SEARCH BLOG: WEATHER
Just before evening, the sun poked through the clouds that had covered the area for the last two weeks and lit the top of the trees so that they looked like they were covered with orange leaves... even though the branches were bare.
The small patch of snow at the right was left over from a week ago.
Winter started the 2nd week of November. It will be a long one this year.
ADDENDUM
And the brief teasing of sunshine is over.
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SEARCH BLOG: ECONOMICS
I understand the desire of bloggers to have catchy post titles, hence the title of this post. I was actually doing a title parody of a post at Carpe Diem: People and Businesses Trade, Not Countries.
It's a simple, but overlooked point: Countries don't trade, individual American consumers make voluntary decisions to buy products produced by foreign companies (e.g. check the country of origin on the tags/labels on your clothes), and individual American businesses voluntarily buy from, and sell to, foreign firms and consumers. Most of the discussion about trade focuses on aggregate trade statistics at the "country level," like reports of a $56.5 billion U.S. trade deficit in September, a $700 billion U.S. trade deficit for 2007, a $195 trade deficit with China this year, or a $14 billion trade surplus with Netherlands this year.Of course, the title is perfectly accurate because a "country" is composed of individuals including those who run businesses... but the title is somewhat misleading when the author tries to equate actions of individuals with those of multinational corporations and governments [yes, comprised of individuals].
Like Walter Williams points out, those aggregate trade data can disguise the fact that it was individual American consumers and businesses making voluntary decisions on buying and selling products every day that result in some country-level trade deficit or surplus when trade data between the U.S. and other countries is aggregated at the end of a month, quarter or year.
Bottom Line: People trade, not countries. Therefore, any restrictions on trade in the form of protectionism hurt American people, i.e. U.S. consumers, and the workers and shareholders of U.S. businesses. A tariff on Japanese-made products is not a tariff on the country of Japan,it is really a tax on American consumers and businesses who voluntarily decide to buy products made by Japanese producers.
Countries don't trade, but governments facilitate trade through treaties that are either enforced or not.And this:
When you go to the store to purchase an item, you probably don't look at the country of origin. You don't look for the "made with child labor" label. You don't read the "prices kept low through currency manipulation" disclaimer. You don't read the part of the owner's manual that tells you "designed by carefully copying quality products."
Individuals do NOT engage in trade... well, 99.9999% don't... they purchase available products. Small businesses do NOT engage in trade... they purchase available products from suppliers. Large corporations with resources to specifically source as they want DO engage in trade. Governments that award contracts based on price DO engage in multinational sourcing... DO engage in trade.
For those who wish to equate purchases at a local store with arranging for large volumes of goods to be brought in from other countries for distribution, sale, or incorporation into a larger product/assembly, then I concede the concept that individuals trade. But beyond such superfluous and meaningless comparisons, the argument is specious.Further reading here.
Qi, trade does not necessarily enrich all. The Chinese, for example, have siphoned billions... perhaps trillions... of dollars from U.S. companies through intellectual theft... THEFT. You can call that trade if you wish, but counterfeiting and intellectual property theft is just another form of Barbary pirating.
Economists want to view the world through "principles" of trading and thereby lose credibility with those who truly understand the actual interchanges.
Now, if placing boundaries around what is considered acceptable is "an infringement on my freedom allowing to choose who I want to trade with," perhaps your freedom should be re-examined.
Going back to the original point; individuals make purchases or exchange their labor or knowledge for payment... a micro form of "trade" in a loose semantic way. But trade, in the sense of transactions impacting nations, is far upstream of those individual purchases which are "an infringement on my freedom allowing to choose who I want to trade with" by driving out of business through unethical practices [by our standards and laws] those local and national businesses with whom they compete.
But you might save a buck at Wal-Mart as a result.
SEARCH BLOG: POLITICS
Now that the 2008 elections are over, I have had a chance to evaluate some of the political dynamics that were in play.
Democrats:
When the economy began to deteriorate, the Republicans tried to ignore the situation and convince the public that there was no problem and that the Republicans policies were responsible for great prosperity... a fatal strategic error that had turned the first George Bush out of office and would do the same to his son's party.I did and still do hold the position that Nancy, Harry, and Barack are equivalent to sideshow carnival hacks... like the carnival barkers of old they are able to draw a crowd and get them to pay their money. The problem is that the Republican leadership is long on market and military principle and short on pragmatism.
something that private credit institutions do not do... and something not required of the financial institutions that are scheduled for 60 times the amount of money that the automotive companies are asking for... $700 billion plus an additional $800 billion... $1.5 trillion versus $25 billion!And the no-strings-attached money hasn't begun to get the credit markets back in shape.
Nevertheless, I'm willing to listen to arguments to dissuade me of that notion.Step right up to the microphone.
