Thursday, December 15, 2011

Frightening

Question:  What is more frightening than a horror movie?

Answer:  A short video prepared by www.prosperousamerica.org

I was introduced to this video by Mr. Den Black of American Jobs Alliance. 

What are some of the frightening things in the video?

+  Destruction of millions of jobs in manufacturing and in service industries.

+  China recently proved its capability to shoot down satellites, and generally is greatly enlarging and upgrading its armed forces, using our money!

+  Chinese graduate students in U.S. research universities are likely to take our new technology straight back to China.

+  A Chinese company is the biggest operator of ports in the world.   U.S. west coast ports are not big enough to bring in goods as fast as China would like.  A new port is  under construction on the Pacific cost of Mexico.  Goods will be brought straight to a distribution center in Kansas, via a new "trade superhighway".


Ed Farkas comment

The video is excellent.  Every politician in Washington should be forced to see it.  But a further frightening aspect of the video is that no strong solution to the problem is presented.  The narrator even assures viewers that the organization behind the video is not "protectionist or isolationist". 

Why? What's wrong with a bit of protectionism?  The pendulum has swung so far in the other direction that we are about to destroy our economy completely. 

I believe the U.S. president, the U.S. government, and many Senate and House members, are completely controlled by China*.  Therefore nothing will be done to prevent the continued destruction of the American economy and America itself.   Nothing will be done to prevent China from becoming the owner of thousands of American companies, including ownership of coal mines, oil fields, gas fields, etc.

*or by groups of American companies active in China, amounting to the same thing


Some possible solutions

A million man/woman march on Washington asking for jobs and the cutting of all ties with China.  Might be enough to scare the people who control the U.S. government.

A million man/woman march on Washington asking for limits to terms of office, with maximum 12 years (or other suitable number) in Washington.  To apply retroactively to sitting politicians, and of course to future politicians.  I believe this is the only way to obtain something approaching rational and honest government of the USA.

(Our founding fathers made one huge mistake in their otherwise amazing and pioneering work of setting up the constitution and the new government and country of "USA".  They forgot to put in limits to terms of office.  The issue was discussed and was dealt with in early drafts of the constitution.  However, limits to terms of office were not included in the final version.  As a result, America has NEVER had rational, common sense, honest, government.)

If we could throw out hundreds of Senate and House members who are controlled by China, and bring in ordinary working men and women to replace them, we could get action to rescue America.

In some ant colonies, it has been observed that all the individual ants will suddenly act together to face an emergency.  My new dream (scroll down to see previous dream in previous blog) is that Americans will similarly act together, spontaneously, and stop buying goods made in China or other Far East countries.  The whole problem would be solved overnight.  The people in Washington who are controlled by China, and China itself, would be thrown into absolute disarray. 

If this dream were realized even in part, existing American manufacturers would ramp up, and hire additional workers, within weeks.  A whole new spirit would be seen in America.  We would tell China they don't have to bother completing their new port in Mexico.  Or the trade superhighway to Kansas.


A key economic issue

I took some economics courses in college.  That doesn't make me an economist.  However I have made more sensible comments about causes and solutions of our current problems than thousands of economists put together.

An important fact taught in economics courses is this.  If country X gets into real trouble because of  too many imports, and thousands or millions of its workers are unemployed, the currency of country X will go down in value.  As a result, imported goods will become very expensive; citizens of country X won't be able to afford them.  There will be an opening for domestic manufacturing to re-vitalize.  The problem will solve itself!

This mechanism is not working now.  Why?  Money managers all over the world who want to "park" money in relative safety look around and see the U.S. dollar as the best bet.  Despite the severe economic problems faced by USA, people still want to buy U.S. dollars.  The currencies of all other countries are worse!

For example, China a few years ago talked about the Euro becoming the world currency.  But look at the Euro now!  There is a real possibility that the Euro will disappear in the next few months.

Canada and Australia have severe unemployment due to sending manufacturing jobs away but have resources and raw materials to sell.  So their currencies are not too bad.  However the economies of these two countries are too small to allow "parking" of significant amounts of floating cash from around the world.

People appear not yet ready to park their money in India, China, or other "developing" countries.  So the money pours into good old USA, keeping the U.S. dollar high.

It is very important to remember another important economic fact.  Manufacturing provides benefits way beyond employment.  Manufacturing provides a wealth-creation effect, also referred to as value-added.  It is a subtle effect but a very substantial and significant effect.  If an item is manufactured overseas, we lose the wealth-creation effect.  That is why it is critically important to do our own manufacturing here at home.

Monday, November 28, 2011

Dream speech

Following is the Dream Speech that no American president will ever be brave enough to make.
(but see note below, after the end of the speech)

My fellow Americans:

I am speaking to you today to let you know that within the last few hours I have completed intensive discussions with the World Trade Organization (WTO) and with China and other countries. 

I have informed WTO that America has given the global free trade experiment a very fair and thorough trial over a number of decades.  We have found that the net result of the experiment is overwhelmingly negative for us.  We have 50 million people unemployed and our towns and cities are tragically diminished versions of what they were in the 1960s.  With so many people unemployed, tax revenue to all levels of government has almost disappeared.  

Therefore I have further informed WTO, China, and other countries, as follows:

+  Effective today, America will no longer obey or be bound by WTO or other international trade regulations or principles.

+  Effective today, a 15% tariff is placed on all imported manufactured goods.  This tariff will be increased to 20% six months from today, and 25% twelve months from today.

The object of the imposition of a tariff structure is to allow American manufacturing to begin to recover, and to give work to Americans, so that Americans can provide food, clothing, and shelter to their families, and can have the dignity that comes from a useful place in society.  

The tariff structure will provide flexibility in the following way.  If country X buys $1 billion/yr worth of manufactured goods from us, the first $1 billion/yr of manufactured goods imported from country X will be free of tariff.  In this way, America demonstrates its belief in trade. 

But America does not believe in a pathological situation where we buy $700 billion worth of goods from country Y while country Y buys only $175 billion worth from us.  This type of situation is not "trade". 

We note that China, in 2006, announced a long-term plan and strategy to make China self-sufficient in all manufactured goods.  The Chinese people have operated their country on an advanced level for 5000 years.  They know what they are doing.  If they are pursuing a policy of self-sufficiency in manufactured goods, it must be a good policy for ALL countries.  An old saying tells us "Sauce for the goose is sauce for the gander".  In other words, what is good for one is good for the other. 

