Our So-Called Foreign Policy: Trump’s China Strategy Seems Troublingly Silo-ed


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Secretary of State Rex Tillerson and Secretary of Defense James Mathis are meeting with Chinese counterparts today in Washington, D.C. to conduct a “Diplomatic and Security Dialogue” – a stripped down Trump administration version of some of the ginormous official bilateral sessions the two countries have held periodically in recent years.

It’s unclear whether these talks will turn out to be more than the elaborate gabfests their predecessors quickly became. But it’s much clearer that their potential to contribute significantly to America’s security will be limited unless the administration starts taking many more urgently needed steps to move the nation’s Asia grand strategy into the twenty first century. And the major missing piece of this effort continues to be a serious effort to deny China the advanced technologies it will need to continue becoming a more formidable military competitor.

Some promising decisions have been taken, or are being considered. For example, Commerce Secretary Wilbur Ross is thinking of launching a national security review of U.S. trade in semiconductors with an eye toward fending off what he describes as an increasingly dangerous Chinese challenge in this defense-critical sector. Mathis and Treasury Secretary Steven Mnuchin have both publicly called for updating the interagency U.S. government process for screening prospective Chinese and other foreign investments in all defense-related companies (the Committee on Foreign Investment in the United States, or CFIUS). And they along with Ross have strongly suggested that they’re thinking of redefining the relevant statute’s mandate to include economic dimensions of national security. Just as encouraging, prominent members of Congress are drafting legislation along these lines.

And most recently, the administration has announced a big new effort to ensure continued American leadership over China in super-computing (although the semiconductor industry isn’t happy with some other features of Mr. Trump’s stance on federally sponsored research and development).

Moreover, the Trump administration is responding to the Chinese challenge much more promptly than its predecessor, which prioritized this cluster of problems very late in its tenure. Its proposed responses to mercantile Chinese industrial policies in technology industries were especially weak beer.

But as with the Obama administration, Team Trump seems to be paying little attention to the continued outflow of cutting-edge defense-related American knowhow to China – including to entities that are unquestionably controlled by the Chinese government. It’s unmistakably paying much less attention to these investments than to spending billions more to upgrade American military forces in East Asia – which of course could wind up facing Chinese weapons based on U.S. tech advances.

Today’s U.S.-China talks in Washington are due to be followed up later this summer by a session devoted to economics. Maybe by then, President Trump and his advisers will be pursuing the comprehensive, integrated approach that meeting the China challenge adequately requires?

Im-Politic: The Uses of Anger


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The more I think about the surge in political rage that’s just produced the terrifying attempt to assassinate Republican Members of Congress in Alexandria, Va., the more I’m convinced that the resulting deluge of well-intentioned commentary and introspection has missed a big reason for doubting that, as so many have urged, Americans will stop demonizing and dehumanizing their political opponents. Moreover, I’m also more convinced that there are real limits to how far this admittedly troubling tendency actually should go.

To clarify right away, this isn’t to say that violence is ever justified in U.S. public life — although history teaches us to be wary even of this generally worthy sentiment. For example, I’m not at all convinced that Americans would have responded even in the inadequate way they did to problems in the country’s then-heavily black inner cities had riots not convulsed many of them. The nation almost certainly wouldn’t have responded as quickly as it did. And I haven’t forgotten that too many of the rioters were simply looters.

I am prepared, though, to say that violence isn’t ever justified in public life nowadays. Ditto for urging violence, either explicitly or through various dog whistles.

But it’s going to be a lot harder to exorcise extreme, hate-filled rhetoric and emotions. For many of the most prominent assumptions and arguments made about most of our major public issues entail the claim that those who disagree aren’t simply motivated by different philosophies and ideologies. They’re motivated by – often appallingly and/or dangerously – selfish interests. And many of these claims by no means should be dismissed out of hand.

Are there inexcusable, purposeful excesses? How could there not be? We’re dealing with human beings here. But take the left-ish view of the whole cluster of economic inequality issues. Do many champions of cuts in various safety net and other social programs sincerely believe that they have on net eroded incentives to work and form families? Obviously the answer is Yes.

