Following Up: Why Buy American Reform is More Urgent – & Feasible – Than Ever

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Buy American, Following Up, free trade agreements, GAO, Government Accountability Office, Government Procurement Agreement, GPA, NAFTA, North American Free Trade Agreement, Obama, The Wall Street Journal, Trade, World Trade Organization, WTO

Although it doubtless wasn’t an intention of Wall Street Journal reporters Coulter Jones and Shane Shifflett, their article this morning on President Trump’s recent efforts to strengthen the U.S. government’s Buy America regulations considerably bolstered the case that overhaul is indeed vital – and within reach politically.

As I reported last month, a February Government Accountability Office (GAO) study showed that the United States is getting completely fleeced by its adherence to provisions in various bilateral or regional trade deals (like the North American Free Trade Agreement), along with a worldwide plurilateral agreement, that aim at eliminating domestic preference programs like Buy American regs.

The two main problems, according to the GAO? First, the best available data reveals that the United States has opened up its government purchases to foreign competition much wider than the nearly 50 other signatories of the Government Procurement Agreement (GPA) sponsored by the World Trade Organization (WTO). Second, Washington’s implementation of this arrangement and of similar provisions in other trade deals has been so negligent that the U.S. government never bothered even to find out how well the GPA, or any of the similar agreements, was working until two Democratic Senators commissioned the GAO study – more than twenty years after the global agreement was signed.

Journal correspondents Jones and Shifflett spent most of their article purporting to explain that any administration efforts to boost Washington’s purchases of U.S.-origin goods and services would amount to “swimming against the tide.” After all, as they documented, “For the current fiscal year beginning in October, foreign businesses have received a bigger share of federal contract dollars than in any other year since at least 2009.” In fact, “foreign-owned companies already hauled in more money from federal contracts in the past three months [i.e, during the Trump presidency] than in any corresponding period in a decade.”

Moreover, any changes to procurement policy made by President Trump “would likely face legal challenges….Additionally, any executive order Mr. Trump may issue requiring the government to buy exclusively American-made products has the potential to be challenged in court, or overturned by Congress or a future administration” – because of trade treaties that aimed “to make it easier for U.S. companies to compete overseas by mutually easing trade restrictions with other countries.”

But the recent rise in federal contracts for foreign-made goods, according to the article, has nothing to do with either Trump administration negligence or uncontrollable forces. As the authors point out, “Much of the payout to foreign-owned firms in the first quarter of this calendar year was set in motion by the Obama administration.” Of course, that was the same Obama administration that came into office in 2009 and oversaw that previously noted longer-term surge in contracts awarded to foreign goods and services providers.

Further, those trade treaties described by the Journal piece as such towering obstacles to a Buy American overhaul are the same trade treaties that the GAO has strongly indicated are utter failures.

The administration knows about the unacceptable record of these arrangements, as do the Democratic Senators who requested the GAO study. How difficult, then, would it really be for the president to muster bipartisan Congressional support for declaring these deals null and void – at least pending convincing evidence that they’re working after all? And given the pervasive discrimination U.S.-based goods and service providers clearly face in most foreign government markets, how difficult would it be for Mr. Trump to win similar legislative backing for narrowing the loopholes and waivers contained in the current Buy American regulations – and monitoring and enforcing tighter rules much more effectively?

In other words, how many American lawmakers would insist on continuing to obey broken treaties and on refusing to re-level the procurement playing field unilaterally for domestic businesses and their employers? The answers may not be obvious to Mainstream Media journalists. They’re surely more obvious to politicians accountable to American voters.

Im-Politic: Did Trump (and Trump-ism) Really Lose Big in the Healthcare Fight?

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border adjustment tax, Congress, conservatives, Freedom Caucus, healthcare, Im-Politic, Immigration, infrastructure, Obama, Obamacare, Paul Ryan, Peggy Noonan, Republicans, RyanCare, tax reform, Tea Party, The Wall Street Journal, Trade, Trump

The list of realities, considerations, factors – call them what you will – that President Trump either forgot or overlooked as he pushed for House passage of the Republican healthcare bill is long, impressive, and pretty obvious according to the Washington, D.C. conventional political wisdom. On the off chance you haven’t heard it or read it, it includes the difference between cutting deals among real estate tycoons and negotiating with ideological politicians; his own voters’ tendency to rely heavily on the kind of government healthcare aid that the GOP legislation either eliminated or sharply curbed; the powerful vested stake developed after years or working with it in the current healthcare system – however troubled it might be – by major participants in the system; and the dangers to Mr. Trump’s own credibility and political power of choosing to tackle first a highly contentious subject (like healthcare) instead of a priority that’s reasonably uncontroversial (like infrastructure spending).

All those points seem valid to me, but I would add two more that seem at least equally important. Then I’ll present an interpretation of the healthcare story that hasn’t appeared anywhere else yet but that shouldn’t be overlooked – if only because it ties the otherwise puzzling story together in ways that are admittedly byzantine, but that make eminent sense in a Machiavellian (and therefore quintessentially political) way. In fact, this analysis dovetails exceptionally well with the president’s clear (to me, certainly) determination to remake American politics by rejecting the doctrinaire conservatism embodied by the Republican party for decades, and thereby increasing its appeal to independents and moderates.

The first such consideration that should be added to the overlooked list: how much more difficult it is both politically and substantively to take away government assistance used by economically stressed Americans (like those who backed Trump in droves) than it is to enable them to thrive without the assistance via other major planks of the Trump platform – chiefly immigration and trade policy overhaul.

One of the secrets of Trump’s success, after all, was his recognition that vast numbers of working and middle class Americans no longer buy the mainstream Republican argument that they could greatly increase their economic self-reliance through the wealth that would trickle down to them through shrinking taxes and government. He understood that this promise would always ring false as long as so many good jobs and so much income were being sent to foreigners through offshoring-friendly trade policies and mass immigration.