SEARCH BLOG: HOLIDAYS
We can all find something for which we can be thankful... even when economic times are difficult.
Our best wishes for a Happy Thanksgiving Day.
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SEARCH BLOG: ECONOMY and POLITICS
If your goal is change, you make your move when what you want to change is weakest.
The Democratic Party has vowed to change our energy and transportation sectors into what I call the "California Model." More specifically, the San Francisco Model. This is built on the assumption that humans should be restricted:
until the San Francisco Model is met. This Model requires:
As it turns out, a recession isn't a bad time to get started on climate legislation. Even if Congress raced to pass a cap-and-trade bill in 2009, it would take some time--likely a few years--just to set up a complex new regulatory regime. Moreover, as David Wheeler, a climate-policy expert at the Center for Global Development, points out, an economic slump actually offers a prime opportunity to start trading: If Congress sets the initial economy-wide cap at pre-recession levels, then pollution permits will be exceedingly cheap as long as the economy--and hence energy use--is still shrinking. (Indeed, the downturn in Europe has caused the price of carbon to hit rock-bottom levels.) This would give companies time to learn the system and plan for the future without being assailed right away by high prices.... a complex new regulatory regime ... now that's the ticket to prosperity.
SEARCH BLOG: WEATHER
The big challenge for NOAA this month will be to justify calling November "near normal."
There has been absolutely nothing "near normal" about it so far. If the Arctic is warming, it's only because all of the cold has entered the U.S.
This prediction for the whole month was fitting for the first week... and then the temperatures plummeted. In our "warmer than average" southeastern Michigan, the first week was 5-6°F above "normal." The weather for the next two weeks was so cold that the cumulative... including that very warm first week... was several degrees below normal. And the last week will continue that. Actually, the "average" daily temperatures were below the "normal low" temperatures. It has been more like December-January than November.
But don't worry, Dr. Hansen at NASA will run a few algorithms through the computer and history will be restated and "normal" will be lowered... and we will have had a much more pleasant than normal November.
I'll publish the final November data for this location in a week, but the story won't be changing.
Where the hell is global warming when you really need it? I guess we'll just have to set the thermostat back to 62° at night to keep the heating bills lower... until winter comes. Then we might have to keep it there day and night.
It's not just here in Michigan. My nonagenarian mother in Orlando was a bit peeved about the weather there, too. The normal high in mid-November is 79° and the low is 59°. This is what they had last week.
Global warming didn't go there either.Yup, the heat must have bypassed the "lower 48" and gone straight to the Arctic...
SEARCH BLOG: ECONOMICS
Let's ask a basic question: why do individuals, companies, and states engage in trade? We like to think that it is because there is mutual advantage in doing so. We also like to think that free trade and open markets are how trade works. We also like to believe in Santa Claus... even if for one day a year.
Trade is done for one reason: to gain an advantage. Implicit in that, is leveraging what we have, to get what we don't have, but that is not necessarily the reason... only one possible outcome.
When Great Britain became great, it was because they leveraged their naval power to establish foreign sources of items not readily available domestically. That included foreign labor at negligible costs. And they went after products not available domestically... spices for example... that could be sold for very high profit margins. Along the way, they picked up military control of vast sections of the world and literally siphoned off the wealth of those areas. Trade was simply a nice by-product of leveraging power.The U.S. hasn't taken quite the same path. We didn't colonize other nations for their wealth (if you don't count taking over the areas that are now part of the "states"), but we certainly used our military strength to encourage low cost trade with countries that might not otherwise be so concerned about a relationship with the west. Oil from the Middle East continued to flow after Great Britain's departure; Nigeria and Venezuela were also willing "partners" in trade. We took their natural resources and shipped them finished goods... and flourished as unskilled workers became educated and productive and well-off through jobs in our factories.
Trade was that in name only. The give was far less than the take. But eventually, the give, while unintentional, became more important than the take as western science, methods, and processes were transferred to these domains.
Eventually, Great Britain began to loosen and lose control over these domains and it found that, while it was a great consumer, it didn't do very well as a "trading partner." Sure, it had a vast amount of accumulated wealth, but after two world wars and a government disposed to "sharing the wealth," it became apparent to most of the world that Great Britain had reverted to Britain.Even its world-class universities and intellectual storehouse were insufficient to arrest the slide into second-class citizenship. It was just easier to watch its domestic manufacturers slide into oblivion or be taken over by foreign countries.
But then some of those foreign nations figured out that if they were supplying the labor and the materials and the manufacturing, why not control the distributing and selling? Just hire Americans at lower pay than their U.S. companies employed counterparts. Honda design, Honda engineering, Honda components and assemblies, Honda assembly plants, Honda managers, Honda profits sent to Honda. The Great Britain model! They control everything and we supply the cheap labor to put the pieces together.Strange how that works out. Just like South Africa and Ceylon [Sri Lanka] and Nigeria we get the benefit of all of that foreign expertise and control.
