It’s Still the Economy, Stupid

its-the-economy-stupid

We are in the midst of a presidential election campaign, and all hell seems to be breaking loose.  Businessman Donald Trump, the putative Republican nominee is wreaking havoc with pundits and critics on both sides of the aisle.  His views on everything from immigration to foreign policy are seen as controversial to say the very least. Virtually every time he opens his mouth some critic claims that it is another example of why he is crazy; a lunatic, a fascist.

One would think the chances for this bombastic  real estate mogul would be minimal at best; yet he is sweeping the field during the primary season, and the numbers of supporters seem to grow daily. Why might this be?

Critics will tell you many things about Trump supporters, most of them not very kind. From the left especially, Trump supporters are seem as racists, rednecks, poorly-educated, slovenly hillbillies (no disrespect to hillbillies). The vitriol seems endless, but that is just part of the political climate of 2016. It’s nasty and pretty brutish.

One could look at any one of a number of issues and cross swords over the Trump position.  Indeed, any person may see any one of a dozen issues as most important  in this election.  I see primarily one. To steal a phrase from the “Rajin’ Cajun”, James Carville during the Bill Clinton’s 1992 Presidential campaign: “It’s the economy, stupid”.

Carville was doing nothing more than stating the politically obvious, something known for decades:  people vote their pocketbooks. I would submit that one reason Donald Trump is doing so well is that the American economy is in the tank. Before we talk numbers and statistics, however, let’s look at a little history:

rca victorRCA Victor, Camden New Jersey

I grew up in the 50’s and 60’s in South Jersey, about ten miles from Camden, New Jersey. Camden was a thriving manufacturing town.  RCA Victor made radios and televisions, Campbell Soup,  Hollingshead Corporation made polishes and waxes, Warren Webster Company made heating and cooling components.  New York Shipyard actually built ships;  big ones, right in Camden.

South Jersey was ripe with industry:  Owens Illinois and Owens Corning companies made fiberglas insulation and glass bottles in multiple factories.  Wheaton Glass made all sorts of glass products, as did dozens of smaller companies.  Additionally, South Jersey had a thriving agricultural industry (the famous Jersey tomato).

Jobs were everywhere and easy to find, without even crossing the Delaware River to Philadelphia, where jobs were even more plentiful.

In those days, a person with a little backbone could land a decent-paying job, support a family, buy a house, and take that summer vacation.  It wasn’t difficult, all it took was hard work.  In those days, folks with a minimal education could get a decent manual labor job and high school graduates could become “management trainees”.  For those with a college education, management positions were abundant. Today, it’s all gone.

Today, Camden is rated as one of the most dangerous cities in the U.S. Poverty and crime are rampant. Those factories are all gone, torn down and not replaced with anything except littered empty lots. The other factories in South Jersey are mostly gone too,  several of them left standing as a ghostly reminder of what once was.

Why?

Why did these jobs go away? Why do we manufacture almost nothing today?

We know where the jobs went:  The last television set was manufactured in the US in 1999. Today, most are made in China.  Campbell’s still has it’s “world headquarters” in Camden, but no longer manufactures anything in the city (no more Jersey tomatoes in your tomato soup).

savannahThe NS Savannah, the world’s first commercial nuclear powered ship was built in Camden. Today, most shipbuilding takes place in other countries.

Tariffs

A tariff is a tax on imported goods. The tariff is used to regulate the flow of imported products into the country, as well as to protect the prices of domestic goods from low-cost (foreign) competition.

The United States has used tariffs in trade with other countries since 1789. Tariffs ranged from a low of around 15 percent to a high of around 45 percent in 1870. In the 20th century,  tariffs declined as trade with other countries increased. By the end of World War II, the average tariff on foreign goods was around 8 percent.

By the 1970’s tariffs went down to around six percent,  which spurred the import of foreign automobiles, particularly Japanese.  American auto workers fought for raising tariffs, but lost. The government agreed to a “voluntary” restriction of imports by the Japanese.  We all know how this played out.  Other American industries, such as steel, TV’s, textiles, and clothing were already collapsing from low-cost imports. The loss of the American auto industry was a major event.