America is ready to trade, as noted above, when other countries buy from us in approximately equal amounts.  But we can no longer submit to sheer exploitation and destruction of our economy and our nation.

In 2011, there was a global economic downturn.  China believed that it would not be spared from the effects, and therefore determined to turn more of its attention inward, to assist the people of China.

Again we follow the lead of China.  America for many decades has had a substantial military presence in numerous areas of the world, and has been involved in the affairs of many countries.  In view of the severe unemployment and economic problems here at home, this Administration will immediately work to greatly reduce our foreign involvements, so we can direct those resources to the home front.  In particular, the resources will be used to assist in the re-development of our manufacturing base, and to assist in returning all Americans to prosperity.  In keeping, I announce the end of the search for new international trade deals, and a very substantial cut in travel to international trade and economics meetings and summits.   

In conclusion, America has met and overcome severe challenges in the past.  From today we look forward to American hard work and initiative applied to the long road ahead to rebuild our manufacturing, rebuild the spirit of our people, and rebuild our nation. 

I thank all Americans for their attention to my statement today.



Comment by Ed Farkas

I say above that no American president will ever be brave enough to make this speech.  However, if nothing is done in the next five years along the lines presented in the speech, the economic situation of America will be much worse than now.

Therefore a future president may be FORCED to make this speech.  Maybe there will be Vietnam-type marches in Washington, of millions of people, with one emphatic message for the President, his or her Administration, the Senate, and the House:

CUT IMPORTS AND RE-ESTABLISH MANUFACTURING, SO THAT AMERICANS CAN HAVE WORK AND THE ECONOMY CAN RECOVER.


Note: If the Dream Speech is ever given, it will be in the future.  Therefore I have put futuristic numbers into the speech!



I saw in a newspaper recently:

A commentator said:  "The economy stubbornly refuses to right itself".

Yes, correct statement, because there is nothing in the economy to allow it to "right itself".  The economy is so far gone that there is no "right itself" mechanism left.  The only way to get the economy going is to take PRO-ACTIVE, OVERT, EXPLICIT ACTION as described in the DREAM SPEECH!

Friday, November 18, 2011

A great sector

An amazing statement has appeared.  Here is the statement:


"We don't have a tax problem, we have a revenue problem.

We've told American workers they're not valuable anymore, that it's better to do it overseas than it is right here.  That's wrong.  We need to reinvest in people, reinvest in manufacturing.  That's how we're going to turn our economy around."

Statement made by Mr. Ed Schultz, of MSNBC.
Statement appeared in "The New Yorker" magazine, October 31, 2011, page 35



Comment by Ed Farkas:
I could write 10,000 words and not say it better than Mr. Schultz.  There is censorship in effect aimed at preventing people from saying what Mr. Schultz has said.  So it is apparent that the censorship is breaking down.  Obviously Mr. Schultz and MSNBC are not afraid to make the above statement.   This is the first time I have seen a public figure make a statement similar to the statement made by Mr. Schultz.


Further commentary by Ed Farkas:

Here in the United States we have a great manufacturing sector.

But, we have a manufactured goods trade deficit of over $500 billion per year with all foreign countries.

The meaning of "manufactured goods trade deficit" is that we are sending a net amount of over $500 billion per year to foreign countries to buy manufactured goods that we don't have the capacity to manufacture for ourselves here at home.  Part of this money pays foreign workers to do our manufacturing for us.

(Why don't we have the manufacturing capacity?  Because we voluntarily and on our own initiative shut down our capacity and laid off our workers!)

There are hidden costs associated with sending $500 billion per year out of our country.  For example, a foreign expenditure is a much greater burden on a national economy, in comparison with a domestic expenditure.

The above amount is equal to over $1500 per year for each man, woman, and child in USA.  This is real physical wealth going out of our country, never to be seen again.

Another hidden cost is that $500 billion per year could support millions of Americans working in manufacturing, including wages, factory equipment, and overhead.  Instead, these Americans are unemployed, in despair, unable to properly support their families, standing in line at unemployment and welfare offices.

So all in all it is completely insane to be sending $500 billion per year to foreign countries.

50 years of history

American companies started sending manufacturing jobs to foreign countries in the early 1960s.  I was there. I remember hearing about S_____ Company sending jobs overseas.  It was the first time I had heard of this step being taken. I knew immediately that the result would be disaster, and I have been proven correct!  (Unfortunately!)

I had just graduated from college.  I did not major in economics.  However I took enough courses in economics to have some understanding of the importance of manufacturing to any economy, and the predictable result of not having an adequate level of manufacturing.

Fast forward to today

Now I am saying that the only way to save the American economy, and the only way to solve our massive unemployment problem, is to get our manufacturing jobs back from overseas.

But today there are many politically correct people running around.  People are telling me I should not use the words “get our manufacturing jobs back from overseas”.  People are telling me that this wording implies that we are stealing the jobs.

In response I say that it is perfectly permissible to say “get our jobs back from overseas”.  Very stupidly and short-sightedly we sent our jobs overseas, of our own volition and on our own initiative.  So why can’t we say we made a huge mistake and now we want our jobs back?

However, I am flexible!  I can change!  I will change my wording.  Here is the new wording:

We have to re-create domestic manufacturing of thousands of consumer, commercial and industrial items, and reduce or end importation of these items.

Aid

Now I have heard the most complete nonsense, since the last complete nonsense I heard.
 
There was a news item in Canadian Press, November 16, 2011.  How Canadian Press got this story or found it interesting I do not know.

According to this news item, the U.S. government had or possibly still has a program of giving money to American companies to help them get going in doing business in China.

The Republicans are currently blaming President Obama for this situation.  However the fact is that this program started when the Republicans were in control of Senate and House.

But in trading blame back and forth, our “leaders” are missing the real point.  Instead of giving money to help American companies get going in China, we should be giving money to help American companies get manufacturing going in USA!

The money came from the American government agency that handles foreign aid.  The total budget of this agency is $20 billion per year.  Now here is an agency that should be shut down!  I am sure Republicans and Democrats can agree on this one.

If nothing else, here is another foreign expenditure burden, placing an extra burden on our economy, as discussed above.
 

Postscript

Here is a bit of good news.  There was a news item on November 17, 2011, stating that Chrysler will invest $1.7 billion in a manufacturing facility in Toledo, Ohio. The facility will employ 1100.

