Posted on 10/20/2004 2:40:59 PM PDT by Willie Green
For education and discussion only. Not for commercial use.
If you think Pedro Martinez' numbers against the New York Yankees look bad (and they do), they're nothing compared with the government's latest monthly trade figures. Dismal as the Boston Red Sox ace's performance against the Bronx Bombers has been, he looks like a champion next to the trade numbers, which are one important measure of the U.S. economy's performance against the rest of the world.
Not that the trade surplus and deficit figures tell us everything we need to know about America's competitiveness. In particular, they compare apples and oranges – how U.S. products fare in overseas markets versus how foreign products do in U.S. markets. And even studying the trade figures industry by industry can be misleading. By definition, they can't shed light on which U.S. industries depend how heavily on exports and/or face major foreign competitors, and which U.S. industries sell mainly to the humongous U.S. market and/or face little import competition.
Still, according to mainstream economic theory, these trade balance figures say a great deal about the relative strength of America's economy, whether it is waxing or waning, and what its future composition will be. The reason? What a country trades most successfully – where it wracks up its biggest surpluses - eventually becomes what it makes most successfully and prolifically. And what it trades least successfully – where it wracks up its biggest deficits - eventually becomes what it makes least successfully and prolifically. That, in plain English, is what comparative advantage in all its forms is all about.
The deficits also show that the United States is a country that consumes far more than it produces. Although the economic price for this profligacy has appeared minor so far, anyone expecting the situation to last forever and is blasé about its worsening must believe there really are free lunches after all.
The August, 2004 trade figures released Oct. 14 by the Census Bureau show an overall U.S. deficit in goods and services of $54.04 billion, second all-time only to June´s $55.2 billion. This year´s January-August deficit level, as a result, is more than 19 percent larger than last year´s, meaning that the annual deficit figure is on its way to smashing last year´s $421 billion record total.
Even worse, the U.S. deficits keep soaring despite the soft patch recently encountered in domestic growth, and the gradual continued weakening of the dollar. The first is supposed to keep imports down and the second is supposed to buoy exports, but little of these macroeconomic effects are being felt.
Further, the closer one examines the deficit figures, the worse they look. Remember the rule that what a country trades most successfully it will wind up making most successfully? Well, by this logic, the United States doesn´t have much of a long-term future as a manufacturer. August´s manufacturing deficit was the second highest on record, and this year´s cumulative manufacturing deficit so far is more than 21 percent higher than last year´s January to August record total of $307.45 billion.
And don´t think that the problem is concentrated in so-called dinosaur, smokestack industries – which, incidentally, create most of America´s best-paying jobs on average. The $4.5 billion August deficit in advanced technology products set a new record, too.
Of course, many supporters of current U.S. trade policies see no special value in maintaining a world-class domestic manufacturing at all. But the August trade figures should scare them, too. America´s longstanding surplus in tradable services shrank by 19 percent, to $3.2 billion – the lowest surplus since the Census Bureau began tracking this trade in 1992. Since 2001, moreover, the January-August service surplus has declined a stunning 27 percent, to $33.07 billion. Still think that we can export our way out of our enormous national trade deficits and resulting debts by speeding up our shift to a service economy? Please!
Even more worrisome, much evidence indicates that the United States is also seeing its competitive edge erode in information technology and professional services – the supposed industries of the future, for which displaced manufacturing workers are supposed to reeducate and retrain themselves, and which America´s youth should target during their schooling.
The U.S. surplus in the “other private services” category, which captures trends in these sectors, did rise from $31.44 billion in the January-August, 2001 period to $33.15 billion in January-August, 2002. Since then, however, the surplus has fallen by 4.4 percent, including a fractional decrease in August, 2004, to $3.96 billion. In August, 2003, the surplus was $4.08 billion – 2.94 percent higher.
When America began losing older industries such as textile and apparel and steel, free trade cheerleaders predicted that the forces of comparative advantage would push the nation up the technology ladder to automobiles and ships and machine tools and consumer electronics. When these industries began faltering, Americans were told not to worry, for they would be freed up to concentrate on high tech goods like computers and semiconductors and aircraft and advanced telecoms equipment. When many of these industries began migrating en masse to high-income Japan and then low-income countries like China, professional services like law, engineering, and finance, and info-tech services like software writing were then declared the new economic future.
