Posted on 03/11/2004 4:54:18 AM PST by LowCountryJoe
The unemployment rate has fallen by half a percentage point over the past six months. If it merely continues to drop at the same pace, unemployment will be 5.1 percent in another six months (August) and below 5 percent before the election. Unemployment would then be the lowest ever for any president seeking reelection -- lower than it was for Nixon in November 1972 (5.3 percent) or for Clinton in November 1996 (5.4 percent).
If Sen. Kerry had hoped to make a big political issue out of an unemployment rate that is likely to be below 5 percent by election time, he had better start trying to change the subject as soon as possible. And his never-ending wisecracks about Herbert Hoover could to backfire, too, because Hoover enacted the same policies key Democrats now recommend -- namely, higher tax rates and tariffs.
Another non-issue that is sure to grow tiresome within a few more months is the maniacal anxiety about imports of business services -- a trivial pursuit that would have gotten no attention at all had it not been deviously mislabeled as "outsourcing."
That is not what outsourcing means. Outsourcing means having business services done by specialist firms rather than inside a manufacturing or financial firm. When I was a vice president at a Chicago bank, we had an entire floor of attorneys and a few dozen economists on the payroll. The bank could have gotten better service for less money by putting legal firms and economic consultants on retainer. It often makes sense to also let specialist firms handle accounting, employee benefits and payroll. That is outsourcing.
What uninformed politicians and journalists mean by "outsourcing" is importing services. They would have you believe the United States has suddenly been importing many more services. Yet the increase in service imports last year was precisely zero.
From 1997 to 2000, by contrast, U.S. service imports grew by 9.7 percent a year. So why did the media start fussing about imported services only after such imports stopped growing? Politics aside, this makes no more sense. Outsourcing is a senseless name for nonsense.
U.S. imports of both goods and services grew by 10.5 percent a year from 1992 to 2000 in real terms, but by only 1.5 percent a year from 2000 to 2003. Nobody complained about losing jobs to imports while imports were growing rapidly. The pretense that Americans are losing jobs to imports did not gain political traction until imports turned stagnant. Turning facts on their head is, of course, a familiar symptom of election-year mania.
Trade warriors have been staring down the wrong side of their canons -- imports, rather than exports. Imports have been weak for three years, but exports have been even weaker. That matters because the United States is by far the world's largest exporter of goods -- China ranks fifth. U.S. merchandise exports rose by 6 percent a year from 1990 to 2001, while exports from Europe grew by only 4 percent a year and exports from Japan by 3 percent. The United States is the world's largest exporter of services by an even wider margin -- India ranks 21st. Like China, India's imports of commercial services have doubled since 1995. Although India did achieve a tiny surplus in services in the past two years, the country has a sizable overall trade deficit.
By the fourth quarter of 2003, real U.S. exports of services were 5.2 percent higher than a year before. That is, the United States was exporting more "outsourcing" services, though service imports were flat. Real exports of goods were 7.2 percent higher. But those gains were still not enough to get exports back to where they had been before the global recession. Real U.S. exports in 2003 were still 0.6 percent smaller than they were in 2000.
Here is the problem: Just as U.S. imports grow only when the U.S. economy is growing (and shrink only in recessions), other countries' imports also grow only if and when their economies are growing. Strong economies, including ours, need more industrial imports and can afford to buy them. Unfortunately, the economies of our biggest trading partners have not been strong.
Canada accounted for 23.8 percent of U.S. exports last year, Mexico for 13.7 percent, Germany and France for 6.4 percent, and other OECD countries (mainly Europe) for 17.6 percent. If these economies don't grow, then neither can U.S. exports.
By the fourth quarter of 2003, real GDP in the United States was 4.3 percent higher than a year before, compared with only 1 percent in Canada and 2 percent in Mexico. GDP was up by a pathetic 0.2 percent in Germany and 0.5 percent in France -- two countries with unemployment near10 percent. When your biggest customers are broke, it is not easy to sell them more.
Blame Europe and Canada's weakness for relatively weak U.S. exports, not China's strength (which is helping Japan). As the year-end 2003 report from the U.S. trade representative noted, "Over the last three years, while U.S. exports to the rest of the world have decreased by 10 percent, U.S. exports to China have increased by 66 percent."
The United States would benefit greatly if there were more strong economies in the world, such as China and India, and fewer laggards like Germany, France and Canada. The latter countries could learn something from China and India, both of which found prosperity only after doing the exact opposite of what Herbert Hoover did in 1930-32 and what the Democratic Party now threatens to repeat.
