Econ 001

If you read the brief articles below, you’ll have a better understanding of the obstacles the President elect faces in implementing his economic agenda, and you’ll understand the damage much of that agenda will do.

Reason Magazine:
A Stronger Economy Will Also Destroy Jobs, but It’s Necessary
Luddites need not apply.

The Brookings Institution:
Global economic forces conspire to stymie U.S. manufacturing
Stopping productivity increases will preserve jobs for some and destroy jobs for many others. All of them will be poorer.

The Foundation for Economic Education:
Taxing Global Trade Is Not Deregulation
The Regulatory State is where you find it.

I heard some guy named Sexton (guest hosting for Rush) making excuses for cronyism and protectionism on Tuesday. Hannity, too (while flipping stations).

The corruption of conservatism is well underway. These guys only ever paid lip service to the idea of small government. They’re just fine with Statism if the “right people” are in charge.

Cafe Hayek:
Trump’s Ignorance Is Matched Only by His Thuggishness
Remember when Obama screwed GM bondholders and fired the CEO? Donald Trump probably liked that. Conservatives didn’t.

Now, apparently, we’re supposed to cheer the big bully in the pulpit.

"Offshoring" meets automation

These jobs aren’t coming back no matter how much the President-elect threatens Apple:

After announcing its 40,000 robot workforce in October, Foxconn (OTC:FXCOF) is automating production at its factories in China in three phases, aiming to fully automate entire factories eventually.

If the average Foxconn employee making Apple products gets $3.00 an hour (it’s probably closer to $3.00 a day), and those jobs are being eliminated by automation, we don’t want them back.

Robots cost the same to operate everywhere.

Seen and Unseen

The other side of manufacturing job loss: Global Trade Is Why Your Television Did Not Cost $6,200 Like It Did in 1964

Automation has also destroyed manufacturing jobs while benefiting consumers.* As automation creeps into other industries, it becomes a much bigger threat than foreign labor. We need a leader with a plan for that challenge, not one who wants to raise consumer prices through protectionist tariffs.

Bringing offshored jobs back – when most of those jobs are going to be automated out of existence – is the opposite of visionary.

*U.S. manufacturing productivity has steadily increased since 1950.

A note on jobs

We face an employment problem. Not the one Donald Trump refers to when he talks about bringing manufacturing jobs back. Those jobs do not add much value any more. I’d argue we don’t want them back.

Take, for example, what happened to US auto manufacturers who paid far more to assembly line workers than those workers were worth: Bankruptcy. They had to lay off workers, screw over bondholders, suck-up taxpayer dollars and, in 2007, implement a two tier wage.

Entry-level auto-workers get $15.78 to $19.28 hourly. Slightly above what the economically ignorant are now demanding for flipping burgers.

Full rate auto-workers get $28 an hour. The top tier also provides better benefits, including a pension instead of the 401(k) entry-level workers get. The total difference in the two compensation scales is about $20 an hour.

How much value is added by screwing in a sensor (200 times a day) that will keep cars from crashing into each other? What value is added by designing that sensor? Which job do you want?

If Mexicans and Chinese do those rote assembly jobs for less than UAW wages and benefits, is anyone surprised? Are they still “good jobs?” Is doubling the wages of an entry level UAW worker in Detroit sustainable?

How many of you would appreciate a doubling in the cost of a new automobile, or a $9 McDonald’s fish sandwich?

Those jobs, within our lifetimes, will mostly be done by robots. Then who will Trump blame?

Donald Trump’s jobs “plan” is like insisting we bring back jobs manufacturing buggy whips.

Reconciling the Union Leadership minimum wage rhetoric

AFL-CIO leader warns labor could sit out 2016 fight over trade

AFL-CIO President Richard Trumka threatens “no endorsement” for President, if Hillary supports the Trans-Pacific Partnership trade deal:

…that’s conceivable if both candidates weren’t interested in raising wages

They decided to pass something that was going to cost jobs and lower wages, and they’re going to have to answer to their constituencies for that whenever they face them.

So, unions oppose trade deals unless those deals would both create American jobs and raise American wages. Who would disagree?

Our trading partners, perhaps?

Speaking of wages vs. jobs, after leading the fight to get a minimum wage increase passed in Los Angeles, a California labor leader appears to contradict Trumka’s wage rhetoric: L.A. labor leaders seek minimum wage exemption for firms with union workers

On May 19th, Los Angeles City Council voted to increase the hourly minimum wage to $15.

But Rusty Hicks, who heads the county Federation of Labor and helps lead the Raise the Wage coalition, said Tuesday night that companies with workers represented by unions should have leeway to negotiate a wage below that mandated by the law.

“With a collective bargaining agreement, a business owner and the employees negotiate an agreement that works for them both. The agreement allows each party to prioritize what is important to them,” Hicks said in a statement. “This provision gives the parties the option, the freedom, to negotiate that agreement.”

In sum: To be free, you must join the collective.

Acknowledging that union members might lose jobs to lower-cost competition under a consistent set of rules, Mr. Hicks demands the privilege of being the lowest cost supplier. Reality-wise, Mr. Hicks would have the better of this argument with Mr. Trumka, except that it isn’t a disagreement at all. They both want to use government regulation to drive out competing labor.

So, if it would cost their members jobs to have a particular minimum wage, unions oppose minimum wage for their members. If it would cost their members jobs for other countries to have a lower minimum wage, they want to force higher labor costs on those other countries.

Maybe Trumka and Hicks should start thinking about what this – Robots Start to Grasp Food Processing – means to their membership.

