t factor in inflation. But they make clear that manufacturing value added has declined from representing 12.1 percent of total American economic output in 2015 to accounting for just 11.5 percent in the second quarter of 2017.

To make the point even more emphatically, when the Great Recession broke out, in the fourth quarter of 2007, manufacturing value added represented 12.4 percent of gross domestic product.

Of course, there’s a case to be made (not that I accept it) that as long as manufacturing is growing, it doesn’t matter whether it’s becoming a bigger or smaller share of American economic output. But even by these standards, U.S. manufacturing is faltering. The new Commerce numbers show that, since the recession began, manufacturing real value-added is down. It’s not down by much – 0.18 percent in toto. But we’re talking about absolute shrinkage over a period of nearly ten years.

As RealityChek regulars know, the Federal Reserve’s industrial production reports (which also adjust for inflation), peg manufacturing’s shrinkage since the end of 2007 at an even greater 4.26 percent. Only if you take price increases out of the picture does manufacturing show a real recovery. In current dollar value added terms, it’s grown by 18.26 percent during this period.

But even by these terms, manufacturing’s laggard status stands out. In fact, since the fourth quarter of 2007, it’s share of the economy’s value-added has fallen by 10.16 percent. That’s the greatest such drop in the whole economy after mining (26.09 percent) and construction (10.42 percent).

The leaders, by these criteria? The subsidized private sector (industries, notably healthcare services, whose size is determined largely by government largesse) is number one, increasing its share of value added by 16.22 percent. Next is a supersector comprising arts, recreation, accommodation, and food services (up 13.89 percent). And remember all the concern that the pre-recession, bubble-ized economy of the previous decade was too Wall Street heavy? Since it brought the entire world to the brink of economic disaster, the finance super-sector has boosted its share of value added by a healthy 5.05 percent.

Im-Politic: The Wall Street Journal Slimes both Trump and TR on Immigration

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Silly me. I read the headline for Jason L. Riley’s newest Wall Street Journal article, “What Trump and Teddy Roosevelt Have in Common” and assumed he was talking about trade. That is, I thought Riley knew what he was writing about.

I’ll sure never make that mistake again! For Riley’s column was not about the economic nationalism that Roosevelt unmistakably championed – including tariffs – and that President Trump says he’s trying to put into effect. Instead, the subject was immigration – and “almost wholly incomplete” is a charitable description of Riley’s portrayal of TR’s outlook.

According to Riley, Roosevelt was a combination xenophobe and partisan hack who wouldn’t even distinguish immigrants from first generation Americans, and who sought to curb arrivals from Southern and Eastern Europe in particular because, like all Republicans, he “was concerned that too many of these latest arrivals ultimately would vote Democratic.”

Consequently, Roosevelt allegedly was all too happy to endorse the common nativist stereotype of the latest wave of immigrants as (in Riley’s words), “vermin [having] human heads with swarthy complexions, and [wearing] hats or bandannas labeled ‘Mafia,’ ‘Anarchist’ and ‘Socialist’” – not to mention assassins like Leon Czolgosz, the son of Polish immigrants who had gunned down President William McKinley in 1901.

Sound familiar? As made clear by the column, that was Riley’s intent. But whatever you think of President Trump, or current or recent immigration policy, there can be no question that Riley’s portrayal of TR renders the former president practically unrecognizable.

The heart of the legitimate case that Roosevelt harbored many of the prejudices that would shape American immigration policy between 1924 and 1965 entails the former president’s own oft-stated worldview. Entirely consistent with the main currents of progressive reform thinking of his era, he believed that different peoples of the world occupied (as one scholar has put it) “different civilization levels,” and those occupied by Americans and Europeans were at the top. Just as consistent, therefore, was Roosevelt’s support for simply cutting off immigration from China and Japan.

At the same time, his concerns may not simply have been racial. According to one scholar, as Roosevelt saw it:

the entire ‘coolie’ class from China threatened labor relations because Chinese laborers were lured to the American shores under false pretenses and were forced to work for low wages. The deal made with Chinese labor was bound to result in a lowering of the standard of living and cause future problems. Roosevelt’s response was to close the door for Asia.”