Is there understanding at Chrysler that Americans want to buy American-made products, and is Chrysler prepared to provide American-made products?

Maybe the answer to both questions is "yes"!
   

Friday, October 28, 2011

An economic war not a trade war


Bipartisan action in Washington!

Under the leadership of Senator Stabenow of Michigan and Senator Brown of Ohio, and other senators, on October 11, 2011, the Senate passed a bill related to unfair currency manipulation by China and other trading partners.

The measure passed by a vote of 63 to 35, showing that Democrats and Republicans voted for the bill. 

According to an article by Oliver Knox of Agence France Press, October 11, 2011, “the bill would empower U.S. businesses, and in some cases labor unions, to trigger a U.S. government investigation into alleged currency manipulations and seek retaliatory duties on imports from offending country or countries”.  The bill “…also aims to make it harder for the U.S. Treasury to stop short of labeling China a currency manipulator, and restricts the White House’s ability to waive the resulting sanctions.”

Ed Farkas comment: President Obama in the past has made speeches in which he was critical of China in relation to the low value of its currency.  However there was no action.  This bill is an attempt to force the President and his Administration to act.

People are always asking for bipartisan action in government, to end gridlock and solve our problems. Here is a bill supported by both Democrats and Republicans, and yet unfortunately President Obama and his Administration do not support this bill.  Why?  That is a whole other story!


Reaction to passage of the bill in the Senate

The Knox article goes on to state:  “China repeatedly condemned the proposed bill as it advanced in the Senate, accusing U.S. lawmakers of scapegoating Beijing for their own incompetence, and warning the bill could trigger a trade war.”

Republican Senator Graham stated:  “The (passage of the bill) shows that we will not be bullied by China when it is clear they are in the wrong.  We ignored the threats and do not apologize for taking this action.”

House of Representatives Speaker and Leader of the House, Republican John Boehner, “has signaled that he will not bring the legislation to a vote, calling it dangerous to economic relations (with China)…You could start a trade war.  And a trade war, given the economic uncertainty… - it’s just very dangerous and we should not be engaged in this.”

“President Obama…worried (that the legislation) could violate World Trade Organization rules even as he accused China of ‘gaming the trade system’ in a way that hurts the U.S. economy.”

“Treasury Secretary Geithner reiterated Obama’s concerns about breaking international trade rules.  However when asked whether senators had fired the first shot in a trade war, he replied ‘They did not’.”

Obama and Geithner on the Fence

Obama and Geithner are trying to have it both ways.  They criticize China but aren’t brave enough to actually do anything to solve the problem. 

Their comments bring out the really central issue we face:

Do we continue to obey World Trade Organization rules at the cost of complete destruction of the economy of the United States of America?  (A destruction process that is already well along.)

Or,

Do we end automatic lockstep adherence to World Trade Organization rules, and instead work to reverse the damage done to the American people and the American economy?


U.S. Trade – Broader Prospective

People say that if we put restrictions on China, manufacturing will simply move to Malaysia or Viet Nam.  Yes, this is correct.  The answer is that we have to look at all countries in our foreign trade situation. 

Our negative balance of trade in manufactured goods with all foreign countries is over $500 billion per year.  Somewhat over half of this amount is due to China. 

Here is the list of the main countries we trade with:

China
EU
Mexico
Japan
ASEAN
Canada

I have left out OPEC, on the assumption that trade with OPEC is mainly oil, rather than manufactured goods. 

Mexico and Canada provide manufactured goods and oil.  I estimate that trade in manufactured goods with Canada is less than 4% of the total of over $500 billion, substantially smaller than any of the others listed above.

ASEAN is The Association of Southeast Asian Nations.  ASEAN is made up of Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Darussalam, Viet Nam, Lao PDR, Myanmar, and Cambodia, ten countries in all.

The important thing to note is that our balance of trade in manufactured goods is NEGATIVE with every one of the countries or groupings listed above, repeated here for clarity: 

China
EU
Mexico
Japan
ASEAN
Canada

In other words, we are a net importer of manufactured goods from every country or grouping listed above. 

In simplest words, this is not good!

Trade

The word “trade” carries a meaning of some degree of equality.  If two ten-year-old boys are trading baseball cards or chaotic cards, we are not going to see one boy giving all his cards to the other boy and receiving nothing in return. 

So the word “trade” absolutely does not apply to our economic relations with the other countries of the world.

Trade War

As quoted above from the Knox article, people say that we could get into a trade war if we try to do anything about China’s currency valuation. 

Senator Brown, also referred to above, is much more perceptive.  Referring to the bill that was passed by the Senate, Senator Brown said:

“We are in a trade war.  But today we’re fighting back.  (We want to end)  the unilateral disarmament approach we’ve taken for the past decade.”

Senator Brown understands that we are already in a trade war, really an economic war, but up to now we have not defended ourselves in this war.  . 

So the dire warnings that “we could get into an economic war” are absolute nonsense. We are already in a war and further we are very close to being utterly defeated in this war.

The issue of China

When I mention or discuss China, I always have in mind the additional countries that are not buying from us in approximately equal amounts.

It is an easy shortcut to say “China” without adding the above proviso.

“Scapegoating China” is the most stupid phrase to come out of the whole mess we are in.  No one is scapegoating China.  If we blame China for things it has actually done, that is NOT scapegoating.  China has manipulated its affairs so as to keep its currency artificially low.  China has announced a policy of becoming self-sufficient in all manufactured goods.  The policy includes stealing technology from the United States and other western countries.

To clarify and emphasize, China wants to reduce purchasing from the United States and other western countries, from the present moderate levels TO ZERO.

China wants to supplant U.S. firms that are manufacturing items being sold to China or other foreign country.  China wants to become the world’s supplier of these items.

China is supposed to be very clever in economic issues, with over 5000 years of experience.  Certainly China runs rings around na├»ve western negotiators such as President Clinton, President Bush, President Obama, Secretary Geithner, and Secretary Clinton. 

China has set itself two objectives:

Item 1.  Keep the United States as a large consumer of Chinese-made products.  In support of this objective, China works to prevent discussion in the U.S. media of the problem of importation of Chinese goods and ways to reduce the resulting damage to the American economy.

Item 2.  Develop China as THE world supplier of all manufactured goods, and in support of this objective complete the destruction of the U.S. manufacturing sector. 