In the 1980’s, the Republicans abandoned protectionism, and tariffs fell even more. Tariffs drifted downward to around 3 percent. More and more American goods were being replaced by goods from foreign manufacturers.

NAFTA

The North American Free Trade Agreement  (NAFTA), was signed into law by Bill Clinton in 1994. This law effectively removed all tariffs between the United States with Canada and Mexico.

Ross Perot, a third-party candidate for President and Texas businessman in 1992 opposed NAFTA. He said this:

 …We have got to stop sending jobs overseas. It’s pretty simple: If you’re paying $12, $13, $14 an hour for factory workers and you can move your factory South of the border, pay a dollar an hour for labor,…have no health care—that’s the most expensive single element in making a car— have no environmental controls, no pollution controls and no retirement, and you don’t care about anything but making money, there will be a giant sucking sound going south
…when [Mexico’s] jobs come up from a dollar an hour to six dollars an hour, and ours go down to six dollars an hour, and then it’s leveled again. But in the meantime, you’ve wrecked the country with these kinds of deals.

Soon after NAFTA,  significant changes in the balance of trade began.

 Maquiladoras

malqMexico began immediately setting up maquiladoras, or manufacturing shops right over the border in Mexico. These plants used imported components and  produce goods for duty-free export into the United States.  Today there are over 3000 maquilladoras, shipping duty-free goods into the United States every day.

Government officials argue that these free-trade agreements are good for the economy, but don’t like to talk about the 700,000 American jobs lost because of NAFTA.

Since NAFTA, the US has negotiated at least fourteen (14) additional free trade agreements with countries around the world, including, but not limited to China, Jordan, Oman, Peru, Columbia,Honduras, Panama, and South Korea.  We have pending trade agreements with all of the other countries in the Western Hemisphere, all of Europe, the Middle East, and every country touched by the Pacific Ocean (Trans Pacifiic Partnership, TPP). In other words, free trade with the rest of the world.

Try finding a major product manufactured in the United States today — look around your home, look at labels.  My guess is you will find precious few newer product “Made in the USA”.

 Figures lie, and liars figure …. old adage.

fred

An obvious question about all this free trade is how has this effected gainful employment in this country. Well, that seems to depend on who you ask.

The official unemployment rate hovers around five percent , which the government and the Chamber of Commerce would tell you is pretty good. But is that number accurate, and what does it mean?

That five percent calculates out to around 8 million people out of work. This however is only the “official” unemployment; people seeking work and collecting unemployment benefits. Once a person stops collecting benefits, they are off the list — whether they found work or not. The government doesn’t exactly list them as employed, although that is the implication. It just removes them from the count. So official unemployment: 8 million.

On the opposite side of that coin, Trump and others have said there are as many as 94 million out of work. Well, that isn’t right either. That number includes anyone over 16 years old not reported as working. So it includes teenagers and others in school as well as retirees, who obviously are not working.

According to the Bookings Institute, there are probably about 13 million adults who are not collecting benefits but still not working, or working only part-time and seeking full time employment. So we’re really looking at around 21 million people, a 12-15 percent unemployment rate. Obviously, this is much higher in certain demographic groups.

And then there are those who are working but…. The “underemployed”.

If a person made $50,000 per year and lost their job, and the best new job they could find paid only $25,000, they are underemployed. Millions of people technically “working” are working at jobs earning far less than they once did, with little prospect of returning to the higher pay they once enjoyed.

Several estimates suggest around nine million people fall into the “underemployed” category, bringing our unemployed/underemployed number to about 30 million people.  Is the economy working? Not for them.

The Future — Manufacturing and technology.

America has been losing manufacturing jobs since the early 1980’s, and continues to do so. The suggestion that the jobs lost to other countries were only low-skilled jobs is frankly nonsense. Regardless of the skill levels, lost jobs are lost jobs — they’re not coming back.

Add to this the fact that technology is advancing rapidly, causing the potential loss of even more jobs. Ever think how many bank tellers lost their jobs because of ATM’s? Not likely, because we tend not to pay attention, but we should. This becomes even more apparent when we consider the current clamoring to raise the minimum wage. If employee costs cut into a company’s bottom line, something is going to give, and that something could be even more people losing their jobs.