So it’s easy to understand why the Republican healthcare legislation registered so little support from even Republican voters – no doubt including many Trump backers. He seemed to be putting the cart before the horse not when it came to the kinds of government programs touted by liberals that Trump-ites viewed as bupkis, but with a program that had become central to their lives. (For a terrific analysis of Main Street views of healthcare at the usually ignored gut level, see this column by The Wall Street Journal‘s Peggy Noonan.)

The second neglected consideration flows directly from the first: President Trump’s election shows that the Republican party has moved significantly in his more populist and particularly less ideological direction, if not at the interlocking think tank/donors/Congressional level, at the far more important voter level. As a result, there was no apparent reason for Mr. Trump to defer to the more ideological Congressional Republicans on the healthcare front.

More specifically, even though the national party’s leadership did indeed treat Obamacare repeal and replacement as a defining principle and promise to its grassroots, and even though candidate Trump expressed strong opposition to his predecessors’ signature achievement, healthcare was never the defining principle of the maverick movement he led. That’s why he so frequently spoke of achieving healthcare goals that have been so widely rejected in Republican and conservative and leadership circles, like ensuring universal coverage.

So why did the president lead off his legislative agenda with orthodox Republican-style healthcare reform? Here’s where the story gets Machiavellian to me – but in ways that should be entirely plausible to anyone familiar with how successful political strategists think. Further, it’s a narrative that fully takes into account the hyper-partisan nature of Washington and legislative politics with which Mr. Trump needs to deal. And it goes like this.

The president recognizes that even though he’s remade much of the Republican base in his own image on the issues level, he also must realize that the Washington Republicans – which include the party’s mainstream conservative Congressional leaders and its more ideological Tea Party wing – remain hostile on the highest profile matters on his own agenda. I imagine he also recognizes that they might be powerful enough to undermine his initiatives on trade, immigration, and/or infrastructure – especially if Democratic leaders remain in their adamant “resistance” mode.

For even if Democrats are ultimately winnable on trade and infrastructure, they have no interest even in these areas in giving the president the kind of quick victory that would greatly strengthen the odds of turning his first term of office into a success that would boost the odds of his reelection. They have even less interest in helping Mr. Trump further strengthen his appeal to many of big Democratic constituencies.

So the Washington Republicans needed to be at least neutralized – and sooner rather than later. And appearing to fight the good fight for their healthcare reform proposal was an ideal way to demonstrate his loyalty to their objectives and strengthen his case for demanding concessions from them in return in areas he valued much more highly. This calculation looks especially shrewd since the Republican bill was so draconian that even had it squeezed through the House, the Senate was bound to prevent its reaching his desk in anything like its current form.

As a result, now that the “RyanCare” legislation is dead, Mr. Trump can say to both the House Republican leaders and even to the hard-line Freedom Caucus something to the effect, “We tried it your way, I carried lots of your water, and I paid a noticeable price. Now we drop the healthcare effort, pivot to my priorities, and I expect your votes, even if you won’t pull front-line duty. And when we do address healthcare as Obamacare’s failures multiply, you’re going to do right by your own constituents and drop the free market extremism. P.S. Anyone remaining obstructionist comes into my social media cross-hairs with your reelection bids coming up.”

I have no inside information here, and my reasoning could certainly be too clever by half. Moreover, one of the most important lessons I’ve learned in my professional life is that just because an analysis seems logical or commonsensical, doesn’t mean that it’s true. But even though it’s only about a day since the healthcare bill was pulled from a scheduled floor vote for the second and final time, I derive some satisfaction in seeing the president is making nice with both House Speaker Paul Ryan and the Freedom Caucus members, and making clear that it’s tax reform time (which could bring a tariff-like border adjustment tax). Which could mean that Donald Trump’s presidency is highly conventional in at least one respect – temptations to dismiss it as a failure should be strongly resisted.  

Our So-Called Foreign Policy: Who are the Real “Hot Heads”?

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alliances, allies, America First, Asia, China, Cold War, establishment, Europe, foreign policy, foreign policy establishment, globalism, H.R. McMaster, internationalism, interventionism, Jim Mattis, Jonathan Stevenson, national security adviser, NATO, NATO expansion, North Korea, Obama, Our So-Called Foreign Policy, Populism, Russia, Stephen K. Bannon, The New York Times, Trump, U.S. military, Vietnam

The Mainstream Media remain useful as a mouthpiece for an American political establishment that retains all too much power to frustrate Trump-ian – and other populist – impulses. So it’s vitally important to identify and evaluate emerging narratives they’re trying to propagate. And one that’s been especially prominent – and pernicious – is the habit of dividing the president’s top aides into the voices of reason (my term) and the “hot-heads.” A great example of this habit and the dangers it can foster, is Jonathan Stevenson’s February 21 New York Times column on President Trump’s appointment of Lt. Gen. H.R. McMaster as his new White House national security adviser.

According to Stevenson – a national security veteran of the Obama administration – McMaster is a welcome addition to the voices of reason. In particular, his selection is portrayed as combining with that of former general Jim Mattis as Defense Secretary to strengthen a firewall against the “hot heads” (Stevenson’s term) that also have Mr. Trump’s ear.

Part of the reason Stevenson likes McMaster and Mattis et al is that he believes they will oppose “pointlessly disrupting” strategies and positions that he and many other establishment-arians (on both sides of the aisle) view as successes, or the best possible approaches – like the “One China” policy, the Iran nuclear deal, and immigration initiatives that seek to admit more refugees and other newcomers from the Middle East in hopes of winning hearts and minds in the Islamic world. I personally don’t agree with the Stevensonian/establishment view, but reasonable people can legitimately differ on these matters.