The latest trade figures show that these sectors won´t be saviors for the vast majority of America´s workforce, either – leaving two obvious alternatives. Americans´ comparative advantage will be in sales – hawking to each other the wares of other nations. Or maybe we´ll just all go back to the farm. But the only problem with that scenario is that farming is also under intensive attack from foreign competition.
Which is an example of what, again?
The point which the free trade contingent is determined to avoid is their distortion of the word "expensive".
Something can be more expensive either because...
1. The price has gone up. Or...
2. I am poorer.
The free traders are deliberately confusing absolute (the price across time) and relative (what the average household can afford to spend in monthly payments given its income) expense.
The car price, adjusted for inflation, has NOT gone up. Condition #1 is false. So distractions about the physical difference between the 2005 and 1964 car are meaningless. Auto manufacturers have doubled the loan term because Condition #2 obviously applies. Adjusted for inflation it is the same purchase price. It is just that the consumer can no longer afford to pay it in 3 years because he is poorer.
In very broad terms, I can agree with that.
1964 was pre- Great Society welfare, pre- Vietnam, pre- OSHA, EPA, pre- OPEC Arab Oil Embargo, pre- hyperinflation, stagflation and misery index, pre- Cold War Star Wars deficit spending, pre- S&L crisis and bailout, pre- Y2K frenzy and dotbomb bubble... etc. etc.
I don't know whether or not the stats properly reflect all that or not...
After the congresscritters got their heinies spanked with the "misery index" they changed the calculation of CPI to help cover their butts.
But "low purchase price" alone isn't a very good measure...
Overall, it's merely perpetuating a false illusion of wealth that's being propped up by creation of unfathomably massive debt.
We're being suckered by the old "buy now, pay later" sales pitch.
The political shills are pretending that "later" will never come.
"It is just that the consumer can no longer afford to pay [a car loan] in 3 years because he is poorer."
And your evidence for this is that consumers choose car loans with longer terms?
_____
Circular reasoning is the practice of assuming something, in order to prove the very thing that you assumed. In Logic-speak, you assume that proposition A is true, and use that premise (directly or indirectly) to prove that proposition A is true. This is one of many logical fallacies that routinely get used in heated arguments, and is actually a special case of the fallacy of false assumptions.
Are six year loans available for used cars ? No they are not. Only for new. That fact alone indicates that marketers acknowledge that in order to sell their new car inventories, they need to give the consumers more time to pay them off. This is unnecessary with used cars.
Such a necessity reflect a shift in the customer base, a decline in the number of customers who can comfortably afford a four year loan for a new car.
Again, your evidence does not support your assertion. Auto manufacturers do not get paid by the distributer until a new car is sold. For this reason, auto makers have an interest in getting people to buy new cars. "Better" credit terms, in the eye of the consumer, may make him purchase a car he otherwise wouldn't. It's not a coincidence that these "better" credit terms also mean higher profit-margins for the manufacturer.
To come back to your argument, you could just as easily argue that consumers are "poorer" because auto makers spend billions of dollars on advertising. If consumers weren't so poor, then cars would sell themselves, right?
this comes up every time. the only meaningful statistic is private sector wages excluding government employees (public school teachers, workers at public hospitals, public transportation) - because they get raises every year paid for by taxes from the private sector - and excluding executives making over $300K per year (arbitrary), because we are trying to exclude the concentration effects of offshoring. Oracle sends 500 $70K engineering jobs to India, those workers end up earning 30% less at their new jobs, but 25 Oracle executives take home a $500K bonus as a result.
That's the only real wage trend I am interested in seeing. Of course, the public school teachers don't care about this wage trend from their perspective, and that's their business. But to find out what is really happening to the private sector middle class, this is what you would need to see.
So you're saying that despite all the added safety and luxury features in todays cars, the prices haven't gone up. Sounds like we can get more for our money and this is bad how exactly?