We'll even give away land and abstain from collecting taxes as did the great State of Alabama just to get those foreign "traders" to come in and give us jobs and tell us what to do... eh, Sen. Shelby? And we'll tax our U.S. industries more heavily to make up for it.
Why have those expensive domestic manufacturers when it doesn't take much to lure one of those "labor-efficient" ones from Japan or Korea or China? And... we won't have all of those damned, evil, well-paid executives in our country.
Also, our pension funds wouldn't have to buy stocks in those risky domestic manufacturers. The Chinese stock exchange will let us buy some shares of their industries... and we wouldn't even have to waste our time voting for boards of directors or management or environmental proposals.
It's not, as some would suggest, about trading steel for bananas or computers for oil. We don't seek to trade for mutual benefit... or just the things we can't make or grow more efficiently. We purchase from others because it's easier to not do things for ourselves. It's easier to let our "trading partners" siphon off our wealth and future for an inexpensive now. It doesn't matter if you are blue collar in Buffalo or white collar in Wichita. A good deal at Wal-Mart is all that matters.Who cares if American industry goes bankrupt and goes away? As a nation, we don't need heavy manufacturing... unless you want to be able to make large, technically-complex things.
And, strangely, those foreign nations and their companies seem more than willing to accommodate our desires. It's as if they think that they are getting a good deal.
Look at a country like Switzerland. They make some watches and have some banks and cook up some pretty good chocolate products. We could be like Switzerland.No, we can get by with a lot less. We don't really need all of those suburbs and cars and trucks and airplanes for CO2-producing trips... not with all of those available half-empty cities, practically-free houses, and welfare programs that keep on giving. We don't need all of that air-conditioning and heating and big buildings for working and shopping... not when we can take off or add clothes as needed and cardboard is very cheap and can be taped together easily as our space requirements grow. We don't need a lot of things. And we certainly don't need to obtain it or make it ourselves.
Look at Argentina. They make some nice wines and grow a lot of cattle. They don't produce submarines or aircraft. We could be like Argentina.
We don't have to be the world's policeman anymore. Europe doesn't need us. Asia is now peaceful and China will keep things that way. The UN will work just fine for keeping the Middle East peaceful and we are going to have one helluva diplomatic system with our new President and Secretary of State. So all of those tanks and bombers and missiles we use to make are pretty much artifacts of the past.
We can get it from Japan or Korea or China or India. Just ask Great Britain... Britain. They'll tell you how easy it is.
All we have to do is eat our young... give away their futures for an inexpensive today. Turn our fortunes over to the control of foreign companies and nations. Redistribute any productive U.S. energies to those who are perpetual "cultural victims."Steel, textiles, televisions, automobiles, aircraft. Who needs to have them made by American companies when we can have McDonalds... or Burger King if you want it your way?
Gone!
Gone!
Mostly gone!
Going fast!
May never get here.
Don't need no stupid job....SEARCH BLOG: ECONOMY and AUTOMOBILES
There are times when philosophy defies reason. If you accept a certain premise, then you can be logical in your conclusions... but not necessarily reasonable.
Some bloggers and politicians and economists... philosophers all... see nothing wrong with allowing the American automobile [and truck and tank and military transport] manufacturers go into bankruptcy and take the automotive supply base with them. It will allow a "fresh start" if there is anything remaining. It's the hypothetical "free market" in action!
The argument is given that since the airlines survived bankruptcy, why not the automobile manufacturers? First of all, have you ever heard of apples and oranges... or producers and consumers?
The airlines are consumers, not producers. Northwest and American and United don't make anything. Boeing and Lockheed manufacture aircraft... and missiles... and space craft. Any comparison with aircraft and automobile manufacturing should be between GM, Ford and Chrysler... and Boeing and Lockheed... not Northwest and American.I just finished commenting at one site that saw no real reason why bankruptcy wasn't a good option for the American automobile manufacturers. You can read a more detailed argument here, but my comments on that site are below:
There are always alternatives...
- American steel is as vibrant as ever... well maybe not
- American television manufacturers are as vibrant as ever... well maybe not
- American textiles are as vibrant as ever... well maybe not
- American balance of payments are as strong as ever... well maybe not
- American middle class is growing and prospering... well maybe not
- American per-capita wealth is growing faster than any place else in the world... well maybe not
- America is producing the highest percentage of the world's Ph.Ds than ever... well maybe not
There is a difference between self-sufficiency and self-delusion. America no longer sees value in producing what it needs. Rather it seeks to find the next get-rich-quick scheme... dot-coms... flipping houses... oil stocks.
You are correct. We don't have to produce trucks and cars. We can allow the system to collapse and the Japanese and Koreans and Europeans will continue to state-sponsor their own industries. Likewise, we don't have to manufacture our own aircraft because the French and British and Russians and Chinese will be happy to do so.
