Clueless in Seattle

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In Seattle, where I have spent most of my life, I often walk around a lake near where I live — Green Lake, which is bordered by a strip of public park. It is the most popular park in the city, hosting walkers, runners, skaters, and bicyclists on the paved path around the water. In this urban idyll a coven of campers lives year-round in RVs and tents or, in good weather, sleeps in the open on the ground. If I drive to the University of Washington, I go past another encampment near the freeway exit. Under an overpass by the University Bridge is a rag-and-cardboard hovel surrounded by stolen Safeway carts and piles of garbage.

We didn’t have this when I was growing up here in the 1960s, or many years afterward. Then you could see alcoholics in downtown Seattle, where they sat on park benches and drank. We called them bums. They were male, and mostly white or Native American. They lived in missions and flophouses. They didn’t pitch tents under overpasses and in city parks, because the city didn’t allow it. Legally it still doesn’t, but legality alone doesn’t matter. Seattle does allow it, which is why people do it.

Seattle’s unemployment rate is close to 3%, which is as low as it ever gets. There is plenty of work.

The mix looks different now. I see modern nylon tents, some of them with bicycles parked next to them, or discarded office chairs. Many of the homeless have electronic devices to play music.

The situation is not at all like the famous picture from the 1930s of the “Hooverville” of squatter shacks with the pointed top of the Smith Tower in the background. That was a time of social emergency, of 20 or 30% unemployment. Today the city is booming. Seattle’s unemployment rate is close to 3%, which is as low as it ever gets. There is plenty of work. As I write, within one block of my house are two “Help Wanted” signs on restaurants. Within five blocks are several building sites where work has been repeatedly stopped, probably because of the shortage of labor.

Nor is the problem that Seattle is nasty to the homeless. Quite the contrary. I refer to The Hungry American, a book self-published 2004 by Tom McDevitt, an Idaho doctor who went slumming as his retirement project. Of all the cities in which he practiced being a bum — Pocatello, Salt Lake, Phoenix, San Francisco, New York, and Seattle — my city was the most generous. But in none of those cities, he said, did the homeless starve. The hunger he saw in the Sad Sacks around him “was not of the belly kind, but the gnawing hunger for tobacco, alcohol, drugs and relief for a tortured mind,” he wrote. “In America people are homeless because either consciously or subconsciously they want to be homeless.”

To Seattle progressives this is a cold, insensitive, reactionary, and racist point of view. Their view was correctly expressed in the Seattle Times last November by Adrienne Quinn, who earned $188,662 in 2017 as director of the King County (Seattle) Department of Community and Human Services.

When I see people living in tents on the shores of Green Lake, living out of rat’s-nest cars and RVs within a mile of my house, am I really to believe that it is not their fault?

“Homelessness is a symptom of failures in the child-welfare system, racism, wage inequity, the failure to adequately fund mental-health and addiction services, and skyrocketing housing costs,” she wrote. “Not being able to find an apartment for less than $2,000 a month, or being put on waitlists for housing or treatment, or living in foster homes as a child are not individual failings; they are societal failings.”

I have a relative who is adopting two boys from foster care. Before being in foster care they were living on the street and eating out of dumpsters. Their plight was terrible. But it was the fault of individuals, not “society.” The individuals at fault were their parents, who were heroin addicts.

When I see people — white men, mostly — living in tents on the shores of Green Lake, living out of rat’s-nest cars and RVs within a mile of my house, am I really to believe that it is not their fault? The other day I asked one of the Green Lake maintenance men about the camper that has been parked all winter in lower Woodland Park, a few hundred feet from the sign that says, “No Camping.”

“We can’t do anything about that,” he said. “They send social workers to talk to those guys.” The social workers’ job is to convince the homeless to use social services.

That’s Seattle.

The Seattle Times has a special team funded by outside donors — Starbucks, the Seattle Mariners, the Bill and Melinda Gates Foundation, and others — that writes about nothing but the homeless. Recently the Times had a story about the death on April 5 of Sabrina Tate, 27, who had been living out of a camper in a city-sanctioned homeless parking lot the politicians called a “safe zone.”