What’s much less reasonable, and genuinely dangerous, is Stevenson’s other reason for liking the world’s McMasters and Mattis’, and disliking its Stephen K. Bannon – the Trump aide who he and so many others view as a quintessential extremist and populist hot head. As the author sees it, McMaster is one of the national security professionals who will help make sure that American diplomacy won’t be unduly influenced by Trump-ists like Bannon. These ostensibly shallow, narrow-minded politicos supposedly see foreign policymaking not as an exercise in advancing and safeguarding the country’s most critical interests, but simply as a means of boosting or protecting a president’s popularity.

Although foreign policy can never be entirely separated from domestic politics – and in a democracy, shouldn’t be so separated – over-politicization can of course produce disaster. But Stevenson’s main historical example (the gradual escalation of the Vietnam War), and his analysis of the Trump administration, get literally everything important wrong. For example, two of his leading Vietnam villains (and those of Gen. McMaster) are then Defense Secretary Robert S. McNamara and then national security adviser McGeorge Bundy. But far from being politicians who had any experience with the electoral process, or any apparent interest, they were quintessential establishment mandarins. In fact, it was their catastrophic advice that (rightly) turned “the best and the brightest” into a term of contempt.

The substance of their advice – chiefly, the championing of gradual escalation – can be faulted, too. But as Stevenson glosses over, this strategy enjoyed wide backing in the military, and not only among a group of military chiefs who McMaster and Stevenson dismiss as “inordinately politicized.”

Much more important, however, the fundamental mistake behind the Vietnam disaster was not the specific set of military tactics chosen, but the strategic decision to intervene militarily in the first place. And this choice reflected the strong internationalist consensus across the foreign policy establishment that, in the face of the Cold War community threat, every square inch of the globe had to be treated as a vital American interest, whether it held any specific geopolitical or economic significance to the United States or not.

Now fast forward to the present. Who’s more likely to embroil the United States into a needless military conflict that could spiral into a complete debacle? Mere “politicos” like Bannon – and his boss – who have complained (most recently in the Inaugural Address) that America has too often “defended other nations’ borders while refusing to defend our own”? Has “spent trillions of dollars overseas while America’s infrastructure has fallen into disrepair and decay”?

Is a new Vietnam really what can be expected from a president who has declared, “We will seek friendship and goodwill with the nations of the world – but we do so with the understanding that it is the right of all nations to put their own interests first.

“We do not seek to impose our way of life on anyone, but rather to let it shine as an example for everyone to follow”?

For my money, I’d bet on the genuinely reckless foreign policy moves being advocated by figures from an establishment that, in the wake of Mr. Trump’s election, is doubling down on its support for internationalism – and therefore for the indiscriminate interventionism that logically follows from it. Indeed, lately this allegiance to internationalism has even blinded the establishment to rapidly mounting dangers from the pillars of post-World War II foreign policy – America’s security relationships with Europe and Asia.

In the former region, a completely unnecessary expansion of the North Atlantic Treaty Organization (NATO) to include former Soviet republics and other nearby countries has committed the United States to protect lands that can be defended only by he threat of using nuclear weapons even though they have never been viewed as vital interests. In the process, of course, this NATO expansion has triggered a military and paramilitary reaction by Russia that has all of Europe on edge.

In Asia, America’s two likeliest adversaries – China and North Korea – are rapidly becoming capable of offsetting the nuclear weapons edge that has enabled Washington to protect countries like Japan and South Korea with little risk to the U.S. homeland. Ever more powerful nuclear forces now mean that Beijing and Pyongyang can use the credible threat of destroying American cities to deter U.S. military responses to any aggression they undertake.  (See this post for more detail – and for powerful evidence that Mr. Trump recognizes both problems.)

Indeed, in this respect, erring on the side of caution would involve President Trump siding with the America Firsters like Bannon – whatever short-term disruption their recommendations would bring – against the McMaster portrayed by Stevenson, and other establishmentarians he comfortingly but misleadingly labels as guardians of policy “stability.” That’s the last result that Washington will get from defining or simply wishing away lessons that have stared the nation and its leaders in the face for decades.

(What’s Left of) Our Economy: The Real U.S. Private Sector’s Employment Role Keeps Shrinking and Shrinking

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Bill Clinton, Employment, George W. Bush, healthcare services, Jobs, Labor Department, non-farm jobs, Obama, private sector, recoveries, subsidized private sector, {What's Left of) Our Economy

Because the latest monthly U.S. jobs figures that were released last Friday incorporated revisions going back to last March, our picture is clearer than ever of how dependent former President Obama’s job-creation record was on employment gains in what I call the economy’s subsidized private sector. Those are industries, notably healthcare service, where levels of demand (and therefore employment) are heavily reliant on government subsidies (and therefore politicians’ decisions) instead of on market forces.*

And unless you believe that government or parts of the economy it largely underwrites should be America’s job-creation leaders – which you shouldn’t – you’ll recognize that the more prominent that subsidized private sector is in the nation’s employment picture, the weaker the job market’s dynamics, and the U.S. economy’s genuine strength.

The verdict? These subsidized industries played a large, growing role in U.S. employment gains achieved during the economic expansion that began in June of Mr. Obama’s first year in office. At the same time, although the economy under Mr. Obama performed much better in this crucial respect than under his predecessor, George W. Bush, it fell short of the job-creation pattern under Mr. Bush’s predecessor, Bill Clinton.

The easiest way to show these trends is to focus on the share of total non-farm employment (the American jobs universe according to the U.S. Department of Labor, which officially tallies these numbers) accounted for by the subsidized private sector on a stand-still basis and the share of total job gains it represents. That methodology also yields the data on how employment in what might be called the “real private sector” is faring. And here are the numbers for the last administration:

 
Non-farm job change: +14.534m Percentage change: +11.09

Private sector job change: +14.833m Percentage change: +13.68

Subsidized private sector job change: +3.276m Percentage change: +16.70

Real private sector job change +11.557m Percentage change: +13.01

 

The following numbers show how strongly the subsidized private sector has influenced overall job creation under Mr. Obama:

 
Share of total non-farm job gains: 22.54 percent

Share of conventionally defined private sector job gains: 22.09 percent

 
As a result, the real private sector accounted for 80.51 percent of total non-farm job gains – a high but much smaller share than that resulting from failing to strip out the subsidized jobs (102.06 percent – the discrepancy comes from the absolute reduction in government jobs under President Obama).

