W.House's Mankiw-exports, not imports, hurt US jobs

Biz.Yahoo/Reuters ^ | November, 21, 2003

[Starwind]

W.House's Mankiw-exports, not imports, hurt US jobs
Friday November 21, 11:31 am ET

COLORADO SPRINGS, Colo., Nov 21 (Reuters) - White House economic aide Gregory Mankiw said on Friday U.S. jobs were taking more of a hit from declining U.S. exports than from competition from lower-priced foreign imports.

"The decline in U.S. exports is where the jobs are lost rather than being lost to competition from imports," Mankiw, chairman of the White House Council of Economic Advisers, told the Greater Colorado Springs Economic Development Corp.

Because of this, he said, "I'm more worried about slow growth in Japan than rapid growth in China."

Mankiw said the U.S. economic outlook was good.

"We're starting to see signs that employment is picking up," he said referring to gains in nonfarm payrolls in August, September and October.

Mankiw added that inflation was low on his list of concerns. "There's no sign of it," he said, crediting Federal Reserve Chairman Alan Greenspan for able monetary policy.

[Starwind]

(sigh) where to begin....

This "report" is proof of media cluelessness in economic/business issues, and that Reuters, contray to popular accusation on this forum, does not 'spin' one way or another, but simply regurgitates the drivel it has been fed without any critical review or editing. The spin is in the 'source'.

"The decline in U.S. exports is where the jobs are lost rather than being lost to competition from imports,"

Moron.

We export less because the competition is making goods/services cheaper than we do. Because we still consume those same goods/services that we used to provide, we import insetad of buy domestic. If we didn't have an import option, consumption would demand continued domestic production, and jobs would not be lost.

Jobs are lost because imports are cheaper than our own production.

Because of this, he said, "I'm more worried about slow growth in Japan than rapid growth in China."

And what precisely do we make that Japan needs to buy from us (that it can't get more cheaply elsewhere - including beef, grain...)? Well, there is our debt. Japan needs to buy our debt.

But then we wouldn't have so much debt if it weren't for the loss of jobs in our export industries that drives up our trade expenditures when we import what we continue to consume.

Mankiw added that inflation was low on his list of concerns. "There's no sign of it," he said, crediting Federal Reserve Chairman Alan Greenspan for able monetary policy.

Greenspan's inflationary policies all through the 90's and continuing to this day are the prime reason our workers can't afford to live and work in the US which is what makes them economically uncompetitive with foreign workers, which is why we offshore production and export less and import more and lose jobs and grow deficits.

But then, when you've got lemons, make lemonade. And all Mankiw has is lemons.

[Starwind]

Ranting...

[RiflemanSharpe]

One of the reasons that exports are declining is that we are restricted (tariffs, inspections, limits)in various ways in many markets in countries we let export to us with very little restriction.

[Ben Ficklin]

Texas exports to Mexico have dropped due to the US recession.

The US consumer is purchasing less of all goods to include those made in Mexico. Consequently, the Mexicans have less money for imports from Texas.

Please buy a frig made in Mexico or take a trip to Cancun, OK?

[Starwind]

The US consumer is purchasing less of all goods to include those made in Mexico. Consequently, the Mexicans have less money for imports from Texas. Please buy a frig made in Mexico or take a trip to Cancun, OK?

Actually, a more effective approach would be to open the borders with Mexico and bring in more 'consumers' who would naturally spend their US income on Mexican manufactured items, thus providing Mexico with the revenue needed to purchase stuff we make - well, to purchase stuff Mexicans make for us in the US.

[sixmil]

But I thought that dumbing down the US dollar was going to help raise exports?!

[Moonman62]

Greenspan's inflationary policies all through the 90's

Greenspan's policy from 1995 to 09/11/2001 was deflationary. Any chart of commodity prices shows that.

[Starwind]

Greenspan's policy from 1995 to 09/11/2001 was deflationary. Any chart of commodity prices shows that.

Commodities (oil, grains, livestock, metals, ores, etc.) during the 90's were out of favor as investment and speculation vehicles, whereas stocks (especially internet & dot.com stocks) and real estate were in favor. It was the stock market 'bubble' - "irrational exuberance" - or have you forgotten? Speculative investment in stocks and real estate, etc far outstripped investment in commodities. That's why commodity prices showed little or no growth relative to stock and real estate prices. Further, some commodities, such as precious metals - especially gold, were sold short.

Falling prices do not necessarily reflect deflation - as falling computer prices during the 90's, for example, clearly reflected increased volume and efficiency of production - not deflation.

Surely you're not going to argue the 90's were a deflationary period and cite commodity prices as your basis?