But are many others simply selfish? Of course they are. Are many working openly or on the sly for interests that would lose income or profits if taxes were raised to finance such spending – although they would clearly remain affluent by any reasonable measure? Yup. Has American history been filled with the efforts of the affluent and the powerful to maintain their positions at the expense of the poorer and weaker? How could anyone dispute this? Should plutocracy and its defense not be called out? Absolutely not.

Similar points can be made about causes favored by liberals and Democrats. Are many on the left acting mainly out of compassion or other altruistic sentiments when urging legalization and citizenship for illegal immigrants? Do many other genuinely believe that various forms of amnesty-like policies will benefit the economy, including more workers? Definitely.

Do many others back amnesty etc in the hope of creating new pro-Democratic voting blocs or expanding existing ones, regardless of the impact on public safety or social cohesion? No doubt about it. And can’t signs be seen of misplaced senses of guilt so powerful that they shunt completely aside the needs of the existing legal population? Clearly they can. Should this kind of hypocrisy or childishness be ignored? How would that strengthen democracy?

No doubt you all can come up with many other comparable examples – because the creation and maintenance of a democracy can’t possibly guarantee that men (and women) have or will become angels. But the genius of this country’s politics so far (with the mammoth exception of the Civil War) has been to keep political battles battles in name only, and to sustain the consensus that, though opponents may be deeply and justifiably hated, their removal from power or the frustration of their aims according to accepted procedures is the only acceptable goal – not their literal destruction.

The trick, then, or much of it, is for Americans to learn (or re-learn) the ability to decompress once even the most heated political campaigns or legislative contests have ended, to accept as legitimate any winner – even the most seemingly odious – who has triumphed within the specified rules, and to continue pushing causes as fiercely as ever while respecting those bounds. You say you don’t like some of the rules and bounds? Work (again, within the system, or via peaceful civil disobedience if you so choose) to replace them. The system makes such mechanisms available.

As I write these words, I find myself thinking of the human maturation process and to the development of perspective so central to its arrival. And I can’t help but think that’s no coincidence.

(What’s Left of) Our Economy: Will Trump Take Ford’s New China Trade Hint?


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President Trump and his administration have certainly been active on the trade front in their first months in office, both in word and deed. The question remains whether they’ve been effective, and a breaking news story has just added powerfully to the doubters’ case.

The news has to do with Ford Motor Company’s announcement that it will scrap plans to relocate its remaining small car production from the United States to Mexico and supply the American market from an existing plant in Hermosillo, and instead import the vehicles from a retooled factory in China. The initial Ford production decision came under fire from Mr. Trump, and the company’s reaction – a rejiggered Mexico plan – looked chancy for two main reasons:

First, the president had declared his intention to renegotiate the North American Free Trade Agreement (NAFTA) in large measure to stop such production offshoring. Second, the staunchly pro-trade Republican leaders of the GOP-controlled House of Representatives had been pushing a border adjustment tax proposal that would have imposed new costs on imports from anywhere.

Ford has now underscored why both opponents and supporters of a transformed, less import-friendly U.S. trade policy have been right in one of their major criticisms of Mr. Trump’s emerging strategy: A tight focus on bilateral trade issues and balances overlooks the ability of multinational companies to shift export-oriented production in order to evade country-specific tariffs or other trade curbs.

Not that business’ ability to hopscotch is unlimited. The massive level of sunk corporate costs in export-focused production in China, for example, won’t always be easy to walk away from. And not all countries offer comparable advantages to manufacturers. So given, for example, that China accounts for more than 43 percent of the American merchandise trade deficit, or that Mexico’s geography makes it such an unusually attractive base for selling to U.S. customers, focusing on individual-country or regional priorities often makes good sense.

It’s also legitimate in principle to base trade preferences on non-economic aims, like national security (e.g., rewarding allies or strengthening third world economies against the appeal of terrorism) – though Mr. Trump has expressed strong skepticism for this approach, notably in his Inaugural Address. And of course, prioritization is often the key to any successful public policy.