The United States has historically used things like tariffs to protect jobs. It’s only really been since NAFTA (1994) that politicians and corporations seriously embraced this world-wide “free trade” concept. They promoted the idea. and still do claiming it is good for the American economy, and any other stance is a step backward to isolationism. This of course, is nonsense. The politicians have profited, corporations have profited, wealthy stockholders have profited; all while the American worker has suffered.

In 1980, Ronald Reagan famously asked this question.:

“Next Tuesday is Election Day. Next Tuesday all of you will go to the polls, will stand there in the polling place and make a decision. I think when you make that decision, it might be well if you would ask yourself, are you better off than you were four years ago? Is it easier for you to go and buy things in the stores than it was four years ago? Is there more or less unemployment in the country than there was four years ago? Is America as respected throughout the world as it was? Do you feel that our security is as safe, that we’re as strong as we were four years ago? And if you answer all of those questions yes, why then, I think your choice is very obvious as to whom you will vote for. If you don’t agree, if you don’t think that this course that we’ve been on for the last four years is what you would like to see us follow for the next four, then I could suggest another choice that you have.”

Ask yourself that same question thirty-six years later. Think about your answer.

Full circle

trump

This brings us back to Donald Trump. It’s not clear if re-imposing tariffs or other actions will bring back American jobs, especially manufacturing jobs. But Trump is pointing to a hot-button issue for millions of folks. He calls it out, and puts it on the front page. Whether or not he could change anything would remain to be seen. But he’s talking about it, something other politicians have dodged and dodged and dodged.

Certainly there are other issues in this election, and I’ll be writing about some of them as well. But if our economy and our future economic condition isn’t a central issue in 2016, then I don’t know what is.

 

 

 

 

 

4 thoughts on “It’s Still the Economy, Stupid

  1. Well, yes, Donald Trump has “hit a nerve” with his campaign, but what people believe (or have been led to believe) is not always factually accurate. Your basic premise in explaining Trump’s appeal is that the economy is (in your words) “in the tank.” This, by any objective measure, is simply not true. In 2008-2009, the economy fell into the deepest recession (a recession defined as: “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters”) since the Great Depression. From 2010 on, the economy has been growing and has not been in a recession, despite the fact that many people believe we are still in a recession. (The price of gasoline and the budget deficits are also both down since 2008.)

    You cite an analysis from the Brookings Institute that suggests that unemployment is not 5% (as advertised,) but rather closer to 12-15%. The truth, as always, is much more complicated than one might think. Among other things, NONE of these figures counts/considers jobs that are “off the books.” Some economists claim that these jobs (“non-reported”) may be as high as 5% of the jobs in the economy. The economy itself has added jobs for 73 consecutive months. (By the way, unemployment peaked at 10% in 2009, the highest it had been since the Reagan years [1983].) By whatever count you choose to use, the rate of unemployment in 2009 was 10%, today it is 5%. It IS true that many people are “underemployed,” and that certain areas of the country have been more hard-hit than others, but the national unemployment average is 5%, half what it was eight years ago.

    As to the question of manufacturing, there is, again, a lot of misunderstanding. People believe that “all” our manufacturing jobs went from the US to China. Not exactly true. We started losing manufacturing jobs in the early 1960’s. They went (predominantly) to Japan, South Korea, Taiwan, Singapore, and a few other places. They THEN transferred to China – but only after the 1980’s or so. Economists also argue that a country should do what it does best and/or cheapest. The US is much better at technology, telecommunications, and service than it is at manufacturing. This doesn’t mean we shouldn’t or can’t engage in manufacturing, but thinking that the US economy can (or should be) based primarily on manufacturing is unrealistic and a little naive. Despite what Mr. Trump argues, the world isn’t going to “unglobalize.” Yes, we should get better trade deals, yes, we should “bargain” with other countries, but we also need to live in the “real world.”

    Finally, high tariffs almost uniformly hurt consumers more than they help industry.