Indeed, he reached an agreement with the Japanese government, in 1907, to resume limited immigration from Japan to the United States proper, and more extensive flows into the American territory of Hawaii. This bilateral deal also specified that the San Francisco Board of Education’s post-earthquake re-segregation of Japanese and Korean schoolchildren (with Chinese!) be reversed.

Further complicating the picture: Roosevelt’s definition of political undesirables was not limited to southern and eastern Europeans. He was just just as worried about “German-Americans active on behalf of imperial Germany in World War I.” More broadly, he by no means assumed that those ostensibly more desirable northern and western Europeans would assimilate effortlessly into American society and culture. They would need to make active efforts to give up their Old World political and religious loyalties.

And although Roosevelt’s promptings led Congress to establish in 1907 the Dillingham Commission, whose voluminous reports laid the groundwork for the ethnically restrictive Immigration Act of 1924, with the exception of the Asians, the former president, according to another scholar, “advised against discriminating on the basis of national-origin or religious beliefs.” (Asians still excepted of course.) He also opposed requiring immigrants to pass literacy tests, which were proposed largely to discriminate against newcomers from the non-English speaking world.

In addition, to a great extent, Roosevelt’s championing of urban economic and social reform stemmed from his encounters in New York City with the impoverished lives and oppressive working conditions of recent immigrants – especially from southern and eastern Europe.

Obviously, too many of TR’s attitudes on the allegedly superior and inferior qualities of whites and non-whites, and even of Europeans from different regions on the continent, are completely unacceptable by today’s standards. But a fair-minded analysis would also recognize that he was more than simply a “man of his [prejudiced] time.” In particular, unlike many of even his progressive contemporaries, Roosevelt didn’t seem to view these differing racial qualities as fixed forever by biology. He apparently believed that nurture could augment nature, and however condescending, this view unmistakably – if too implicitly – accepted the inherent equality of all.

Similarly, Roosevelt’s support for various immigration restrictions was based not on a desire to bar permanently all undesirables, however they were defined. It was based on a belief that inflows that were too great and too rapid would undercut the wages of American workers and threaten the cohesion of a country already undergoing a series of tumultuous transitions, and especially one that he and other progressives viewed as supremely important to a successful national future – the creation of a nation whose hitherto fragmented institutions (both public and private) would centralize enough to cope with the challenges of an increasingly complex and rapidly emerging economic and technological modernity.

So if a pundit or any type of analyst wanted to create a truly accurate picture of Roosevelt’s views on immigration – and their implications for America today – he or she clearly would have tried to communicate at least some of this nuance and (genuinely instructive, not exculpatory) context. But if the purpose was to produce a hatchet job aimed at serving the interests of the nation’s Cheap Labor Lobby, Riley’s column will do just fine.

(What’s Left of) Our Economy: Trump’s Muddled Asia Trade Speech

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There were so many important points in President Trump’s speech today in Vietnam on trade and globalization that urgently needed to be made. What a shame, then, that they could well be undercut by massive contradictions in the president’s message. Two in particular stand out. The first concerns Mr. Trump’s critique of the current rules-based global trade system. The second concerns a key aspect of that critique and its relationship to his views on national sovereignty.

Mr. Trump was absolutely accurate in his description of the problems that have plagued the world trade system as it’s evolved to date, and especially its ostensible focus on organizing global economic activity according to universally accepted and followed rules and norms. Who, after all, can reasonably argue with his proposition that “Organizations like the WTO [the World Trade Organization] can only function properly when all members follow the rules and respect the sovereign rights of every member. We cannot achieve open markets if we do not ensure fair market access. In the end, unfair trade undermines us all.” In fact, it’s so uncontroversial that every one of Mr. Trump’s recent White House predecessors has made the same seminal point (including President Obama’s administration).

The Trump trade approach toward the WTO so far has differed from those of Presidents Clinton, George W. Bush, and Obama mainly in that it’s criticized the organization’s workings much more intently, and actually taken some actions to gum up its works.

