Those Stubborn Facts: No American Exceptionalism in Employment

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Employment, Jobs, OECD, Organization for Economic Cooperation and Development

U.S. employment rate*, 4Q 2016: 69.5%

Rank among members of Organization for Economic Cooperation and Development (OECD): 15

OECD average: 67.2%

*share of working-age population holding jobs

(Source: “Short-Term Labour Market Statistics,” Labour Force Statisics, OECD.Stat, Organization for Economic Cooperation and Development, http://stats.oecd.org/Index.aspx?DataSetCode=STLABOUR)

(What’s Left of) Our Economy: Even in a Globalized World, National Trade Deficits Still Matter

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Canada, China, globalization, Japan, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, OECD, Organization for Economic Cooperation and Development, Paul Hannon, supply chains, The Wall Street Journal, Trade, trade barriers, Trade Deficits, World Trade Organization, WTO, {What's Left of) Our Economy

Wall Street Journal correspondent Paul Hannon deserves a lot of credit for reporting on new worldwide figures that shed light on how economic activity around the world has been globalized. These numbers may seem academic, but should be of intense interest to everyone curious about why U.S. economic growth, hiring, and wages have been so weak for so long, and how likely they are to improve. 

As I’ve documented, the research in question – from the World Trade Organization (WTO) and the Organization for Economic Cooperation and Development (OECD – a grouping of the world’s wealthiest economies) – is anything but an objective exercise in truth-seeking. It explicitly aims to show that production, and therefore employment opportunities, have become so internationalized lately that there’s no longer any point in trying to protect factories and jobs with trade barriers.

Which makes it all the more interesting that what many of the data – which show how much of a country’s exports and imports are actually made in that same country and abroad – actually make clear that the commerce fostered by American trade agreements and related policies have stripped the United States of invaluable capacity and the knowhow it generates. Nowhere is this more apparent than in the manufacturing sector, which deserves special attention due to its economy-beating innovation levels and productivity growth as well as due to its central contribution to U.S. national security. Of course, manufacturing jobs pay better than the national average, too, though this margin has been shrinking steadily.

No one can doubt the rapid growth of global supply chains in global commerce and especially in manufacturing. And Hannon focuses on figures touted by the WTO and OECD showing that countries’ exports keep consisting of lower and lower levels of their own parts and components and materials all the time – meaning that their growth and job-creating powers can be easily exaggerated. But I looked at some other statistics just released by the two organizations, and they produce a very different picture.

In particular, they indicate that despite the attention they’ve drawn for the last three decades from American presidents, their top advisors, and Congress, the same countries keep posing the nation with its biggest trade-related problems.

Take China. The WTO-OECD database on which Hannon based his piece tells us that between 1995 and 2011, imports as a share of the People’s Republic’s booming manufacturing markets rose from 15.02 percent to 19.54 percent. But the import penetration rate for U.S.-made manufactures in China increased from only 1.95 percent to 2.36 percent. What about the flip side of this relationship? Total imports boosted their share of American manufacturing consumption from 10.54 percent to 14.21 percent – so they’ve made smaller inroads in the United States than in China.

At the same time, it’s important to remember that the United States is a technologically advanced, capital-rich country that’s richly endowed with the kinds of raw materials that are major manufacturing inputs. China’s still the opposite in all three respects. If market forces that are widely supposed to be determining most trade flows were really in charge, American manufacturing’s import heaviness would be nowhere near China’s.

Yet look at what happened to China’s share of the U.S. manufacturing market during these years. It skyrocketed from a measly 0.88 percent to 6.81 percent. No wonder America’s manufacturing-dominated trade deficit with China hit $364 billion last year.

The data also show that, although imports keep growing their share of China’s manufacturing market, this isn’t true across the board. For example, in the critical machinery sector, imports’ share of China’s manufacturing consumption actually fell between 1995 and 2011 – from 23.96 percent to 16.99 percent. And some of the growth figures look pretty unimpressive given the media hype they’ve received. Thus for all the talk (and reality) of a China automotive boom, imported vehicles and parts still comprised only 15.77 percent of the total China market in 2011.

Moreover, the area of strongest foreign progress – information technology hardware – looks increasingly troubled for non-Chinese businesses. Beijing’s strengthening determination to reduce its dependence on tech imports (currently at 59.23 percent according to the OECD and WTO), and nourish its own national champions seem likely to result in much weaker foreign sales going forward.

Japan is another major trade trouble spot for the United States with big-time staying power. Between 1997 and 2015, foreign manufacturers overall have nearly doubled their shares of the country’s industrial markets – from 7.11 percent to 13.35 percent. That’s lower than America’s, even though Japan is an island nation woefully short of natural resources. And in key representative manufacturing sectors, Japan also remains much less import-friendly to the United States. Foreign-made machinery had captured only 11.23 percent of the Japanese market as of 2011, versus 41.25 percent in the United States. For information technology hardware, the numbers are 16.29 percent and 42.66 percent. For automotive products, its 5.09 percent versus 49.97 percent. In chemicals, by contrast, the import penetration rates for Japan and the United States are both around 25 percent.

