US Manufacturing

[UtahFanSir]

Economist Paul Kasriel

From time to time, I link in economist Paul Kasriel because I think he is a very good economist. Here is his latest, this time on US manufacturing and NAFTA.

[Utah]

I love when you post these. I’ll have to dive into it tomorrow. 

[Utahute72]

I think that points to the fact that manufacturing is moving to more and more automation, which is a trend that has been around for about a hundred years or so.  It means we need a more educated workforce to support the automation, but the one graph on durable goods shows how moving manufacturing over seas impacts the inport/export ratios.

[Utah]

So, if we need more education, why are we spending so much money on tax cuts for jobs that are going away anyways? Why not divert that money towards educating those people instead of giving the money to people that already have money to keep jobs around that are going away either way? 

[PorterRockwell]

I’ll take Trump and his cronies have to reward those thst helped him get elected for $1000.00 Alex

[Utahute72]

Apples and oranges.  The tax cuts stimulate business growth and investment.  That keeps the economy functional.  Education supports a workforce that can change with the times.  One issue is we are using a 19th century education paradigm to solve a 21st century problem with education.  That’s because most unions are rooted in the past and are reluctant to change because it affects their power structure.

 

[Puget Ute]

But the problem is the economic stimulus from tax cuts is short term only (often on the order of 6-12 months only), and becomes extremely detrimental in the long term. Tax cuts at the top eventually only stimulate savings at the top (which largely returns to the economy only through the creation of new debt), and the money doesn’t do much of anything to help in the long run. And in the end we compile even greater amount of consumer and business debt without really doing much to strengthen the while economy itself. We have many decades of proof of this concept. Trickle-down schemes to not create large-scale and long-term net growth in the economy.

If you want to see a tax change that would greatly stimulate the economy, then lift the caps on FICA while simultaneously exempting the first $35k from paying FICA. This would effectively give everybody a 15% wage increase on the first $35k of income, and that money will go directly into the economy today in the form of food, goods, and services, WITHOUT requiring the creation of new debt.

[Newbomb Turk]

I really like your FICA idea.

[Puget Ute]

It is basic economic math. If you have $1M in tax breaks to pass out and intend to use that to stimulate the economy, would you expect a larger effect if you gave that $1M to one person who makes $20M/yr or if you break it up and give it to 1000 people who make $30k/yr?

[Riot West]

That makes entirely too much sense. 1000 people are going to buy 1000 movie tickets, 1000 microwave ovens, 1000 vehicles, 1000 dentist visits, 1000 6ers of microbrew, etc. etc.

1 billionaire only buys a fraction of these things…

All for the same amount in tax breaks

[UtahFanSir]

We need to eliminate tenure in favor of performance, while figuring out how to also protect teachers from the anti-science, anti-history group.

[zeous]

We could spend some on an advertising campaign to encourage Americans to move to Mexico where various plants have gone, claim welfare benefits, and send home the cash.

[Puget Ute]

But the jobs that used to pay $48/hr in Flint now pay $12.50/hr in Mexico. And the product still sells for roughly the same price at the store in the US.

[Utah]

So here is a question: What is stopping us from paying people $12.50/hr to do those jobs here? Unions? Tax Breaks? Stubborness?

[Puget Ute]

Hang on, this is going to be long and will go pretty far off topic to make a larger point.

For the past 30-40 years there has been a big squeeze on labor to gain profits, as well as a FED and Treasury policy to avoid inflation (which destroys capital, because it is essentially a tax on investment). These inflation-avoiding policies include jacking up the interest rates, deregulating the banks, opening up the capital markets, and we essentially globalized the production.

The big, long-term problem is wages have not kept pace with production. For instance, a Minimum Wage tied to productivity (i.e. output of the company) since the 1960s would today be on the order of $23/hr. Labor can’t complain about things too much or else they will watch as their jobs get shipped abroad (as has happened). That gap between productivity and wages has been widening, and becomes corporate and shareholder profits. On top of that, the wages are kept so absurdly low which effectively forces many people who work full-time jobs onto the government housing, medical, and food programs just to make ends meet. In a sense the government (city, state, and federal) are subsidizing the low wages these companies pay.