But what’s especially strange about the Trump trade strategy so far is the president’s indifference – at best – to the border adjustment tax idea. On top of undercutting corporate tariff arbitrage strategies by levying a tax on all imports (and encouraging exports), the measure would also bring in revenue needed to finance crucial domestic needs like infrastructure and healthcare reform without completely busting the federal budget. And its passage would by no means preclude addressing special trade priorities of all kinds with additional restrictions.

Ford’s new production announcement is just the latest in a series of comments from Corporate America that bear out one of President Trump’s central insights: that trade policy changes can decisively influence corporate sourcing decisions to America’s benefit. Now, however, he needs to recognize that his essential goal of using trade restrictions to lure valuable manufacturing production and jobs back to the United States requires policies with global scope. The half- (at best) measures he’s favored so far are just too easily gamed.

Following Up: Progress in Freeing the Mercury News H1B Debate Video


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What a day it’s been for RealityChek on Twitter today! Yesterday, I posted on the peculiar failure of the Mercury News, the top newspaper in technology industry center Silicon Valley, to post a video it made of a landmark and apparently heated recent debate on the H1B visa program. Under this controversial feature of U.S. immigration policy, American employers can secure foreign workers they can demonstrate are needed because they boast special talents that generally can’t be found in the U.S. workforce.  

Thanks to this item, and to some tweets today, I seem to have persuaded the most prominent participant, Rep. Ro Khanna (D.-Cal.) to ask the paper to release the full version.

Another participant in the event, University of California, Davis computer science professor Norman Matloff, had already made such a request, but got a “Thanks, but no thanks”-type answer.

So this morning, I decided, via Twitter, to ask Khanna to join the campaign. It was great to see him respond, and after a few tweets back and forth, at about 1:45 PM EST, he declared, “I have told them [the Mercury News] I would welcome the release of the tape if they have one. I would love for this to be public. I’m all for transparency.” So let’s hope that a request from a Member of Congress will do the trick. And let’s also hope that the paper still has the video!

I’ve asked Khanna to let me know the Mercury News‘ answer as soon as he can, and of course, I’ll pass the word on to you – ideally with a link – right away. And FYI, you can get in on this kind of action first-hand yourself by following me at @AlanTonelson. As with RealityChek, feedback is always welcome, and that includes heavy doses of snark!

P.S. Just for a bit of context, a major point of contention between Khanna and Matloff is a bill sponsored by Democratic Senator Dick Durbin of Illinois and Republican Senator Chuck Grassley of Iowa that attempts to address H1B-related problems.  Khanna is another sponsor of the legislation; Matloff considers its remedies inadequate.

Im-Politic: Free the Mercury News H1B Debate Video!


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There’s been no shortage of controversy stirred up by the H1B visa program that brings immigrants to the United States to take jobs allegedly requiring special talents – mostly in technology companies. So when what could well have been the first public debate ever that centers on this subject is held that included a researcher on the visas (who has charged that they overwhelmingly go to foreign workers who simply lower wages for companies who want to replace more expensive Americans) and a politician who’s been strongly in favor, you’d think a major newspaper would find that pretty newsworthy.

In the case of the Mercury News, however, you’d be wrong. And much worse, it looks like the San Francisco Bay area daily is keeping a video of the event under wraps because it makes the politician – whose views closely mirror the paper’s pro-H1B editorial stance – look absolutely terrible.

Here’s the skinny on the event. Precisely because there’s no recording available, I’m relying on this account from participant Norman Matloff, a computer science professor at the University of California, Davis, a leading national authority on immigration issues and the H1B program in particular, and a strong critic of the latter. Joining Matloff on a panel convened at the newly opened offices of the Voice of America’s Silicon Valley bureau were freshman Silicon Valley Congressman Ro Khanna and Kamran Elahian, who Matloff describes as “an immigrant tech entrepreneur.”

According to Matloff, most of the H1B exchanges took place between him and Khanna, who has been characterized in the press as “the favorite of the tech industry since he tried to first overtake incumbent Mike Honda in the 2014 election” in large part because of his defense of the domestic tech industry’s H1B practices.

