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!

Tuesday, August 16, 2011

Our economy is a sieve!

Many people have a small garden in a window box or similar.  Imagine instead of a window box that you plant your garden in a sieve!

Every time you try to water the plants to encourage them, the water goes right through.  The plants don't benefit. 

The American economy is a sieve.  The govenment often spends money to encourage development of new technology and new industries.  If new jobs are the result of the effort, there is nothing to stop the jobs, once they get going, from being transferred to China.  The money has gone through the sieve without benefiting the economy.

Further, it is likely that China will steal the technology.   So in this further sense the money goes right though the sieve leaving no permanent benefit for our economy.

At one point in his presidency, George Bush issued a $600 check to every American (or maybe it was to every family), to improve morale and to get spending going.  If you looked at a collection of political cartoons at the time, every cartoon contained the same theme.  The man or woman of the house asks "Which economy are we helping?  China's economy or the American economy?"

Cartoons aside, I am sure that virtually all Americans, except of course the politicians, understood that the $600 checks would not accomplish anything, because of the sieve effect. 

The American sieve economy.  Money spent by the government goes right through the sieve to China, leaving no benefit for the American economy.

There is only one way to save the American economy, and that is to cut ties with China and other countries that don't buy from us in approximately equal amounts.

Goods on shelves in stores should be 95% American-made, not 95% foreign-made.

We have over 15 million people unemployed.  Some people say 25 million are unemployed or under-employed.  Our governments at all levels are drowning in debt.  How much more evidence do we need before we move ahead with forthright actions?  Tear up the trade arrangements, and put a tariff or foreign sales tax on goods from countries that are exploiting us, the most vicious and aggressive example being China.

No other policy, such as more infrastructure programs, or general fiscal or monetary actions, will work. These alternate policies simply delay the inevitable, namely tariff or foreign sales tax as described above.  And, during the delay period, our economy will further descend with additional millions unemployed.

Wednesday, August 10, 2011

Open letter to Mr. T. Boone Pickens

Dear Mr. Pickens:

I think that one respected, well-known public figure could lead America to solve its unemployment and debt problems.

Are you prepared to be that person?

You are needed because all the politicians in Washington, and the President of the United States with all his advisors and technical experts, have not been able to solve the problems.

(A few politicians understand very well what has to be done, and they are working hard, but their numbers are not enough to carry the day.)

Children's story books tell us that "All the King's horses and all the King's men could not put Humpty-Dumpty together again".  

Amazingly apt description of our dilemma today!

A tremendous barrier to solving the problem is that censorship is in effect, controlling what is said in the media and what is said and done by the politicians.

How can we solve our problems if we are not allowed to mention or discuss the real issues?

Are you prepared to go around the censorship and say what has to be said?

Are you aware that our negative balance of trade in manufactured goods, with all foreign countries, is over 500 billion dollars per year?

Is it a good idea to be bleeding 500 billion dollars per year out of our country when we have huge debts and 15 million people unemployed?

Our negative balance of trade of 500 billion dollars per year is one of the issues that no one is allowed to mention, under the very real censorship that is in effect in America.

The primary cause of our unemployment and debt problems is that over the last 50 years U.S. manufacturers voluntarily and on their own initiative transferred millions of jobs to "low-wage" countries.  During that 50-year period, successive presidents, senators and members of the House of Representatives passively allowed the jobs to be sent away.

This fact is the other key issue that no one mentions, because we are under censorship.

When we sent away manufacturing jobs we lost the tax revenue from American workers who had held those jobs.  We lost the value-added effect of manufacturing activity.  We converted productive workers who were paying taxes into unemployed people who require welfare and food stamp assistance. 

The working-age man or woman who does not have employment is not a stakeholder in our society or in the economy.

This fact is the cause of the current rioting in England.

The cost to our economy of 15 million people who are not stakeholders is huge, and is not accounted for when manufacturers calculate the "savings" of doing their manufacturing in "low-wage" countries.

