Archive for category: Economics

Steve Pearlstein is one of those pundits who reliably spouts the Village narrative, often to the point of wankery. Which is why I find his use of the language of terrorism to describe the TeaParty and the corporatists that empower it more significant than Joe Nocera’s use of the same language a few weeks ago.

Want to know who is to blame, Mr. Big Shot Chief Executive? Just look in the mirror because the culprit is staring you in the face.

J’accuse, dude. J’accuse.

You helped create the monsters that are rampaging through the political and economic countryside, wreaking havoc and sucking the lifeblood out of the global economy.

[snip]

My own bill of particulars begins right here in Washington, where over the past decade you financed and supported the growth of a radical right-wing cabal that has now taken over the Republican Party and repeatedly made a hostage of the U.S. government.

When it started out all you really wanted was to push back against a few meddlesome regulators or shave a point or two off your tax rate, but you were concerned it would look like special-interest rent-seeking. So when the Washington lobbyists came up with the clever idea of launching a campaign against over-regulation and over-taxation, you threw in some money, backed some candidates and financed a few lawsuits.

[snip]

What started as a reasonable attempt at political rebalancing turned into a jihad against all regulation, all taxes and all government, waged by right-wing zealots who want to privatize the public schools that educate your workers, cut back on the basic research on which your products are based, shut down the regulatory agencies that protect you from unscrupulous competitors and privatize the public infrastructure that transports your supplies and your finished goods. For them, this isn’t just a tactic to brush back government. It’s a holy war to destroy it — and one that is now out of your control. [my emphasis]

But what’s even more … amusing is the agency described here. Pearlstein suggests the few Big Shot Chief Executives he accuses here have, through organizations like the Chamber of Commerce and some front organizations, provided key funding and sanction for the radical right-wing cabal conducting this Holy War.

The more successful it was, however, the more you put in — hundreds of millions of the shareholders’ dollars, laundered through once-respected organizations such as the Chamber of Commerce and the National Association of Manufacturers, phoney front organizations with innocent-sounding names such as Americans for a Sound Economy, and a burgeoning network of Republican PACs and financing vehicles. And thanks to your clever lawyers and a Supreme Court majority that is intent on removing all checks to corporate power, it’s perfectly legal.

[snip]

It’s not just that you have remained silent as the financial sector has sucked away much of the profit generated by the private sector, stolen away much of the nation’s best talent and transformed the process of capital allocation and formation into a casino. Even worse, through organizations such as the Chamber and the Business Roundtable you reflexively provided them with crucial political support that allowed them to beat back regulators who tried to restrict their growth, curb their risk-taking or put a stop to the kind of fraudulent activity that nearly sank the recovery, and from which it will take years to recover. Given your role in society and in the economy, your silence amounts to complicity.

That is precisely the kind of action Pearlstein denied exists back during the last hostage-crisis–on the Bush tax cuts.

I know there are many Democrats and independents who believe that Republicans get up in the morning determined to do whatever is necessary to help their rich friends and campaign contributors. While that may explain some Republicans’ behavior some of the time, I strongly doubt it’s the primary motivation.

For starters, there is no American Association of Rich Persons out there with a huge political action committee and a formidable grass-roots lobbying effort. Yes, there are cabals of very rich people who fund conservative think tanks and political advertising. But American democracy is not so corrupt or dysfunctional that a tiny portion of the population, driven purely by selfish greed, can capture so many elected officials and bamboozle so many voters.

It seems Pearlstein has changed his estimation of the damage this association of rich people have done and the power they wield.

That’s important because something else has empowered these “Jihadists” over the last several years: Village pundits like Pearlstein, who dismissed the concerns of those of us who raised early warnings about them.

Mind you, Pearlstein seems to have little awareness of his own complicity here.

But if the Village wants to finally get around to shaming those who have looted our economy, I guess that’s progress.

Just about every political horserace journalist is at the Iowa State Fair today, covering the Ames straw poll, and eating a seemingly endless supply of fried butter, porkchop on a stick, and meat sundaes. GOP (and a few Democratic) politicians are there too, allowing themselves to be photographed stuffing their mouths with phallic objects in an apparent attempt to appear authentic or folksy. It’s DC’s opportunity, it seems, to experience what (they imagine) life is like in quaint flyover country.

Only, life’s not like that anymore–at least not in two flyover (swing) states. In this day and age, you see, some states can’t afford nice things like state fairs anymore.

Last year, MI shut down its 160-year old fair (it was the second oldest fair in the country). And this year, NV shut down its fair for the first time in 136 years.

Now, I won’t kid you and pretend I was a long-time MI fair-goer. I went for the first time in 2009 (the last one), 14 years after I moved to the state (though my decision to go had as much to do with having a 2 year old friend I knew would love to see the “Cow-Pigs” as it being the last fair). And I think the MI State Fair’s location, in the northwest corner of Detroit, suffered from being far from the agricultural heart of the state (though of course its location made it easily accessible to the bulk of the population). If I had my way they’d reopen the fair in Lansing, still accessible to SE MI’s population base, but much closer to more of the farming in this state.

Nor do I think losing the state fair was the most tragic budget cut of the last several years. I’d support funding education and human services before we reopen the fair. But, particularly given the important role of agriculture in this state, I would like to see them reopen the fair.