My comment #86 was a narrow one to the effect that the below table taken in isolation (first referenced in your comment #80) didn't show the complete story:
| Motor vehicle parts, not including engines | $6,813 |
| Automobiles | $2,999 |
| Motor vehicle engines | $1,773 |
| Trucks | $1,304 |
| Unshaped plastics | $436 |
| Motor vehicle engine parts | $403 |
| Plate, sheet & strip, steel | $300 |
| Air conditioning & refrigeration equipment | $287 |
| Bolts, nuts & screws | $188 |
| Furniture & fixtures | $176 |
By itself, the table shows tangible, desirable results of $15 billion in exports from Michigan to Canada; however, taking into account the countervailing table from the same page showing $39 billion worth of imports from Canada to Michigan:
| Automobiles | $22,587 |
| Trucks | $7,968 |
| Motor vehicle parts, not including engines | $4,187 |
| Motor vehicle engines & parts | $1,310 |
| Synthetic rubber & plastics | $782 |
| Crude petroleum | $763 |
| Natural gas | $633 |
| Basic metal products | $375 |
| Aluminum, including alloys | $329 |
| Plate, sheet & strip, steel | $326 |
We see that there is a large trade deficit over $20 billion by Michigan with Canada (assuming that all other "non-leading" items are in aggregate insignificant).
But to address the wider point about NAFTA that you quite rightly bring the focus back to in #113, to wit: "Unless you are arguing that, if NAFTA is repealed, Michigan will produce all of the displaced categories by itself, that argument is virtually impossible to make" it seems very clear to me that if Michigan merely produced the first item in the second list, automobiles, -- and, yes, Michigan certainly can produce automobiles as well as Canada can -- merely producing this $22 billion item would almost correct Michigan's entire trade balance with Canada.
And by just producing the next item on the second list, trucks, and shifting this $8 billion back to our side of the border -- and, yes, Michigan can produce trucks just as well as Canada -- that would entirely eliminate Michigan's trade deficit with Canada.
Are you trying to say that a trade deficit is intrinsically bad or a surplus is intrinsically good?
President Bush is just reversing the errors of President Reagan. /bold sarcasm
Cars are a necessity here unless you live in some housing project and can walk to a store and the welfare office --- otherwise it would be quite difficult for most people to work --- mass transportation wouldn't cut it --- too many long waits at the housing projects and then the malls and free clinics where all the bus routes and stops seem to be.
Also --- what of the price of other essentials? Property taxes --- what were those in the 60's or 70's compared with today, home-heating, electricity --- or food ---- milk is running something like $3.50 a gallon --- even more than gasoline.
How many families --- 6, 7, 8 or even more kids were living in one-income families, one wage-earner was able to support the entire family, no food stamps, no housing subsidies, no Medicaid? How many one-income families are there today in comparison --- which get no government help? My own father with a high school diploma, a family of 7, a stay-at-home wife was able to buy a house in his early 20's, pay it off in 15 years, and a lot more ---- that was pretty common back then --- today two college graduates would have some trouble affording that same house he bought in his early 20's --- and with a 30 year mortgage.
Would you buy one of those if it was 5 years or more old? Would you buy one if it had over 100,000 miles on it? You can still see some of those old cars from the 60's and 70's still on the road --- lots around here but those imports don't look good after just a few years.
Why didn't the prices of cars actually just go down when the labor became so much cheaper? What were those union workers making in Michigan in the 70's? It was a whole lot more than Mexicans and Chinese earn today --- so why the jump from $3000-$4000 way up to $30,000? It's not just the air-conditioners --- and cars in the past were made of metal, today they're mostly plastic.
Is that because of falling real income or rising taxes?
Why didn't the prices rise when all the new features were added?
How much more can the prices rise??? They seem to be quite risen --- a car today costs more than a house did not too long ago. To me a car that I wouldn't buy if it was over 5 years old or had over 100,000 miles isn't worth much --- and that includes just about any of the "cheaper" imports --- you just don't find many being driven when they reach that. A 6 year loan for a car that loses it's value in 4 years is not smart --- but you see a lot of people with them.
A lot of those rising taxes are to pay for the government social programs for a population that is unable to work and provide much of a living for itself. In this area you can find many "NAFTA displaced workers" --- thousands of them who will never work again --- many are only in their 40's and 50's and they're living off the many government programs which taxes must support.
I could see the free trade argument that we don't need low skilled laborers if we weren't importing so many at higher rates than ever --- and also if we would encourage those we have to leave the country to follow their jobs out.
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