Moreover, the subsidized private sector’s importance grew impressively during the Obama years. Between 2015 and 2016, it produced 24.44 percent of all non-farm jobs generated and 26.68 percent of all the employment improvement in the private sector as conventionally defined.

Nevertheless, if the subsidized private sector’s employment role grew robustly under President Obama, it positively skyrocketed during the Bush recovery of the 2000s compared with the rest of the economy. Let’s start by examining the job increases in the relevant major sectors of the economy from the end of 2001 to the end of 2007 – an expansion much shorter than that which began under President Obama:

 
Non-farm job change: +7.139m Percentage change +5.45

Private sector job change: +6.388m Percentage change +5.83

Subsidized private sector job change: +2.827m Percentage change +17.56

Real private sector job change +4.191m Percentage change +4.48

 
The contrast with the Obama years is even more striking when you specify the percent of jobs created for which the subsidized private sector was responsible. In the most important measures, both numbers are roughly twice as high:
Share of total non-farm job gains: 39.60 percent

Share of conventionally defined private sector job gains: 44.25 percent
As a result, the real private sector accounted for just 58.71 percent of total non-farm job gains under former President Bush – way smaller than the share than that resulting from failing to strip out the subsidized jobs (89.48 percent).

But the data leave little doubt that the best recent job-creation performance of recent presidents was turned in by Bill Clinton – with one caveat. Here are the figures for the economic expansion that began in April, 1991 (several months before his first inauguration) and February, 2001 (a month after he left office).

 

Non-farm job change: +24.412m Percentage change +22.53

Private sector job change: +21.991m Percentage change +24.47

Subsidized private sector job change: +4.109m Percentage change +35.84

Real private sector job change +17.882m Percentage change +22.80

 

In terms of the employment-generation role played by the subsidized private sector, here’s what these numbers show for the Clinton expansion:

 
Share of total non-farm job gains: 16.83 percent

Share of conventionally defined private sector job gains: 18.68 percent

 

The one blemish in the Clinton record is the very strong relative growth shown by the subsidized private sector both in absolute and percentage terms. Yet these developments didn’t move the overall job change numbers nearly as much as under Presidents Bush and Obama because they started from a considerably smaller base.

 
Finally, let’s examine how the subsidized and real private sectors’ share of total employment on a static basis has changed since the Clinton expansion began, with the beginning and end of that recovery and subsequent recoveries as our benchmarks:

 
Subsidized private sector as share of non-farm employment, start of Clinton recovery: 10.58 percent

Real private sector share: 72.36 percent

 

Subsidized private sector as share of non-farm employment, end of Clinton recovery: 11.73 percent

Real private sector share: 72.53 percent

 

Subsidized private sector as share of non-farm employment, start of Bush recovery: 12.29%

Real private sector share: 71.41 percent

 

Subsidized private sector as share of non-farm employment, end of Bush recovery: 13.67%

Real private sector share: 70.16 percent

 

Subsidized private sector as share of non-farm employment, start of Obama recovery: 14.97 percent

Real private sector share: 67.80 percent

 

Subsidized private sector as share of non-farm employment, latest Obama data: 15.73

Real private sector share: 68.97 percent

 
The best way to sum up these trends?  In my view, it’s realizing that, since the Clinton recovery began three and one half decades ago, the American economy has generated 37.188 million net new jobs. At that time, the subsidized private sector represented 10.58 percent of total employment.  Since then, it’s been responsible for 30.72 percent of the net new jobs created in the nation — punching way above its weight

The real private sector in April, 1991 accounted for 72.36 percent of the country’s total employment.  Since then, it’s produced 59.08 percent of net new jobs — punching well below its weight.  And finally, fully 52 percent of all the added employment created since April, 1991 that is officially classified as private sector has actually come in the subsidized private sector.

In other words, Presidents come and presidents go, and the economy expands and contracts. But for the last 35 or so years, the subsidized private sector has continued to grow in relative importance. Donald Trump is already considered to be the greatest disruptor in the presidency’s recent history. Is this trend, though, too powerful even for him to resist?

*As always, my definition of the subsidized private sector is not meant to be inclusive.  It simply includes three parts of the economy – healthcare services, the for-profit education sector, and social assistance agencies – that are broken out in the Labor Department data, and that therefore are easy to identify.  It should also encompass workers in sectors like defense-related manufacturing, but many of these are much more difficult to quantify.  

 

(What’s Left of) Our Economy: New Jobs Figures Show Deeply Mixed Obama Record on Manufacturing Employment

Tags

Employment, inflation-adjusted wages, Jobs, manufacturing, Obama, recession, recovery, wages, {What's Left of) Our Economy

January’s preliminary U.S. manufacturing jobs figures showed that former President Obama fell short of his stated goal of creating one million new positions in industry by 638,000. Since Mr. Obama’s first inauguration, moreover, manufacturing employment fell by 1.75 percent (220,000). But since the June, 2009 start of the current economic recovery, it rose by 5.24 percent (615,000). Since the sector’s February and March jobs bottoms, manufacturing employment has improved by 7.75 percent (888,000).

These new data, which incorporate benchmark revisions extending back to last March, also reveal that manufacturing’s latest jobs recession has continued, with employment down on net by 11,000 over the last 18 months. January’s modest 5,000 net sequential manufacturing jobs gain was more than offset by negative revisions back to October. January pre-inflation manufacturing wages increased on month but at a much slower rate (0.08 percent) than in December (0.46 percent). Since the current recovery began more than seven years ago, however, they’re up by only 14.51 percent – less than the overall private sector’s 17.43 percent.