State fairs are, to some extent, all about fantasy: games and dreams and shiny lights (and, in IA’s case, fantasies about flyover country). But there’s a reality behind them. And the increasing reality out here in flyover country is that we’re shutting down such fantasies because years of  tax cuts and the generalized decline of the US economy mean we can’t support them anymore.

(Image by Dave Hogg, used under Creative Commons)

The San Francisco Federal Reserve has a report showing that we don’t really import all that much from China (this, in spite of yesterday’s report that our trade deficit rose again last month). It manages to make the claim by tracking not the volume of all the stuff we use, but the percentage of the ultimate amount of money we spend on that stuff. That calculation shows that just 2.7% of what we spend goes to China.

Here’s how that works:

Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations.

Table 1 shows that, of the 11.5% of U.S. consumer spending that goes for goods and services produced abroad, 7.3% reflects the cost of imports. The remaining 4.2% goes for U.S. transportation, wholesale, and retail activities. Thus, 36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers.

This U.S. fraction is much higher for imports from China. Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%. The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services.

Now, the whole calculation relies on the fact that most of what we spend money on–the 66.9% of our spending that goes to housing (16.6% of our spending), health care (18.4%), recreation (8.2%), and other services (14.9%)–can’t be outsourced very easily (though some of this money presumably pays for call centers in India). Add in the 8% of our spending that goes to food–most of which is still grown in America (more on that below)–and this calculation doesn’t the include three-quarters of our spending that either can’t be or won’t be outsourced very easily.

There’s another way of thinking of this, though: it basically means we don’t pay the Chinese teenagers who make our sneakers very much.

We knew that–that’s the whole point of producing stuff in China!

That allows the companies importing goods from China to spend money, instead, on marketing and shipping and sales. So rather than make sneakers at a US plant, a working class American is left with a job in a big box store selling sneakers made for pennies by someone in China.

Mind you, that still means this whole process leaves room for jobs for those who design the products Made in China, people like engineers, and for B-School grads who manage the logistics of all this. But much of the jobs left for the unskilled workers are low wage.

Now, the process by which increasing amounts of money are spent on marketing and transportation is not just happening in the areas where we do import from China: clothing, cars, and furniture.

The same process is happening in the one area where we still largely produce for ourselves: food. The USDA recently recalculated how much of our food dollar goes where. And while the results aren’t as stark as the Chinese example–American farmers are still making a bigger chunk of what you spend on food than Chinese workers make from your $70 sneakers–the numbers are still pretty striking.

Farmers make less than $.12 of every dollar Americans spend on food. The bulk of the money go to food processing (more very low wage jobs) and food service (low wage restaurant jobs).

Interestingly, one thing seems to be fairly consistent across these measures. 6.6% of our spending on imported goods go to imported oil.

Imported oil, which makes up a large part of the production costs of the “gasoline, fuel oil, and other energy goods” and “transportation” categories, is the main contributor to this 6.6 percentage point difference.

And 6.8% of the American food dollar goes to energy.

This series indicates that payments from each food dollar going to the energy industry group approached 7 cents in 2008, an increase of 75 percent since 1998.

I compare the food dollar to our “China dollar” not just because it illustrates how much of our spending supports relatively non-productive roles. But also because it provides a way to understand the alternative.

Mr. EW and I spend a lot on eating out (though we frequent restaurants that locally source food). But of what I spend on food directly, the bulk of it goes right to a farmer that lives within 30 miles of me–these women, this family and this family, for example. Of course, that means I have to actually cook to make dinner. But it also means my money stays in my community rather than paying Saudis for oil.

There are some goods it makes sense to outsource. And I don’t begrudge Chinese workers for the pennies they’re making off manufacturing consumer goods for Americans. But at some level the logic of spending all that money on marketing and oil rather than on actually making things defies reason.

I’ll have more to say about Obama’s speech at Johnson Controls later today when I get back to reliable Toobz.

But here are my first impressions.

First, here’s the order of emphasis in his speech:

1. Freedom
2. Debt and compromise
3. The kinds of investments that make this factory possible

That’s a problem. Republicans like Crazy Pete Hoekstra and Rick Snyder have already come to these factories to claim credit for the jobs. And they’re not going to talk about how these jobs depended on government investment.

I was unsure whether Obama was going to just ignore his pitch for trade. He didn’t. But not only did it come later in his pitch of late (after payroll tax deductions), but he changed the delivery. He claimed that if we pass these trade deals, people around the world will be driving Fords and Chevys.

Of course, people around the world already are driving Fords and Chevys. Made in places like Brazil and Mexico and China. Trade deals won’t change where the American-branded cars sold in Colombia and Panama and Korea are made.

The one exception, of course, is the most dangerous. Korea will import electric Volts and Ford Transits–they even adopted a change in KORUS to allow for them. But how long do you think the real leader in battery technology–Korea–will stand for the importation of batteries from MI? I have long believed–and still do–that KORUS may kill just this kind of factory, because once GM starts building Volts in Korea, they’ll export those higher-margin Volts to other markets.

In any case, the applause when Obama talked about trade was much quieter than the other applause lines.

One more thing about this event. It was, I believe without exception, the whitest Democratic event I have ever attended in MI. Now, Holland is whiter than much of MI (though it has a growing Latino population). But Grand Rapids, which is just  a half hour away, is racially balanced. Moreover, I know an auto supply plant about 10 miles from here that has more Latinos working at it than were in this room.

That’s probably more a testament to who the VIPs were that got invited to this event (and that the employees who have been hired here thus far tend to be white collar workers). But still, I found it striking.