You have recently made some excellent and constructive statements about the problems facing America.  I hope you will go further and take on the challenge of leading America to a new era of increased manufacturing activity, millions more Americans employed in manufacturing, and American-made goods, rather than foreign goods, lining store shelves.

Thank you very much for your consideration.

Yours truly,

Edward J. Farkas

Tuesday, August 9, 2011

What a nerve!

China is telling the United States of America to get its financial house in order.  What a nerve! 

Why is China concerned about our "financial house"?  China holds 1.2 trillion dollars worth of U.S. Treasury securities.  China is behaving like a nervous amateur investor in its constant concern about the value of this holding.  If the U.S. dollar goes down, the value of China's holding of U.S. Treasury securities goes down.

There is a saying "Be careful what you wish for.  You may get your wish but there could also be an undesired result".

China wishes that America would "get its financial house in order" so that the U.S. dollar retains its value.  But the best and in fact the only way for America to get its financial house in order, and strengthen the U.S. dollar, is to greatly reduce the importation of foreign-made products!  

In this wonderful and hoped-for scenario, we would instead do the manufacturing here in good old USA!

In Fall 2008, after that stock market crash (August seems to be the month for stock market crashes!), purchases of Chinese-made goods by western countries dropped off.  Immediately, laid-off Chinese workers began rioting. 

In the wonderful and hoped-for scenario referred to above, the same thing would happen but on a larger scale.  The Government of China would not be happy with this outcome!

This is what I am referring to above: "You may get your wish but there could also be an undesired result." 

China can't have it both ways.  China can't be assured that the U.S. dollar will hold its value, while China sells us four times more than it buys. 

The scolding that the U.S. should "get its financial house in order" is contained in a diatribe issued by China on August 6, 2011.  Some other gems in this diatribe are reviewed below. 

The U.S. should "tighten its belt" (probably the belt was made in China!) and confront its "addiction to debts....the good old days when (America) could just borrow its way out of messes of its own making are finally gone".

There is one kernel of truth here.  We are in a mess of our own making but it did not come about through borrowing.

It came about through sending millions of our manufacturing jobs to China and other low-wage countries.

The statement from China goes on to stay that "global turbulence" will result "if the U.S. fails to live within its means".

What a nerve that China lectures us.  China is on a binge of unwise borrowing.  Borrowed money has been used to build millions of apartments and even new cities.  The only problem is that these apartments and new cities are empty.  China does not allow the trillions pouring in from western countries to trickle down to the ordinary Chinese citizen.  Therefore there is no one ready to take up the new apartments and new cities.

What happens when difficulty arises in carrying the borrowed money, without income from the new facilities?  Possibly or probably a crash similar to the crashes we have in the western countries!

Now we come to the bottom line:

"China has every right to demand the U.S. to address its structural debt problems and ensure the safety of China's dollar assets."

This statement is childish.  Every investor would like to have assurance of absolute safety.  But this little feature is not generally available!  If China is worried about the safety of its investment, it should sell.  Otherwise, keep quiet!

China made the investments in U.S. securities for very good reasons to benefit itself.  No one held a gun to China's head, forcing China to buy U.S. securities.

But there is another factor.  China is trapped "in a mess of its own making"!  If China sells any of its U.S. Treasury holding, that action alone will force the U.S. dollar down, the very result that China fears.

Speaking of holding a gun to a head, a "top Chinese general" last month questioned America's military budget and suggested that "paring back defence spending" would be in the interest of U.S. taxpayers.

There is of course a huge kernel of truth here.  But again, China is demonstrating hypocrisy and a lot of nerve.  China is using the trillions we give them to greatly increase their already large armed forces, at a time when there is absolutely no enemy in sight. 

China has announced a policy of achieving complete self-sufficiency in all manufactured goods by 2050.  They know very well that the best way to have a viable and prosperous economy is to be self-sufficient in manufactured goods.

But again the hypocrisy and nerve.  They don't want us to be self-sufficient in manufactured goods!  They want to keep us in a situation of slavery to imported goods. 

We have to get out of slavery.   Otherwise, our unemployment and debt problems will continue indefinitely.