You don’t have to hold a PhD in economics to see that these two objectives are mutually exclusive.  They are in total conflict with each other.  So the Chinese aren’t so smart after all.


Huge Mistake

This is the same mistake made in the 1960s when U.S. manufacturers began to send their manufacturing jobs overseas.  If Americans don’t have employment, how are they going to buy the goods made overseas? 

The first companies sending their manufacturing overseas were OK because other American companies were still employing Americans. But it is a “reductio ad absurdum” situation.  Now, 50 years later, so many jobs have been transferred overseas, with resulting loss of so many jobs, that there is significant reduction in ability to buy.

It is very funny, in the sense of dark humor, to see executives of U.S. manufacturing companies complaining about slow sales in the U.S., when these are the very companies that sent jobs overseas.  It is equally darkly humorous to see the CEO of Wal-Mart testifying before Congress about poor business conditions, when the CEO of Wal-Mart has helped create poor business conditions by insisting on sourcing from China rather than from thousands of existing American domestic manufacturers.

Speaker Boehner says the recent Senate action is "dangerous to economic relations with China".  He has it all wrong.  What is really "dangerous" is having "economic relations with China"!

I say that the only way to save America is to cut all economic ties with China and other countries that don’t buy from us in approximately equal amounts.  I predict we will not be successful in getting an adjustment in the value of Chinese currency, or in getting China to reduce or stop the stealing of our technology.  These things simply will not happen.  But even if they did happen it would not solve the problem of our unsustainably large importing of manufactured goods from all foreign countries.

Wednesday, October 12, 2011

One explanation for the mess we are in!


China is of special concern

Our negative balance of trade in manufactured goods in 2010 was over $500 billion.  China accounts for something over half of this amount.  Obviously we must always keep in mind the other countries involved.  But our negative balance of trade with China is much larger than with any other country. 

China is of special concern for other reasons.  China has published a policy document clearly setting out the objective of complete destruction of the manufacturing sectors of the United States and other western countries.

China has maintained its currency at an artificially low level for many years, through complex financial maneuvers. If the Chinese currency were allowed to reach its level through normal market forces, millions more Americans would be setting out for work this morning!

President Obama has repeatedly made speeches about this problem, but has done nothing concrete about it.

Now a group of Senators is trying to get a law passed that would essentially force the U.S. government to bring an action against China for unfair trade practices. (Why do we have to “force” our government to act in the interests of all the people?)

The reaction of the business community has been swift.  As stated in my previous blog post, “a coalition of 51 U.S. business groups” is trying to torpedo the proposed Senate action.


Who controls U.S. government policy?

The action of U.S. business interests against a modest Senate proposal explains why successive Presidents, successive Administrations, and successive generations of Senate and House members during 50 years have done nothing to prevent or at least reduce transfer of manufacturing jobs to low-wage countries including China.  

This situation explains the censorship that currently governs what appears in newspapers and on TV, and governs what politicians are allowed to say. 

The “51 U.S. business groups” and probably additional business groups, have been waiting and hoping for three decades that they would be allowed to sell directly to the one billion people of China.  They drool when they think of this huge market.

While these “business groups” are waiting and hoping for something that clearly is never going to happen, they don’t want anything done that will annoy the Chinese.  Thus their opposition to action on Chinese currency.

News Flash!  And it is Good news!  The proposed bill to force action on Chinese currency has been approved by the Senate!  Congratulations to Senator Stabenow of Michigan and other senators who worked very hard to develop this bill and get it through the Senate.


Collateral Damage!

In support of their own narrow and selfish interests, “business groups” completely control government policy.  The interests of these “business groups” are paramount in government policy, with no concern whatever for collateral damage:

  • America has lost its technological leadership in R & D and manufacturing capability
  • Hemorrhage of many hundreds of billions of dollars every year, real wealth going out to foreign countries to pay them to do our manufacturing for us.
  • Loss of manufacturing employment, and loss of the value-added effect of manufacturing, which otherwise would be enriching our economy and nation
  • Half of all households need social assistance at tremendous cost, paid for by increased government debt and higher tax burden on those who still have employment
  • At least 25 million unemployed.  Half of Americans pay no tax because they have no income
The collateral damage outlined above adds up to trillions of dollars, the hidden cost of saving a few dollars by buying a Chinese-made item.


Where are the protests?

Collateral damage began in the 1960s when manufacturers started to transfer jobs overseas.  The damage and the devastation have steadily mounted over a period of 50 years. Millions of people should have been in the streets decades ago protesting this damage to our nation.  But Americans have been uncharacteristically passive.

Finally now the “Occupy Wall Street” people are in the streets. Very good!  However they are going after a secondary target. Wall Street is very annoying but is not the cause of the real problem. 

The real problem in America is that 25 million people, and probably more, are unemployed.

All the commentators and politicians who are so hysterical about debt and deficit should really be concerned about unemployment, the CAUSE of debt and deficit.

And the unemployment is caused by the tail wagging the dog.  The unemployment is caused by government obedience to the narrow interests of business, rather than obedience to the interests of 312 million Americans.

Ironically, many large companies are complaining about poor business conditions in the United States, lower store sales, etc.  They don’t understand, or at least PRETEND not to understand, that the cause of the problem is the unwise policies they themselves forced on the government and the people of America! 

Occupy Wall Street should be demonstrating against the “51 U.S. business groups” and their allies. There should be not thousands but millions in the streets in Washington, protesting the devastation of 50 years of allowing narrow business interests to control government trade and economic policy.


Prospects for solving the problem

Under the censorship, no one is allowed to say “We have to get our manufacturing jobs back from China” (and other low-wage countries), let alone discuss how getting the jobs back could be accomplished.

But the ONLY way to save America and other western countries is to get the manufacturing jobs back. OK, President Obama came into office soon after the crash in Fall 2008. Not his fault. But now he has sat for three years waiting and hoping for something to happen, rather than taking strong action to control the flow of foreign-made goods.

“New industries” and “re-training for new industries” are pipe dreams. They will never provide enough jobs to make a dent in 25 million unemployed.  And, without strong policies in effect, any new technology and new employment in new industries will drain away to China.

We have to get the mass employment back from overseas, the employment that produces tens of thousands of consumer, commercial and industrial items.  Like a person who has been ill, we would start with simpler items.  We would have to re-build our technological and manufacturing skills, and then take on more complex items.

The ordinary people of America know that we have to get the jobs back from overseas.  They know we have to rebuild our technological capability. 

