America: Why the High Unemployment?

by John Brian Shannon

In 1970, of the 89,244 new cars and trucks sold in the U.S.A., 84.9% of them were built in North America, while only 15.1% of them were manufactured in other countries and shipped to this continent for purchase and registration.

In 2012, of the 14.4 million new cars and trucks sold in the U.S.A., 44.5% of them were built in North America, while imports accounted for 55.6% of registrations. Read here.

By any measure, this is an ongoing paradigm shift — which directly relates to American unemployment statistics since 1970.

A total of 15.4 million car and light truck sales are expected in the U.S. for calendar year 2013 — the best year since 2007. By 2014, U.S. sales are expected to reach 16 million, with imports continuing to increase their market share in the U.S.

Since the first Model T Ford rolled off the Dearborn, MI assembly line, millions of  workers have been employed by American automakers – including some workers who worked for the same company their entire career. Fathers who worked at Ford, GM or Chrysler from their childhood until retirement, found their sons and daughters good-paying jobs with their old employers. Unemployment in the 1945 – 1975 era was generally quite low — and that, in the midst of an economically damaging Cold War which negatively affected many parts of society including the unemployment rate, not incidentally.

Generally during the post-war boom, everybody worked, everybody earned a paycheque, and almost everybody contributed to the economy. About late 1973 or early 1974 this began to profoundly change in the United States and in the Western nations generally.

Not to blame the American auto manufacturers for the Arab Oil Embargo, as the Big Three had been assured of low petroleum prices by foreign governments and several domestic administrations — hence the big, V-8 powered cars of the era and their consequently-low MPG figures were popular with both manufacturers and consumers.

But American consumers are a fickle lot. Once the gas price shot upwards in the aftermath of the Arab Oil embargo, Datsun (now Nissan), Toyota and Honda nameplates began selling as fast as the ships could deliver them from Japan.

If only the foreign vehicles were of inferior quality! But they’re not. If only they used more fuel than their U.S. equivalents. But they don’t. The corporate fuel economy average for foreign and domestic makes still favours imported vehicles. Not by the wide margin it once did — and not that GM and Ford haven’t scored impressive MPG victories in some categories, because they have.

But, to put it bluntly, many employed Americans prefer their foreign-built cars. (“And those millions of now-chronically-unemployed Americans will just have to get by.”)

It’s not just cars and trucks either. Historically, most home electronics sold in the U.S.A. including televisions, smartphones and computers were also ‘Made in the U.S.A.’  — but not these days.

Most of the clothing, plastics and extruded metals purchased in the U.S. are now manufactured in Asian and Southeast Asian nations, where countries like Indonesia rely heavily on textile exports to us and other Western nations.

Much of the American conversation these days revolves around the old austerity vs. stimulus debate which reporters and op/ed journalists are required by their respective organizations to cover.

Meanwhile the 80-ton elephant in the room is the trillions of manufacturing dollars which have transferred from the West to Asia since 1970 — and the manufacturing jobs that have gone with them.

Stimulus or Austerity: Can Either Succeed?

by John Brian Shannon

In the age-old debate between stimulus and austerity, many commentators fail to realize both schools of thought could be correct — and in fact, both are.

For one, look at the uncountable billions of stimulus added to the American economy during President Reagan‘s two terms. Unprecedented billions were directed towards defense, R&D, infrastructure — and even to Chrysler — although, strictly speaking, those were loan guarantees.

Do loan guarantees count as stimulus? Almost. And those guarantees tied up billions of U.S. Government dollars until they were no longer required — and served to establish and add gravitas to a new momentum in the U.S. economy. Courtesy of President Reagan’s leadership, I hasten to add.

When we look at historic stimulus, it works. When the stimulus is added at the first sign of recession it is most effective. Once all those factories are shuttered, trying to add stimulus to improve the economy is an uphill battle, every day.

The Marshall Plan to rebuild Europe at the end of WWII is a classic stimulus success story. Anyone who visited 1945 Europe and then visited again in 1960 can attest to that! About $40 billion dollars were used to stimulate the European economy — a lot of money in those days, even by United States’ standards.

Think of stimulus spending as emergency funding to keep the economy functioning. It really only works when applied immediately and at the first sign of recession.

For two, austerity does work. Although, it must be said, removing obscene debt and irresponsible deficits from a large economy constitute a major structural change. It is no band-aid solution — although as I said above, band-aids do work.

Austerity fixes the underlying structural problem — while stimulus fixes the symptoms, if you will.

There is no doubt about the Baltic austerity success story and there are others. You need only look as far as Canada in the 1990’s. Canada’s credit rating was on the rocks, the economy was in the tank and economic vital signs were heading in the wrong direction.