As Matloff describes it, Khanna – who has also been described in the national media as a rising Democratic party star and champion of pragmatic fixes for economically besieged middle class Americans – was stunningly ignorant about recent H1B-related news developments. More troubling: Khanna sunk to thinly disguised personal (and completely unjustified) attacks on Matloff and several times seem to have flown off the handle when presented with evidence that clashed with his preconceived ideas.

I’d say “Don’t take my (or Matloff’s) word for it; see for yourself” – but I can’t. The debate was filmed by the Mercury News, but in response to a query from Matloff about whether the video would be posted, a reporter he knew at the paper told him that

it looks like the video was essentially scrapped as a standalone report, but there’s apparently a possibility that parts of it will be used in coverage of Rep. Khanna. Not sure the reason(s) for this, but I know videos of such events are often just used in bits and pieces…”

As Matloff noted in an email to me, “Certainly it would have cost the Merc nothing to put the video on the Web, quite easily and simply.” And it’s hard to disagree with his judgment that the paper “would be performing a major public service by placing the video online (in full, of course).”

So it’s necessary to take seriously Matloff when he speculated, in that same email to me: I can certainly see the Merc wanting to protect Rep. Khanna. They had endorsed Khanna, and generally feel their loyalty is to the tech industry. Their coverage of H-1B has been fair, but their editorial position has always been pro-H-1B.”

Matloff’s views are hardly dispositive – though I have always found him to be scrupulously honest. What could not be clearer, however, is that the Mercury News could reenforce its claims to objectivity by posting the video. With every passing day that it fails, the case for questioning its motives can only grow.

(What’s Left of) Our Economy: Smart Phones, Dumb Economy?


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I’m always wary of drawing conclusions about the American economy from what I see in everyday life for reasons that should be obvious. All such anecdotes should be viewed suspiciously because individual observations or incidents are much more likely to result from randomness or unique circumstances than to reflect a genuine trend. And I’d be the last to claim that my own experiences have ever been representative of anything larger.

Still, it’s undeniably, and understandably, gratifying when some actual data seems to bear out something that’s had me (figuratively) scratching my head for some time. It’s the seeming tendency of folks who at least appear to be well into the lower depths of the “99 percent” of non-uber-wealthy Americans owning what look (to my admittedly non-expert eye) like state-of-the-art smartphones. Although all sorts of reasonable explanations are possible, a recent survey of consumer finances at least has supported my suspicion that something genuinely peculiar – and not so encouraging – really is going on here.

First, let’s examine some of the extenuating circumstances. Prices for smartphone services have been falling steadily – and steeply over the last few months, thanks largely to the spread of unlimited data plans. Just check out this chart:

Younger consumers in particular also have shown some tendency to value buying experiences (like the extraordinary connectivity provided by modern personal communications) over goods. Some of these millennials and others in the post-baby-boom categories (especially students) may be getting help from their families – and that doesn’t necessarily raise red flags. More disturbing, however, are the odds that many of the young are avoiding or deferring goods purchases (especially big ones they used to make in the twenties and thirties, like cars and homes) because they simply can’t afford them, and are therefore substituting relatively cheap indulgences like phones with every conceivable bell and whistle.

Nonetheless, that consumer finance survey – from the Credit Sesame website – sadly suggests that many low-income earners who use smartphones of some kind (it’s not possible to say that they’re the latest and greatest) literally can’t afford them. Instead, they’ve bought them with seriously over-extended credit.

According to Marketwatch.com reporter Maria LaMagna, Credit Sesame examined the finances of 5,000 consumers and found that those whose cell phone accounts are considered delinquent were carrying an average balance of $887. I couldn’t find any information about what percentage of the 5,000 consumers analyzed were carrying such cell phone debt, but here’s a reason to think that the share carrying significant amounts is pretty big: phone service companies don’t usually report customers’ payments histories to credit bureaus until the collections process formally begins. I also wish that the article indicated how credit card-related debt has changed over time.