Economically, Seattle is a stunningly successful city.

Sabrina Tate was from Spokane, a city less transformed by entrepreneurial capitalism than Seattle. She got into the drug lifestyle as a teenager, after her parents divorced, and she eventually moved to the Pacific Northwest’s big city. She became a heroin addict and was for some years. In February she had gone back to Spokane and seen her mother, who was alarmed that Sabrina’s legs were swollen and infected as a side effect of drug use. Her mother offered to take her to the hospital to treat her legs and kick the heroin, but Sabrina insisted on returning to the “safe zone” and her camper, where shortly thereafter she was found dead on the floor.

Her parents got back together long enough to come to Seattle to see where their daughter had lived and died. They had never seen it. Inside Sabrina’s RV, wrote Times reporter Vianna Davila

The place was trashed. Flies buzzed around rotted food. There was hardly any room on the floor, though investigators told them that’s where her body was found. Much of the floor was covered with wet clothes, possibly the result of a leak in the roof. This looked nothing like the picture she had painted for them.

Her parents may never know if this was how Sabrina lived. They were told by police that the RV was quickly ransacked after her death.

The Times reporter recorded the reaction of Sabrina’s father, Tommi Tate. “I’m furious,” he said. Furious with his addict daughter? Furious with himself? Of course not. He was furious with the government.

“This kind of stuff shouldn’t happen and it doesn’t need to happen, and it’s only going to stop if people quit looking the other way and if our governments really, truly care,” he said. “Shame on Seattle.”

Shame on Seattle?

Reading that, I wanted to say, “Hey! You're her father. Where wereyou? It wasn’t the government's job to care about your daughter; it was yours. And at age 27, it was hers, and had been for some time. She made years and years of bad choices to get where she was. It had nothing to do with whether public employees ‘really, truly cared.’”

The median price of a single-family house in Seattle has jumped to $800,000. The median rent on a one-bedroom apartment is pushing $2,000.

This story spoke strongly to me, because I have a son the same age as the dead girl. The difference is, he is healthy and has a career and a home. Why is that? Is it because the city employees here really, truly cared for him?

Enough stupid questions.

Economically, Seattle is a stunningly successful city. Recalling the city I knew as a kid back in the early 1960s, I remember the brick buildings downtown, most of them, like the Smith Tower, built in a burst of investment in the second and third decades of the century. That old downtown has been buried in a forest of glass-and-steel skyscrapers, the latest of which are being built for Amazon. For most of my life, the city population was stuck between 525,000 and 550,000. Suddenly it’s at 700,000. Including Seattle, King County’s population is now 2.1 million.

Among the state’s 39 counties, King County, the largest in population, has the highest average per-capita personal income. Seattle’s figure is $40,868, more than 40% above the U.S. average. King County is the home to Boeing’s commercial airplane division, Microsoft, Amazon, Starbucks, Costco and Nordstrom. It is the home of Jeff Bezos, Paul Allen, and Bill Gates.

To the disappointment to the Democrats who run state government in Olympia, Washington does not have a state income tax.

The median price of a single-family house in Seattle has jumped to $800,000. The median rent on a one-bedroom apartment is pushing $2,000. Part of this is because of Seattle’s restrictive zoning code and King County’s growth-management policy, and the Left mostly ignores this, but the commercial growth is the most important reason.

Politically, King County is the most leftwing county in the state. Here’s the picture from 2016, in which Hillary Clinton easily carried the state of Washington. Statewide, Donald Trump took 37% of the vote. In King County, he got 21%. In Seattle, he got 9%. Since the 1980s, Seattle has been a one-party town. To be identified as a Republican in this city is instant political death.

But we do have a communist on the city council.