Prime Minister Jean Chretien and his astute Finance Minister Paul Martin, decided to adopt aggressive Canadian-style austerity and it worked (short-term pain for long-term gain) better than anyone had imagined. It just took some political leadership, unusually good communications with voters and some serious brainstorming.

A final word on economist’s everywhere. European economists work for Europe’s well-being, Chinese economists work for China, er, directly! While American economists work to arrange things to America’s advantage — you can’t begrudge any side for ‘playing for the home team’.

If the New York Times, Nobel Prize winning economist Professor Paul Krugman believes that it is in America’s best interests to float the economy with stimulus money, then he is right. Of course while agreeing with him, I always point out that stimulus is a merely a temporary fix and that additional deficit-financing (and accumulated debt) should be ‘pared down’ during the boom times.

Just as John Maynard Keynes suggested.

When this is not done, decade after decade, or should I say, recession after recession, it adds to the unbalanced economy and the entire economic structure is thereby weakened.

For now, stimulus — although it is almost too late for band-aids. Then, during the next boom, adroit movement towards zero-deficit financing — then, once that is achieved, regular scheduled debt paydowns after that.

Stimulus will stop the worst of the present economic malaise from taking an even higher toll — and later, austerity will begin to improve the entire structure of the U.S. economy.

John Brian Shannon

An Unserious Man — MY COMMENT

by John Brian Shannon

Read Paul Krugman’s An Unserious Man.

My comment on Professor Krugman’s article begins.

When 5 Minus 4 Equals 10: Republican deficit cutting

First off, let me say that I like Paul Ryan. Hey, I like Mitt Romney too.

I liked his dad, the great George Romney even more – a true and honourable captain of industry who represented American corporations with class and charisma. Now there was a man who should have been a two-term President.

What is before us this day, is the Paul Ryan plan for deficit cutting, tax cuts and cuts to Medicaid.

The proof is in the pudding as they say and independent groups like the non-partisan Tax Policy Center have declared that the Paul Ryan spending cut and tax cut budget will result in a budget deficit $2.5 trillion dollars higher than the one President Obama’s team is promoting.

And that is after essentially dumping Medicaid onto the states (many of which can’t afford their current spending programs, let alone additional spending) and dramatic cuts to the food stamp program (meaning fewer American’s will be able to eat) and cuts to education funding (meaning fewer American’s will be able to attend college).

Not only spending cuts, but tax cuts for America’s highest income-earners and their sponsor corporations. All of whom, are just doing fine, thank you very much, even without the proposed Ryan cuts!

The Paul Ryan budget plan is to cut, cut, cut — but spend even more, with a total of $4.3 trillion dollars of cuts over the next decade — and still the budget deficit will zoom $2.5 trillion deeper into the red than the Obama budget.

How can $4.3 trillion dollars of spending cuts and tax cuts phased in over the next ten years, result in an unsustainable budget deficit of $2.5 trillion dollars? How can offloading Medicaid onto nearly insolvent states help those Americans who depend on it? How can dramatic cuts to the food stamp program not correspondingly increase the property theft crime rate? And how do tax cuts to wealthy Americans and American corporations help the middle class, not to mention removing grants for more kids to attend college?

We only need to look at the utterly predictable results of this economic plan, to accurately judge it’s merits.

1) Dumping Medicaid onto the states, many of which are near-insolvent already, would have the effect of making some of them fully insolvent. It would push other states which are just managing to hang on, to near-insolvency. Strong states would become weaker. How does this benefit the United States of America?

2) Dramatic cuts to the federal food stamp program in an effort to cut spending, will simply result in greater federal law enforcement spending as many thousands of hungry Americans turn to theft, to be able to eat every day of the year. I’ll just bet that the FBI and city and state police forces don’t love this Paul Ryan plan.

3)  When fewer Americans can attend college, correspondingly more people will be entering the workforce with a lower level of education. How will the ‘dumbing down’ of America help the nation?

4) For those Americans in the top tax brackets and for many American corporations, tax cuts for them means a further concentration of wealth for 1% of U.S. citizens, a lower percentage of wealth for the middle class to share and even less for the lowest income Americans. What egalitarian society?

5) A substantially larger budget deficit allows more control over American policy by those financing American federal debt. For the foreseeable future, China (you know, that big, booming country that Republicans like to poke with a sharp stick at every opportunity) will be financing U.S. federal deficits and accumulated debt. As budget deficits and debt soar in America, the number of nations which can step-up to service that debt drops exponentially. The day is coming when China will be the only nation with the wherewithal to float the U.S. economy — IF they choose to do so.

