How to Maim Our Economy

Posted on November 23, 2016

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Now that elections are over and we know the Big Orange is our new president, we have much to ponder and wonder what sort of dutch oven the next four years are going to be.

As human tradition would have, we have a nation divided along multiple fault lines, many of which intersect in this non-Euclidean space of human thought and identity.

From one end of the spectrum we have those heralding the arrival of a new age of greatness and patriotic unicorns farting freedom fries, prosperity and eagles.

At the other end of the spectrum there is all doom and gloom and shit. Chicxulub Number 2, shaped like a mega-ass orange of doom is about to collide into US soil, sending us back to the stone age and crap.

Chances are, at least economically, nothing will happen. Morally,we are screwed,though.

Economically, chance are nothing will happen. If Trump doesn’t do squat to the economy, and let it recover on its own (and by the way, we have been recovering quite well for the past two years), then things will go as usual.

If he has the goddamned wisdom to leave shit alone AAAAAAND implement some sort of adult/vocational education reform, then and only then we could truly go into better times. God knows that many areas of this country, in particular the Rust Belt, need some serious help in re-training people and cultivating human capital.

Back to Economics

We can agree that all the doom and gloom bullshit about Obama was silly “cultures war” nonsense. From the stupid to the cruel, it was all bullshit.

Can we dismiss the notion of Trump negatively affecting the economy just because the “Obama is doom” bullshit was just, well, bullshit? Not so fast.

The Premise

One thing I’ve learned about nationalist assholes is to take them at their word. Look at Brazil. Look at Argentina, who once was among the richest countries in the world. Look at Venezuela. Leaning to the left or right doesn’t matter a spit. It is the notion of “nationalist economic” policies that are the polyps from where hemorrhoids grow.

The notion that Trump can negatively affect the economy is not an extravagant notion. In fact it is a a fair extrapolation from some of the positions fundamental to his campaign.

I will say upfront (and repeat myself) that I do not think Trump will do any of the crazy things he said about trade. But this is a worst case scenario, one that is neither far-fetched, nor unlikely. It is one that is not unprecedented.

Automation is a Job Killer

Computer Scientists like myself have front row in seeing changes with the capacity to obliterate millions of jobs within the next 10-15 years. We have been seeing this development for the last 18 years.

Take this few words into serious consideration: more automation changes are coming that will kill million more jobs within the next 10-15 years. And if we do not prepare for that, we will see Rust Belt pain everywhere in this country.

Automation is the crux of the matter. The US has lost over 7 million jobs in manufacturing (and mining) since 1979. And yet, since then, American factory output has more than doubled to $1.91 trillion in 2015. We manufacture and produce more. We simply use fewer people.

So what we have is the side effect of automation coupled with “technological unemployment”.

This effect is more pronounced for people who lived away from urban centers. If you, the generic you, have to commute 5 miles or more to get to the periphery of an urban area of with a minimum size of 250K people, you are already at a disadvantage regardless of profession, trade or education.

I say 250K as the number I’ve found in several urban planing studies I’ve seen (and which I’m too goddamned tired to cite again.) The minimum critical mass could very well be around 100K, or it could be a function of both population and population density. That critical mass provides for a sufficiently stable local economy that supports specialization.

Regardless of the actual minimum size, the longer you have to commute to such an urban area, the costlier it is to be near various opportunities, your options narrow, etc. All you have to do is look at the multiple graphs that exist out there that map out areas of prosperity and poverty to see that this notion more or less holds true.

Globalization has not much to do with the colossal job loses in the US. Manufacturing jobs (not manufacturing output) have declined for the same reason agricultural jobs (but not agricultural output) have declined.

Don’t believe it? Well, here is a graph for you.

160329101026-manufacturing-jobs-780x439

Services, on the other hand, they have been doing rather “well” (the quotation marks are intentional, more on that later.) In fact, this is no aberration. Services have been an integral part of the US economy for decades.

labor-changes-2006-2016-11-23-12_31_34

This is something that was already observed by the Bureau of Labor Statistics as far back as 1982, way before NAFTA and the WTO. And those gains in services weren’t just an absorption of job losses in manufacturing due to automation (or switching to natural gas in the case of coal or recycling in the case of steel), but an expansion. Globalization is not the culprit.

Transitioning into services is just a natural evolution of highly productive capitalism.

bls-1984-2016-11-23-16_39_20

I say  services have been doing “well” in quotation marks because service jobs can include anything from flipping a burger for a minimum wage (as I did back in my college years) to jobs in high frequency trading.

The same principle applies to manufacturing jobs. Historically we think of manufacturing jobs are people on an assembly line in Detroit making $30, $40 or even $50 an hour, when in reality it would run the spectrum, from that down to assembly jobs  that paid by the piece (and thus pay less that minimum – yours truly also did that as an electronic welder many moons ago.)

It is then the case that services have eclipsed manufacturing jobs. This is no new novelty or phenomenon. It is an important one to study, and it is one that includes jobs related to international trade.