But it’s hard to believe that a reputable site like Marketwatch would have reported these numbers had they been more the exception than the rule. And the amounts of cell phone-related debt are especially striking given how services are now cratering in price.

It’s entirely possible that cell phone debtors will take advantage of these price plunges to pay up and stay fully paid up. In principle, the companies could start cracking down, too. But there’s also a real chance that the debtors will simply start paying their minimums on time, and that the service companies – currently engaged in price wars determined to get and keep customers practically at all costs – will keep treating them leniently (and milking them as cash cows for as long as they can). Raise your hands if you think this is any way to run an economy for any serious length of time.

(What’s Left of) Our Economy: Why Ag Fears Mustn’t Drive Trump’s NAFTA Revamp


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You have to hand it to the American agriculture industry: It has great lobbyists and public relations flacks. Just look at the job they’ve done convincing the Trump administration to pay special attention to the farm sector’s concerns when renegotiating the North American Free Trade Agreement (NAFTA) with Mexico and Canada. And as made clear by The Wall Street Journal today, they’re keeping the pressure on in an effort to convince the president that the United States doesn’t hold such overwhelming leverage in these talks with Mexico in particular.

No one can blame ag from doing its job. But maybe the press could do a somewhat better job of providing valuable context, as the Journal article today simply didn’t?

It’s indeed noteworthy, as The Journal‘s Jacob Bunge reported, that American farm exports to Mexico have fallen so far this year, especially given that Mexico is the third largest foreign market for these goods. Moreover, it does look like the drop stems at least partly from Mexico’s search for alternatives to U.S. suppliers in order to create NAFTA revamp bargaining chips.

But a broader examination of bilateral trade flows shows that, however important, agriculture doesn’t deserve pride of place in America’s trade negotiations – with Mexico or any other countries. First of all, according to the U.S. Bureau of Economic Analysis, last year, agriculture (along with forestry, fishing, and hunting) comprised 0.9 percent of the American economy on a value-added basis. Manufacturing represented 11.7 percent.

Last year, moreover, manufactures exports (of $1.05127 trillion) topped agricultural exports ($134.88 billion) by a factor of nearly eight. It’s true that agriculture ran a trade surplus and manufacturing an immense deficit. But the former – about $20 billion – was hardly an economic game-changer, and that was especially so considering the nearly $862 billion scale of the latter.

U.S.-Mexico trade tells a similar story: According to The Journal, 2016 saw America sell $18 billion worth of agricultural products to Mexico. Manufacturing exports were about eight times as great: just over $143 billion.

But there are some big problems with these manufacturing exports. For example, they’re much more than offset by U.S. manufactures imports from Mexico. In fact, since 2009 (the year the current recovery began), this bilateral trade deficit has risen more than twice as fast (by 125 percent) than that with China (52.56 percent).

Moreover, Trump is right about much of this imbalance resulting from NAFTA-induced American production offshoring to Mexico that aims to sell back into the United States. That’s had much to do with the 1990-2013 drop in the United States’ share of North American light vehicle production from 78 to 64 percent, and the rise in Mexico’s share from six to 19 percent. That’s also had much to do with the more than tripling of the U.S. bilateral trade deficit in autos and light trucks since NAFTA’s signing.

In fact, in the first eleven months of 2016, Mexico exported nearly 80 percent of the 3.22 million autos it produced, and fully 77 percent of them were sent north of the border.

As a result, auto industry leaders have plainly stated that without the unfettered access NAFTA provides to the American market, and without the incentives to produce in super-cheap and largely unregulated Mexico created by the treaty, most of their auto investment in Mexico would lose its raison d’etre.

No one is calling for neglecting America’s farm sector during the NAFTA renegotiation. But the outsized role played by manufacturing, and manufacturing trade deficits in regional trade, along with manufacturing’s historic role as the United States’ productivity growth and innovation leader, couldn’t make clearer that letting ag export fears dominate this economic diplomacy would be a classic case of letting the tail wag the dog.