Am I “red-baiting?” I suppose so. Councilwoman Kshama Sawant calls herself a socialist and says she’s for democracy. But she has identified herself as a member of Socialist Alternative, which the Internet tells me is a Trotskyist organization — meaning Leon Trotsky, former chief commissar of the Red Army. Sawant’s campaign manager told me she was a Marxist, and in listening to her when she first ran for office, I judged that he was correct. She came out for nationalizing Boeing, for example. If all that doesn’t justify the c-word, then I withdraw it. Sawant is pretty far left, though. She voted against Seattle’s famous $15-an-hour minimum wage law because it wasn’t strong enough.

The rest of Seattle’s city council is all deeply Progressive. And given the view around here of the “root causes” of people sleeping in the park, there should be no surprise at the solution the council has reached.

Raise taxes on business.

Seattle is not a low-tax city. We have a property tax that hits most homeowners between $5,000 and $10,000 a year, and a retail sales tax at the nose-bleeding level of 10.1%. (Buy a car here, and feel the pain.) We have a tax on soda pop and a tax on disposable grocery bags. But to the disappointment to the Democrats who run state government in Olympia, Washington does not have a state income tax. The people voted for one in 1932, but the Washington Supreme Court threw it out, and statewide voters have since rejected it four times. Seattle has tried to impose a city income tax, and has been blocked in the courts.

This is a tax on employment to fund non-employment.

Now to the matter at hand, the head tax. This is how Seattle’s ruling class — its political ruling class — proposes to raise the $75 million it wants for the homeless: a 26-cent-an-hour tax on payrolls of companies with at least $20 million in annual gross sales.

Work out the math. Twenty-six cents an hour is more than $500 per employee per year. This is a tax on employment to fund non-employment. And the only employers obliged to pay it would be the for-profit companies. As I read it, the Bill and Melinda Gates Foundation would not have to pay, nor would Seattle’s big multimillion-dollar medical groups — Swedish, Virginia Mason, and Kaiser Permanente Washington — nor would Recreational Equipment Inc., a membership cooperative. Neither Boeing nor Microsoft nor (except one store) Costco Wholesale would have to pay, because they are not actually based in the city. But Nordstrom and Starbucks would have to pay, as would Amazon, which put itself right where Seattle progressives wanted, near the light-rail line at the north end of downtown. Amazon would be nailed for some $20 million a year.

And CEO Jeff Bezos, who has Amazon looking for a second headquarters city already, doesn’t want Amazon to pay. Amazon has announced that it is suspending planning for its next Seattle skyscraper, and that if the head tax is passed, it will build somewhere else.

The push for a head tax has not gone unchallenged. An opposition now coalesces.

I haven’t heard anyone say the company doesn’t mean it. The leaders of the Aerospace Machinists did say that a decade ago when Boeing threatened to open an assembly line for the 787 jet transport in South Carolina unless it got a ten-year no-strike agreement in the labor contract. The union guys didn’t believe the company. They rejected the concessions — and Boeing opened the line in South Carolina, just as it said. People in Seattle also remember when Boeing moved its corporate headquarters to Chicago.

They believe Bezos’ threat.

And the Left’s attitude toward this? Katie Herzog, writer for The Stranger, Seattle’s left-wing entertainment weekly, quotes Bezos on The Stranger’s blog saying that he wants to put his personal billions into space travel. Confusing Bezos’s personal money with Amazon’s corporate money, she writes:

“WHAT THE FUCKING FUCK, JEFF BEZOS??? THE ONLY WAY TO SPEND YOUR MONEY IS SENDING IT TO SPACE???? Please, excuse me for a moment while I go burn my Prime membership. (Just kidding. I use my dad's.) Here's one way Bezos, who has yet to make any significant philanthropic mark on the world, could spend his 130 billion dollars: PAY THE FUCKING HEAD TAX.”

I hear people who are angry — and almost all of them are Democrats.

Socialist Councilwoman Sawant, Herzog writes, should lock Bezos in a room and convince him to “get his shining head out of his ass and start using his wealth to help people other than himself.”

That is the Seattle Left in full, in its ideas and its manners.