Friday, August 5, 2011

Basic facts remain the same

The stock market downturn of August 2011 does not change basic facts. 

In the United States, there are 15 million people unemployed.   This number is being thrown around by many people.   I don't think anyone knows the correct number.  Take 15 million as an estimate.

President Obama often speaks about new industries creating new jobs.  These ideas are good but the associated job creation rate would be microscopic in relation to an estimated 15 million people waiting for jobs.

A news reader on a major TV network recently said "no one knows how to create jobs". 

This statement by the news reader is not correct.  There is a way to create jobs in America on a mass scale.  The only problem is that censorship is in effect and no one is allowed to mention this job creation method.

Censorship is not in effect in this blog!  I freely mention the only mass job creation method available, and that is "bring our manufacturing jobs back from China and other countries that don't buy from us in approximately equal amounts". 

President Obama mentioned this method himself during the election campaign.  He mentioned it once and then his 300 advisors and the people behind the scenes who really control things jumped on him and told him never to say this again.

So that is where things stand today.

All the  hysterics by politicians concerning the debt limit were beside the point.  What all the politicians should really get hysterical about is pushing the censorship out of the way so that we can start the process of getting our manufacturing jobs back from overseas.

We need a strong president to lead this process.  We need a strong president to put tariffs or foreign goods sales tax on imports from China and other countries that don't buy from us.  Once this measure is put in place, manufacturing employment in America will increase.

The politicians are hysterical about debt and deficits.  As the level of manufacturing activity increases, with the assistance of tariff or foreign goods sales tax, tax revenue from Americans employed in America will increase, helping to reduce the deficit problem. 

Some people say that "Bring the jobs back from China" is simplistic, stupid, impractical, pie-in-the sky, childish, or whatever other names you want to apply.  I say, yes, there are some challenges.  But what alternate mass job creation strategies are available?

I say the alternate job creation strategies consist of nothing more than waiting and hoping that somehow something will happen to create jobs and reduce unemployment.  

Here are some basic facts in support of my comments above::

+  In a 50-year spree 1961 to 2011 we very stupidly sent and allowed to be sent millions of our manufacturing jobs to foreign countries.   Censorship presently in effect in America does not allow this simple factual statement to be made.  But if we are not allowed to make this statement, we will not understand the cause of our economic and debt problems, and we will never be able to solve the problems. 

+  The loss of millions of manufacturing jobs has severely damaged our economy and the only way to repair the damage is to get those jobs back.

+  We are in exploitive and completely UNFAIR "trade" relationships with China and some other foreign countries.  We have every justification to tear up the paperwork and get out of these relationships.

+  Our negative balance of trade in manufactured goods with all foreign countries is over 500 billion dollars per year.  This is real physical money pouring out of our country.  When our country is heavily in debt and when 15 million people are unemployed, is it helpful to be sending a net 500 billion dollars out of our country every year?  This hemorrhage of wealth out of our country is another topic that the censorship does not allow us to mention. 

Suppose we put an immediate tariff of 25% on our net importing of goods (over 500 billion dollars per year).  That would provide new revenue to the government of over 125 billion dollars per year. 

Suppose the tariff encourages domestic manufacturing and within a couple of years 10 million people are back at work, each paying $3000 per year income tax.  That would be 30 billion dollars per year in tax revenue, plus the saving in welfare costs. 

The factories employing the people would also pay tax. 

Add up new tax paid by workers, reduced welfare costs, revenue from tariff or foreign sales tax, revenue from new factory operations, and you have additional tax revenue on the order of 200 billion dollars per year. 

Then there is the value-added effect of the increased manufacturing activity, and the increased confidence and optimism in America, and the economy really starts to take off.  

The American people are forthright, go-ahead, inventive, people, and we can take action and get our manufacturing jobs back from overseas. 

We can tell China and other countries exploiting us to go jump in the lake.  These countries are our enemies, not our friends.

If we don't take these strong and forthright steps, we are doomed to huge permanent unemployment and resulting social unrest, continuing impossibly high deficits, and total breakdown of the American economy.