Making News: Back on National Radio Tonight and Another Award!

Tags

business, CBS Eye on the World with John Batchelor, China, Chinese Communist Party, economics, Feedspot.com, Gordon G. Chang, Making News, Party Congress, recession, Xi JInPing

I’m pleased to announce that I’m scheduled to return tonight to the nationally syndicated “CBS Eye on the World with John Batchelor” to discuss China’s future and the outlook for Sino-America relations. 

At links like this, you can listen live to a discussion with me, John, and co-host Gordon G. Chang that will be especially timely given the conclusion of China’s latest Communist Party Congress and dictator Xi Jinping’s doubling down on his repression at home and expansionism abroad.

I don’t yet know exactly what time the segment will air, but John is on between 9 PM and midnight EST, and the entire show is always compelling. If you can’t tune in, as usual, I’ll post a link to the podcast as soon as one’s available.

In addition, RealityChek has just copped a second award from the widely followed Feedspot.com website! On the heels of being named one of its “45 Best Chemical Weapon Blogs and Websites,” RealityChek has been ranked as one of its “60 Best Recession Blogs and Websites” (coming in 29^th, and ahead of other economics and business news sources like the PBS NewsHour, Benzinga.com, and Quartz.com).

The criteria used buy Feedspot? “[T]raffic, social media followers, domain authority & freshness.”

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

Advertisement

Following Up: A Gift and a Goof on Tariffs and Inflation

Tags

Biden, Biden administration, Bloomberg.com, business, CBS Eye on the World with John Batchelor, China, cost of living, economics, Following Up, inflation, prices, tariffs, Trade

Commentators usually don’t get gifts like the one I received in yesterday’s Bloomberg.com report on the latest developments in the continuing Will-He-Won’t-He drama concerning President Biden’s upcoming decision on cutting or eliminating some tariffs on U.S. imports from China in order to ease raging inflation.

As I’ve repeatedly emphasized (most recently in print, here), to anyone who knows anything about business, the idea that tariff levels and consumer prices have much to do with each other is nonsensical. The reason? It assumes that businesses base what they charge their customers on the costs they pay for the goods and services for whatever they’re trying to sell.

But actually, the predominant driver of their selling prices, at least over any significant period of time, is the level of demand for their products or services. If it remains strong, businesses will keep raising their selling prices as high as they can regardless of what their input costs are. That’s a great way to increase profits. And if they want to keep growing these profits (and what business doesn’t?), they’ll keep raising these prices as long as customers will pay them – as long as that demand stays strong.

When do businesses lower selling prices? For those that want to maximize profits (and what business doesn’t?), only when demand for their products and services weaken – that is, when customers decide for whatever reason that these prices have risen too high.

So there is absolutely no reason to believe that lower prices for inputs from China independent of demand will cause businesses to lower the prices they charge their customers, and thus help bring inflation rates down. Instead, they’ll just pocket the new profits. And according to the aforementioned Bloomberg piece, we just got confirmation from the horse’s mouth – businesses themselves.

Reported the Bloomberg correspondents:

“The White House has asked retail companies for a commitment to lower prices following any duty reductions but executives rebuffed that request and told US officials it was an unrealistic expectation,” said “people familiar with the deliberations, who asked not to be identified.”

And apparently there are no plans to seek public price-reduction commitments from sectors of the economy that receive any tariff relief. Maybe because at least some administration officials finally recognize how ludicrous the tariff-inflation connection has always been?

But even as the Bloomberg reporters gave me this gift on the subject, I made a goof. During my latest radio interview on the subject on “CBS Eye on the World with John Batchelor,” I spazzed out and several times referred to businesses never cutting their “costs” when their input costs fell. I hope that most listeners understood that I was trying to say that they never cut their selling prices, but the record needs to be set straight. Here’s a link to the podcast, and apologies for any confusion.

(What’s Left of) Our Economy: One Reason Wages May Indeed be Fueling U.S. Inflation

Tags

business, consumer price index, ECI, Employment Cost Index, Federal Reserve, inflation, Jerome Powell, labor productivity, management, multifactor productivity, productivity, wages, workers, {What's Left of) Our Economy

As known by RealityChek regulars, I’ve pushed back strongly (e.g., here) against claims that today’s historically lofty levels of U.S. inflation have been driven largely or even significantly by wage costs. My main point: However healthy, if the wage increases American workers have gained recently lag behind the overall increase in prices across the entire economy – which has been the case – then how can they deserve much blame?