The “coalition of 51 U.S. business groups” and their allies in business and government are scared.
 
Desperate responses come from scared people. Basically with the censorship and other measures they are trying to prevent Americans from learning what they already know.

There is one industry in America that is hiring, and that is the industry of creating fantasy explanations for how we got into our present mess.  Censorship Fantasy explanations

Hired guns are saying nonsensical and ridiculous things:

  • Hillary Clinton said in a speech in January 2011 that our trade with China is still less than our trade with EU (i.e., she is claiming that imports from China have not yet reached a significant level!).  Hillary Clinton speech
  • The Federal Reserve Bank of San Francisco produced a calculation purporting to show that Chinese goods constitute only 2.7% of our economy.  Federal Reserve Bank SF
  • Robert Reich recently said, “It is stupid to punish China” over the currency issue, and “China merely assembles”.
If “assembly” is so “mere”, let’s do it in USA and put five or ten million people back to work!


READER COMMENT

Mr. M. states "It is not just China.  All emerging markets, Vietnam, India, Brazil, with lower costs and attractive tax structures, are of concern." 

Ed Farkas comment.  True, all of these countries are of concern.  But our negative balance of trade with China is very much larger than our negative balance of trade with any other country.  Further, these other countries don't have a published, active and organized plan to destroy the American manufacturing sector completely.  But generally the answer to Mr. M's comment is that we need to apply a tariff to goods from China and from any other country that does not buy from us in approximately equal quantities (measured in dollar value).  We can't continue to have a negative balance of trade with each of dozens of countries.  The negative balance of trade is real money and real wealth going out of our country, impoverishing our country.  The negative balance of trade number is a direct indicator of how many Americans could be working but are not working.  The tariff applied would be largest for goods from China, and smaller for other countries with smaller negative balances.  As soon as I say "tariff" some people invoke the empty scare word "protectionism".  The fact is that America's negative balance of trade in manufactured goods in relation to the size of our economy is so large as to be absolutely unprecedented in world history.  The resulting damage we are doing to our own country is also unprecedented.   The damage we are doing to ourselves by allowing our existing negative balance of trade to continue is far greater than any possible alleged damage that could occur through "protectionism".

READER COMMENT

Mr. H. asks:  "So how and what can be done to get Americans back to work?  It's obvious that many existing jobs are gone - most likely for good."

Ed Farkas comment.  I believe that jobs will come back if the economic conditions are attractive.  Manufacturing costs in some areas of the United States have decreased while manufacturing costs in China, as one example, have increased, to the point where USA is competitive with China.  Some foreign corporations have looked around the world and have concluded that their best bet for new manufacturing facilities is USA!  Some American corporations have re-analyzed costs of their China operations and have concluded that manufacturing in USA is now more attractive.  They are bringing work back to USA.  Where the jobs are not coming back fast enough, and tens of millions of Americans are suffering, without jobs, without income, without dignity, we must apply a suitable tariff.  I believe that even a small tariff of 20% would bring millions of jobs back from China.  I believe there is no such thing as a "job gone for good"!

READER COMMENT

Mr. S. says:  "We let clowns dismantle our strengths and make huge profits selling us out.  That is treason in my view!"

Ed Farkas comment.  Absolutely true.  John Kerry, not the sharpest politician we have, referred to "corporate Benedict Arnolds" during the 2004 presidential election campaign.  But he only said it once, because of the censorship that is in effect.

President Obama said, during the 2008 campaign, "We have to get the jobs back from China".  But, again, he only said it once.  He probably had a rough night with his advisers, after making that comment, with his advisers undoubtedly explaining to him that no one is allowed to say that!

READER COMMENT

Mr. W. says: "Nice article".

Ed Farkas comment:  Thank you!

Thursday, September 29, 2011

Now we know!

“Secretary of the Treasury Timothy Geithner said recently that China is holding to its decades-old strategy of stealing American intellectual property, in a pointed statement reflecting U.S. officials’ growing impatience with Beijing.”  (Huff Post, September 25, 2011)

Mr. Geithner said “China is very, very aggressive in stealing U.S. technology”.

The Huff Post report continues:

“They, China, have made possible systematic stealing of intellectual property of American companies and have not…(moved)…to put in place the basic protections for property rights that every…economy needs…”, Mr. Geithner told a forum in Washington.

“We’re seeing China continue to be very, very aggressive in a strategy they started several decades ago, which goes like this:  you want to sell to our country, we want you to come produce here…if you want to produce here, you need to transfer your technology to us”, Geithner said.

Although unusually direct, Geithner’s comments echo a common refrain from U.S. officials and (business) executives.  The new U.S. Ambassador to China, Gary Locke, who has assailed China in the past for its trade practices, has put the defense of U.S. intellectual property among his chief priorities.

(Related to) Washington’s dissatisfaction with Beijing’s trade policies, leaders in Washington have long argued that China’s yuan currency is undervalued, giving Chinese companies a price advantage that costs U.S. jobs. 

Ed Farkas comment:

The issue of intellectual property “started several decades ago” and leaders in Washingtonhave long argued” that China’s yuan is undervalued.

Putting it in a nutshell, the U.S. government is saying that China is dealing in a very unfair way with America, and the situation has continued for decades.

This being the case, why do we keep on buying from China? 

On a net basis, we are currently sending money to China at the rate of $273 billion per year.  (Official figure; probably the real figure is higher).  We are rewarding China for its unfair behavior by sending China hundreds of billions of dollars every year. 

It is completely insane to send huge amounts of money to China every year over “several decades” while they are dealing very unfairly with us.  If China hasn’t corrected its behavior over “several decades”, obviously it is never going to happen.

Consider a typical ordinary American citizen.  Let’s call her Mrs. Jones.  Mrs. Jones buys food and many other items to feed her family and run her home.  If she finds the store she is dealing with is treating her unfairly, is she going to continue to deal with that store over “several decades"?

Obviously not!  She would have to be insane to continue dealing with that store.  In a lot shorter time than “several decades”, she would find alternate arrangements for her purchases.

Our insane behavior of rewarding China for its unfair practices has continued for more than “several decades”, through successive Republican and Democratic administrations, and generation after generation of members of House and Senate. 

What is the cause of this insane situation?

Good question and simple answer.  The American “business community” has a dream that it will be able to sell to over one billion people in China.  Despite a lot of evidence that this dream will never be reality, the business community continues to pursue this dream. 