But the President will be repeating their fundamental mistakes if he believes that the solution to today’s flawed rules-based system is constructing a better rules-based system. That goal faces so many insuperable obstacles. For example, few of the countries involved in the system accept Anglo-American rule of law principles in their own political and legal systems, or the economic practices that flow inexorably from them.

Mr. Trump praised governments represented in his audience in Vietnam today for pursuing “visions of justice and accountability, [promoting] private property and the rule of law, and [embracing] systems that value hard work and individual enterprise,” along with seeking partnerships “directed toward mutual gain.”

Yet anyone who knows anything about most East Asian economies know that this description is at best seriously misleading. Instead, the region’s recipe for impressive economic success was based largely on practices that the president highlighted just a few paragraphs later in his address. Not that they’ve been alone, but it’s been the Asian economies that have masterminded “product dumping, subsidized goods, currency manipulation, and predatory industrial policies.” It’s they who have so systematically “ignored the rules to gain advantage over those who followed the rules, causing enormous distortions in commerce and threatening the foundations of international trade itself.”

And just legally speaking, why would these same countries do an about-face and start treating foreign businesses more equitably than they treat their own people?

Even more bizarre, the President specified (correctly) that “Such practices, along with our collective failure to respond to them, hurt many people in our country and also in other countries. Jobs, factories, and industries were stripped out of the United States and out of many countries in addition. And many opportunities for mutually beneficial investments were lost because people could not trust the system.”

In principle, the United States can use its economic power – stemming from the overwhelming importance of its market to an Asian region and indeed entire world heavily dependent on growing by amassing trade surpluses – to convert other economies to its values and policies. But at least for the foreseeable future, this strategy would require the United States – not an international organization created to reflect a global consensus on appropriate economic behavior that clearly is nowhere to be seen – to enforce these rules energetically and continuously until genuine conversion takes place.

Further, that conversion seems a remote prospect. For as the President himself has repeatedly stated, just as he feels obliged “to put America First,” he expects other national leaders “to put your countries first” – a remark evidently applauded by his audience.

Moreover, leaving aside the enormous administrative challenge of this enforcement mission, the process would clash violently with the President’s promise to Asian countries to “respect your independence and your sovereignty. We want you to be strong, prosperous, and self-reliant, rooted in your history….”

Far more promising for President Trump to dispense entirely with the idea of rules-based trade systems, whether regional or global, and use the nation’s (still) unmatched economic leverage to lay down the rules of access to its market, enforce them unilaterally, and leave other economies free to accept them or seek prosperity without the privilege of doing business with the United States.

This approach would generate a major strategic benefit as well – the conceptual freedom to use trade and broader economic diplomacy to offer better deals (which would still benefit the domestic economy) with countries or regions of special importance, whether economic or geopolitical or both. One possible example – creating a genuine North American trade bloc capable of strengthening Mexico’s economy, society, and political system, and/or broader arrangements to enrich other close hemispheric neighbors whose problems often become America’s.

In fact, Mr. Trump’s trade speech sounds like it’s two dramatically different speeches stapled together – something like a famous address on U.S.-Soviet detente delivered by former President Jimmy Carter decades ago. Carter’s apparent refusal to make up his mind reinforced his image as a worrisomely confused leader. Unless President Trump understands that “to govern is to choose,” he could well suffer Carter’s one-term fate.

Making News: Podcast On-Line of Last Night’s Batchelor Interview on Trump & China – & More!

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I’m pleased to announce that the podcast of my interview last night on John Batchelor’s nationally syndicated radio show is now on-line. Click here to access a lively discussion among John, co-host Gordon G. Chang, and me, about the China phase of President Trump’s Asia visit.

Also, it was great to see IndustryToday.com this morning run my recent post about multinational companies’ hypocrisy when it comes to the likely effect of Trump-ian trade policies on their global supply chains. Here’s the link.