The push for a head tax has not gone unchallenged. An opposition now coalesces. It includes the Greater Seattle Chamber of Commerce and other business groups long accustomed to the political culture called Seattle Nice. It includes the Seattle Times editorial page, which is urging Seattle Mayor Jenny Durkan to veto it. (Durkan, whom the Times supported for mayor, was Obama’s US Attorney here.) And when our socialist councilwoman and her groupies held a protest in front of Amazon’s new skyscraper, they faced a counterprotest of union ironworkers — the proletarians who would lose the chance to build Amazon’s new skyscraper.

The final vote is not scheduled until May 14. But whatever happens, much good has come of this. I hear people who are angry — and almost all of them are Democrats. Maybe Seattle will develop a two-party system — not a Republican-and-Democrat system, but some kind of opposition, some kind of choice. If it does, I will vote for whoever carries its flag.




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Imitating Obama?

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I confess that I am no fan of Trump. Actually, that dramatically understates it. I regard him as a dangerous populist ignoramus whose crudity of character makes him unfit for office. When he won the nomination, I sent the Republican National Committee a letter of resignation from the party to which I had belonged for four decades, and re-registered Libertarian. (I did this despite my impression that Gary Johnson was either a hopeless dope or congenitally loopy.)

It was for me, in short, a completely miserable election.

My only hope was that Trump, once in office, would at least pretend to be presidential, and would drop his nativist and protectionist stances, having decisively won the populist vote. And I admit I was cheered when he appointed a good judge to the Supreme Court, talked about repealing and replacing Obamacare, and also talked about lowering at least corporate taxes. He has so far been unable to deliver.

Nativists fear even legal immigrants, not seeing how beneficial they are to the economy.

But unfortunately he has pursued his nativist and protectionist agendas. On the nativist agenda, he killed DACA — setting up the deportation of upwards of a million young people brought here involuntarily, and raised with scant knowledge of the countries of their births. Not only did he refuse to increase the H-1B visa and other programs that legally allow in college-trained STEM and medical professionals, but he has actually proposed cutting all legal immigration by half. He continues demanding that a wall be built on the border with Mexico, even though illegal immigration from Mexico has been steadily dropping for a decade — indeed, for the last few years, more Mexican immigrants have returned home than have come north. (That’s because Mexico has a good growth rate, and is now in the top ten manufacturing countries on earth). Nativists fear even legal immigrants, not seeing how beneficial they are to the economy. For example, immigrants and immigrants alone are the reason we don’t face the same demographic implosion that the European countries and Japan face, and immigrants are disproportionately likely to open new businesses.

On Trump’s protectionist agenda, after killing the Trans-Pacific Partnership Agreement, Trump has set his sights on killing NAFTA. Several recent Wall Street Journal articles report on the administration’s attempt to renegotiate this deal, signed back in 1994. Trump’s curious hatred of Mexico and Canada is as bizarre as his love of Russia. In this he imitates Obama, who bashed NAFTA in his primary fight with America’s Sweetheart Hillary Clinton. At the time, most commentators assumed that this was just “Bubba bait” — that is, demagogic talk aimed at arousing nativism and protectionism by telling the economically illiterate that Evil Foreigners have “stolen” American jobs, jobs that usually have been automated away.

But to many people’s amazement, Obama — Trump’s match in protectionism — started trade wars with both Mexico and Canada shortly after assuming office. He stopped only when those countries fought back and kicked our economic behinds. For example, Obama violated NAFTA to “save” 200 trucking jobs (at the behest of one of his supporters, the Teamsters Union), but when Mexico retaliated with stiff tariffs against our farmers, 25,000 American jobs disappeared, whereupon Obama cancelled his policy with limited publicity.

After killing the Trans-Pacific Partnership Agreement, Trump has set his sights on killing NAFTA.

To his credit — and as readers of this estimable journal know, I was a consistent critic of Obama’s regime — Obama slowly but surely came to understand why more than 90% of economists favor free trade. Obama eventually approved of the three free-trade agreements left to him by George Bush, and late in his second term negotiated the TPP. Who knows, perhaps Obama finally read that Econ 101 text that he was too negligent to read as an undergrad.