Another way to look at it is the people at the lower end of the pay scale* pay a regressive ‘tax’ through their low wages (*officially this refers to full-time employees making $11k for one person, or $24k or less for a family of 4; note the ‘living wage’ is considered roughly $30k/yr, and that the MAJORITY of American workers make LESS THAN $22/hr – or approx. $44k/yr). This compounds when government spending is cut and the very programs people rely on to make ends meet suddenly are unavailable to help them, and of course their employers aren’t going to simply raise their wages, etc. The richest country in the history of the world, at the wealthiest point of its history, and over 50% of workers make only slightly a bit above the amount considered to be subsistence wages. No wonder so many people are merely a paycheck or two, or one bad health issue, away from living on the street. The richest country in the history of the world, and half of its citizens is poor or in poverty. This seems to be the very definition of a failed system.

Unfortunately 94% of the jobs created over the last 20 years are part-time, irregular, have no benefits, are ‘independent contractor’-types, etc. Therefore while it may be true that we have a very low official unemployment rate, the actual truth is that people are hardly any better off. This is the first generation in US history to have an average standard of living that is worse than their parents’.

As a result of this people leverage themselves up to their eyeballs in debt, just to live. US citizens currently hold somewhere over $4.5T in unsecured credit card debt. And now that credit card debt is being used to back commodity vehicles the way mortgages were used to back securities.

The pain we went through by cutting a ~$2.5T hole in the economy where mortgage-backed securities used to be will be small potatoes compared to the pain the entire world will feel when the coming burst of the commodity bubble occurs. At least the mortgage-backed securities were somewhat secured because they were backed by actual houses which have actual value, and were liquidated into the real estate market to soften the blow to the overall economy. If the commodity bubble happens to burst then we are all royally f**ked, because there isn’t really anything backing the CC debt and therefore there isn’t anything to soften the eventual blow.

If that happens I wouldn’t be surprised to see people show up with (figurative) torches and (figurative) pitchforks and fire up the (figurative) guillotine in the public square.

[zeous]

Inflation avoiding? Gotta disagree with a bunch of fundamental econ in this post. Interesting read though.

[Puget Ute]

The ‘conventional wisdom’ economics of the past succeeded in entirely missed the last several bubbles.  You have to look at things in a different light.

And yes, FED and treasury policies have done whatever they can to avoid inflation over the past 4 decades.  This is simple, because if you invest in something and get a return of 5%, but inflation is at 7%, then you are losing money. 

However at the same time this happens, the people in debt come out great because inflation decreases the effective amount of money they owe.  So it is decent (in small doses, in the short term) for people in a lot of debt. But the people with the capital will scream over it and buy political change.

[zeous]

Well, all I would say is if it were true that the intent has been to avoid inflation over the past 4 decades, then prices would be relatively the same as 40 years ago.  Right?  But… they’re not.  Not even close.

What is capital, when money is debt and created by pen stroke?

[User Suspended]

But, but, but, what about making America great again and bringing back all those high paying manufacturing jobs  

[Utahute72]

Greater skill sets demand higher pay.  They are not incompatable.  The days of the $25 an hour nut turner are over, now you have a $35 an hour technician monitoring and adjusting a system that turns many nuts at the same time.  Both sides seem to miss this fact.  We lost thousands of jobs in the downturn and they’re not all coming back.  So you need to find different employment opportunities. 

 

[Utah]

Which is my point exactly. Instead of giving these corps millions in tax breaks and corp welfare, to keep jobs around that shouldn’t be here anyways, let’s educate and create a workforce that is actually useful.

 

[UtahFanSir]

That was the message of HRC. She lost. The other guy, he promised a return of those jobs.

[Utah]

Yeah, the forsight, planning, best use of tax dollars, etc…all the thing the right says they are good at….is stunning.