The latest revisions also resulted in a new all-time low in January for manufacturing’s share of total non-farm employment – just under 8.48 percent. In addition, manufacturing’s annual 46,000 jobs loss in January was the biggest such drop since August, 2010 (73,000).

Here’s my analysis of the latest monthly (January) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>Providing the first full tally of former President Obama’s manufacturing job creation record, this morning’s Labor Department employment figures showed that the previous administration saw industry’s employment rebound healthily from an historic recession, but that one of its key manufacturing employment objectives proved a major disappointment.

>Since Mr. Obama’s first inauguration, in January, 2009, manufacturing employment has fallen by 1.75 percent (220,000 jobs) on net.

>But the severe manufacturing output and jobs slump that began more than a year before the first Obama term began continued for months. Since the current overall economic recovery began, in June, 2009, manufacturing employment is up by 5.24 percent (615,000 jobs). And since domestic manufacturing hit its recent employment bottom – which didn’t come until February and March, 2010 – its payrolls have expanded by 7.75 percent (888,000).

>Nonetheless, President Obama fell far short of a goal he set during his 2012 reelection campaign – spurring the creation of an additional million net new domestic manufacturing jobs. Since his second, January, 2013 inauguration, U.S. industry added only 362,000 positions.

>In fact, the new employment figures show that manufacturing currently remains in a new jobs recession that began in July, 2015. Since then, manufacturing employment has dropped by 11,000 on net.

>Manufacturing’s efforts to regain jobs traction weren’t helped by the last three months’ performance. The sector did add 5,000 jobs sequentially in January. But December’s initially reported 17,000 monthly employment gain was revised down to an 11,000 increase. And October’s 4,000 monthly gain is now judged to be a 5,000 loss. Only partly offsetting these setbacks was the upgrade of November’s improvement from a 7,000 sequential job drop to no change.

>Although pre-inflation manufacturing wages advanced sequentially in January for the second straight month, the latest increase (0.08 percent) was much slower than in December (0.46 percent – wich in turn was downwardly revised from the initially reported 0.50 percent).

>The January monthly manufacturing wage hike lagged that of the private sector overall (0.12 percent) – reversing the December situation.

>Year-on-year, manufacturing wages rose by 2.93 percent in current dollars in January – considerably faster than the 2.37 percent gain recorded for the private sector as a whole. The latest annual manufacturing pre-inflation wage increase also bested the sector’s 2.52 percent advance between the previous two Januarys.

>But since the recovery’s mid-2009 onset, current-dollar manufacturing wages have risen by only 14.51 percent – significantly slower than the 17.43 percent increase for the overall private sector.

>Moreover, in real terms, however, the story for manufacturing is even more mixed.

>The latest Labor Department figures are from December, and show that manufacturing’s month-on-month performance (real wages rose by 0.18 percent) topped that of the overall private sector (where they flatlined).

>Year-on-year, though the new December 1.12 percent inflation-adjusted manufacturing wage improvement trailed that recorded from December, 2014 to December, 2015 (1.80 percent). The comparable overall private sector figures were not greatly different (0.75 percent and 1.82 percent respectively).

>But since the recovery began in mid-2009, manufacturing has remained a major real wage laggard, as inflation-adjusted hourly pay has risen a mere 1.12 percent – less than a third as fast as the 3.69 percent achieved in the private sector in general.

>The new benchmark revisions and the latest monthly figures resulted in a new all-time low (8.48 percent) for manufacturing’s share of total non-farm employment (the Labor Department’s U.S. employment universe).

>Year-on-year, manufacturing lost 46,000 net jobs in January. That’s the worst such performance since August, 2010 (a 73,000 falloff). Between the previous Januarys, manufacturing gained 88,000 net new jobs.

>Since its 2010 employment bottom, manufacturing has regained 888,000 (38.73 percent) of the 2.293 million jobs it lost during the recession and its aftermath. By contrast, the private sector overall lost 8.801 million jobs from the recession’s December, 2007 onset through its February, 2010 absolute employment low. Since then, it has increased net employment by 16.021 million.

>In fact, whereas total private sector employment is now 6.24 percent higher than at the recession’s beginning, in late 2007, manufacturing employment is still 10.22 percent lower.

Im-Politic: The Needless New Immigration Policy Mess

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American Muslims, Center for Immigration Studies, Department of Homeland Security, DHS, Egypt, Executive Orders, green card holders, Im-Politic, Immigration, Muslims, Norman Matloff, Obama, Pakistan, refugees, Saudi Arabia, September 11, Syria, terrorism, Trump

The last 48 hours’ flow of immigration policy-related news has been unprecedented – or certainly nearly so. To me, the big takeaway is clear: In the course of developing and announcing a fundamentally sound policy framework for handling immigration- and refugee-related national security issues, the Trump administration has allowed vague and/or confusing provisions to create an unnecessary political firestorm.

The needless confusion stemmed mainly from the apparent treatment of green card holders in the Executive Order on “Protecting the Nation From Foreign Terrorist Entry Into the United States.”  These individuals have been granted permanent resident legal status by the U.S. government, and have extensively vetted. Perhaps that’s why the Order makes no specific mention of them.    

Yet early yesterday, the Department of Homeland Security (DHS) seemed to confirm that the Orders’s 90-day ban on entry into the United States from seven Muslim-majority countries deemed (correctly) to be hotbeds of terrorism and/or Islamic extremism includes green card holders.  

Both moves seemed so mystifying that my first reaction was skepticism. Particularly fishy to me was the source of the DHS statement. It came from a department spokesperson identified by name. But she was described as “acting,”and given that we’re still in the new administration’s earliest days, it was legitimate to wonder where she got her information and whether it’s accurate. And indeed, shortly afterwards, “senior administration officials” (who oddly remained nameless) were saying that the green card measures would be administered on a case-by-case basis. Clearly, this sequence of events doesn’t speak well at all for the togetherness of the new administration’s act.

