Sunday, August 9, 2009


Greetings good citizen,

If unemployment is a meaningless ‘lagging’ indicator then why did the markets surge more than a hundred points yesterday on ‘better than expected’ jobs data?

In what can only be called bizarre beyond belief, the ‘monthly’ unemployment data isn’t drawn from number of weekly claims, where the weekly number comes from…the monthly data comes from the ‘phone survey’.

Thank you, Paul Krugman, for pointing that small, but significant, distinction out…unfortunately, my head is still threatening to explode. What fucking idiot thought THAT was a ‘good idea’? Don’t tell me because the answer is obvious, if it wasn’t a politician, it was a ‘pollster’.

Why does this idea suck? Because you have all the data you need from the new claim filings, the ‘phone poll’ can be gamed, both ends against the middle, depending on desired outcome. If you’re trying to sell a stimulus program, you poll Michigan, which has the highest unemployment rate in the nation…if you need to convince the public that your policies are working, you ‘poll’ either Dakota, which both enjoy some of the lowest unemployment rates in the nation.

It would also tend to provide a very ‘skewed’ number like the one we got this time around.

275,000 indeed, after four straight weeks of filings in the 550,000 range!

Ironically, the ‘real’ unemployment number is roughly the same as the data provided by the phone survey…if you add an extra zero to the end. We’ve been loosing roughly 2 million (plus) jobs a month for the past six months, numbers that were roughly equal to the losses in the last 3 months of the Bush Administration.

Perversely, this would jive very closely with the ‘real’ number of foreclosures over the past year, roughly 15 million.

But I digress. This topic is like having hot coals dumped on my head every time it comes up. I’m sure the ranting and raving is getting tedious and saying ‘I can’t help myself’ has become a pretty feeble excuse.

Onwards to tonight’s offering with a foreword provided by the source that pointed me to this piece, Some Assembly Required.

CKM writes:

Autopsy: Where did it all go wrong? No, not the credit spree. Not even the hallucinatory housing bubble. The first foot wrong was pretending that manufacturing was something that underpaid teens in sweatshops in foreign countries could do, while we became a knowledge and service economy. Wealth comes from making things. Real things. Trade means trading the things you make for things someone else made. If you don't have things you made, then you make debts. We got real good at that. Shipping our jobs and our factories to our trading partners was not globalization, it was stupid.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for Our Future as part of the Making It In America project. I am a Fellow with CAF.

When things are going wrong it is often good practice to go back and review the basics, and start again. In baseball you go back to batting and fielding practice. To master a musical instrument you practice your scales every day.

Things have gone wrong with our economy. So let's go back to some basics and see if we can figure out where we went wrong. Let's start with the most basic of basics in an economy: wealth comes from making things that you can trade with others.

It is a simple concept worth repeating: if you make something you can trade it for things other people make. As you make things and trade them you build wealth. In an economy making and trading things creates good jobs and brings to the people income and goods they need. [Notice he DOES NOT mention ‘money’ once because money isn’t ‘wealth’, money merely ‘represents’ wealth.]

So obviously manufacturing is the key to a healthy economy. Trade means fairly trading the things you manufacture for things that others manufacture. And it is a simple jump from there to understanding that if you don't make things, you have to borrow to be able to pay for things other people make, or you go without. You can borrow and borrow -- until you can't.

Everything else in the economy flows from the manufacturing. [Including the services that support manufacturing operations…] When it comes down to it you can't have a healthy service sector unless you are manufacturing items to sell and trade because you can't pay for the restaurant bill or insurance or hotel room or lawyer or even the doctor if you don't make something to sell and trade. And mostly you can't keep buying the things made elsewhere. You can only borrow for so long.

But somehow, as a country, we have lost sight of this most basic idea. Instead of maintaining and promoting manufacturing we say it isn't important anymore. [There is a rather ‘insidious’ reason for that which I’ve pointed too thousands of times.] We say that we have instead transitioned to a "post-industrial" service economy and/or a knowledge / information economy. (What does that even mean -- instead of making and trading, we serve and think? And borrow I guess.) [It doesn’t particularly matter ‘what it means’ because, to date, nobody, including us, has succeeded in making a ‘service economy’ work. It’s never been done.]

I read an important post about this yesterday, It's All About Jobs! by Leo Hindery, Jr., Leo W. Gerard and Sen. Don Riegle -- a CEO, a labor leader, and a former Senator. They come to us from these different sectors of society to warn us that giving up our manufacturing has meant giving up our jobs. They wrote,

"Importantly, we need to be just as worried about the fact that our economy has mostly hemorrhaged jobs in the very sector -- manufacturing -- that must grow in order for us to move permanently away from debt-financed consumption as the principal engine of economic growth. And it is the current and now decades-long persistent manufacturing jobs collapse that unites the three of us as friends and as colleagues, despite coming from very different backgrounds."

And how do they feel our country's "transition" away from a manufacturing economy is working out for us?