But Trump is even more of a populist fool. He immediately killed the TPP, and has now targeted NAFTA. He is apparently surprised that both Mexico and Canada are fighting back. A bully is always amazed when the smaller boy he chooses to pick on hauls off and smacks him.

The Wall Street Journal reports just how close to a collapse of the NAFTA talks we are. We have seen record highs in the stock market, but this would almost surely change quickly should the talks collapse. One economic consulting firm, the Colorado-based ImpactECON, has put the net job losses at 125,000 for Canada, 256,000 for the US, and a whopping 961,000 for Mexico over the next three to five years.

Trump is apparently surprised that both Mexico and Canada are fighting back.

For those populists who will cheer the disproportionate job losses to Mexico, well, they may want to ask themselves whether their protectionism trumps their nativism here. That is, if we move to destroy nearly a million Mexican jobs, where oh where will all those newly unemployed Mexicans go to avoid starvation? Trump had better be prepared to build his wall quickly.

If NAFTA does get repealed, tariffs would undoubtedly result. At a minimum, the three member states would revert to their average tariffs rates: 3.5% for the US; 4.2% for Canada; and 7.5% for Mexico. But there is good reason to think that the tariffs will be much higher. Both Canada and Mexico will be furious at seeing the US dump the deal and will likely raise tariffs enormously. Moreover, the collapse of NAFTA and the Mexican job market will be the result. The American Automobile Policy Council estimates that the rise of the price of domestic auto parts from the tariffs will cost 50,000 US jobs. Another economic thinktank, Boston Consulting Group, gives the same estimate.

The ImpactECON study says the small gains in US employment in production of machinery and chemical industries will be swamped by losses in the agricultural, auto, and apparel industries.

Mexico could simply embargo products from the US — it just ordered its first shipment of wheat from Argentina, no doubt in anticipation of the looming trade war.

This last is a nice point — a point that Frédéric Bastiat would have underscored. What average Americans — including Trump — expect to see after NAFTA is some US manufacturing jobs disappearing while trade flourishes between us and our natural neighbors. They assume the trade will cause the job losses, which is debatable. But worse, they don’t see the gain in jobs in farming and other industries.

Under NAFTA, our agricultural exports to Mexico and Canada have risen fourfold, hitting $38 billion last year. If NAFTA is junked, the Mexicans could revert to their pre-NAFTA tariff levels of 75% on US chicken and corn syrup, 45% on turkey, potatoes, and dairy products, and 15% on wheat. You see, protectionism works both ways: Mexico pre-NAFTA was trying to protect its farmers from competition from American farmers. In fact, Mexico could simply embargo these products from the US — it just ordered its first shipment of wheat from Argentina (30,000 tons), no doubt in anticipation of the looming trade war.

The Mexicans, by the way, are especially angry. All major candidates for the upcoming presidential election there are opposed to what Trump is doing, but the one who is poised to make the most gains is the ultra-leftist Lopez Obrador. If Mexicans, in their righteous indignation, elect him, we could have a Cuba right on our border. For instance, Mexico could retaliate by cutting a free trade agreement with China, and allowing the Chinese to set up naval and army bases on its soil — which it is completely free to do under international law.

Talk about a “game-changer”: for the first time in US history, we would face a military threat from one of its long borders.

Even the author of the 2011 report by the leftist thinktank Economic Policy Institute, Robert Scott, has changed his mind. The report purported to show that NAFTA cost 700,000 US jobs, and was widely cited by protectionists of all political stripes. Scott now says that if NAFTA is abandoned, manufacturers will just “move” jobs to Asia.

The real “culprit” behind manufacturing job loss is not international trade; it is automation and creative destruction.

The NAFTA talks are approaching crisis phase, because the US is making unreasonable demands. For example, the US negotiator Robert Lighthizer wants a “sunset clause” requiring the agreement to be renewed every five years, and a watering down of the provision for arbitrating disputes.