Even so, one other consideration needs to be added to the mix. It was mentioned by Federal Reserve Chair Jerome Powell in his press conference following the central bank’s announcement of its monetary policy decisions during the December meeting of its Open Market Committee (the partly rotating group of Fed governors that determines short-term interest rates and, more recently, the pace of bond buying or selling).

As Powell stated, the Fed is watching “the risks that persistent real wage growth in excess of productivity [growth] could put upward pressure on inflation.” That’s because when businesses are in situations where wages are rising but their operations are becoming more efficient at a faster rate, they can maintain and even increase profits without passing higher costs on to their customers. When productivity is rising more slowly than inflation, this option isn’t available – or not nearly as readily.

Powell also said that “we don’t see that yet.” But in fact, if you compare one measure of employee pay that he’s been watching closely with the most current measure of productivity growth, that’s exactly what you’ll see – and been happening consistently for two decades.

The pay gauge in question is the Employment Cost Index (ECI) created by the Labor Department. What’s especially useful about it is that is takes into account not only wages and salaries, but the full range of benefits workers receive. This data series goes back to 2001, and if you (1) look at the total compensation figures for all private sector workers (as always, I leave out government workers because their pay is determined largely by politicians’ decisions, not market forces) in pre-inflation terms, then (2) place them side-by-side with the inflation results, and then (3), check these against the Labor Department’s labor productivity results, it’s clear that pay has been rising considerably faster than productivity.

For example, during largely high-inflation 2021, the employment cost index (which is measured quarterly) rose on an annual basis during all four quarters.Yet during the second, third, and fourth quarters of last year, labor productivity by the same yardstick improved more slowly than the ECI. In other words, worker pay was rising faster than productivity.

Nor are these results atypical. In fact, from the first quarter of 2001 through the fourth quarter of last year, the ECI is up 74.12 percent but labor productivity is up jus 47.62 percent.

Another way to look at the subject: Before the fourth quarter ECI and labor productivity results came out (on January 28 and February 3, respectively), I looked at the annual changes in both sets of data for the third quarters of each year going back to 2001. During those 21 third quarters, annual productivity growth lagged annual ECI growth in 15.

It’s important to note that these conclusions don’t automatically justify assuming that worker compensation increases are a major driver of today’s inflation after all, much less that productivity growth’s relatively slow advance is employees’ fault. After all, as just noted, labor productivity has been rising more sluggishly than the ECI for two decades. Inflation didn’t take off until last year. Moreover, the labor productivity number reflects far more than the amount of physical and/or mental effort workers put into their jobs. It’s also a function of how well business owners perform – e.g., in terms of giving their employees the equipment and training they need to do their jobs effectively, and of organizing their companies in ways that maximize performance.

In addition, labor productivity isn’t the only gauge of efficiency monitored by the Labor Department. Multifactor productivity (also known as total factor productivity) is tracked, too. This data series, as its name implies, tries to determine efficiency by examining all the inputs that go into corporate operations – including not just person hours worked, but capital, energy, materials, and all the services that are used to produce goods and, yes, other services.

I haven’t compared the trends in the ECI and multifactor productivity, though, for one big reason: Because it depends on collecting so much more information, the multifactor productivity results come out much more slowly than the labor productivity reports. And the 2021 figures don’t seem to be due out for several months.

Finally, as I’ve also noted (see, e.g., here), most economists believe that productivity is one of the most difficult features of the economic landscape to measure. So the wage and productivity comparisons should be viewed with some non-trivial amount of caution. 

Yet if worker compensation is indeed rising faster than productivity, that’s a story that’s unlikely to end well for the U.S. economy. Maybe those multifactor productivity figures – whenever the heck they’re released – will provide some much needed further clarity. 

 

Making News: On National Radio Tonight on the Threat (to Americans) of China’s Social Ratings

Tags

business, China, Gordon G. Chang, human rights, Making News, privacy, social ratings, The John Batchelor Show

I’m pleased to announce that I’m scheduled to return to John Batchelor’s nationally syndicated radio show tonight.  Our likely topic:  China’s totalitarian practice of “social rating” – and how it can turn American businesses into agents of China’s dictators.  The segment is slated to begin at 9:15 PM EST and you can listen live on-line at this link.

As usual, if you can’t tune in this evening to what’s sure to be an important discussion among John, me, and co-host Gordon G. Chang, I’ll be posting a link to the podcast 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: “Tariff Victim” US Industries Remain Full of Job Openings

Tags

business, China, durable goods, employers, job openings, Jobs, JOLTS, labor shortages, manufacturing, metals tariffs, metals-using industries, private sector, quits, tariffs, Trade, Trump, workers, {What's Left of) Our Economy

If today’s government data on U.S. jobs openings don’t prompt loud mea culpas and apologies from the tariff-alarmists in the Mainstream Media and elsewhere in America’s globalization cheerleading establishment, I don’t know what will.