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

(What’s Left of) Our Economy: A Unproductive Study on Productivity and Pay

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One of the most important and heatedly debated trends affecting the economy is the nature of the relationship between what workers earn and how productive they are. Judging from a new Wall Street Journal summary of a new academic paper on the subject, the pay-productivity relationship is going to remain heatedly debated. In the process, the Journal report (the paper itself isn’t yet available on-line) indicates that in major respects, the study (co-authored by former Clinton Treasury Secretary and former top Obama economic adviser Larry Summers) may wind up making the subject more muddled than ever.

According to the Summers study (in the words of Wall Street Journal writer Greg Ip), the recent conventional wisdom about productivity since the 1970s rising much faster than pay is wrong. Instead, it found “a strong and persistent link between hourly productivity and a variety of wage measures since 1973.” And although the two sets of data have been diverging, Summers and his colleague claim that, “The problem…is that the positive influence of productivity on pay has been overwhelmed by other forces pushing the other way.”

That’s an entirely reasonable conclusion. After all, as I’ve frequently pointed, the idea that major trends and developments have only one or a small handful of causes is usually wrong. But I find the Summers case fishy for several reasons.

First, at least as Ip writes, the study’s authors don’t seem to be challenging the contention that productivity has been rising much faster than pay since 1973 at all. On a purely mathematical basis, they state that, during short periods, there’s been a consistent tendency for productivity to rise somewhat faster than pay, and that over the entire multi-decade period examined, the accumulation of these relatively modest gaps produced a large gap. That sounds like a distinction without a difference to me.

Second, Summers and colleague seem to assume that one of the productivity-enhancing forces at work in recent decades has been trade. But that belief seems pretty far-fetched given how trade policy in recent decades has pushed offshore so much American manufacturing – the economy’s productivity growth leader for the last three and one half decades – or turned the other cheek as foreign predatory practices have undercut domestic manufacturing production. Good luck to any economy thinking that it can neglect the decline of its most productive sector and maintain the pace of productivity growth.

Third, and conversely, Summers’ study assumes that forces other than trade (and technological advance) have been “eating away at the ability of workers to share fully in the rise in productivity.” The culprit they single out? “Weaker unions.”

Organized labor has undoubtedly been clobbered since 1973. But why don’t Summers and his co-author recognize that trade policy mistakes bear much of the blame? In particular, how likely are workers to bargain hard for higher wages if they realize that they can easily be replaced by a much cheaper (and equally productive) Mexican or Chinese counterpart? Moreover, wage pressure throughout the economy is bound to decrease as displaced manufacturing workers start competing for remaining services jobs.

One issue on which I do agree with Summers: the significant productivity growth slowdown that’s afflicted the economy in the post-1973 period, and especially since the last recession struck at the end of 2007, has dragged seriously on wage growth, and needs to be reversed. But unless the pay-productivity gap is closed as well, the only way for the political and business establishment to keep U.S. living standards at even minimally acceptable levels will be to keep injecting artificial stimulus into the economy, and boosting its already dangerous addiction to borrowing and spending bubbles.

In fact, there’s been a prominent economist who’s been arguing lately that that’s exactly the trap that the nation has been stuck for many years. He calls it “secular stagnation.” His name? Larry Summers.

Making News: On Batchelor Show Tonight Talking Trump’s Asia Trip – & More!

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I’m pleased to announce that I am scheduled to return to John Batchelor’s nationally syndicated radio show tonight. The subject of the 9:15 PM EST segment: President Trump’s trip to Asia.

You can listen live on-line here, and as usual, I’ll post a podcast of the interview as soon as one’s available.

In addition, this morning, I was quoted in this Lifezette.com article on what would have been a genuinely game-changing, trade-related provision in the House Republican tax reform plan. I say “would have been,” because later today, the provision was removed. But given how frequently the bill’s contents have been changing, it’s still anyone’s guess whether or not it will be resuscitated sometime down the line.

Yesterday, my recent report on the latest Labor Department data on American wage growth (or lack thereof) was re-posted at IndustryToday.com. You can access it at this link.

And I just discovered that this October 18 post from the Korn Ferry Institute featured my views on the implications for businesses of President Trump’s efforts to rewrite the North American Free Trade Agreement (NAFTA). The Institute is a leading global executive search and management consulting firm.

Keep checking in with RealityChek for news of media appearances and other developments.