Paul Ryan’s economic platform would weaken individual U.S. states, increase societal class friction, increase disparity in income and education, increase the national crime rate and allow more Chinese government say in U.S. policy.

If U.S. Republicans are America’s friends, who needs enemies?

John Brian Shannon

ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada

Crash of the Bumblebee — MY COMMENT

by John Brian Shannon

READ PROFESSOR PAUL KRUGMAN’S ARTICLE “CRASH OF THE BUMBLEBEE” HERE…

Supposedly, the bumblebee is not able to fly according to all the known laws of physics. But fly it does and it does so adroitly.

So too, according to all the known laws of working political models (those are called countries) Europe is not supposed to work. But it does so and is as adroit as any bumblebee will ever… be. Ahem.

Since the ashes of WWII, Europe has risen like the Phoenix of lore, from self-destruction to become a fully-fledged working model. Europe has many disparate parts, you would expect it to be unwieldy and it should definitely not fly. But it has surpassed everyone’s expectations – including the expectations of many European citizens and I daresay, some of Europe’s greatest leaders past and present.

A tip of the hat must always go to the foresighted American politicians of 1945-1950, who gave their blessing to the Marshall Plan to rebuild Europe and feed it’s people, until the Europeans could again feed themselves. Even after that the U.S.A. pursued a successful European project with vigour. There were many disagreements and even outright arguments between the Americans and the Europeans from 1945 right down ’till the present day. No doubt, there will always be differences of opinion, but so much more has gone right, than wrong over the past 67 years.

Differences aside, the U.S needs a successful Europe and Europe needs a successful America. Neither can afford a disaster on the other side of the pond.

The American Civil War can be considered America’s coming-of-age moment, while the gradually coalescing Europe, still fresh from reunification with it’s Eastern European counterparts, post-Cold War, must now forge some kind of coming-of-age moment for itself – or history will indeed pass Europe by.

One such test is the present ‘Eurozone Moment’ — where the wealthy northern European’s (where most of the euro-dollars live) must find a way to co-exist with their poorer southern cousins, who are in hock up to their nostrils.

If Europe can find a solution now, it may well be written down by future historians as Europe’s coming-of-age moment, the glorious moment when Europe realized that she is, in totality, greater than the sum of her individual parts thereof. Let’s hope Europe is self-aware at that level.

What time honoured political strategy could assist us here? I’m glad you asked. For one of the best-tested and time honoured practices for success is, the strategy of win-win.

But how to apply this to the present Eurozone Moment?

By simply finding many different things which will work to mutual advantage, where both sides can gain some amount of benefit. It doesn’t have to be an exact science. Forward progress is forward progress. On some matters, the north may gain more and on other things the south may gain more. What matters here is the need to not lose the Moment! And, to find multiple ways to succeed together.

The simplest idea in the world here is to create some kind of Euro-stock in order to ‘buy-down’ the interest rate of the southern European nations, especially the ones which are deeply in debt, or which have high unemployment and/or stagnant growth.

How could this profit the northern Euro stock-holders? The market works the same, anywhere you go. Price things over 5, 10, 15, 20 and 25 years. Investors will make money on the spread between the estimated price vs. the actual selling price.

If Spain, just for example, is having trouble affording the payments on the debt it owes, it doesn’t really matter that Spain isn’t carrying a lot of debt compared to some countries, what matters is, they can’t make the payments. How better to help Spain pay it’s debts, than to lower the interest rate on the money they owe? If 10% interest rates are killing them, then maybe those same multi-billions of debt financed at 2% interest, won’t.

If northern European’s can make money on buying down the interest rate for Spain, then Spain will be better able to fix it’s economy.

I would call that a win for northern European investors (whether sovereign, institutional or private) and a win for Spain.

That’s how to make a country (or a bloc of countries) pull together — instead of pulling itself apart. That is how to make Europe fly. The trick is to be there when needed, not after the crash.

John Brian Shannon writes about green energy, sustainable development and economics from British Columbia, Canada. His articles appear in the Arabian Gazette, EcoPoint Asia, EnergyBoom, the Huffington Post, the United Nations Development Programme – and other quality publications.

John believes it is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.

Check out his personal blog at: http://johnbrianshannon.com
Check out his economics blog at:
https://jbsnews.wordpress.com
Follow John on Twitter: https://www.twitter.com/#!/JBSCanada

Loading the Climate Dice — MY COMMENT

by John Brian Shannon

MY COMMENT ON PROFESSOR PAUL KRUGMAN‘S ARTICLE BEGINS…

It’s always a treat when the world’s leading economist writes a column about the environment — which happens to be one of my favourite topics.