But as resistant to manufactures imports as Japan remainse, it’s even more resistant to them when they come from the United States. America’s Japan market share in manufacturing rose only from 2.66 percent to 3.11 percent between 1995. That’s a much smaller proportionate gain than that for overall industrial imports.

These OECD-WTO databases contain any number of findings about American trade policy, but for now, let’s close with one about the North American Free Trade Agreement. In the process of building integrated North American markets, NAFTA was supposed to create major trade preferences for U.S. exports in Canadian and Mexican markets. But judging from the OECD-WTO statistics, these measures have been major flops. Between 1995 and 2011, the American share of Canada’s manufacturing consumption fell, from 35.61 percent to 28.52 percent, and U.S. manufactures exports dropped from 23.68 percent to 20.99 percent of Mexico’s industrial markets.

Nonetheless, although Canada’s share of the U.S. manufacturing market declined between 1995 and 2011 as well, from 3.47 percent to 3.16 percent, Mexico’s more than doubled – from 1.39 percent to 2.83 percent.

The WTO-OECD researchers say that their findings about all the products that are now “Made in the World” can help prevent national governments from making “misguided, and hence counter-productive, decisions” on correcting trade imbalances. But their findings also demonstrate that if U.S. leaders keep passively accepting the results of recent trade flows, “Made in America” could become an endangered species.

(What’s Left of) Our Economy: More Evidence that Obama’s New Trade Deal is a Recovery Killer

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economic growth, exports, gross domestic product, IMF, imports, Japan, Obama, OECD, recovery, TPP, Trade, Trade Deficits, Trans-Pacific Partnership, {What's Left of) Our Economy

Last month, I posted on new International Monetary Fund (IMF) figures showing that President Obama’s Trans-Pacific Partnership (TPP) trade deal was set to link the United States more tightly with many of the world’s growth laggards. As I’ve often noted, this was highly unlikely at best to benefit America on net, since all else equal, when slow-growing countries trade with faster growers, the latter tend to pull in much more in the way of imports than they generate in exports. Therefore, their trade deficits tend to rise and their own growth takes a hit.

Today, we got more data from another blue chip international source: The Organization for Economic Cooperation and Development (OECD). This grouping of the world’s high income countries released its growth projections for this year and next, and guess what? They point to the same outcome.

The OECD looks at fewer first-round members of the new Pacific Rim trade agreement, but it covers those with by far the biggest economies, including Australia, Canada, Japan, and Mexico (along with New Zealand and Chile). Not that its crystal ball is perfectly translucent, but it’s surely noteworthy that of those seven countries it examines, since its last forecasts came out in June, the OECD has lowered its 2015 and 2016 estimates for all – except the United States. Its economy got a growth upgrade for 2015, but a small downgrade for next year.

As a result, whereas the earlier projections pegged America’s growth as the fifth fastest of the group for both years, now the OECD predicts that the United States will be the growth leader this year, and the fourth fastest grower next year.

Also bad news for TPP supporters like President Obama: The second largest economy in the first round of members after the United States – Japan – is forecast to be by far the slowest grower of the seven. Its annual growth rates are predicted to stay below one percent both years. And since the combination of America’s gross domestic product (62 percent of the TPP total) and Japan’s (20 percent), represents more than four-fifths of the new free trade zone, it’s just gotten harder than ever to portray the new pact as an exciting new engine of U.S. recovery and hiring. Indeed, the data keep sending exactly the opposite message.

(What’s Left of) Our Economy: Why Today’s Fed Rates Announcement Really Matters

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asset prices, bubbles, federal funds rate, Federal Reserve, Financial Crisis, financial markets, Great Recession, interest rates, investors, Janet Yellen, moral hazard, Obama, OECD, recovery, {What's Left of) Our Economy

As the world economy anxiously awaits the Federal Reserve’s announcement this afternoon about how much longer it will keep the interest rates it controls near zero, the release yesterday of a new official report on global growth prospects is especially well timed. The latest global economic assessment from the Organization for Economic Cooperation and Development (OECD) valuably reminds the world’s leaders and publics alike that the main economic challenge of our time is not quickening the slow pace of recovery from the financial crisis and Great Recession. Instead, it’s generating the kind of robust growth that won’t almost inevitably trigger another crisis.

The OECD, an organization of the world’s high income countries (and some middle-income countries, like Mexico), raised its projections for overall global growth, and for growth in most major countries and regions, from those in its previous forecast in November. (Most of the main old and new numbers were conveniently presented in this Financial Times piece.) But the OECD also warned that too much of this improvement stems from the same forces that during the last decade inflated asset bubbles around the world that eventually burst disastrously.

In addition to lower oil prices, OECD chief economist Catherine L. Mann contended, monetary easing has “brought the world economy to a turning point, with the potential for the acceleration of growth that has been needed in many countries.” But she also specified that “excessive reliance on monetary policy alone [like the massive easing implemented by the Federal Reserve since the crisis broke out] is building-up financial risks, while not yet reviving business investment.”