But there’s no reasonable doubt that much of the tumult that’s surrounded the rest of the Trump immigration moves is nothing more than another outburst of stealth chattering class support for Open Borders policies. This charge is justified for at least two reasons:

First, the notion that Trump’s refugee measures represent a wholesale trashing of America’s humanitarian heritage is juvenile at best and reckless and ignorant (or both) at worst. The Trump-haters who have claiming that the Statue of Liberty is weeping and the like seem to be ignoring how even Barack Obama severely limited refugee admissions from war-torn Syria – to 10,000 in 2016. The previous year, only 1,800 were resettled. And clearly reflecting security concerns, the screening process typically took between 18 and 24 months.

Why didn’t President Obama simply open America’s doors much wider and faster to the immiserated Syrian hordes? Because even he recognized that the nation’s most fundamental self-interest – the safety of its existing citizens and legal residents – can’t be brushed aside even in the face of the most terrible tragedies.

President Trump and many others doubted, however, that even this screening was adequate. And they could point to copious compelling evidence. Principally, mass Middle East refugee admissions have in Europe have included terrorists involved in deadly attacks. In the United States, children of recent Middle East refugees or other immigrants have been responsible for the shootings and bombings in Orlando, Florida; San Bernardino, California, Boston, and Fort Hood. And Muslim residents have been involved (including arrested) in terrorism attempts in numbers vastly higher than their share of the overall American population.

Combine this with the virtual impossibility of getting accurate, reliable records from virtually destroyed countries or thoroughly failed states, and the real question before Americans is not why President Trump has banned entry of any kind from these lands, but why broad restrictions have taken so long to impose.

Second, it’s been frequently argued (including by President Obama) that even if refugees can be tied to terrorist attacks, the numbers of Americans killed have been infinistesimal. In particular, they’re fond of noting that the odds are lower than getting killed in bathroom accidents or everyday activities like driving.

What they keep missing, of course, is the completely different role of government negligence – and therefore preventability or avoidability – involved. Fatal accidents at home, for example, can often be avoided by moving with greater care, or more properly maintaining fixtures or appliances, or keeping clutter off the floor, or in numerous other ways. It’s also entirely possible to increase your chances of surviving your daily auto commute to work – by driving more defensively, by caring for your vehicle, by staying off the road in bad weather, etc.

Will these precautions guarantee your protection 100 percent? Of course not. In particular, they can’t completely remove the related elements of randomness and chance from life – tripping over a hard-to-see uneven stretch of pavement, sharing a road with a drunk driver, or flying in an airplane disabled by a flock of birds, experiencing a natural disaster, etc. Speaking of that last item, I would include in this category a decision like moving to or staying an earthquake-prone location, especially if relocating is a relatively easy option – though the element of randomness there is more debatable.

But reasonable people seem to accept these kinds of inevitable bad breaks. They understand the irrationality of shutting themselves in at home, for example, to stay safe. As for injuries or fatalities resulting from violence perpetrated by individuals admitted to the United States by a policy decision that ignores or downplays well known risks – they’re dramatically and unacceptably different. For there is nothing random about them; indeed, every last one of them was completely preventable. They’re the products of elected leaders who believe that the loss of American lives – in situations well short of war – are acceptable risks to run in exchange for benefits that, to put it kindly, are intangible (e.g., winning good will abroad), speculative (e.g., impeding recruitment by terrorist groups), or subjective (conforming with American values), or some combination of the two.

It’s certainly arguable that the previous administration was well within its rights in making those judgments and decisions. President Obama, after all, was legitimately elected – twice. But it’s just as arguable that Donald Trump’s White House victory owed in part to the public’s rejection of these calculations.

Having said this, at least two more aspects of the new Trump refugee policies are disturbing. First, why were countries like Saudi Arabia, Egypt, and Pakistan excluded – especially given the role of Saudis and Egyptians in the September 11 attacks cited explicitly by the Executive Order, and the role of Pakistan’s state security forces in supporting a wide range of terrorist activities, including strikes on U.S. Forces and facilities in Afghanistan?

Second, the Executive Order, in my view, admirably seeks to “prioritize refugee claims made by individuals on the basis of religious-based persecution, provided that the religion of the individual is a minority religion in the individual’s country of nationality.” But for precisely the same vetting-related reasons that it’s excruciatingly difficult to make sure that Syrians (and other Middle Easterners) aren’t terrorists or other dangerous types, it’s going to be equally difficult to figure out who’s a member of a persecuted religious minority and who isn’t.

I agree with President Trump that the previous U.S. refugee policy created too many unnecessary security risks, and also that temporary freezes and bans and the like in general are needed to enable his administration to develop a detailed alternative – including better vetting procedures . I also admire the vigor with which Mr. Trump has plunged into the presidency. But in the case of this Executive Order, it looks like too much haste might have needlessly created serious problems today, and the potential for more down the road.

(What’s Left of) Our Economy: A “C” for Obama on Manufacturing – Thanks to Automotive

Tags

automotive, Federal Reserve, Great Recession, high tech goods, industrial production, inflation-adjusted growth, manufacturing, Obama, recovery, Trump, {What's Left of) Our Economy

Thanks to last week’s Federal Reserve industrial production data for December, we now have more full-year 2016 statistics on the economy. Even better, we can construct a detailed report card for the Obama years on another crucial front – domestic manufacturing output. These numbers will be revised several times more in the next few months, but so far, it’s hard to give the previous administration more than a “C.”

The latest monthly and annual changes for the factory sector as a whole and for the durable goods and non-durable goods super-sectors can be found in my same day report on the latest Fed release. But the figures for specific industries are vital, too, and they’re sending two important messages.

The first is that even though the entire manufacturing sector just barely crawled out of recession toward the end of last year, many specific segments remain mired in a two-year downturn – including some highly unlikely suspects. The second is a confirmation that without an extraordinary boom in the automotive sector, American industry would still be slumping. Indeed, vehicles and parts outperformed even the high tech goods sector during the Obama years. Maybe that’s why President Trump seems so obsessed with preventing more of their offshoring to Mexico?