Recall that Americans have been swamped in recent months with reports that President Trump’s trade curbs have already been decimating American manufacturing.  And since they have been in place the longest, his metals tariffs (on most steel and aluminum imports) have been treated as prime examples, with metals-using industries being the prime victims.

But the new figures on job openings in major sectors of the economy (contained in the latest monthly release of the “JOLTS” numbers – the “job openings and labor turnover series”) are simply the latest statistics thoroughly debunking these claims.

Here are the results for job openings from April (because the metals tariffs began to be imposed in late March) through September (the most recent month covered by the JOLTS reports):

private sector:     +2.30 percent

manufacturing:   +7.08 percent

durable goods:   +7.47 percent

As has been the case with so much other data, the durable goods super-sector of manufacturing – the portion of industry containing the biggest metals-using industries – outperformed the rest of manufacturing and the entire economy in the number of employment opportunities it claimed were available.

And although the number of job openings in durable goods dipped from August to September (whose figures are still preliminary), they fell much less than in the rest of the economy.

private sector:     -2.85 percent

manufacturing     -4.72 percent

durable goods     -0.66 percent

Moreover, the 302,000 durable goods jobs openings reported preliminarily in September were the second largest number on record (going back to late 2000). The all-time high? August’s 304,000.

Some critics maintain that employers have incentives to exaggerate their claims of job vacancies. The motives cited include reinforcing contentions of “skills gaps” and other forms of labor shortages; rationalizing the persistence of high unemployment rates or sluggish wage growth; and pushing government or schools to take on worker training responsibilities (and expenses) that employers are loathe to assume. It’s also easy to see how exaggerated job openings claims can be used to bolster arguments for more immigration – which of course is also a tempting strategy for keeping wages down by increasing labor supply relative to demand.

But even if such exaggeration is rife, why would it be so much more important in durable goods manufacturing than in the rest of the economy? Further, why would employers have any reason to overstate the number of vacancies they’re trying to fill if they believed that their businesses were being swamped by steep, tariffs-led costs increases, or were about to? Wouldn’t they be trying to shed payroll instead? As a result, it’s hard to escape the conclusion that the JOLTS openings numbers simply add to the evidence that, despite the claims of actual or impending tariffs-mageddon, metals-using industries continue to be faring just fine.

Interestingly, workers in durable goods sectors don’t appear to share this optimism fully, according to the JOLTS data. For the figures also measure the numbers of employees voluntarily leaving their jobs – a clear sign of confidence that lots of new opportunities are available. Here are are the April-through-September results:

private sector:     +8.53 percent

manufacturing:    -2.94 percent

durable goods:     -9.48 percent

Clearly, durable goods workers have been displaying less confidence about reemployment opportunities than their counterparts in the rest of manufacturing, and much less than private sector workers overall. And these results are mirrored in the August-to-September numbers:

private sector:     -1.26 percent

manufacturing:    -6.60 percent

durable goods:   -11.76 percent

Nonetheless, in absolute terms, all these quits levels – even for durable goods – remain pretty high by recent standards. And for durables, they’re somewhat volatile, possibly because the absolute numbers have always been on the small side. Indeed, durable goods quits increased by 6.19 percent month-to-month as recently as July. And the August-to-September drop-off was the biggest sequential decline in percentage terms since the 15.70 percent monthly nosedive in August, 2017 – after which the numbers of quits steadily recovered.

As always, these trends could change (or, with the quits rate) intensify. It’s also possible that the President’s more sweeping tariffs on imports from China will be game-changers. (The first round dates only from early July, and the second, much larger round, went into effect in mid-September.) For now, however, the only real news about the economic effect of these levies is that they’ve showed no signs of slowing the recovery’s current momentum. Accept no substitutes.

Im-Politic: No Let-Up in Immigration Fakeonomics – and Fake History

Tags

business, Center for American Entrepreneurship, chain migration, Dreamers, Fortune 500, illegal immigrants, Im-Politic, Immigration, RAISE Act, social mobility, start-ups

The Open Borders Lobby is now touting a new study claiming that the Trump administration and Congress should permanently legalize the roughly 800,000 so-called “Dreamers” in part because of “the remarkable and persistent importance of immigrants to the creation and growth of America’s largest, most successful, and most valuable companies.” Moreover, it’s making the case that the findings should be shaping the entire “on-going national debate about immigration policy.”