As the United States and the rest of the world should have learned since the dark days of 2007-2009, no challenge is easier for governments to meet than creating the illusion of growth temporarily. They can simply promote borrowing and spending that have nothing to do with genuine wealth creation and the rising incomes it produces.

Actually, I’ve been surprised at how long easy money from the Fed and other leading central banks has kept the world economy afloat in the last few years. But this extraordinary official subsidization of economic activity is showing big signs of the same dangerous consequences produced by wildly excessive credit creation before 2007-8. It’s spurred a flood of capital into ever more dubious schemes from investors desperate for decent returns but also fully confident that governments will protect them from any risk. After all, if resources can be created at will by monetary authorities, and losses will be covered, why not throw caution to the wind? Why spend lots of time trying to figure out how to use them carefully or productively?  Why not take full advantage of what economists call “moral hazard”?

Ironically, and encouragingly, these worries about oceans of capital being invested without significant market disciplines seem to be shared by what has so far been the world’s biggest credit pusher – the Federal Reserve, or at least many of its leaders. At least as of this morning, that’s why it’s been widely reported that Chair Janet Yellen and her colleagues will start preparing markets and the rest of the world for the likelihood that they’ll raise the federal funds rate sooner rather than later – if only by a little. That also appears to be mainly why, for all the boosterism surrounding the U.S. economy throughout the current recovery – including President Obama’s claim that the nation has “turned the page” – American investors are reacting to even a modest rate hike so bearishly. They recognize that artificial legs have been the only legs that asset prices and the underlying real U.S. economy have been showing.

Im-Politic: Ignorant Pundit-izing About Education? Or Worse?

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education, education spending, higher education, Im-Politic, Mainstream Media, OECD, vocational education

Here’s some startling evidence both that lots of pundits don’t think seriously about their pundit-izing, and that lots of Mainstream Media publications and broadcast don’t seriously edit their pundits.

It comes from this morning’s New York Times column from Nicholas Kristof about America’s failings in education. No one who’s even halfway informed can reasonably doubt them, especially on the primary and secondary level. But what the author clearly intended as one of his stop-the-presses facts instead shows how complicated the situation really is, and particularly how diffficuilt it is to settle on policy solutions.

Way up in his fourth paragraph, Kristof breaks the news that, among industrialized countries, the United States has now fallen behind Russia in terms of the percentage of adults with a university education. Sounds awful, right?  And all the more so given that America used to be Number One.

But think about this for more than two seconds. Russia? Is the author holding that country up as an economic success story? As a success story of any kind? Of course not. But it just goes to show: It clearly takes much more than producing lots of B.A.-and-beyond-holders to achieve the kinds of goals all people of good will want to achieve.

More reasons for doubting the paramountcy of college graduation rates come from looking at the actual data highlighted by Kristof – which come from a new report from the Organization for Economic Cooperation and Development (OECD), an international organization made up of the world’s high-income countries.

According to the study, for example, from 2000 to 2012, Spaniards went from being slightly less well educated than Germans to slightly more. But would anyone in his right mind want to live in Spain during that period rather than in Germany? France also out-performed Germany during this period – which raises the same question. And here’s a shocker – so did Greece!

Although the United States has slipped in the ranks of countries sampled, it has way out-performed Germany in turning out college graduates. Yet many liberals like Kristof have long lauded Germany as a country that’s done much better than the United States in generating not only prosperity but broadly based prosperity. Meanwhile, Japan has pulled ahead of the United States, too, in this gauge of higher education. Isn’t its economy supposed to be completely dead in the water, according to the conventional wisdom? (Whether that’s true is another matter.)

The OECD report also presents some figures for developing countries. Guess which one ranks dead last among all countries studied? China. It’s well behind even such economic laggards as Mexico, Hungary, and – yes – Greece.

The mediocrity of Germany’s university education level reveals one limitation to Kristof’s analysis even the most casual observer will recognize: There’s growing doubt in America regarding the economic value of a college education nowadays. And Germany has excelled in providing vocational education for its youth.

But the broader disparity between the prevalence of college degrees and national economic success reveals a more important limitation. It indicates that the truly decisive ingredient for enduring national prosperity and all the benefits it brings is a country’s ability to organize its people, institutions, and resources in genuinely productive ways. Expanding the availability of college and graduate-level education could be one measure that fosters this goal (as well as the worthy ends of producing better citizens, expanding individuals’ horizons, and the like). But it seems far from even the most important step.

Finally, although Kristof rightly criticizes America’s property tax-dominated method for funding public primary and secondary education, he seems completely unaware of all the sad examples showing that money is no panacea. Even adjusting for regional costs differences, for example, the District of Columbia leads the nation in spending per public school pupil by state. It sure doesn’t lead the nation in educational results.

But even in the highly unlikely event that Kristof didn’t know any of this, is it really imaginable that all of his editors were completely clueless? Ponder that question the next time you read a Mainstream Media figure bewailing his industry’s loss of public credibility – and audience.