Likewise we don't have to produce our own energy or food. The Saudis and Venezuelans will handle the oil while we can get our food from South American and Latin America.
Why, we don't have to do anything except blog and take vacations and consume and have university professors talk about CO2 and politicians talk about sharing the wealth.
And then we live happily ever after... well maybe not.
SEARCH BLOG: GLOBAL WARMING
As more scientists are concluding that global warming simply is not taking place, the U.S. Congress has selected avowed alarmist Henry Waxman to chair the House Energy and Commerce Committee.
Mr. Waxman believes our greatest danger is CO2, rather than lack of reliable fuel for electricity and vehicles and commerce. He sees himself as a visionary, but the reality is that he has distorted vision. That makes his leadership of that committee doubly dangerous.
Perhaps that is from living in California... a malady shared by Nancy Pelosi. Certain Californians believe that their state should be the model for the rest of the United States.
For those working men and women who voted for the likes of Obama, Pelosi, and Waxman on the premise that they would provide a path to a better life, you are about to see what happens when ill-informed idealists gain power.
God help us!
PELOSI-WAXMAN CALIFORNIA SUPER-HYBRIDSEARCH BLOG: ECONOMY and GOVERNMENT
U.S. Congress ... this one's for you.
The Boeing Company and Lockheed Martin have teamed to perform studies and system development efforts including collaborative research and development in pursuit of the anticipated U.S. Air Force 2018 Bomber programAnd, no, the aircraft manufacturers have not declared bankruptcy... yet.See, we don't need no stupid American aircraft manufacturers.
The Russians will trade us military aircraft for our American-built, high-definition, flat-screen televisions (oops).
3. H.CON.RES.78 : Urging the reduction of barriers to Americans trading with or investing in Japanese companies...
Sponsor: Rep Sundquist, Don [TN-7] (introduced 2/27/1991) Cosponsors (None)
Committees: House Ways and Means
Latest Major Action: 4/5/1991 Referred to House subcommittee. Status: Referred to the Subcommittee on Trade.
5. H.RES.133 : To express the sense of the House of Representatives regarding agreements between the United States and Japan with respect to trade in semiconductors.
Sponsor: Rep Mineta, Norman Y. [CA-13] (introduced 4/24/1991) Cosponsors (46)
Committees: House Ways and Means
Latest Major Action: 5/1/1991 Referred to House subcommittee. Status: Referred to the Subcommittee on Trade.
8. H.RES.331 : Expressing the sense of the House of Representatives regarding the opening of Japanese markets, and for other purposes.
Sponsor: Rep Bruce, Terry L. [IL-19] (introduced 1/28/1992) Cosponsors (15)
Committees: House Ways and Means
Latest Major Action: 2/4/1992 Referred to House subcommittee. Status: Referred to the Subcommittee on Trade.
Sales of imported vehicles by all foreign car makers totaled 14,406 in August [2007] [about 168,000 annually], down from 15,249 in the same month last year. Among the top three foreign brands by sales volume, Volkswagen saw sales drop by 1.5 percent on the year and BMW sales fell 21.3 percent. Mercedes Benz saw an increase of 3.3 percent. [Note: Japan's population is approximately 42% of the U.S.]
Toyota and Honda, excluding other Japanese brands, sold over 240,000 vehicles... in the month of September, 2008.
SEARCH BLOG: AUTOMOBILES
Thanks to the McCotter staff.
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SEARCH BLOG: ECONOMY
Bill sent me another email yesterday:
I responded:DOW 6400 or lower
More Twists & Turns to Come?
http://www.cnbc.com/id/15840232?video=932115326&play= 1 Good video interview. I agree.
DOW 4500 is my projected worst floor. DOW 6500 is likely to be a sure bet. Not much to keep the DOW from sliding that much during the next 12 months.
Think of the buying opportunities. [discussion about investments] Houses on the other hand....Now there are many calling for the bankruptcy of General Motors, Ford, and Chrysler. Again... be careful what you wish for....
It is possible that we might have a deflationary period given the energy price pullback and the collapsing consumer sector. Last November 29, I projected oil at $51 per barrel [and Goldman Sachs said $200]. It is now $53; an easy call. Good news for fixed income folks... assuming they keep their fixed incomes. Taxes will have to skyrocket after Obama's honeymoon is over.
The Dow is roughly where it was a decade ago when all of the bubbles began. We've added a few million people since then, so that tells me things are worse. We've had a decade of inflation, so that tells me that things are quite a bit worse. In real terms, the Dow is probably 40-50% less than 1998... maybe around 5000 in 1998 $. If it gets to 5000 in today's $, we are looking at a minimum of a 10-year recovery... which is why I have been comparing this to the Japanese recession in the 1990s...