(What’s Left of) Our Economy: New Ups & Downs for Manufacturing Production, but Recovery Still Incomplete


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Domestic manufacturing has entered a period of output volatility, today’s new Federal Reserve figures indicate. Inflation-adjusted production in May – the latest data – fell sequentially (by 0.39 percent) for the second time in three months, following a six-month streak of sequential improvements. But April’s big rise was upgraded from one percent to 1.16 percent – the strongest such showing since May, 2010’s 1.49 percent, early in the current recovery. At the same time, March’s already downgraded 0.41 percent real monthly output decrease was lowered again, to a 0.75 percent slide. That was the worst such retreat since winter-affected January, 2014’s 1.09 percent.

Automotive revisions figured prominently in these upgrades and downgrades, with April’s initially reported five percent constant dollar monthly production surge now judged to be 4.12 percent. In May, after-inflation output for the sector, which has led generally led manufacturing’s rebound from the Great Recession, tumbled 2.02 percent on month.  

Durable goods – manufacturing’s biggest super-sector – was most seriously affected by the auto volatility.  Its April monthly real output was boosted to an upwardly revised 1.20 percent – the fastest such pace since February, 2014’s winter-affected 1.80 percent.  But its May after-inflation on-month production was dragged down to a 0.84 percent fall – the worst since the 0.99 percent decrease resulting partly from January, 2014’s similarly cold weather.    

Non-durables’ production performance has been steadier, with May’s 0.10 percent on-month real gain its fourth such improvement in five months. Moreover, April’s sequential inflation-adjusted production growth was upgraded from an already strong 0.98 percent to 1.10 percent – it best such performance since October, 2008’s 2.15 percent. And non-durables’ annual real output increase of 1.53 percent was its best year-on-year rise since February, 2016’s 1.55 percent.

All the same, the new figures and volatility left domestic manufacturing’s price-adjusted output 3.99 percent less than at its pre-recession peak, more than nine years ago.

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

>U.S. real manufacturing output fell in May sequentially for the second time in three months. But the 0.39 percent decline – which followed six straight months of sequential growth – was modest compared with many of the March and April revisions, which could be starting a period of new volatility.

>April’s strong initially reported inflation-adjusted output rise of one percent was revised up to 1.16 percent. That was the best such performance since May, 2010’s 1.49 percent, when the manufacturing recovery from the Great Recession was still gathering steam.

>But March’s already downgraded 0.41 percent monthly real production decline was cut further, to 0.75 percent. That was domestic manufacturing’s worst such growth showing since the 1.09 percent fall-off in January 2014, which was affected by harsh winter weather.

>February’s last (downwardly revised) 0.27 percent monthly after-inflation output increase was revised back up to 0.38 percent.

>Some these swings can be traced to the automotive sector, which has led manufacturing’s real growth for most of the current economic recovery.

>April on-month price-adjusted auto production was initially reported to have advanced by five percent – its best growth since July, 2015’s 7.84 percent. Leading the way was a reported 8.04 percent surge in real vehicle output, also the best since July, 2015 (12.38 percent).

>The new April numbers: 4.12 percent and 6.76 percent, respectively. And in May, constant-dollar production fell by 2.02 percent.

>Automotive’s ups and downs most profoundly affected production of durable goods – manufacturing’s largest super-sector.

>The poor May automotive performance contributed to the 0.84 percent sequential durable goods real production shrinkage that month – the worst such decline since winter-affected January, 2014’s 0.99 percent.

>But the initially reported 1.01 April monthly durables production advance is now estimated at 1.20 percent – the super-sector’s fastest growth since the winter-affected 1.80 percent in February, 2014. Combined with the lower automotive results, this development indicated some relative strength outside automotive.  

>And thanks to the strong and upwardly revised April monthly figures, durable goods year-on-year after-inflation production gain that month was upgraded from 2.03 percent to 2.22 percent – still the best such increase since January, 2015’s 3.15 percent, which was also affected by harsh winter weather.

>In April, however, the annual durable goods real output improvement sank to 1.66 percent.