In pursuit of this dream, the business community has corrupted the U.S. government so that the government will keep China happy through unrestricted free trade. 

The business community is unconcerned about the “collateral damage”: an impoverished America, 25 million people unemployed and the American dream destroyed.  We can now understand that all the suffering of the ordinary working men and women of America has occurred in support of the vain hope that the business community will be able to sell to one billion Chinese consumers. .

Evidence is found in the same Huff Post report. The report goes on to say “A coalition of 51 U.S. business groups has sent a letter to senators” who are trying to get legislation passed to force adjustment of the yuan to a fair level.

The letter “urges (senators) to focus more on China’s inadequate protection of intellectual property rights and restrictions on market access”.

Ed Farkas comment:

The “51 U.S. business groups” are clearly and blatantly putting their own selfish interests ahead of the interests of 312 million Americans, and are putting pressure on the government to accommodate those selfish interests.

If “51 U.S. business groups” are finding it difficult to succeed in China, why don’t they pack up and come home to America, hire Americans, and be happy to sell to 312 million Americans?

It is unbelievable that “51 U.S. business groups” have vainly pursued their dream of selling to one billion Chinese consumers for more than “several decades” but still have not given up their dream. They are continuing to pursue their dream at the cost of complete destruction of the American economy.

Further Ed Farkas comment

The problems in dealing with China must be very serious to cause Secretary Geithner to come out and make the comments he made.  Geithner is not usually seen as a rebel or as a reformer.

Contrast Geithner’s dark view of China with Secretary Clinton’s cheerleader happy speech concerning China, which she presented in January 2011.

Does Secretary Clinton ever speak with Secretary Geithner?

Click on link immediately below to see my analysis of Secretary Clinton’s nonsensical speech:


Monday, September 12, 2011

Why is Robert Reich doing this?

Robert Reich, Secretary of Labor in the Clinton Administration, had a lengthy article in the New York Times on September 3, 2011.  The article carries on Reich's program of twisting and obfuscating the real history of how we got to our present disastrous situation of 25 million or more unemployed. 

Reich also refuses to mention the one and only one method available to solve our problem and that is to put tariffs on imported goods from foreign countries that don't buy from us in approximately equal quantities.

Reich is a highly intelligent man. He must know that his twists and obfuscations are not factual.  Why is he doing this tremendous disservice to America?

Reich is very popular right now, receiving invitations to be on Wolf Blitzer and other prominent TV and radio shows. There is a strong censorship in place in the media.  Anyone who tells the truth of how our jobs were lost, and says what has to be said about getting our jobs back from overseas, is ostracized and will never be invited to be on TV or in the newspapers.

But someone with Reich's public recognition status should be be able to go against the censorship and speak the truth.  Maybe if he did that he would get even more acceptance on TV and radio!  Breaking the censorship would be big news!

I submitted a rebuttal to Reich's article.  Of course no response from the New York Times. The New York Times is firmly in the twisting and obfuscation camp, especially with their columnist Thomas Friedman.

In any case, here is my rebuttal to Reich's article!

Why does Robert Reich mention the “middle class“ so often (article, September 3, 2011)?  Is it because he doesn’t want to deal with a “lower class”?

Instead, let’s talk about the “rich”, as defined by Reich, and the non-rich.  The clear implication of Reich’s first few sentences is that there is one fixed stream of income.  The rich are getting more than their share of this income, leaving the others, the non-rich, without “enough purchasing power to keep the economy going…”. 

But there is not a fixed income stream to be shared out.  More on this point later!

Why does Reich mention the income of the rich but does not mention the word “income” in relation to the non-rich?  I suspect use of the word “income” would force Reich to acknowledge the major cause of increasing disparity, namely 20 or 25 million of the non-rich are unemployed and therefore without income!  Simple as that!  No need for intricate theories. 

Now we come back to Reich’s phrase about “purchasing power”.  Sending manufacturing jobs overseas has made the American economy a sieve.  People can use their “purchasing power” but it is very difficult to avoid buying a foreign-made item.  So the money spent immediately drains out to foreign countries, rather than staying in America and continuing to work in the American economy.  “Purchasing power” cannot rescue the American economy.

America’s negative balance of trade in manufactured goods with all foreign countries is over $500 billion per year.  This amount is real physical wealth leaving impoverished America and going to enriched foreign countries.

Now we can also go back to Reich’s strong implication that there is a fixed income stream and the rich receive more than their share of it.  If our non-rich had employment, and if we were not suffering a hemorrhage of over $500 billion per year, the rich could continue their present income but the non-rich would have more income!  In other words, the pie would be bigger.     

Reich has an explanation for lack of employment:  “…new technologies – container ships, satellite communications, eventually computers and Internet – started to undermine any American job that could be automated or done more cheaply abroad.”

This explanation has some truth to it but hides the real story of how our manufacturing jobs went overseas.  If we don’t know how we got to our present problem of massive unemployment, we cannot solve the problem.

In the early 1960s, some American manufacturers got the idea of transferring their manufacturing activity to low-wage countries.  Their profits would increase because they would continue to sell their products in the United States at the same prices.  From a small beginning, more and more manufacturers jumped on the bandwagon.

This process of transferring manufacturing activity overseas was solely on the initiative of the manufacturers.  It was not forced by external factors such as competition or technology advances.

The 1960s mark a turning point for the United States, from a world leader in manufacturing and exporting, to starting on the road that leads to today, where the manufacturing sector is a brutally slimmed-down version of its former self.

According to Reich, “Starting in the late 1970s, the middle class began to weaken.”  What on earth is he saying here?  But the fact is that by the late 1970s the continuous transfer of manufacturing activity to overseas locations was having a noticeable effect on the economy. 

Reich further observes: “The middle class nonetheless continued to spend…”.  Is this statement part of a “blame the victim” strategy?  I thought Reich wants people to exercise “enough purchasing power to keep the economy going”. 

The bottom line is that there is one and only one way to solve our unemployment problem and that is to get our manufacturing jobs back from foreign countries, starting with low-tech consumer products.

The survival of the United States of America is at stake.  Our first concern should be our own people and our own nation, not political correctness toward China and the theoreticians who cooked up the trade agreements.

Monday, August 29, 2011

Twice as many government employees....!

There are many comments on twitter to the effect that there are twice as many government employees as there are manufacturing employees, in these good old United States.