Obama wanted to be president. Careful what you wish for; you might get it.
SEARCH BLOG: AUTOMOBILES
Professor Jeffrey D. Sachs, Director, The Earth Institute;
Quetelet Professor of Sustainable Development and Professor of Health Policy and Management, Columbia University
Take 3.7% of the $700 billion and avoid a depression... it's a no brainer.
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SEARCH BLOG: AUTOMOBILES
Just listened to Thaddeus McCotter, representative from Michigan's 11th district, speak about the issue of loans for the automobile industry.
If anyone can find a video segment of this, please let me know where it can be obtained.
It is, perhaps, the most succinct, rational statement regarding this issue that I have heard in two days.
ADDENDUM
In the absence of a video of Rep. McCotter's statement before the House hearing...
Wednesday, Nov 19, 2008..
Rep. McCotter Defends Auto Industry on WWJ Morning Drive RadioDownload this episode (6 min)
Congressman McCotter defends auto makers and auto workers, especially those living and working in southeastern Michigan, as he prepares for the Financial Services hearing.
SEARCH BLOG: AUTOMOBILES
I spent the better part of the afternoon watching the Senate hearing with the "Big 3" auto executives... Messrs. Mulally, Nardelli and Wagoner... plus the UAW's Ron Gettelfinger, making their case for money, while Peter Morici, a business professor at the University of Maryland, played devil's advocate for bankruptcy.
I believe it was professor Morici who pointed out that it was basically the American companies [that were hindered by our government's failure to address currency manipulation and treaty violations] versus a combination of foreign countries and their national companies that work as one.For the most part, the meeting was cordial on the surface. Rick Wagoner seemed a little uncomfortable at times in his role and got a little testy with Sen. Corker from Tennessee. Alan Mulally was a bit reluctant to divulge what he felt was "proprietary" financial information at one point, but was otherwise comfortable and cooperative. Robert Nardelli was properly humble, but very professional.
If the federal government had done the same thing over the past five years, we'd all get a huge tax break... but that's another story.Sen. Tester from Montana brought the good old farmer shtick and wondered why there hadn't been big improvements in the fuel economy of big pickup trucks. Mr. Mulally offered to provide information about the improvements. Sen. Bennett from Utah played the wise old philosopher who talked about how "patient public money" was needed now that impatient private money was in short supply... but wanted assurances that it was going to be used well and repaid.
Sen. Levin has conveniently forgotten that when the federal government fails in running within budget and economic constraints... as it does frequently when legislating pet projects... that it simply prints more money... something that automobile executives cannot do. Perhaps all of those government "executives" should be willing to resign.Let's hope that other senators have more common sense. Alan Mulally at Ford, for one, has turned an impossible situation into a possible one... and that's something I'm certain the honorable senator from Michigan could not have done in his place.
CSPAN had the 4 hours of video on their site and it may still be there...
Struggling Auto Industry
Today
Auto executives from GM, Ford and Chrysler testify on the challenges facing their companies and ways to stabilize & strengthen the industry at a Senate Banking hearing. Chairman ChrisDodd (D-CT) has been a supporter of giving some of the $700 billion Federal Intervention funds to help the automobile industry.
SEARCH BLOG: ECONOMICS
The problem facing the economy is that it's difficult to see where things can or will turn positive over the next six months. Hoping and wishing won't do anything. Planning and scheming are nice, but won't change the facts.
Over the past decade, there have been too many negative changes to be absorbed and for which adjustments must be made.
For example, while making domestic manufacturing more difficult in the U.S. due to a variety of regulations with marginal economic value, the same government has opened up pathways for importing products from China that are inferior and unsafe and manufactured in highly-polluting and dangerous processes. While this has temporarily reduced the purchase price of products bought in the U.S., it has undercut manufacturing and associated employment thereby eroding the basis for a sustainable economy.Any recovery will not be lead by government.
The U.S. likely will experience a 1990s Japanese recession that results in a smaller, less dynamic economy.Businesses and individuals will become more dependent on government for direction and credit and security.
SEARCH BLOG: WEATHER
Due to the poor economy, Mother Nature has agreed to skip the December holidays and go directly into January. Perhaps we can get things going with the clearance sales.
SEARCH BLOG: AUTOMOBILES
For decades, the automobile manufacturers have loaned billions of dollars out of their profits to Washington in order to produce a government that was not wasteful and would strengthen the interests of American business throughout the world.
Unfortunately, the government has failed miserably in that task, choosing to give that money to corrupt and questionable regimes, organizations, and unworkable causes while allowing the home market of American automobile manufacturers to be overrun by foreign manufacturers whose own home markets are protected against those American companies. This combination of continually requiring large loans from the American automobile manufacturers as their markets are fragmented, while simultaneously creating burdensome regulations for them, has left the American automobile manufacturers with serious deficits in operating capital.