    1. Thanks for the response. I appreciate your comments.

      First, let’s agree to disagree. As far as the actual number of employed, non-reported employed, or underemployed; I’m fairly convinced that no one actually has accurate numbers on this. I no longer trust government figures as I believe they are politically manipulated. There is simply too much conflicting data out there for me to accept those numbers at face value. Be that as it may, I still argue that economic conditions are a large part of the Trump popularity.

      Perhaps I did not go into enough detail about manufacturing versus imports, and certainly it all began with Japan. It’s also not the point.

      Manufacturing is the backbone of a country. Without it, significant numbers of people cannot find meaningful (non-minimum wage) jobs. Forgetting about national security implications, of which there are many, we cannot continue trying to survive as a “service” economy. There are far too few technology jobs available, and most require high levels of training (hence the H1B visa). I do not think it is naive at all to believe we can re-fortify our manufacturing base. It would require a change in thinking, but it is quite do-able.

      The reality is that fully 70 percent of the adults in this country DO NOT have college degrees, and it is unrealistic to suggest that they obtain them. This leaves a large number of citizens relegated to the probability of low paying employment for life.

      Certainly we must live in the real world. But this does not mean rolling over and allowing others to dictate our fate. We used tariffs and import restrictions pretty effectively for over 200 years. It seems to be we could find a workable combination again.

      Finally as well; I am not calling for high tariffs, but rather a combination of moderate tariffs coupled with re-negotiated trade agreements. Total free trade without restriction is a disaster.

      1. Well, I certainly agree on a few points here, and disagree on a few others – even if only by degree. Manufacturing is important. In some states, New York among them, there has actually been some growth in manufacturing. The question is what we do when companies (like Carrier in Indiana) move “offshore” just to get lower wages and more profits. Do we penalize them – as Mr. Trump has suggested – or give them positive incentives to stay – as the governors of some states have? More manufacturing has got to be a good thing, although, again, we should be realistic about how much our economy will be based on manufacturing in the future.

        As to the “real” unemployment rate, the accuracy/validity of these figures have always been called into question. Some argue that if we use the same standards, they are flawed, but consistently flawed. In other words, it’s like a bathroom scale that is consistently five pounds off. We still know if our real weight has gone up or down.

        As to education, perhaps we should move away from an emphasis solely on people getting college degrees. (As a college professor, I can tell you that about half of my students would be better off with technical training and experience.) In other industrialized countries, Germany prominently among them, being a “technician” is not considered to somehow be less “elite” than having a college degree. People fight like crazy to get technical jobs at Mercedes, BMW, Siemens, etc. – with our without college degrees – and damn glad (and proud) if they get to work for one of these industrial giants.

  2. Manufacturing will remain a significant portion of the US economy, however it won’t provide the number of jobs that it once had. Automation has reduced the need for many individuals and yes, offshoring has eliminated many of the low skilled jobs for low margin products where it isn’t profitable for automation. You know what else is pressuring manufacturers to send jobs elsewhere? Lack of skilled labor. There is a reason most Vo-tech schools have nearly 100% jobs placement rates. The few people that are going into skilled trades will be in demand, but as people retire, there are fewer of those individuals available. It is why companies that need to be in the US due to government contracts are often running their own Vo-tech classes at the manufacturing plants. The H1B program on the other hand is not about shoring up positions because there is a lack of qualified US job seekers. That’s what it is supposed to be in theory. However in practice, it is about bringing cheap labor and locking them into a job for X number of years. It is modern day indentured servitude and there are plenty of qualified candidates for those positions. Just ask anyone familiar with Disney’s IT department.

    Increasing tariffs will not bring about a new age of US manufacturing. It will just make those products more expensive for US citizens and if any of the economists that have looked at Trump’s economic proposals are correct, it would help create another recession that will last 1-2 years, if not longer. Instead of punishing businesses for moving their low margin work to México, how about we reduce/simplify corporate taxes so our companies aren’t paying some of the highest rates in the world and streamline regulations so it doesn’t take an army of specialists that only the multinational corporations can afford to follow? How about encouraging our citizens to learn skills needed for these modern jobs instead of going to a university and racking up a mountain of student loan debt to obtain a *-studies degree that has no economic benefit to society?

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