Trade as a Job/Wealth Creator

Comparing to manufacturing jobs decimated by automation and a transition into a services economy, trade agreements has created 3 million jobs in the US.

Consider the following:

Mexico is our 3rd largest agricultural export market and 2nd largest export market in total. Exports to Mexico are up 468% from 1993. And although we have a trade deficit with Mexico, we have a service surplus of $9.2 billion in 2015.

China imports from us agricultural and heavy industry products. China is our largest agricultural market. Total trade with China supports over 670K jobs in the US. Additionally we have a services surplus with China of $29.5 billion in 2015.

What About The Deficit?

Surely we have a trade deficit, the thing Trump, Bernie and everyone else malign much.

But what they are missing is that the deficit in our side is a surplus in their side.

What does that mean?

Countries like China (or Mexico) do not take those surplus assets and sit on it like cash under a mattress. That is a sure way to cause their currencies to raise in value, which affects their exports.

Instead, they invest it. China’s foreign investment in the US is in $110 billion in real state alone and an additional $20-30 billion into companies. That is money flowing into our economy, into our businesses and properties. Whether foreign investment in real estate is a good thing is a different topic (and it is a matter of concern if it creates conditions of a real estate bubble, though.)

A trade deficit is not some one-way leakage of dollars away from Americans’ hands, regardless of how politicians (Democrats, Republicans or Trumpists) want us to believe.) That is a bullshit notion with no basis in reality.

Consider another aspect of trades: American auto makers have moved production to Mexico… for small vehicles that are not profitable (for them) to make here. In return they have focused in manufacturing of larger vehicles that are profitable. Additionally, small auto parts manufactured in Mexico now flow into the US, lowering the cost of production.

Furthermore, American companies manufacturing in Mexico now have a foothold for selling cars in Mexico proper, a growing market.

In essence.

“Imports mean lost jobs only if we pretend we can make here all the things we import, the same way and for the same price”

– Derek M. Scissors

Disruption

Sure, not everything is bunnies and flowers and unicorns. People are hurting in many areas. People everyone in this service economy must juggle multiple part-times jobs to make ends meet. What a difference from a time when you could get a full-time job with a modicum of benefits.

With that said, good and services flow. People survive. People have multiple options. Ugly options as they might be, options regardless. And for as long as people have options, we have a blue print (tackle technical unemployment, increase urbanization, continue towards post-industrialization) with which to tackle these issues for real.

But let’s assume we do not do that, and instead we disrupt trade, or worse, we start trade wars and take a path of economic isolationism.

Not only this fails to solve the underlying problems of unemployment (automation and skill mismatch), but it risks the millions of jobs already here due to trade, all the other jobs created by them as well, our service surplus and the inflow of foreign cash into our economy.

How would this scenario NOT screw our national economy? How in the blue fuck this would not affect us negatively?

I hope this doesn’t happen. But if Trump starts trade wars and takes us down an isolationist path, you bet this will be the outcome.

To repeat myself, all you have to do is see what decades of right-wing nationalist economic policies have done to Brazil, who by all rights should be a powerful nation. Look at Argentina, an otherwise sophisticated nation who once was one of the richest economies in the world.  Look what left-win nationalist policies have done to Venezuela.

In fact, what you see in Venezuela is a microcosm of clusterfucks, the likes that could happen here in one way or another: a very rich country with an affluent upper and middle class, and a lower class suffering a vast technological skill mismatch. Ripe for a demagogue to take over and start implementing “nationalist economics”.

We know how that shit turned out, don’t we?

Would such a debacle happen here, to take us down to that level? No. Our economy is far stronger and versatile than that. It can take a punch or two.

However, can we seriously our economy if we follow Trump’s promises regarding trade? You bet. The world is no longer in the 1950’s when the US was the sole uncontested consumer and provider of goods.

This is not to say we should avoid looking for ways to readjust trades and re-negotiate agreements if that proves beneficial to us. But we should really stop making enemies out of things that aren’t.

The best cure for our ailments are not trade wars, cathartic as they might be, but education. So far I have not heard shit about it from Trump’s agenda.

To his credit, neither political party has said anything of substance regarding that. Goddamned bastards.

So my view is rather bleak. Even if we don’t engage in idiotic trade wars, we will not do what is needed to lift those counties, towns and states that are hurting the most. And what is needed is to revamp our approach to adult education and vocational training.

Sooner or later something will break, and it will be us, not the Mexicans or the Syrians or the Chinese, or whatever boogeyman/chupacabra that is in vogue today, but *US* who will be to blame.

So, if we are going to change the way we do business, can we at least try not to screw it up? And at the same time, can we actually implement real change, real educational change that empowers people to seek new jobs and migrate from economically depressed areas to places where the jobs are?

We do not need to engage in trade wars. We simply need to change the way we think.

“The significant problems that we have cannot be solved at the same level of thinking with which we created them.”

– Albert Einstein

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