Additionally, state governments also have required large annual loans based on the property value of these companies... whether these properties are actually making money for the companies or not. Instead of using these loans to improve the educational level of their residents and, thereby, provide a pool of knowledgeable, highly-skilled potential employees, these states have allowed these loans to be used by educational systems that barely graduate 2/3 of their students... and then more wasteful state welfare programs are required to support these dropouts... programs that require more loans from the American automobile manufacturers.
The problem was the failure of the American automobile manufacturers to set conditions on these loans. The primary condition should have been a preferred equity position in the government with priority given to any issues deemed important to those manufacturers. I'm sure the Democratic Party would have concluded that was a reasonable and fair condition.
Alas, the American automobile manufacturers did not demand this condition as part of the decades of loans to the federal and state governments. Consequently, now that these manufacturers have their own cash flow problems, they have little leverage in getting a portion of those loans repaid...
SEARCH BLOG: GLOBAL WARMING
In the Detroit Free Press:
Violence could mount as Earth's temperature risesI think there is more likelihood that battles may be fought over scarce energy sources as people are faced with ill-advised government policies that make heating homes prohibitively expensive.
Food shortages, disasters to fuel war, experts sayKANSAS CITY, Mo. -- A warmer planet could find itself more often at war.
The Earth's fast-changing climate has a range of serious thinkers -- from military brass to geographers to diplomats -- predicting a spate of armed conflicts driven by the weather.
Shifting temperatures lead to shifting populations, they say, and that throws together groups with long-standing rivalries and thrusts them into competition for food and water.
"It's not hard to imagine violent outbursts," said Julianne Smith of the Center for Strategic and International Studies.
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SEARCH BLOG: AUTOMOBILES
From The New York Times:
AMERICA’S automobile industry is in desperate trouble. Financial instability, the credit squeeze and closed capital markets are hurting domestic automakers, while decades of competition from foreign producers have eroded market share and consumer loyalty. Some economists question the wisdom of Washington’s intervening to help the Big Three, arguing that the automakers should pay the price for their own mistakes or that the market will correct itself. But we must act: aiding the American automobile industry is not only an economic imperative, but also a national security imperative.What is wrong with this article? Several things.When President Dwight Eisenhower observed that America’s greatest strength wasn’t its military, but its economy, he must have had companies like General Motors and Ford in mind. Sitting atop a vast pyramid of tool makers, steel producers, fabricators and component manufacturers, these companies not only produced the tanks and trucks that helped win World War II, but also lent their technology to aircraft and ship manufacturing. The United States truly became the arsenal of democracy.
During the 1950s, advances in aviation, missiles, satellites and electronics made Detroit seem a little old-fashioned in dealing with the threat of the Soviet Union. The Army’s requests for new trucks and other basic transportation usually came out a loser in budget battles against missile technology and new modifications for the latest supersonic jet fighter. Not only were airplanes far sexier but they also counted as part of our military “tooth,” while much of the land forces’ needs were “tail.” And in those days, “more teeth, less tail” had become a key concept in military spending.
But in 1991, the Persian Gulf war demonstrated the awesome utility of American land power, and the Humvee (and its civilian version, the Hummer) became a star. Likewise, the ubiquitous homemade bombs of the current Iraq insurgency have led to the development of innovative armor-protected wheeled vehicles for American forces, as well as improvements in our fleets of Humvees, tanks, armored fighting vehicles, trucks and cargo carriers.
In a little more than a year, the Army has procured and fielded in Iraq more than a thousand so-called mine-resistant ambush-protected vehicles. The lives of hundreds of soldiers and marines have been saved, and their tasks made more achievable, by the efforts of the American automotive industry. And unlike in World War II, America didn’t have to divert much civilian capacity to meet these military needs. Without a vigorous automotive sector, those needs could not have been quickly met.
More challenges lie ahead for our military, and to meet them we need a strong industrial base. For years the military has sought better sources of electric power in its vehicles — necessary to allow troops to monitor their radios with diesel engines off, to support increasingly high-powered communications technology, and eventually to support electric propulsion and innovative armaments like directed-energy weapons. In sum, this greater use of electricity will increase combat power while reducing our footprint. Much research and development spending has gone into these programs over the years, but nothing on the manufacturing scale we really need.
Now, though, as Detroit moves to plug-in hybrids and electric-drive technology, the scale problem can be remedied. Automakers are developing innovative electric motors, many with permanent magnet technology, that will have immediate military use. And only the auto industry, with its vast purchasing power, is able to establish a domestic advanced battery industry. Likewise, domestic fuel cell production — which will undoubtedly have many critical military applications — depends on a vibrant car industry.
