SEARCH BLOG: DEBT
The "no problem" crowd at Cafe Hayek insists that we are all benefiting from "free trade" with China... and anyone who thinks otherwise is a discredited "mercantilist".
Okay... here is the latest Debt Service Ratio from the Federal Reserve... the percentage of household disposable income required to cover debt (I've shown 2nd quarter by year for brevity). Remember that is a national average... so if 10-15% of the people are causing the increase... then the increase is magnified considerably for them. If everyone is sharing in that increase... then we are seeing a structural change in our economy.
Apparently, the "free traders" are not feeling your pain. Perhaps it is just a coincidence that as China increases its share of manufacturing for products consumed in the U.S., that consumers in the U.S. have had an increasing portion of their income going toward debt servicing? Well, maybe. Perhaps it is just that we've all become spendthrifts in past decade.... Or maybe our "disposable income" is not keeping up with the cost of living.
Yr/Qtr Percent 80q2 11.16 81q2 10.73 82q2 10.75 83q2 10.57 84q2 10.76 85q2 11.38 86q2 11.95 87q2 12.27 88q2 11.92 89q2 11.90 90q2 11.96 91q2 11.80 92q2 11.12 93q2 10.83 94q2 10.95 95q2 11.60 96q2 11.94 97q2 12.12 98q2 12.04 99q2 12.29 00q2 12.51 01q2 13.19 02q2 13.29 03q2 13.55 04q2 13.46 05q2 14.07 06q2 14.40
But things are going really well in China.
Hmmmm. Well, to be fair, let's admit that there is uncertainty about the statistical correlation between outsourcing jobs or simply importing more products that we used to produce. Data is hard to come by. Still, closing a factory in Kentucky or Ohio in order to produce the product in Mexico or China seems to have an intuitive correlation. Others say that there is a net increase in employment from not doing the work ourselves. Let's leave it there for now. But as Ben Benanke says:
"Quantitatively, outsourcing abroad simply cannot account for much of the recent weakness in the U.S. labor market and does not appear likely to be an important restraint to further recovery in employment," Fed Governor Ben Bernanke said in a speech Tuesday at Duke University's Fuqua School of Business.
But Bernanke added that the effects of outsourcing should not be ignored, saying job losses cause "significant hardships for affected workers." He agreed that jobless benefits and worker training were helpful, adding that policy makers should also try to get the economy growing faster and find ways to ease the sting of health-care costs."To say that the U.S. economy benefits from trade is not to say that every individual American worker or family benefits, or that the structural changes induced by trade are not disruptive," Bernanke said.