"Just since this recession began, manufacturing has lost 13% of its workforce; manufacturing industries now represent a meager 11.7% of GDP; people working in manufacturing now account for only 8.7% of the jobs in the country; a quarter of the nation's 282,000 remaining manufacturing companies -- 90,000 in all -- are now deemed severely "at risk"; and we have run an average annual trade deficit in manufactured goods of more than $500 billion over the past five years."

What do they say we need to do about this?

"Congress and the Administration, working together, need to immediately enact a robust industrial policy that puts American workers first and is comparable to the policies of our major trading partners. And then we need to integrate this policy with efforts to be the world's dominant manufacturer of green technologies and components, which offer us such enormous opportunities." [Carts and horses here boys. A quarter of a million strong manufacturing sector isn’t going to support a 150 million strong ‘service sector unless we start compensating manufacturing help like bankers!]

So again back to basics: Trade requires giving and getting. And you can't trade for things without having things to trade. Which means that you have to have manufacturing. The more you have manufacturing, the stronger your economy. Pretty basic, no?

As I said above, it is a basic that if you don't make things to trade you can, for a while, borrow to buy the things that others make. And for some time, since we started this transition to the "post-industrial" economy we all have been borrowing to buy the things we need. Individual, business and government debt started increasing rapidly at the same time as people started believing that we were undergoing such a transition. Our trade deficit has shot up through the roof, and now we collectively now owe a tremendous, massive debt to others. [A debt so massive it has become impossible to pay!]

But guess what? When you have a lot of debt, someone is making a lot of money. In The Quiet Coup, Simon Johnson writes,

From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. [A number that will never (legitimately) be seen again.]

Paul Krugman has noted a similar trend,

On the eve of the current crisis, finance and insurance accounted for 8 percent of G.D.P., more than twice their share in the 1960s. By early last year, the Dow contained five financial companies -- giants like A.I.G., Citigroup and Bank of America.

Ethan Porter, reviewing Kevin Phillips' book, Bad Money, drives the point home,

In 1950, manufacturing contributed 29.3 percent to the GDP, and financial services 10.9 percent. By 2003, the totals were almost reversed: manufacturing made a 12.7 percent contribution; financial services, 20.5 percent.

[. . .] All this is a fancy way of saying that we don't make things anymore. We import most of our products from overseas.

So what they are saying is that what we have been doing, namely packing up our factories and sending them to the trading partner countries, isn't "trade" it is something else. (The word "stupid" suggests itself.) And as a result of doing that we have a massive, massive "trade deficit." We buy things but we don't sell enough things because we don't make enough things anymore. And over time this means we get poorer and poorer. We borrow more and more, which drives up profits in the financial sector -- while the borrowing continues. That can only go on so long.

So here is the question that we face: what are we going to do about it? And by we, I mean We, the People. So what's the plan? What is our plan, our strategy, our policy for rebuilding and maintaining our manufacturing base? We obviously have a national financial strategy (a strategy that involves even more borrowing to execute) but none for getting back to the basics of creating wealth by manufacturing things. [Um, bizarrely, this is not ‘up to us’, the ‘owners’ decide where THEY want the work done, regardless of the harm this inflicts upon society as a whole.]

Having a national policy for manufacturing is about as basic as it gets. China does. India does. Japan does. Russia does. France does. Germany does. Et Ceterastan does.

What is America's manufacturing policy? What is our strategy? What is our plan?

The answer to this troubling issue is we don’t have a plan, just as we no longer have usury laws. With a couple of ‘strokes of the pen’ the money grubbing weasels wiped out worker protections in favor of what we now call the ‘global race to the bottom.

Nor is the ‘protection’ of our manufacturing sector up to ‘us’ the average citizen because the legal system in the country is designed to ‘protect’ property rights. Dictating to owners where and how they can conduct business ‘infringes’ on these owners ‘liberties’.

You don’t count, only ‘owners’ do.

It is precisely the government’s ‘mandate’ to protect ownership rights that has cost our society its manufacturing sector. All an owner has to do it complain that they can’t compete and the US State Department will find a third world cesspool for the owner to ‘re-locate to’…at taxpayer expense.

Bizarrely, neither of these practices are illegal. (Even though the State Department has ‘limits’ as to who it will or won’t ‘help’, if you follow what I’m saying.)

The fellow who wrote this piece, Dave Johnson, makes a very valid point, one I have made repeatedly. Sadly, Mr. Johnson seems to have fallen into the trap of believing the common good ‘trumps’ the government’s mandate to protect private property.

This is, admittedly, one hell of an ‘oversight’ on the part of the founders…but the founders were all ‘men of means’ who weren’t much concerned with silly things like the common good.

You’d think somewhere down the line, those we choose to lead us would have smartened up and enacted legislation intended to protect society from the predation caused by the relentless pursuit of profits…but apparently we aren’t there yet.

Thanks for letting me inside your head,


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