To be sure, the public should demand transformation and new standards in the auto industry before paying to keep it alive. And we should insist that Detroit’s goals include putting America in first place in hybrid and electric automotive technology, reducing the emissions of the country’s transportation fleet, and strengthening our competitiveness abroad.
This should be no giveaway. Instead, it is a historic opportunity to get it right in Detroit for the good of the country. But Americans must bear in mind that any federal assistance plan would not be just an economic measure. This is, fundamentally, about national security.
Wesley K. Clark, a retired Army general and former supreme allied commander of NATO, is a senior fellow at the Burkle Center for International Relations at the University of California at Los Angeles.
SEARCH BLOG: HOUSING
You know the economy is not well when the foreclosures section is larger than the rest of the Sunday paper.
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SEARCH BLOG: CLIMATE
This first came to my attention earlier this month in Icecap. Anthony Watts then turned it into an animation.
See, all you need is a computer to make global warming.Go back and read the articles at the two links above.
SEARCH BLOG: ECONOMY
From the Bureau of Labor Statistics... industry rank by employment change.
Top Ten Growth... health care and government...
77. Administrative and support servicesThat's a fairly representative picture of things... a sick nation run by the federal government.
76. Transportation equipment
75. Specialty trade contractors
74. Motor vehicle and parts dealers
73. General merchandise stores
72. Durable goods
71. Construction of buildings
70. Credit intermediation and related activities
69. Food services and drinking places
68. Fabricated metal products
SEARCH BLOG: ECONOMICS
Could the U.S. be facing a protracted economic recession such as the one that hit Japan in the 1990s? It is a legitimate question given the similarities of a massive economic bubble in real estate and tech that sent Japan into a deflationary cycle that even 0% interest rates didn't affect for many years.
The following is a high-level, but technical analysis of the Japanese experience. When you get to the conclusion, you can decide for yourself how relevant it is for the U.S. I can see a direct parallel for Michigan.
What Were the Causes of Japan's "Lost Decade"
KOBAYASHI KeiichiroFellow, RIETI
With concerns about a deflationary spiral and a financial crisis largely over, it seems the Japanese economy has almost returned to normal. But we have yet to see a commonly accepted and clear-cut theory as to what factors were responsible for the prolonged economic recession that lasted for more than a decade.In this column, I present the results of an analysis of the Japanese economy using a method called "business cycle accounting (BCA)" and examine what factors were crucial contributors to the prolonged economic recession (for detailed analytical results, refer to the RIETI Discussion Paper: "Business Cycle Accounting for the Japanese Economy").
What is business cycle accounting?
Even if we do not know the exact cause of a particular recession, we can obtain clues to infer the cause of and solutions to the recession by measuring the "wedge" distortions that occur in various sectors of the economy such as the investment, labor and fiscal sectors. Business cycle accounting has been proposed by a group of economists at the University of Minnesota (V. V. Chari, P. J. Kehoe and E. R. McGrattan) as a way of measuring these wedges.
Assuming an economy can be approximated by a neoclassical economic growth model, we can derive a relational equation that is theoretically valid when each sector is efficient. For example, provided that labor inputs remain efficient, the marginal rate of substitution between consumption and leisure (MRS, i.e., the increase in consumption for which a consumer is willing to work by sacrificing one extra unit of leisure) should theoretically be equal to the marginal productivity of labor (MPL, i.e., the increase in production from each additional unit of labor). However, when labor inputs become inefficient for whatever reason, MRS and MPL do not match. The degree of discrepancy between MRS and MPL shows the size of the wedge for labor input. We can measure the wedges for investment and productivity in the same way.
With respect to the measured wedge of each sector in the economy, model simulations can also be performed to show how economic performance would change with or without the wedge. If there is little difference in the results with or without investment wedge, for example, we can conclude that distortion in the investment sector had little impact on the economic performance. Thus, by performing simulations, we can infer which wedges were crucial contributing factors to the so-called lost decade in Japan.
Accounting for the prolonged economic recession of Japan
Figure 1 below shows the results of simulations for various sectors in the Japanese economy. First, we calculated the degree of distortion in labor input, capital investment, change in productivity, and change in government expenditure - the labor, investment, efficiency and government wedges, respectively - as plausible factors contributing to the recession. The contribution of these wedges to the change in gross national product (GNP) is shown in Figure 1.
The bold line (1) shows real economic output as measured by GNP. The straight line (2), which represents the benchmark, shows GNP held at a constant, based on the assumption that all the four wedges - labor, investment, efficiency and government - remain at their respective values in the 1980s. This is the benchmark for measuring fluctuations in economic performance from the 1990s onward. Lines (1) and (3)-(6) indicate relative values against a benchmark GNP of 100 (1981=100).