Let's look at the behavior of a ratio between two numbers, in this case number of government workers and number of manufacturing workers.  Here is the ratio we are talking about:

Number of government workers
Number of manufacturing workers

The ratio written above means number of government workers divided by number of manufacturing workers.  So what people are saying is that the result of the division is 2 and this number is too high.

We can reduce this number by reducing the number of government workers.  BUT WE CAN ALSO REDUCE THIS NUMBER BY INCREASING THE NUMBER OF MANUFACTURING WORKERS!

Let's say we have

20 million government workers
10 million manufacturing workers

The ratio is 2

But if we increase the number of manufacturing workers, we might have

20 million government workers
12.5 million manufacturing workers

Now the ratio is 1.6

Everything looks better!

My concern is unemployment.  The huge unemployment in America is the cause of all the other problems. 

I am not very concerned about the number of government employees.  Even if we have more government employees than we should, this issue is not the cause of the high unemployment we have in America, and is not the cause of loss of manufacturing jobs in America. 

Anyone who would like to REDUCE the ratio of government workers to manufacturing workers should in my opinion concentrate on INCREASING manufacturing employment.  Efforts to increase manufacturing employment are, again in my opinion, much more beneficial to America, in comparison with worrying about the number of government workers. 


There are two reasons for the decrease in number of manufacturing employees in the time period 1961 to 2011:

+  The major reason is that American manufacturers, voluntarily and on their own initiative, transferred manufacturing jobs to so-called "low cost" regions in the Far East.  Anyone with half a brain could see that transferring manufacturing jobs out of the USA to foreign countries is very unwise and in fact completely insane.  However successive Presidents, Senators, and HR members made no attempt to control matters, and in fact passed laws providing tax incentives that assisted the transfer of jobs out of our country.

+  The secondary and smaller reason is that the American manufacturing sector made improvements in efficiency and thus needs fewer workers for the same manufacturing output.

Why do I pick 1961?  Because in the early 1960s, American manufacturers started to send manufacturing jobs overseas.  During the 50-year period 1961-2011, American manufacturers continuously sent jobs overseas, in an ever-increasing stream.  We have had a 50-year experiment to see if America can get along with much less manufacturing, and the result is a resounding NO!

The tragedy is that in 1961 it was already well-known in economic theory that manufacturing is critically important in maintaining the health of the economy of any country. 

We must reverse our tragic mistake and get our manufacturing jobs back from overseas.  We must put on tariffs or foreign goods sales taxes or both to encourage getting those manufacturing jobs going again in the USA. 

The time is right to take these steps. Professional studies have shown that overall manufacturing/operating costs in some states in the United States are now comparable with those in China, as an example.  Costs in China are rising, and there are other problems as well. 

The President, Senate, and House must act to bring millions of jobs back to America.  There are over 15 million Americans who are unemployed.  Put an initial five million back to work, and America would have a different look! 

Put American-made goods in stores, rather than foreign-made goods.  Then when an American makes a purchase in a store, his or her money stays in America and keeps on working in America.

Get that process going and America will be on a new upward path to prosperity and renewed confidence in America!

Wednesday, August 24, 2011

Cracks in Washington

There are cracks in Washington!  Cracks in Washington landmarks from the earthquake (August 23, 2011).  The debate over doing or not doing more infrastructure work can now end.  Infrastructure work is needed in Washington!  And in other locations also!

I wish the shaking of the earth could have shaken up the thoughts in the heads of politicians and bureaucrats so that real information and understanding could enter.   Real information about our huge unemployment problem, how it came about, and how to solve it.

It must be emphasized that a few politicians do understand what has to be done, even without a shakeup from an earthquake!  These politicians are doing excellent work but it is very difficult for them to bring additional colleagues on board.

I wish the earthquake had cracked the censorship that prevents all discussion of real information and understanding:

+  How we got to our present situation of 15 million unemployed, and impossibly high government deficits

+  What we have to do to get those good folks back to work, and by solving the unemployment problem also solve the deficit problem

What really happened?  What is the real cause of our huge unemployment problem?

The real cause of our unemployment problem began 50 years ago.  Yes, 50 years ago. 

Censorship is working to try to make you believe it is a recent problem.

50 years ago, individual U.S. manufacturers began to get the bright idea that they could increase profits by having the manufacturing work done in low-wage countries such as China.

The transfer of jobs, the movement of jobs, occurred on the initiative of the manufacturers involved, not due to any external forces, global trends, or technological developments.  And we have had a steady drumbeat of manufacturing jobs being sent overseas every year for 50 years. 

Censorship is working to try to make you believe that somehow jobs "disappear" or "migrate" due to external factors, rather than through any fault or mistake on the part of business or government "leaders".  Censorship is using those words in an effort to confuse the American people as to how the problem developed.  

The word "disappear" and especially the word "migrate" are absolutely false descriptions of our situation, and are being used to prevent understanding and solution of the problem.

The people who started making decisions 50 years to send manufacturing jobs to overseas locations were trying to save money.  But while looking at the supposed benefits, they forgot to look at ALL the costs. 

They forgot to consider hugely damaging costs that their own companies would suffer:

+  Send the manufacturing away and you tend to send away or lose the engineering edge and as a result you tend to send the research and development away and then you have lost your ability to innovate and create new products. 

+  You send your manufacturing away and send the engineering away and then you don't have the ability to manufacture new products, whether developed by your own company or another company.

+  You lose critical mass and then the whole system shuts down.

What is "critical mass"?

Probably the term critical mass is best known in relation to nuclear power.  If you want to generate electricity using nuclear phenomena, you need enough nuclear material to be present to allow a self-sustaining process to exist.  Otherwise the nuclear phenomena die out and you can't generate electricity.

Similarly, for a prosperous America you need an active and vibrant manufacturing sector with new products coming out to keep up with the times.  In short, you need critical mass.  You need the availability of:

+  enough companies with various types of expertise to do the research and development,

+  enough companies to be able to find the skills to develop the manufacturing methods, and

+  enough manufacturers who have the different skills required to make the subcomponents and components of existing and new products.

We have a further problem that no one foresaw 50 years ago or even 30 years ago.  That problem is China getting so full of itself that it wants to take over the world and make everything for the world.  It is actually imaginable that China could do this and in the process put every American manufacturer out of business. 

The censorship may be coming from a China Lobby, or from U.S. manufacturers who have billions invested in factories in China, or both. 