There just one big problem: If you’re sympathetic to the plight of those immigrant children brought to the United States illegally by their equally illegal parents, and/or to the idea that the country needs an even more lenient immigration policy than the present version, you should hope that much stronger arguments for these positions are developed. Because the study, issued by the Center for American Entrepreneurship (CAE) is a classic of Fake Policy Analysis.

CAE is clearly correct in noting “the well-established importance of immigrants to entrepreneurship in the United States….” But it’s headline finding – that a large percentage of today’s Fortune 500 companies have been founded or co-founded by immigrants or their children – should simply remind readers of a simple historical truth: America has been a “nation of immigrants” since the founding because it’s generally been a relatively young, thinly populated country that’s needed to build up its human resources and actively sought this goal. The data have absolutely nothing to do with the main questions dominating the immigration policy debate these days, such as legalizing the Dreamers; or amnesty-ing the entire current illegal population; or reducing or ending “chain migration”; or cutting legal immigration levels.

Skeptical? Just check out the CAE’s numbers. At a glance they do seem to vindicate claims that immigrants have been much more entrepreneurial than the American population in general. And if you believe in capitalism and free markets, that’s incredibly important.

But look more closely, and the relevance to contemporary immigration debates vanishes. For an enormous percentage of the immigrant entrepreneurs listed here arrived and made their marks in the 19^th and early 20^th centuries, when the country’s immigrant population grew substantially faster than the population as a whole. Between 1850 (the earliest official data available) and 1910 (the date of the last U.S. Census before World War I, when immigration inflows of course dramatically dropped, and before 1924, when legislation slashed inflows and established discriminatory foreign country quotas), America’s foreign born population grew from 9.7 percent to 14.7 percent. And obviously, before 1850, it was at least as large, and growing at least as fast.

So of course during this period, immigrants were especially important in business formation. They were especially important in all demographic respects.

It’s also curious, to put it mildly, that the CAE would use immigrants’ children to buttress its case about immigrant entrepreneurship. These children founded or co-founded more than 57 percent of the “immigrant-founded” companies the Center has spotlighted. (In other words, immigrants themselves founded only about 43 percent of the so-called immigrant founded firms, and therefore only 18.4 percent of current Fortune 500 companies.)

But what’s the rationale for including them? Why not count the third generation, too? Because an entrepreneurship gene is for some reason not passed on to these immigrant descendants? Or somehow watered down? And why would this be? Because the second generation is likelier than the immigrants themselves to marry someone from the supposedly less entrepreneurial native-born population?

Counting the children – along with the prominence of these progeny – also seems to undercut the belief that immigrants are outsized business creators either because their very decision to leave their native lands reveals unusually high levels of get-up-and-go; or because as newcomers to the United States, they faced unusual barriers, like discrimination, in achieving prosperity; or some combination of the two.

For immigrant children established considerably more major companies than immigrants themselves. And presumably, they faced fewer obstacles, and were more steeped in native norms, than their foreign-born parents.

And finally, if you’re wondering why any of these findings should bear on today’s main immigration policy debates, you’re right – mainly because social mobility in America has been on the wane for decades, and in particular for the kinds of relatively poorly skilled and educated individuals who have dominated recent immigration inflows and the illegal population.

This trend significantly reduces the odds that the Dreamers – who for the most part share these characteristics – won’t match the business-creation record of previous immigrant generations. Ditto for today’s other illegals and the legal beneficiaries of chain migration.

Focusing on immigration policy as a business-formation booster, let alone cure-all, also ignores all the purely domestic obstacles to greater entrepreneurship – like weak social mobility and all the policy mistakes and inadequacies (and economic and social ills) behind it; like growing levels of business concentration and consequent declining levels of competition, which shrink the space for start-ups; like today’s feeble levels of consumer demand, which have surely undercut overall business investment.

When those problems are addressed more effectively, the United States will no doubt see a revival or entrepreneurship. And just as certainly, it will be in a much stronger position to handle the costs of recent immigration levels – and even possibly increase them.

Following Up: Time for a “Truth in Testimony Act” for Think Tanks

Tags

business, civil society groups, Congress, corporations, data, exports, Following Up, globalization, idea laundering, imports, Jobs, labor unions, offshoring, statistics, think tanks, Trade, trade balances, transparency

So far, my work on the problems for our democracy caused by corporate- or other special interest-funded think tanks has emphasized that the media has a special responsibility – and ability — to help solve them. How? By making sure that whenever they quote staffers from these organizations as experts on this or that issue, they reveal who’s signing the tankers’ paychecks.