Now increased quantity of money in circulation in excess of the increase in goods/services produced - is indicative of inflation.

So, here you have, during Greenspan's tenure as Fed Chairman, fed funds rate reduced from 7.5% in '87 to 1% in '03, and M3 rising faster (and accelerating) than GDP (significant portions of which is artificial hedonic pricing anyway) from about '95 on - inflationary.

[Moonman62]

Commodities (oil, grains, livestock, metals, ores, etc.) during the 90's were out of favor as investment and speculation vehicles, ...

People don't invest in commodities, and speculation is just as likely to involve selling as buying. Commodities markets are very efficient, and are the best indicator of a currency's value.

Surely you're not going to argue the 90's were a deflationary period and cite commodity prices as your basis?

Surely I am, but if you don't like commodities, you can look at the CPI, considering that it overestimates inflation by about 2%.

[Starwind]

People don't invest in commodities, and speculation is just as likely to involve selling as buying.

Agreed. Which is why the market price set for a commodity does not reflect a currencies' inherent value, but rather the market's momentary supply/demand balance for that commodity. A chart of commodity prices will reflect the day-to-day market prices based on a number of factors - the most significant of which is speculation - the least signifcant is the short term value of the currency in which the commodity is traded.

Neither commodities nor equities are an accurate reflection of inflation of currency (nor bonds - especially in light of how the Fed holds down the yield curve). I cited the 90's stock market bubble not as 'proof' of inflation but as 'proof' of price increase without regard to currency value and that equities prices were driven up (cash flow into the market) while commodity prices languished, in large part because people don't invest in commodities as you point out.

Regardless, deflation is not defined by prices falling. It is defined by less currency in circulation making claims on the same (or more) goods/services. Less currency buying more goods/service means prices fall. But falling prices are a symptom of deflation, not the definitive criteria. Prices are effect, not cause.

you can look at the CPI, considering that it overestimates inflation by about 2%

If anything, CPI underestimates inflation because of the number of 'adjustments' made to it by the governemnt to keep the government's COLAs from increasing.

CPI doesn't include food, energy, tutition, taxes, etc.

Further, CPI does include a number of downward adjustments like "owners' equivalent rent" (the lesser rent someone would pay to live in their own purchased home), "geometric weighting" (assumed switching to hamburger when steak is assumed to be too expensive) and "quality adjustments" (offsets to price increases because a "higher quality" is built-in to the product). It goes on.

But perhaps you could post some background on why you believe CPI underestimates inflation, and what you think the real inflation rate has been since '87 when Greenspan took over the Fed?

[Moonman62]

A chart of commodity prices will reflect the day-to-day market prices based on a number of factors - the most significant of which is speculation - the least signifcant is the short term value of the currency in which the commodity is traded.

Commodities derivatives are used for insurance purposes. Some people speculate, but that adds to liquidity. For the larger commodites markets, supply and demand doesn't change that much, but the best way to use commodities as a currency indicator is to look at a whole basket of them.

And if that doesn't satisfy you, and I'm sure it won't, then you can use the Big Mac Index.

[Moonman62]

If anything, CPI underestimates inflation because of the number of 'adjustments' made to it by the governemnt to keep the government's COLAs from increasing.

When did federal politicians become spendthrifts? If anything, politicians want COLAs to be on the high side, especially in deflationary times, because they want to keep the votes they've bought safe, and they are spending other people's money.

[Starwind]

For the larger commodites markets, supply and demand doesn't change that much, but the best way to use commodities as a currency indicator is to look at a whole basket of them.

I'm beginning to suspect we have a symantic difference here. You've addressed the price again of a commodity (or a basket of them now), and not the change in purchasing power over time of the currency used to buy/sell it. The 'price' of a basket of commodities does not tell me how much more (or less) the purchasing power (or value) the dollar bills in my wallet will buy today compared to what they bought say 15 years ago.

And if that doesn't satisfy you, and I'm sure it won't, then you can use the Big Mac Index.

It didn't, nor does the Big Mac Index.

The Big Mac Index is a measure of relative purchasing power amongst world currencies, i.e. if a Big Mac costs X in the US in US$, what would it cost me in Japan in Yen - today. It is not a measure of inflation, but a measure of purchasing parity.

From the Big Mac Index:

Purchasing Power Parity (PPP): is a measure of the relative purchasing power of different currencies. It is measured by the price of the same goods in different countries, translated by the FX rate (or exchange rate) of that country's currency against a "base currency".

How to read this table:
In this case, the goods is the Big Mac. For example, if a BigMac costs ?2.75 in the countries that use Euro and costs $2.65 in US, then the PPP exchange rate would be 2.75/2.65 = 1.0377.