In any case, if we don't crack the censorship and allow discussion of the real cause and the real solution of the present unemployment problem, America as a nation is in very serious trouble, trouble that will not go away.

The only way to solve the unemployment problem is to admit that it was a huge mistake to allow manufacturing jobs to be sent away.  Get it out in the open.

And then proceed with a bold and forceful plan to get the jobs back from overseas.  Forget political correctness.  Forget the nonsensical idea of "building better relations with China".  Tell China to go jump in the lake.  Put on tariffs and/or foreign sales taxes.  Create incentives such as reduced corporate taxes to encourage manufacturing jobs to come back.

The one bright spot in the whole situation is that, slowly, jobs are coming back, even in the complete absence of any definite jobs plan on the part of the government.

Immutable economic forces, related to our huge negative balance of trade in manufactured goods, are causing manufacturing costs in the United States to drop, and costs in China to rise.  U.S. manufacturers are seeing the opportunity and are bringing jobs back.   Foreign manufacturers are seeing the United States as a good location for new manufacturing facilities.

But there are 15 million or more people who want to eat every day and have a roof over their heads.  Unemployed people can't wait five to ten years for jobs to appear.

The government has to act.  That is what governments are for.  I say that the politician who promises to cut ties with China, and put tariffs on manufactured goods from countries that don't buy from us in equal amounts, will be the next President of the United States!

Thursday, August 18, 2011

A new venture into fantasy-land

A financial newsletter recently made the following statement:


"For all the political bickering and scapegoating of China, 'Made in China' ranks only 2.7% of U.S. spending."


Where did this extraordinary statement come from?  Who is doing "political bickering and scapegoating of China"?  I haven't heard anyone "bickering and scapegoating" China.  All we hear in the media and in speeches by politicians and bureaucrats is the desirability of "trade" with China and closer ties with China.  


There is a legitimate special concern about China.  China has announced a policy of becoming self-sufficient in manufactured goods, including, to reach this goal, theft of technology from America and other western countries.  Once China can make all these goods for its own market, it will attempt to be the world supplier of the items also, potentially putting many American manufacturers out of business altogether.


"Scapegoating" occurs when inaccurate or unfair statements are made.  Statements made about the threat China poses to America do not constitute scapegoating. The statements are all too accurate and fair, and all too frightening!




Where does the 2.7% figure come from?


The 2.7% figure comes from an "Economic Letter" issued August 8, 2011, by Federal Reserve Bank of San Francisco.


The Letter starts out by saying that "The United States is running a record trade deficit with China".  But after making this statement, the Letter tries to show that we don't have to worry because "Made in China" goods represent only 2.7% of U.S. personal consumption spending.


The Letter is dishonest in a number of respects.  "Trade deficit" refers to manufactured goods.  Yet the Letter incorporates a large chunk of services, which of course don't come from China.  Through this dilution method, the impact of the imported goods is made to appear lower. The services referred to here include the service of having a rented or purchased place to live, the service of medical care, and the service of  recreation facilities. 


The Letter says that when we buy "Made in China" items we are also buying U.S. services such as transportation within the U.S., and wholesale and retail handling of the items.  But one truck driver can deliver many tons of manufactured goods.  A handful of people can operate a huge automated warehouse.  Retail sales staff are often few and far between in large self-serve stores.  By attaching exaggerated costs to these services, the impact of the imported goods is again made to appear lower.


The fantasy of the "Economic Letter" reminds me of an essay in Punch Magazine 40 years ago.  The essay is satire with a very serious and far-sighted message.  In Britain a man is negotiating to buy a new car.  He asks the salesman "Is this a British car?"  The salesman gulps, chokes, and goes into a hem and  haw routine.  Finally the salesman says "Not as such".


The customer then asks the salesman to let him know the British labor content of the car.  The salesman says "A British man held the showroom door open when the car was brought in".


U.S. labor input into "Made in China" items is more accurately described by this satire, than by the fantasy of the "Economic Letter" from Federal Reserve Bank of San Francisco.


See also my posts of April 21 and 23, and May 13, 2011, for further analysis of fantasy in official discussions of our economic problems. I will gladly provide links. 




Are official "trade" figures correct?


When I first began to investigate importation of manufactured goods into the United States, I expected to find a very large figure for China.  The figure I found, from Congressional Research Service reports, and Bureau of the Census, Foreign Trade Division, was a negative balance of trade with China of "only" 267 billion dollars per year.


Looking at all the stores filled 95%  with goods made in China, how could the negative balance of trade with China be only 267 billion dollars per year?  In the typical American home, you can hardly find a Made in USA item.  There is a preponderance of items made in China, accompanied by items made in many other countries.


I believe that the actual figures for China, and for the other countries that do our manufacturing for us, are much larger.  I suspect that U.S. manufacturers with factories in China and other foreign countries bring major amounts of goods in privately, so these goods do not show up in compilations of import and export trade.  




Hide the facts by dilution!


Consider a polluter who releases 100 lbs of pollutant X into the Y river every day.  The polluter tries to hide the situation by diluting pollutant X with a lot of water, before releasing the mixture into the river.  But fundamentally the polluter is still releasing 100 lbs of pollutant X every day. 


Similarly, the Federal Reserve Bank of San Francisco is diluting the actual cost of imported Chinese goods with inflated estimates of U.S. handling costs, and irrelevant domestic services costs.  But Americans still have to pay that actual cost of imported goods.


For the 2.7% figure to be correct, personal consumer spending on manufactured goods, excluding cars and trucks, would have to be tens of thousands of dollars per year for each and every man, woman, and child in America.  This level of consumer spending is obviously impossible and therefore the 2.7% figure is also impossible.




America afflicted by Alzheimer's


Articles are coming out now showing that new products such as "electronic book" devices, which can store texts of up to one thousand books, cannot be made in America because we have lost our expertise and capability in the related technologies.  Here we have a huge disaster and huge tragedy for America, all coming from the insane idea of transferring our manufacturing jobs to "low cost" countries.  One of the very high costs of so-called "low cost" manufacturing regions is an America with Alzheimer's!  We have forgotten how to do things!


But leave that issue aside for a moment, and ask why simple items such as a set of screwdrivers, or a can of asparagus, are made in China.  Why are simple light fixtures for homes of ordinary working men and women  made in China?


These items can be made in America today.  Let's do it!