>The new Fed figures show that real output in non-durable goods has been steadier than in durables, but April was a standout nonetheless. Their robust sequential output growth of 0.98 percent was revised up to 1.10 percent – which produced the best monthly result since the 2.15 percent recorded in October, 2008 – even before the Great Recession broke out.

>And non-durables followed up by eaking out 0.10 percent monthly inflation-adjusted production growth in May – their fourth such advance in the last five months.

>Further, the 1.53 percent May non-durables annual constant dollar output increase was its best yearly result since February, 2016’s 1.55 percent.

>Yet not even this recent volatility could turn domestic manufacturing into a recovery-era economic winner. The overall sector is still 3.99 percent smaller in real terms than at its pre-recession peak – more than nine years ago, in December, 2007.

>Durable goods real output is up – but by only 0.13 percent – during this time, while non-durables real output is down 9.08 percent from its pre-recession peak, hit in July, 2007.

(What’s Left of) Our Economy: Rising Fed Rates Amid Slowing Real Wages?


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Although it’s usually hard to muster much sympathy for the governors of the Federal Reserve, today might be an exception.

On the one hand, this afternoon their Open Market Committee is scheduled to announce its latest decision on interest rates, and it’s given many indications that it’s going to again make the cost of borrowing a little more expensive. That probably means, all else equal, that economic activity in the United States (including growth and hiring) will slow down, at least in the short term.

On the other hand, the U.S. government reported a slew of economic data this morning indicating that the economy is getting weaker – which would make at least the timing of even a modest rate hike awkward. Among them were inflation-adjusted wage figures (for May) that once more reveal a significant slowdown in American workers’ real take-home pay.

For the private sector overall (the Labor Department, which calculates these figures, doesn’t report inflation-adjusted wages for public sector workers, because their government-set pay tells us little about the state of the economy), the news wasn’t bad at all on a month-to-month basis. Constant-dollar wages rose 0.28 percent from their April levels – after having gone exactly nowhere the month before.

But the year-on-year results – which smooth out inevitable random-ish monthly fluctuations – were again nothing less than discouraging. From last May until this May, this price-adjusted pay increased by just 0.56 percent. That was indeed their strongest annual improvement since last December’s 0.75 percent. But it was much less than half the after-inflation pay advance between the previous Mays (1.42 percent), much less that of May, 2014-May, 2015 (2.33 percent).

So largely as a result, during the current economic recovery – which is nearly eight years old – real private sector wages are up only 4.26 percent.

But according to the Labor Department, private workers overall have been enjoying salad days compared with manufacturing workers. The latter’s real wages fell on month in May by 0.28 percent. It’s true that this decline followed an upwardly revised 0.55 percent sequential April increase that was the sector’s best since August, 2015’s 0.66 percent. But the May monthly decline was the sector’s worst since last November’s 0.64 percent slide.

Manufacturing’s year-on-year real wage results are scarcely better. In May, they flat-lined — their worst such performance since September, 2014’s 0.29 percent annual dip. The two previous May annual real wage increases”? Between 2015 and 2016, 2.45 percent, and between 2014 and 2015, 1.53 percent.

And during the nearly eight years since the economy began growing once again, real manufacturing wages are up 1.31 percent.

These glum wage data notwithstanding, there still could be good reasons for the Fed to announce another rate hike today. As RealityChek readers know, it’s entirely possible that recent years of stimulus from the central bank has mainly stolen potential growth from the future by promoting artificial growth. Similarly, as the Fed itself has acknowledged lately, monetary policies that have made credit so cheap – and indeed, practically free for blue-chip borrowers – for so long can encourage the kind of crackpot investing and financial instability that could trigger another global crisis.

If the Fed emphasizes these concerns in its (usually brief) statement accompanying the interest rate announcement, or in the more detailed Open Market Committee meeting minutes it publishes later, it will deserve the nation’s gratitude for straight talk – however overdue it might be. If, however, the central bank insists that it’s raising rates mainly because the economy is looking encouraging, it will be increasingly deserve the label of mindless cheerleader.  

