Missing The Point

When people become tokens it becomes very easy to miss the trees for the forest. Especially when you are a Washington DC think tank full of cloud minded big thinkers who never see the devastation as it blows across the country.


Living in the clouds produces thinking like this. While, by and large I agree with a lot of what Cato says, this post comes under the term, “not helping.”  Look, the reasons that jobs are going away are not hard to find.  I’m not a highly paid economist, just a guy with a computer and yet I seem to have not trouble finding all the evidence that one would want.  I’m not sure why people stick to the same old explanations like this:

It is true that manufacturing is a much smaller portion of the American economy than it was in, say, the 1950s. Manufacturing’s share of the U.S. economy is just 12.1 percent of GDP, compared with a peak of 28.1 percent in 1953. But that’s not because, as anti-trade zealots would have it, “we don’t make things any more.” U.S. manufacturing’s value added in 2014 hit an all-time high of $2.1 trillion, compared to just $110 billion in 1953 (in constant dollars). Yes, a lot of the things you find at your local Wal-Mart are made somewhere else, but that’s because U.S. manufacturing has shifted toward high-end products. The U.S. manufacturing sector is so robust that the stock of foreign direct investment exceeds $1 trillion, far more than foreigners invest in our competitors….

Robots and automation have changed everything. The biggest threat today to low-skilled workers is not China, but automation. As detailed in the 2016 Economic Report of the President, jobs with an hourly wage of less than 20 dollars have a median probability of being automated 2.7 times higher than jobs paying 20 to 40 dollars. And robots are steadily getting smarter and able to handle more tasks. Think what self-driving cars could mean to everything from taxis to long-haul trucking.

Again, that’s a good thing. There is a story, likely apocryphal, about Milton Friedman. While touring China, he came upon a team of nearly 100 workers building an earthen dam with shovels. Friedman pointed out that with a bulldozer, a single worker could create the dam in an afternoon. A Communist official replied, “Yes, but think of all the unemployment that would create.”

“Oh,” said Friedman, “I thought you were building a dam. If it’s jobs you want, then take away their shovels and give them spoons.”

Trying to preserve low-skilled manufacturing jobs in America today makes little more sense than Friedman’s spoon brigade. And such jobs are only going to become less viable in the face of government policies that make workers even more costly compared to the amount of value their labor provides. This week, Governor Jerry Brown and the California legislature seem to have reached a deal to impose an increase in the minimum wage from its current $10 an hour to $15 an hour by 2022. California is currently home to some 600,000 low-skilled manufacturing jobs. The new minimum wage will put many of those jobs at risk. It makes little difference whether they are taken by robots or outsourced to China or simply eliminated. Those jobs will be gone…

Of course, the change in American manufacturing has been far from painless. Certain cities, regions, and individuals pay a disproportionate price. I was born in a small New England town that was once a center of the textile industry. But within a decade of my birth, that industry and its jobs were mostly gone. At that time they left not for Mexico or China, but for Southern states that had lower wages, lower taxes, and fewer regulations. The destination didn’t matter much, though, for the people left behind. Losing that industry was devastating for the entire community.

But it was also inevitable and had nothing to do with foreign trade.

Instead of false promises about returning us to the 1950s, we would be better served if the candidates focused on how to create a climate for economic growth and entrepreneurship that will lead to new jobs — jobs that will fit with today’s economic reality. Our rate of new-business creation is half what it was in the 1980s, and we are only 33rd in the World Bank’s rankings of how easy it is to start a business. Yet we see candidates like Hillary Clinton and Bernie Sanders promising to pile new taxes and regulations onto American businesses. Similarly, Donald Trump’s proposal for 45 percent tariffs will not just hurt consumers; it will mean less investment in new jobs and new industries.



It becomes all too easy to dismiss lost jobs as “progress.”  “Post industrial economy, knowledge workers, automation, yada, yada” and on and on. The problem is that talking like this only masks potential real problems.  You need to ask yourself if the jobs went away because of obsolescence, or were they kicked. I used to think a lot like Mr. Tanner, until I realized that there was a lot more going on than just jobs being offshored.


Here’s a case that far too much of the economy is being kicked. Now I don’t like the coal industry, but this is a clear case of government guided destruction.  The coal industry isn’t in trouble because of natural gas plants, it’s in trouble because fanatical bureaucrats are working to shut it down.





Smash coal and a bunch of other industries, like railroads and heavy machinery take hits too, then all their vendors and so on and so forth. An economy doesn’t die all at once, unless it’s incredibly monolithic, it dies as the diversity and energy is destroyed sometimes by market action and sometimes like the coal industry, by government meddling and destructive regulations and taxes.