So, instead of throwing money at giving people more skills to evolve with the times, we will throw money at corps to have people push brooms around wharehouses.

That is what is so ironic. The government spends the money either way. You can spend it on a new prison, which focuses on rehabbing inmates so they don’t repeat offend…

OR

You can spend it on education and teachers so the people never end up in prison in the first place.

Yeah, prison. That is the intelligent thing to do.

 

[UtahFanSir]

Now prisons can become big business again. So we know who benefits there, the prisoners, right?

I lived and worked in the Philippines for 10 years from 1985 to 1994. Class structure and the shear number of poor, particularly desperately poor, was a grinding realty and completely new to me. The rich lived in gated compounds, mostly with armed guards, while each year the number of poor visibly swelled. A lot of expats, and their families, struggled mightily with this and wanted to return to the US after only a year or two.

My wife did regional development work along the lines of the Grameen Bank model of lending to the traditionally non bankable. Most of the regional centers she set up and ran were at Catholic run universities. One university in Mindanao, was administered by a long-time resident and American priest from the Bronx. A great guy, with a PhD in education, who had devoted his entire life to that service.

He visited us in Manila from time to time and we became close. One night at dinner at our home I asked him what he would do to bring more equity to the country, to lift the poor, to solve the seemingly intractable problems to this damaged culture. He said simply, “They need proper education.”

I’ve had this view of the US for some time: I can see what is happening here is along the same lines of what I saw 30 years ago in the Philippines. We are experiencing a new level of class warfare against the ‘vampires’ of my tax money, the poor, anyone who does not have capital and a good education. I expect to see more gated communities, then armed ones, as this ‘conflict’ escalates.

These folks have been thrown red meat by the current president. My fear is that they figure out they have been played. They will not like the ‘let them eat cake’ message. In truth, many of the Democrat programs have not solved long, long-standing problems and throwing money at it with tired solutions is failure before it begins. What the GOP is doing Balkanizes the class structure to protect and insulate the holders of capital.

May I suggest that you read two books published in 2016. The first is Hillbilly Elegy by JD Vance. Republican columnist David Brooks called this book “a must read.”

Here is a review on Amazon: Hillbilly Elegy.

The second book is White Trash: the 400-year Untold History of Class in America, by Nancy Isenberg, an LSU history professor who has written a lot of books. This dense read is chilling and necessary, even if the book has its flaws. This book is a history of poor white folks told from their perspective.

Here is a review on Amazon: White Trash.

I hope Trump does good, but I fear we are in for a s**t storm.

[Stradlater]

Prisoners are an untapped, plentiful, renewable resource.

[Puget Ute]

Modern-day slaves! What could go wrong?

[zeous]

What do you think heavily indebted tax-payers are?

[Puget Ute]

Please.  Do you really think you pay a lot in taxes?

[zeous]

Nah, two or three months of life per year or so doesn’t seem so bad.  Quality of life is still pretty damn good as long as one has a decent job.

[User Suspended]

Sorry but a lot of these trumpeters in the Midwest think they’re moving out of their trailers and into a McMansion when trump throws the switch on these high paying manufacturing jobs.  It’s sad how trump prays upon the desperation of the masses.

[UtahFanSir]

Yet they eat it up and when that alt-reality fails to materialize, the Republicoins will blame the Demoncrats. Business as usual. No change we can believe in while Napoleon BonaTrump will declare that finally America is Great Again. 

[Puget Ute]

One problem is the labor value provided by the robots is not taxed. In the future this means that not only are we losing jobs, but we are also losing a large percentage of the tax base.

This is something that must be addressed. Bill Gates suggests taxing the productivity of the robots at a level exceeding the amount that would have been paid to workers for doing the job manually.

Another option that is gaining some traction is providing everybody with a Universal Basic Income equivalent to some number, typically equal to some percentage of the poverty level. This may be a solution in certain economic circumstances.

[Author]

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