The government divides manufacturing into 20 major components – eleven durable good industries and nine in the somewhat smaller non-durables category. Of these 20 sectors, only nine increased production in real terms between 2015 and 2016: wood products; primary metals products; non-electrical machinery; computer and electronics products; automotive; miscellaneous manufactures; food, beverages and tobacco; paper; and petroleum and coal products.

The leader was automotive (which grew after inflation by 6.58 percent), but the computer and electronics products industry was the only other sector registering annual constant-dollar growth by more than two percent (with 2.96).

The 2016 manufacturing output losers were led by the small “other manufacturing” sector, where price-adjusted output tumbled by 6.46 percent. But four other industries saw constant-dollar annual production declines of more than two percent: electrical equipment, apparel and leather, printing, and – this is sure unexpected – aerospace and miscellaneous transportation (which of course includes all those Boeing airliners).

And here’s a sign that at least some of the relatively strong 2016 performers were largely recovering from lousy 2015s. Three of the nine that grew at all are still in two-year-long recessions (primary metals, non-electrical machinery, and paper).

If you look in even more detail at U.S. manufacturing, the list of industries that has been stuck in two-year recessions gets really disturbing. For it includes many high-value sectors that generate an outsized share of the economy’s productivity growth and innovation – along with high wage jobs. But the after-inflation output of the following sectors is down on net since at least December, 2014: pharmaceuticals; iron and steel products; ball and roller bearings; construction equipment; machine tools; power generation equipment and turbines; and aircraft and parts.

The new Fed data reveal that, during the Obama years overall (starting in January, 2009), domestic manufacturing output expanded in real terms by 15.88 percent. And since the beginning of the economic recovery (June of that year), it’s up by 20.89 percent. That’s a good performance, but as RealityChek regulars know, they came after the worst manufacturing downturn since the Great Depression, and still leave domestic industry more than four percent smaller than at the start of that latest recession.

That’s why, incidentally, it’s difficult to compare manufacturing under the former president with manufacturing under George W. Bush or any of their recent predecessors. Bush’s presidency, for example, started as the dotcom-driven (and unsustainable) manufacturing expansion of the Clinton years was ending. A significant, but far from catastrophic, industrial downturn followed. But that Great Recession struck at the end of the Bush years, and badly distorts the output numbers if you’re measuring “by president.”

Automotive was the pace-setter in the Obama manufacturing expansion by a long shot. Since Mr. Obama’s first inauguration, its inflation-adjusted production jumped by just over 167 percent, and since the recovery official began six months later, it expanded by just under 168 percent. The lion’s share of output during both periods was in vehicles, where constant-dollar production more than tripled – though parts output increased by more than 130 percent during the Obama years as well.

American industry’s worst performer was that small other manufacturing sector, which has shrunk by more than 30 percent. Output in real terms fell in the apparel and leather, and printing industries under Mr. Obama – which shouldn’t surprise anyone. But it also dropped in the enormous chemicals industry (by a little less than one percent) – which should.

Information technology hardware – semiconductors, computers, and communications equipment – grew robustly, too, in constant dollars during the Obama years (by more than 102 percent) and during the recovery (by a bit more). But these producers clearly were left in the dust by automotive. (And it’s important to remember that high tech industries’ real growth is probably overstated, for reasons explained here.)

And here are the real stunners: If you remove the automotive sector from the real manufacturing output totals, industry’s output improved by only 12.34 percent during the current recovery (not 20.89 percent) and a mere 7.37 percent since the first Obama inauguration (not 15.88 percent). Over a seven-year period, that’s a pittance. Strip out high tech hardware, and manufacturing’s real growth is less, too – but it would still have risen by 15.71 percent during this recovery and 10.25 percent during the previous administration.

These industrial production figures depict President Trump’s focus on reshoring automotive production and keeping it stateside as a no-brainer. By the same token, they indicate that domestic manufacturing’s fortunes could depend heavily on whether or not he succeeds.

(What’s Left of) Our Economy: Foxconn’s U.S. Plans Debunk China-Related Manufacturing Defeatism

Tags

Apple, China, electronics, flat panels, Foxconn, General Electric, Jeffrey Immelt, Jobs, manufacturing, Obama, supply chains, tariffs, Terry Gou, Trade, transportation, Trump, {What's Left of) Our Economy

Another day, another big corporate announcement about job-creation in the United States in the wake of Donald Trump’s election as president – this time from Taiwanese electronics giant Foxconn, which makes so many iPhones and other products in China.

All the usual skeptical responses have been marshaled – or will be. Some of these have already been made by Foxconn’s chairman, like “We were already thinking of this” and “Trump’s tariff threats had nothing to do with these plans.” (Those aren’t direct quotes – just paraphrases.) An unusual skeptical response is out there, too – that the very large (and growing) flat panel displays Foxconn is thinking of producing in America are inevitable candidates for relocation because they’re too fragile to keep shipping half way around the world to customers.

But here’s what’s especially fascinating about Foxconn even considering this move: It demolishes or at least severely undercuts many of the most powerful explanations for why huge chunks of manufacturing will never return to the United States.

First, although Foxconn chief Terry Gou brushed off Trump’s trade stance, he has also stated that because of surging populism in the United States and globally, the rise of protectionism is “inevitable.” In this way, he’s just acknowledged the same trends that recently prompted his General Electric counterpart Jeffrey Immelt to declare that his huge multinational manufacturer will start making more goods where those goods are sold. So there’s little doubt that, precise timing aside, Gou has had his finger up to the prevailing political winds – which got a lot stronger on November 8.