I seem to remember another time where this type of disruption affected wages and jobs. Something about power looms? Some kid named Ned Ludd was said to be involved.

It seems to me, with the robotics threat generally looming on the horizon, that Trumka and Hicks are a bit shortsighted. Lower wages from foreign competition (for Trumka Chinese factory workers, for Hicks, the illegal immigrants in Southern California) are just practice for what’s coming to their members. It’s already started at McDonalds et. al., because they’re the early targets of the social justice cohort.

Managerial progressive?

Why is Romney doing such a lousy job defending his record at Bain Capital?

That article focuses on the number of jobs created which may be associated with Mitt Romney’s tenure at Bain capital, or while he was Governor of Massachusetts. This is over thinking it. The core reason Romney isn’t an articulate defender of Capitalism is that, for him, Capitalism is merely a question of managerial competence. Sadly, he lacks a principled understanding of Capitalism, and thus can’t defend it as a philosophy. Much like Herbert Hoover.

Someone should ask him if he’s ever read von Mises, Hayek or Ayn Rand.

Manufacturing a crisis

American manufacturing jobs are declining. Many politicians agree on the cause: greedy corporations moving jobs to countries with inferior wages, non-existent environmental standards, terrible working conditions and minimal social safety nets.

Desperately poor 3rd world people may be overjoyed to have these jobs, but American workers are being savaged. As Senator John Kerry pointed out, it is time to stop “Benedict Arnold” corporations from “exporting” jobs.

This reasoning is nonsense, of course. When Kerry asked, “Why can’t we keep manufacturing jobs in America?” he asked the wrong question. The right question is, “What is an American job and how can we create one?”

An ‘American job’ is a job that can be performed more productively in America than in some other place. That’s how we ‘own’ that job, and prevent its ‘export’. We don’t own it because of government subsidy, which is simply taxing one category of employment to prop up another. Preserving American manufacturing jobs, via grants and tax incentives funded by capital borrowed from China, is not simply a recipe for failure, it’s ultimately impossible.

The battle over manufacturing job loss is already over. Though protectionist demagogues would like it otherwise, only about 0.6% of manufacturing job loss correlates with foreign manufacturing. The rest is due to productivity improvement, and if American productivity had not risen – requiring fewer worker-hours to produce a given product – the United States would by now have become a 3rd world country.

If you are not convinced of that, then let’s just legislate away the decline in manufacturing jobs. We’ll decree that all jobs must follow the rules of soccer: You can’t use your hands. This will place us at some competitive disadvantage with the rest of the world, but never mind that, we would need a lot more manufacturing workers to keep production steady.

Manufacturing employment decline is due primarily to productivity increases. It finds a parallel in the decline of agricultural employment. 100 years ago 40% of workers worked in agriculture. If that ratio had continued, 54 million of us would be farmers today. Instead, 25% of Americans are employed in jobs that didn’t exist in 1967. How could we have filled these jobs if farming hadn’t become more efficient?

Of approximately 135 million American workers in 2003, around 12% earned a living in manufacturing (vs. 24% in 1970), and fewer than 2.8 million were employed in agriculture. Nonetheless, we lead the world in manufacturing and our agricultural industry places 3rd. We sell more manufactured goods than anybody, and we feed a lot of people everywhere.

So, those manufacturing jobs weren’t exported; they ceased to exist – worldwide. Between 1995 and 2002, the world’s 20 largest economies experienced an 11% net loss in manufacturing jobs – a decline of 22 million workers. The United States lost about 2 million manufacturing jobs – also an 11% decline. In that same time frame manufacturing output in those 20 countries increased by 30 percent.

Contemporaneously, China lost 15 million manufacturing jobs – a 15% drop. I guess if the United States hadn’t been exporting jobs, China would have lost 17 million.

The only argument left to those in favor of government subsidies seems to be that manufacturing jobs are even more precious now than before all this disruptive productivity improvement. Therefore, governments should heavily subsidize their best-loved manufacturing niche, each government trying to outbid the others. That could be argued, but it is easy to see why it would be just as stupid as subsidizing 54 million of us to be farmers.

Just in time for Michigan’s budget discussions

Well, Michigan made the Wall Street Journal. As an example of what not to do.

It’s one of the largest experiments in smokestack chasing in American history, but one thing it hasn’t done is create jobs. An exhaustive new 100-page study by the Mackinac Center for Public Policy, a Michigan think tank, has reviewed where all the money has gone and what came of it. The study finds that for every 100 jobs that were promised with these tax credits over 14 years, only 29 arrived. Dare we call this cash for clunkers?

How about Dollars from Dummies?

…In Michigan these programs were responsible for 0.25% of all new jobs created in the last decade, according to the study. Meanwhile, in 2007 Michigan raised business taxes by $1.4 billion on other firms to pay for many of Ms. Granholm’s favored companies. Despite all the giveaways, Michigan was recently ranked as having the third most antibusiness climate among states, in a survey of executives by CEO magazine. If Michigan had simply cut taxes for every business, as Mr. Engler did in the 1990s when the state briefly led the nation in new jobs, it’s a good bet unemployment would be lower.

The study is here.

Previous related TOC comment here. The punch line:

The bottom line is that government is generally very bad at picking economic winners. Jennifer Granholm is much worse than that. She should attract all kinds of business and entrepreneurs to Michigan by eliminating corporate taxes and getting right to work legislation passed. It would not take nearly as long here as it did in Ireland for spectacular results. She should take a lesson from Sir John Cowperthwaite, but he’d be her philosophical nemesis.