But another major segment of society also needs to play a role in preventing what I call think tank idea-laundering – posing as objective, academicky-type organizations in order to portray their staffs’ findings as the products of disinterested scholarly research rather than exercises in agenda-pushing. That segment is government.

Legislatures at the local, state, and federal levels should pass what might be called “Truth in Testifying Acts.” That is, whenever they invite input from think tanks in hearings they hold, or in public comment exercises they conduct, the law-making bodies should require these organizations to disclose all their funders with a financial stake in the subject being examined, or the decision that’s pending. As a result, the public or any other consumers of these analyses would have the information they need to judge how much credibility they feel the information deserves, and what kind of material has been deliberately exaggerated or spotlighted or downplayed or ignored altogether.

In fact, these requirements should be imposed on so-called civil society groups, foundations, labor unions, academic institutions, and business organizations, too. Sometimes their biases are obvious from their names, but only sometimes. Best to err therefore on the side of caution – and more disclosure.

Further, while we’re on the subject, I’d like to see something else added to these Truth in Testimony Acts, or follow-on legislation, which is especially relevant to the trade issues I follow so closely: requirements that business groups and their think tank fronts lay out comprehensively their own domestic and international operations and structures, and those of their major funders. They’re needed because representatives of these organizations have long gotten away with literal intellectual murder by presenting legislators with shamelessly cherry-picked data.

For example, when trade agreements and other trade policy decisions are being examined, it’s become standard operating procedure for witnesses in favor of greater liberalization to present figures on exports from the country as a whole, from individual states or Congressional districts (always of major concern to Senators and House members), or from whatever company or industry they represent. And typically, they’re allowed to ignore the import and trade balance sides of the equation. Talk about a total crock.

Similarly, these individuals and organizations are happy to report on how many workers they employ nationally, and in various states and localities, and how many of these jobs depend on exports at a given moment. But they have no interest in discussing how these trends have changed over time, or how many jobs and how much production they’ve sent overseas or have lost to imports, or how these situations have evolved, say, over the life of a certain trade deal.

The companies and industries justify this selectivity by contending that information on imports and offshoring is proprietary, and that keeping it confidential is crucial to their commercial success. That’s often true. But the Truth in Testimony Act should specify that if witnesses wish to keep close to their vest information on one side of the trade ledger (e.g., their firm’s imports), then they can’t brag about their performance on the other side (e.g., their firm’s exports). There’s simply no reason to allow these businesses to play, “Heads, We Win; Tails, You Lose.”

Nor need there be anything the slightest bit coercive about such requirements. If businesses and industries and their various representatives feel so strongly about the secrets to their success, they should be free to decline invites to appear before lawmakers.

Actually, I’d like to extend these requirements to the financial statements public companies need to file with the feds. As with their testimony, such businesses often include flattering trade-related information in quarterly and annual financial statements. If they’re not willing to give investors the full picture, they should need to drop the whole subject.

And why restrict such disclosures to public businesses? Companies of all kinds are required to report all sorts of information to Washington. Their submissions form the basis of much of the economic data that is made publicly available by the federal government. The shield of anonymity provided by the Census Bureau and other statistical agencies to prevent rivals from using the data to gain advantage is entirely reasonable from the standpoint of these businesses. But from a national standpoint, it makes no sense at all. Indeed, it puts policymakers and the public in the position of flying largely blind when it comes to evaluating the impact of trade policy decisions.

The same kind of problem is created by the narrow range of trade-related info that businesses are legally obligated to share. Why not force them to specify their job and production offshoring, the wages of their U.S. and overseas workers, their foreign and domestic procurement, the foreign and domestic content of their products, and similar statistics? And why not demand time series, so that long-term patterns can be identified?  BTW — content information has been required of auto-makers selling in the United States since the 1990s, so major precedent exists. 

The business secrets problem is easily solved: If all firms wishing the privilege of operating in the United States need to share the same information, no one company is put behind the eight-ball. And again, no coercion is involved. Companies would be perfectly free not to comply – and exit the world’s most lucrative market by far in the process. And what about the regulatory burden that would be placed on smaller firms? There’s a strong argument for exempting them, as larger firms dominate U.S. trade flows anyway.

Such a sweeping “Truth in Globalization Act” would probably be a heavier legislative lift than the “Truth in Testimony Act,” so I’d focus first on the former. But both are urgently needed to ensure the soundest possible U.S. policymaking process.  And how could anyone genuinely devoted to the national interest object?