Second, it may be true that very large flat panels for the highest tech TVs etc aren’t suitable for ocean voyages. But the United States, you may remember, is an awfully big country. And at least some of its roads aren’t in such hot shape. So since these panels will still have to travel by truck thousands of miles inside America to get from factories to warehouses and then to retail outlets (or directly to customers), it’s hard to imagine that transportation technicalities have been the main drivers of Foxconn’s decision.

Third, the kinds of electronics products made en masse by Foxconn in China have long been seen as especially farfetched candidates for domestic American production because the PRC is thought to have created such utterly matchless competitive advantage in this field. As Apple executives apparently told the (credulous) Obama administration five years ago, China’s manufacturing edge goes way beyond labor costs.  The U.S. company, of course, is one of Foxconn’s leading customers.  

Instead, “the vast scale of overseas [especially Chinese] factories as well as the flexibility, diligence and industrial skills of foreign [especially Chinese] workers have so outpaced their American counterparts that ‘Made in the U.S.A.’ is no longer a viable option for most Apple products.” In other words, the electronics sector’s main supply chains are now located in China, and changing this immense fait accompli is impossible.

Yet Foxconn’s Gou is talking about doing just that. For example, he’s talking about a 30,000-50,000 job gain from the investment. Moreover, he already employs 400 in Virginia in a packaging and engineering, and has announced his intention to build a Pennsylvania facility to “build precision tools and develop a robotics programme.” That sure sounds like supply chain stuff to me.

Ever since his first run for the White House, former President Obama has used the phrase “Yes, we can” to inspire his countrymen. His successor seems to recognize that the phrase applies to reviving American manufacturing, too.

Making News: Back Tonight on Thom Hartmann’s Show – & More!

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China, free trade, globalization, Jobs, Lifezette.com, Making News, NBC News, Obama, RT America, The Big Picture with Thom Hartmann, Trade, Trump, USAToday

I’m pleased to announce that I’m scheduled to return to RT America’s The Big Picture with Thom Hartmann tonight to talk about a truly bizarre development — mounting claims that hyper-protectionist China is becoming the world’s leading champion of free trade and economic openness in general.  Click on this link to watch live.

The segment is scheduled to lead off the program at 7 PM EST.  (But as RealityChek regulars know, this can sometimes change.)  As usual, I’ll be posting the link to the podcast as soon as one is available.

Also, it was great to be quoted in three news articles today.  The first, a USAToday piece on President-elect Trump’s job-creation gambits, can be accessed here.

The second, this NBC News post on the same subject, is available here.

The third, a Lifezette.com post on outgoing President Obama’s economic record, is at this link.

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

(What’s Left of) Our Economy: White House Fakeonomics on Tariffs and the Poorest Americans

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China, consumer spending, Council of Economic Advisers, incomes, Jobs, Labor Department, NAFTA, North American Free Trade Agreement, Obama, offshoring, poverty, tariffs, Trade, White House, World Trade Organization, WTO, {What's Left of) Our Economy

We’ve heard a lot lately about fake news. But President Obama’s outgoing Council of Economic Advisers (CEA) has just reminded us that at least as great a problem is fake policy analysis. For its new report emphasizing that tariffs are “an arbitrary and regressive tax” that hits low-income Americans especially hard glosses over and ignores completely the biggest trade-related income questions that any intellectually honest researcher would ask.

CEA argues that “tariffs – taxes on imported goods – likely impose a heavier burden on lower-income households, as these households generally spend more on traded goods as a share of expenditure/income and because of the higher level of tariffs placed on some key consumer goods.”

But here’s the main point it glosses over: The vast majority of spending by poorer Americans goes to goods and service that are lightly traded, at best. Indeed, the White House economists provide the first clues themselves. As they show (in the figure below), even though the tariff burden on after-tax income does rise as such income falls, the absolute levels are very low – a little over 1.50 percent of such income for the poorest 10 percent of households.

Figure 2 Tariff burden relative to after-tax income

And as the next figure reveals, when totally untraded mortgage, rent, and utilities are removed, both the tariff burden gap between the richest and poorest Americans, and the absolute tariff burden, shrink dramatically. The latter falls all the way down to less than 0.60 percent of the total income of the lowest 10 percent.

Figure 3 Tariff burden relative to expenditures excluding mortgage, rent, and utilities

Looking at what lower-income households actually spend explains these rock-bottom numbers. According to the same Labor Department consumption data set used by the CEA economists, households in the lowest decile on the American income scale are spending fully 42 percent of their income on housing (which is not at all traded internationally) and another 17 percent on food (which is mainly produced domestically). Another six-plus percent of these households’ economic intake goes to health care, five percent to education, and a bit over four percent to entertainment (also all wholly or largely un-traded).

Interestingly, another 14 percent of the lowest-income group’s expenditures goes to transportation. U.S. oil imports are (lightly) tariffed. But assuming most of the poorest Americans don’t own, lease, or rent their own vehicles, the impact on their finances is surely minimal.

Add these numbers up, and clearly America’s lowest-income consumers spend hardly anything on imported goods that are subject to tariffs.

Moreover, here’s what the CEA economists completely ignore: The last few decades’ worth of trade policies they implicitly endorse here have wreaked havoc on the employment – and therefore incomes – of many of these same lower-income households.

Just look at what’s happened to domestic payrolls in two industries that used to provide jobs for many Americans who have no doubt fallen way down the income ladder: furniture and apparel. According to Labor Department data, since the North American Free Trade Agreement (NAFTA) went into effect in 1994 and ushered in the current era of U.S. trade policy, employment is down by more than a third in the former and by nearly 85 percent in the latter. Moreover, import- and offshoring-related job losses have been especially steep since China entered the World Trade Organization at the end of 2001 – as widely cited scholarship has emphasized.

As NAFTA also triggered a heated debate on trade policy in the United States, critics started printing up and handing out garments reading “My job went overseas and all I got was this lousy T-shirt.” Obviously, these are gifts that someone should have mailed the White House economists who suggest that tariffs have delivered the main trade-related hit to America’s poorest.