I realized that there were real bad things happening when I started to look at intergrated steel mills and realized that even modern, fairly new plants were being shut down and disappearing.  I mean I would download a video about steel plant operations from the 1980’s of 1990’s and look for the plant’s website and location and it would be an empty lot or repurposed.




As far as I’ve been able to determine, the number of integrated mills has shrunk to eleven, if more haven’t closed since I last checked.  Meanwhile the Union Pacific railroad built it’s own ship to ship rails in, from Japan.


If you think the steel situation is bad, just check Aluminum.  The number of smelters has gone down from 23 to EIGHT. Let’s all cheer our government and Chinese dumping.



Ok, that’s heavy industry, well steel, Aluminum, Lead, cement, petrochemicals and whole bunch of other stuff that’s taken a hit.  How about those knowledge workers, their growing, right? maybe not so much.


That’s old computer tech, it’s not surprising that that would be in trouble, how about publishing? Not so good I’m afraid.


Ok how about the service economy, you know all that post industrial stuff, that’s doing great too, isn’t it?  Not so much.


The fact is that, except for a few unicorns, the patterns are pretty much the same across the economy.


Well new tings are happening, all sorts of new products being created, how’s that doing?  Check for yourself.


So how’s small business doing?  After all, small business creates most of jobs, right?  Well small businesses seems to have the same sort of problems.


So apparently just about every level and type of business in the economy is being hammered.  Not all businesses.  Here’s a few mature businesses that seem to be doing well in spite of the hammering.



Here’s a shirt factory.



And another one.

Here’s a shoe factory.


So obviously mature industries can survive in post industrial economies.  It’s not labor that’s killing our industry, so what is?




The problem is that the only growth industry right now is the one where the only thing it produces is misery, government. When I was growing up, government was supposed to be all about service.  It turns out that that was a HUGE lie. Government isn’t about making the people better, it’s about serving itself.

Read this article from the head of Pfizer


And this.

Pfizer CEO Ian Read defends the company’s planned merger in an op-ed nearby, and his larger point about capricious political power helps explain the economic malaise of the last seven years. “If the rules can be changed arbitrarily and applied retroactively, how can any U.S. company engage in the long-term investment planning necessary to compete,” Mr. Read writes. “The new ‘rules’ show that there are no set rules. Political dogma is the only rule.”

He’s right, as every CEO we know will admit privately. This politicization has spread across most of the economy during the Obama years, as regulators rewrite longstanding interpretations of longstanding laws in order to achieve the policy goals they can’t or won’t negotiate with Congress. Telecoms, consumer finance, for-profit education, carbon energy, auto lending, auto-fuel economy, truck emissions, home mortgages, health care and so much more.



It’s not an accident that business shuts down just as government grows.  Government growth inevitably means that long terms plans need to be reassessed and perhaps canceled. To make matters worse, all too much government behaves at this level of maturity.

How can you have a reasonable debate about much needed revisions to the tax code and laws if the people in charge of those laws act like seven year olds. How can you have an honest discussion about taxes and how destructive they are if the only response to any reform is a screech as from a seven year old, “tax cuts for the rich!!!”  Here’s a clue people, it’s not the rich that are being hurt by high taxes, it’s those who lo longer have jobs because nobody can invest in the capricious tax environment powered by insatiable greed. The truth is that only children and government taxers go,” mine, mine, mine, it’s all mine.”

In addition to being big taxers, the governments of the developed countries have spent that money creating ever larger numbers of regulations. The country is so regulated that it’s gotten to the point that it’s almost impossible to open a new plant here  in the US, in fact it’s so bad that it would be almost  insane to open a new plant in the states for all too many.  Here’s a letter to the editor from the WSJ.

The board of a sock manufacturer concludes that it needs another plant. The CEO and CFO do an analysis for opening a new plant in the U.S. They factor in the highest corporate tax rate in the world along with the costs of preparing the required EPA applications and a multiyear delay while the EPA considers it without knowing if they will be successful. Assuming the facility is approved, they factor in the costs of union-level wages and benefits, including mandated health care along with requirements necessary to comply with Dodd-Frank. The list goes on. Completing the analysis, they find that covering these costs and making a reasonable profit requires pricing every pair of socks at $50. Alternatively, they could open the new plant overseas and continue to price their socks at $4.

The simple fact that the U.S. is the most expensive and problematic place in the world to manufacture products must be taken into account. Until the U.S. becomes a more attractive place for manufacturing, don’t expect it to return.


Is it any wonder that Ford is moving South.


Then there’s that ever  increasing demands on the Fed to attempt to manipulate the economy.   The problem is that a reserve bank has limited tools for manipulation and most of those create great distortions in the price mechanisms and investment decisions that are critical for a flourishing economy.