(What’s Left of) Our Economy: And the Labor Shortage/Immigration Beat Goes On


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Here’s yet another Open Borders- and amnesty-friendly article from the Mainstream Media that simply doesn’t add up – this time from CNN.com. In this story about a small San Francisco-area manufacturer who claims that he lost a tenth of his employees due to a 2011 government raid in search of illegal immigrant workers, one whopping inconsistency in particular stands out. It concerns the wages paid by the employer Emerald Packaging of Union City, California.

Emerald’s owner, claims that the company is still suffering from the personnel losses because he can’t find adequate replacements. And the CNN reporters’ sympathy for his supposed plight – and the obvious difficulties encountered by his illegal workers – was made clear by the article’s melodramatic headline: “RAIDED: Immigration agents showed up at Kevin Kelly’s factory and he lost his star workers.”

RealityChek regulars know by now that such claims of labor shortages due to restrictive immigration policies are usually open and shut tip-offs that the business in question is paying inadequate wages, or has refused to automate and become more productive. As I’ve noted repeatedly, mainstream economic theory teaches that when the demand for anything – including labor – exceeds the supply, the price of that commodity (in this case the wage and/or non-wage benefits) tends to rise until a new equilibrium is restored. Alternatively, businesses tend to substitute capital (typically in the form of technology) for what they view as overly expensive labor.

Kelly emphatically denied to the CNN reporter that he’s been skimping on wages by using illegal workers: “When people say these companies are hiring illegal labor because they want to keep their costs down… in our case that argument is complete bulls–t.”

In fact, according to Kelly, the jobs that illegals were filling – and that in some cases have remained unfilled – “aren’t cheap positions.” He added that “They range from $15 an hour entry-level jobs to $35 an hour for experienced mechanics. ‘With overtime of $27 to $35 an hour, you can make pretty good money of $75,000 to over $100,000 a year.’”

But his claims started to fall apart – not that CNN picked up on this – the instant he started discussing in detail the employee whose departure he felt most keenly – an assistant foreman named Miguel Gonzalez.

As the CNN article tells it, “Gonzalez had worked for Emerald Packaging for over 20 years. He started as a box handler, moving and storing product pallets and factory supplies, and worked his way up to assistant foreman. He was a gifted mechanic and Kelly relied on him to help keep the factory running.” Further, he could:

>”walk into my office and tell me what’s going on in the facility.”

>Gonzales was “Keen to learn and move up the ranks [and] routinely took on extra work and hours. He also rarely missed work, even returning to the factory floor just two days after his first child, Casandra, was born.”

>Soon after Gonzalez’ hiring, “he showed initiative by tinkering with and fixing up the machines on the factory floor on his own time to help them operate better. Two years into the job, he was promoted into a role where he learned to set up, repair and maintain the factory equipment.”

>”Over time, [he] taught himself every aspect of the business, including payments and shipping.”

>In Kelly’s words, “He was the single best machine mechanic we had.”

>”Losing him had an immediate impact on production because there just wasn’t anybody of Miguel’s caliber to replace him. There just wasn’t,” said Kelly.

And what was this supremely talented “star worker” making in 2011, after twenty years of superlative performance? Twenty-two dollars per hour. (He also received healthcare and retirement benefits.) According to the Labor Department’s data, that wage is somewhat ($2.50 per hour) more than the average hourly wage (before inflation) for all workers in the plastics packaging manufacturing sector that year, and a little over six dollars an hour more than non-supervisory workers alone make. (It’s not clear whether an assistant foreman qualifies in the Labor Department’s eyes as a supervisory or a non-supervisory worker.) But that $22 per hour is also about $13 dollars an hour less than what Kelly said he pays “experienced mechanics” nowadays (five years later).

There’s no doubt that some businesses that hire illegal immigrants need every body they can get, and there’s no doubt that some illegal immigrants are earning good wages largely as a result. But when a news organization plainly convinced of the desperate need for illegal workers touts a single alleged example of this dire situation that’s so full of gaping holes, Americans are more than entitled to start wondering whether this narrative as a whole is fake news.