But why is an economist writing about “the great Midwestern drought” presently scorching many of the United States? And, what does economics have in common with the weather, climate and climate-change anyway?

Everything, as it turns out.

Professor of Economics Paul Krugman comments, “This drought has already sent corn prices to their highest level ever.”

Just for the record, corn does not exist in its own universe. If corn prices are at record levels you can bet that other crops are at or near, record highs too. Think of corn as the bellwether for other crops in America. Where corn trends, others follow.

Lack of rainwater to fill creeks, rivers, lakes and even to help restore underground aquifer levels, combined with weeks of relentless heat, define a drought condition.

Corn, a major crop grown in the United States, is used in many different ways. One, low-grade corn called maize is used to feed livestock, and millions of tons of it are produced and consumed each year. Cattle like the taste, its filling and its high sugar levels provide them with plenty of energy, or if they don’t expend enough energy, they eventually turn into nicely-marbled tenderloin. Mmmm…

Two, corn is widely available for consumers and is a tasty summer treat fresh from the field, or it can be frozen or canned.

Three, it is increasingly used by the petroleum industry as a fuel-feedstock. Over six billion litres of ethanol fuel was produced from U.S. corn last year. Not only that, some plastics are manufactured from corn cellulose, for example, many plastic soda-pop bottles are manufactured with 5% corn bio-content.

The thing about corn — it requires huge volumes of water, fertilizer and lots of sunshine. Water must come from the sky to supplement the always insufficient water available on the ground or underground. When it doesn’t get the water it needs, it quickly punishes farmers by dying within a week. End of crop.

Thousands, or even millions of acres of corn which had received months of hard work and expense – all gone within one week.

At that point, thousands of farmers face the end of their year and there is little for them to do except fill out their crop-insurance claim forms, praying they get an amount equal to 49% – 66% of their planned crop gross-revenue.

Which has a downstream effect on the economy, obviously.

If, in the space of one week and at about halfway through the year, you were suddenly forced to accept only about half of your total yearly pay — would your spending patterns change for the balance of the year?

This is how climate-change affects the well-being of a nation and by extension, the world, as Prof. Krugman rightly points out, “If [the drought] continues, it could cause a global food crisis, because the U.S. heartland is still the world’s breadbasket.”

But its not climate-change unless it happens again and again. True fact. One bad year, does not a climate-change make.

Professor Krugman cites a research paper by the world-renowned NASA scientist, Dr. James Hansen, “As documented in a new paper by Dr. Hansen and others, cold summers by historical standards still happen, but rarely, while hot summers have in fact become roughly twice as prevalent. And 9 of the 10 hottest years on record have occurred since 2000.”

Imagine that. Perhaps the climate-deniers can continue to obfuscate for another ten years the growing body of evidence which proves global warming is real. What they might not be able to explain away are the increasing billions of dollars of losses in the U.S. agriculture economy and in other nations which possess highly-accurate crop monitoring systems — including impressive ag-satellite technology it must be said!.

With the many technological achievements including improved crop species, more effective fertilizers/pesticides and astronomically better land management practices, why are our ag-related losses increasing over recent years? Surely we should be facing lower losses with the greater productivity afforded us by employing the latest technologies.

Its time for an economics team to step up and provide this answer, for there will be no fooling accurate ag-statistics and to-the-penny ag-accounting practices. Where is the U.S. Department of Agriculture team dedicated to plotting each year’s crop losses (whether a fully-failed crop, or only partially-damaged by drought) into 2010-equivalent dollars and presenting it to the President for his consideration — and to the media for their informed commentary?

I’ve said it before and I’ll say it again; “The Market is the perfect, self-correcting machine. It will get to the heart of every matter connected to it.” Though we may not always like what it says, if we choose to listen it can teach us much.

The market informs us about every step along the path of production for every crop and manufactured product. America’s ag-economy has been state-of-the-art for some time now and there is not a cent which is not fully accounted-for. The only unaccounted-for losses these days are climate-related. And almost everyone seems afraid to step up and say so.

John Brian Shannon writes about green energy, sustainable development and economics from British Columbia, Canada. His articles appear in the Arabian Gazette, EcoPoint Asia, EnergyBoom, the Huffington Post, the United Nations Development Programme – and other quality publications.

John believes it is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.

Check out his personal blog at: http://johnbrianshannon.com

Check out his economics blog at: https://jbsnews.wordpress.com

Follow John on Twitter: https://www.twitter.com/#!/JBSCanada