Almost two-thirds of jobs created between 2002 and 2010 came from 23 million small businesses, according to the Small Business Administration. But venture capital investment in 2014 of $48 billion is just one-third of the 2000 total (in 2015 dollars), according to the National Venture Capital Association. There were half as many IPOs in 2015 as in 2000, and they were mostly focused on a few large deals. Back in 1999, there were seven times more IPOs than mergers and acquisitions for tech companies. Today merger and acquisitions outnumber IPOs by almost 36 to 1.

The Fed regulations and money manipulations have displaced an open market of IPOs by an exclusive game of horse trading among “qualified investors” who get rich and leave Main Street out, and fail to create new jobs….

The Fed began as a necessary “lender of last resort” during financial crises. But today, the Fed regulates the entire financial sector, from hedge funds to pawn shops. It issues and values the money by manipulating interest rates and manipulating money. Today the Fed serves the Washington bureaucracy and a few banks that are growing bigger. Through these banks, it effectively can regulate the entire economy.

What the Fed cannot do is becoming increasingly obvious: magically manipulate growth, which is the product of learning, into being. The Fed won its vast new powers because both Democrats and Republicans wanted an alibi. Rather than legislatively reform this administrative state that is smothering our economy, we prefer to have the Fed just issue money to paper it all over….

Like all command economies, the Fed is failing to spur growth. This failure has become so obvious that leading economists such as Ken Rogoff of Harvard and former Treasury Secretary Larry Summers now advocate the abolition of cash, so that interest rates can go below zero, meaning that through the Federal Reserve, the government can steal your savings without your representatives in Congress having to take political responsibility for levying a tax….

Currency trading is by far the biggest industry in the world economy. It is a runaway scandal of money. The banks make money off it. But the rest of us don’t even get a measuring stick that’s valid to gauge our savings, assure our retirements, or expand investment in business.

This is the first recovery in decades when small business jobs are actually shrinking. All the expansion is coming from the closed loop economy between the Fed, the bureaucracies and the big banks.

Declaring that the government monopoly on money is the source of all monetary evil, Friedrich Hayek, the great Austrian economist, predicted that capitalism would be saved by monetary competition from the private sector, which today can come from bitcoin and a new tie to gold. As the great British scholar Matt Ridley explained: “The government monopoly of money leads not just to the suppression of innovation and experiment, not just to inflation and debasement, not just to financial crises, but to inequality, too.”

The first step to a new prosperity is to give up the god that failed and break the government monopoly on money.


Look, it’s one thing  to say that all the jobs of the 1950’s have gone away and another to deny what’s really going on. Those jobs didn’t go away because of competition. Instead they were killed by a convergence of actions that while each individually might not have been an economy killer, combined have had devastating effects.  It’s not free trade, or the EPA or high taxes that are at fault, it’s that all those things acting all at the same time that make the mess as deep and difficult to climb out of as it is.

The result of the actions of the various institutions in the government/finance conglomerate is as if the economic ground of the US has been salted. The country has gone from one of the most profitable places to do business to one of the least profitable.  The impact that this has had on the economy is becoming increasingly obvious. The country has lost it’s fertile ground for the new technologies and the jobs to come.



So where do we go from here?  I have ideas, but this little blog doesn’t have any impact beyond a few hundred of viewers or so.  I do know that if step are not taken to reverse the rules and taxes of the last thirty years or so, it’s not going to end well. The governments of the West have taken large benefit burdens that will have to be dealt with one way or another. One way is to pursue policies that create economic growth, at least at 4% a year. Or be honest and admit to all those people who have been paying into the various entitlement programs for their entire lives that the money is simply gone.


Where did the future go?  It’s been spent.  Spent on extravagances, spent on war, spent on paying people to not work and feed the deep state. But most of all it’s been spent on what has been generational theft.  Worldwide, every country has put itself in the position that it’s responsible for mountains of government debts due to pension payoffs and bad economic bets that if nothing changes the entire globe will be in danger of default in a very short time.  Following the advice of the hedonist Keynes they spent the future and all of us and our children are stuck with a mortgage that we never singed up for and we are stuck with paying, without the tools and liberty to order the affairs of the country to allow it to meet it’s obligations because the elites in DC aren’t feeling the pain.

In order to get the future back we are going to have to accept that the party’s over. We are going to have to accept that the deep state and business as usual in Washington is no longer, “as usual.”  If we can get people to represent us and do the right things we can have a future. Unfortunately, in a lifetime of trying to get people to understand that I’ve never seen a consensus that that’s going to happen.


For more on the dysfunctional economy click Here or on the tag below.

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