The economies of China and India grew by drastically reducing tariffs and tax rates. China's average tariff on imports has fallen from well over 50 percent in the early 1980s to about 10 percent now, but actual tariff collections average less than 3 percent because so many goods are tariff-free. India slashed tariffs, too, and cut the top income tax rate from 62 percent in 1984 to 30 percent today, becoming just another in a long list of supply-side miracles.
Politicians now proposing that the United Stats should do the opposite of what China and India have done, and instead move closer to emulating Sweden and France, are amazingly slow learners.
Um-hmm. Strong, is it? The dollar sinks ever lower, our debt goes ever higher, and it's strong? We owe $1.5 trillion to foreign creditors, an amount which increases regularly, and we're strong?
One flawed item, as misguided as the article's conclusion about offshoring and free traiting. (traiting as a derivative of traitor).
Nice tag..
That of course was the reason we got 9/11. With Clinton in control they hated us but had no reason to fear us. They assumed Bush would just be more of the same.
This is the main reason we can never allow a RAT to control the security of this nation again.
I want you to explain to me how having foreign investors, buying up our debt instruments and financing our standard of living has been a bad thing. Remove the argument that we, as Americans, consume more and save less than any other people from a developed nation [because if you did argue it it would play into my "current standard of living trap"]. Now tell me how much return on their investment they've gotten on their interest and how much we have gotten from their investment. Not to mention all of the American hegemony that has come with what we've done with the our indebtedness. Go on...'splain some of dat!
and...the whole unemployment/jobs rant is nothing more than a dung flung claim instigated by RATs.
I didn't even notice his tag until you pointed it out. But now that you have, it reinforces the italicized point above which I'm trying to make to him. Unfortunately, his so partisan on this issue that he won't be able to see the logic in it. And...one more thing...due to an accounting identity, net capital outflow is equal to net exports. That means that if he did get his wish and we exported more than we imported our capital would flow toward buying up foreign debt instruments or...we'd be engaging in foreign direct investments that would look very similar to the off-shoring of industries.
Sorry Jack, there is no free lunch, you cannot have your cake and eat it too, and you cannot pull an Arthur Andersen with international trade & accounting.
To not be educated in economic matters thereby allowing oneself to be misinformed is a tremendous personal gaffe!
I don't think it's so much that they're misinformed as that they have an emotive stake in their position and will use any means of self-deception to perpetuate it.
Nice! You must be gellin'.
I agree! One of my hot-button issues is the second amendment - and the RATs like nothing better than to steal guns.
This is precisely why it is so dangerous to ignore the problem of offshoring. People vote their pocketbooks...
Because owners of debt instruments expect to receive interest. Financing productive assets with debt can be a worthwhile move. Financing disposable consumer goods merely increases future expenses.
By your standard, I should simply take every credit card I can obtain and spend merrily. I should also get an equity loan on my house, and do likewise. Is this the financial advice you offer? Will it lead to future prosperity? If it is flawed for the individual, how is it not flawed for an aggregation of individuals, such as a country?
And then we come to the issue of equity investments. Quite simply, we are choosing to become a modern equivalent of the sharecropper instead of owning the means of production. Do you truly wish to relegate our nation to that status?
I think so ... I took Viagra this morning.
Excellent point. Thank you for mentioning it!
Now, let's see - when we have an oversupply of a commodity, relative to market demand, what happens? The value, in terms of other goods (or even services) declines, right?
So, the markets are telling us that we have an oversupply of dollars. The value has declined and is declining relative to a basket of other currencies.
But other vendors of goods will perceive the reduced value of the dollar, won't they? So someone - say, in Saudi Arabia - might decide that their goods were worth more dollars than before, mightn't they? And thus raise the prices, in terms of the dollar, right?
Ready for $3.00 per gallon gas? Ready for the economic dislocation that higher energy costs represent? Because those are the future consequences of the present trade paradigm.
No, I'm not advocating anything of the sort. What I am telling you is that many others have done just that though. I'm also telling you that this foreign capital - that frightens you so much - is financing not only America's over-consumption but it also finances business investment and home ownership. And you know what, the interest on these loans is pretty damned low.
Now, is the day of reckoning coming? Yes, and hopefully it will be gradual and rates can creep up rather than slam upward, which would pull the money too fast from equities, causing the market to go through a severe correction.
You think times are bad now, wait to see what the media tells you it will be like in that scenario.
You know what will just compound the problem: protectionism brought on by the masses who cannot seem to cope with any amount of discomfort.
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