The government wedge, that is, the impact of changes in government expenditure on the economy, is shown by line (3). Line (3) stays above the benchmark throughout the 1990s, which means that fiscal expenditure continued to have a stimulative effect on the economy in the 1990s. It should be noted that this effect was not lost even in 1997 when the consumption tax rate was raised to 5%. Thus, the conventional view that the consumption tax hike triggered the deterioration of the economy does not match the BCA results.
The efficiency wedge, which is the change in output attributable to changes in productivity, is shown by line (4). The shape of this line resembles that of line (1), which represents actual output, but line (4) remained above the benchmark until the late 1990s, the time when Japan was hit by a financial crisis. This suggests that the depressive effect of the decline in productivity was not so strong during the early and mid 1990s. One widely held theory attributes the prolonged recession to an unexplained decline in productivity. But the BCA results point to the possibility that the decline in productivity might have not been a major contributor to the prolonged recession.
The investment wedge - the change in the economy attributable to distortions in capital investment - is shown by line (5). This line remained close to the benchmark in the 1990s, suggesting that a decline in private-sector capital investment was not a major cause of the deterioration of the economy. This also contradicts somewhat the generally accepted notion that underinvestment by the private sector, which arose as many companies suffered from debt overhangs and the credit crunch, was responsible for the recession. According to the BCA results, the investment channel might not have been inefficient.
What is apparent is that distortions in labor input were a major factor in the recession. Line (6) shows the depressive effect of labor input on the economy. We can see that the labor wedge deteriorated sharply from the beginning of the 1990s. When we compare this with the other wedges, it is clear that distortions in labor input were the biggest contributor to the prolonged recession.
Why did labor input deteriorate?
The BCA results show that the increased distortion in labor input (i.e., the increasing discrepancy between MRS and MPL) contributed to the prolonged recession. There are several possible explanations for this increasing inefficiency of labor input.
One is that distortions in labor input occurred as a result of long-term structural changes in the Japanese economy. If so, changes in the labor wedge must have been occurring long before the recession, that is, independent of the recession. One illustration of this is when employees' bargaining power in wage negotiations is increasing as a result of a rise in their social status. This may be reflected in the data in the form of increasing distortions in labor input.
Figure 2 shows the change in the labor wedge over the last two decades. We can see that the labor wedge (shown by the light gray line) began to deteriorate in 1984. However, this may be the result of measurement error. Indeed, recalculation using a modified production function1 gives the bold line, which shows that the deterioration of this modified labor wedge began only after the recession. It is therefore possible that the original finding - that the deterioration of the labor wedge began prior to the onset of the recession - is the result of measurement error.
If the deterioration of the labor wedge and the recession began at the same time, what caused the deterioration of the labor wedge? A standard explanation points to sticky wages (or downward rigidity). This wage rigidity, combined with a deflationary shock, such as a contractionary monetary policy, pushes up real wages, resulting in inefficient labor input. This explanation fits with what actually occurred in the early 1990s: The Bank of Japan tightened monetary policy sharply in the final phase of the bubble economy. But the explanation appears to contradict the data from the latter half of the decade. Although the labor wedge continued to deteriorate throughout the 1990s and afterward, real wages began to fall in the mid-1990s. Had the rise in real wages contributed to the deterioration of the labor wedge, the rise in real wages should have continued in the second half of the 1990s.
What then can account for the continued deterioration of the labor wedge in the latter half of the 1990s? My preferred hypothesis is that declines in land and share prices may have aggravated the labor wedge, with this negative impact coming in the form of collateral constraints. When collateral constraints are incorporated into a standard neoclassical growth model, a decrease in collateral values depresses consumption, causing a decrease in labor input. That is, it appears that in an economy where collateral constraints exist, the labor wedge deteriorates when asset prices continue to fall. This hypothesis seems convincing given that loans backed real estate are the primary means of financing in Japan and that land prices continued to fall in the second half of the 1990s and afterward.
BCA analysis of the Great Depression in the U.S. also shows that the labor wedge sharply deteriorated from the 1930s onward. The deterioration of the labor wedge thus appears to be significantly associated with the occurrence of a Great Depression-type slump. Clarifying why the labor wedge deteriorates during such slumps is a major challenge in establishing a viable economic theory of prolonged recessions.
September 6, 2005
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.December 11, 2007 Somehow the Fed misses the obvious."Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."
http://www.reuters.com/
December 13, 2007 [from The Christian Science Monitor]
[Image from: CNNMoney.com]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's Economy.com. "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.”January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?
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As of Sept. 15, the current solar minimum ranks third all-time in the amount of spotless days with 717 since 2004. There have been 206 spotless days in 2009, which is 14th all-time. But there are still more than 100 days left in the year, and Perry expects that number to climb. Perry, who studies sunspots and solar activity in his spare time, received an undergraduate degree in physics at Kansas State University and a Ph.D in physics and astronomy at The University of Kansas. He also has spent time as a meteorologist.
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