If the actual exchange rate is lower, then the BigMac theory says that you should expect the value of the Euro to go up until it reaches the PPP exchange rate. If the actual exchange rate is higher, then the BigMac theory says that you should expect the value of the Euro to go down until it reaches the PPP exchange rate.

The Over/Under valuation against the dollar is calculated as:

(PPP - Exchange Rate)         
----------------------------------     x 100
Exchange Rate         

Greenspan's policy from 1995 to 09/11/2001 was deflationary. Any chart of commodity prices shows that.

So here then is CRB spot index (reflecting the price of commodities) vs CPI-Urban and the GDP Price Deflator.

Note the CPI-U rises over 23 years from ~75 to ~190 for a 250% increase, while the GDP price deflator rises from ~60 to ~115 for a 190% increase. I.e. a $1.00 Big Mac in 1980 will cost you $2.90 - $3.50 today (the way BEA measures CPI). That's inflation. But as I said they "adjust" it so it understates, and food and energy are excluded.

Perhaps you can explain:

1. Why CPI & GDP price deflator rise continuously - there is no period of 'deflation' aside from a slight slowing during recessions.
2. Why does the CRB index not track either the CPI or GDP Deflator if commodity prices are supposed to reflect either inflation or deflation?
3. Why doesn't the CRB index show deflation from '95-'97?

When did federal politicians become spendthrifts? If anything, politicians want COLAs to be on the high side, especially in deflationary times, because they want to keep the votes they've bought safe, and they are spending other people's money.

A COLA is a "Cost of Living Adjustment" - an increase/decrease in SS payments for example, based on the CPI. During deflationary times, CPI would be negative and hence COLAs would subtract from the SS payment (though actually I think the regs only provide for increases due to inflation, never a decrease for deflation - but I might be wrong on that point).

When did federal politicians become spendthrifts?

spend-thrift

Pronunciation: (spend'thrift), [key]
-n.
a person who spends possessions or money extravagantly or wastefully; prodigal.

LOL! - Since birth? It's a congenital defect in politicians.

[Starwind]

DJ CEA's Mankiw: Jobs Data Show Econ `Fits And Starts' -CNN

NEW YORK (Dow Jones)--The Bush administration's top economic adviser said Friday that the latest U.S. data showing a smaller-than-expected rise in payrolls were a piece of "bad news" that could be expected in an economy that's on the path to recovery.

"The economy doesn't turn on a dime - it reacts slowly and as it's turning, you'll see some fits and starts," Gregory Mankiw, chairman of President George W. Bush's Council of Economic Advisers, told Cable News Network in an interview.

The Labor Department reported Friday that the U.S. unemployment rate declined to 5.7% in December, the lowest level in 14 months, although payroll jobs rose by only 1,000, far below the 100,000 jobs forecast by analysts.

The decline in unemployment, however, was attributed in part to upwards of 300,000 people who lost their jobs but stopped looking for work.

Mankiw said that when last quarter's data showed the economy grew at more than an 8% rate, "We said that wouldn't continue. You wouldn't expect every piece of news to be good."

The overall picture, Mankiw said, shows good economic news over the past month, thanks to the conditions the administration has put in place for the economy to move forward.

He said most private sector forecasts for 2004 expect real growth of 4% in gross domestic product, compared with a historical average of 3.3%. "So we're expecting a good 2004 in part because we have the right policies...(and) we're working hard to achieve that goal."

Mankiw said the tally of 250,000 jobs created since the summer "isn't enough." "We want to see more job creation and want things to get better for the American worker."

Mankiw defended Bush from the blistering comments made by former Treasury Secretary Paul O'Neill, who described Bush as "a blind man in a roomful of deaf people" when it came to economic policy discussions.

"No, that's not my experience at all. The president understands the economy. He comes from a business background...an MBA. He has a very good gut instinct of what makes businesses grow, what makes businesses hire and what makes the economy tick," Mankiw said.

In a CBS News interview, O'Neill, who was eased out from Bush's Cabinet after two years on the job as Treasury secretary, told CBS News that the president was disengaged during Cabinet meetings.

O'Neill also described a one-on-one meeting with Bush, in which, he said he "went in with a long list of things to talk about...to engage (him) on...I was surprised it turned out me talking and the president just listening...It was mostly a monologue."


-By Rod Alvarez, Dow Jones Newswires; 201-938-4378; hbsglobaldesk@dowjones.com


(END) Dow Jones Newswires

01-09-04 1702ET- - 05 02 PM EST 01-09-04