Of course, the joke in all this is that the US was losing manufacturing jobs long before NAFTA. As early as 1974 sociologist Daniel Bell discussed the shift from industrial work to high-tech and service sectors in his book The Coming of Post-Industrial Economy, and the term “rust belt” was coined in 1982, more than a decade before NAFTA came into being. In fact, over the last decade all of the top ten manufacturing countries in the world lost manufacturing jobs. The real “culprit” is not international trade; it is automation and creative destruction. We don’t hand-bolt wheels on cars anymore, not because the Mexicans do it, but because robotic arms do. And we don’t make buggy whips anymore, not because the Chinese make them cheaper, but because we don’t have buggies.

The failure of many American workers to adjust to the shift from low-knowledge to high-tech factories results primarily from the pathetically poor average education they receive. I mean, you can’t read the instructions manual for the new computer-aided machinery if you can’t read to begin with. While other countries are reacting to the evolution of the industrial economy by building new colleges and trade schools, cranking out engineers, doctors, scientists and skilled workers, we struggle with risible high school and college dropout rates, a proliferation of humanities and social science majors, and vanishing trade schools.

We don’t make buggy whips anymore, not because the Chinese make them cheaper, but because we don’t have buggies.

All of this could be cured if we did what supposedly socialist Sweden did over a quarter century ago: immediately adopt a universal voucher program — that is, require all public schools in America to adopt perfectly pro-rata voucher systems within one year. But this would arouse the teachers’ unions like nothing else. They will protect the cushy jobs of mediocre and even positively bad teachers, forcing parents to keep their kids in failing schools.

Rising protectionism and fear of trade don’t just run the risk of depression and trade wars — which in turn run the risk of military war. They also distract us from the real cause of long-term blue-collar unemployment: a horribly broken educational system.




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The More Things Change . . .

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I will confess that I found this past presidential campaign sheer hell. I detested both Clinton and Trump, and voted for neither. I hoped that both would lose, and my only consolation was that they both did lose: Trump was defeated decisively in the popular vote, while Clinton was defeated decisively in the Electoral College contest. My view was and is that Trump will transform the Republican Party into a populist one, pushing nativism, protectionism, corporatism, and isolationism. It saddened me to see writers I had previously admired — such as Larry Kudlow and Steve Moore — who have long argued against the populist siren call to the Republican Party, succumb to it at last, in the form of Trump — The Boss. They, along with a large group of other soi-disant free market commentators, have been seduced by populism. This group I call “the Herd.”

Now, when those of us who are classical liberals — i.e., believers in the free movement of products, of physical capital, and of human capital — expressed alarm at Trump’s explicitly expressed nativism, animus toward Mexicans and Chinese, sexism of the crudest sort, and obvious protectionist aversion to free trade, the Kudlow-Moore Herd mooed, “Oh, he’s just saying that to get the workers’ votes. Don’t worry — he isn’t serious — it’s just bait for the bubbas.” The Herd never asked why the rest of us would ever be attracted by the pitch “Vote for The Boss — he would never do what he says he will!”

Well, even before assuming office, The Boss has started making major decisions as if he were already in charge. It’s as if he couldn’t wait. And it seems he was serious in his campaign.

One highly touted decision The Boss made recently was to coerce Carrier, a division of United Technologies that makes HVAC units, to keep roughly half the workers who were slated to lose jobs when the plant was moved to Mexico. Under pressure, Carrier agreed to keep about 800 of the jobs here. (The Boss’ propaganda ministry said it was 1,150 jobs, but it turns out that included 350 support jobs that were slated to stay anyway.) Gregory Hayes, United Technologies’ CEO, gave in to The Boss, and The Boss and his myrmidons hailed this as a triumph. Indiana, veep-elect Mike Pence’s state, sweetened the deal by giving the company $7 million in tax incentives (read: taxpayer subsidies), but clearly Hayes was most concerned with the continuing bad publicity driven by The Boss and his Herd, and the threat of a 35% tariff on Carrier gas furnaces made in Mexico.

The Herd never asked why the rest of us would ever be attracted by the pitch “Vote for The Boss — he would never do what he says he will!”

The reactions to The Boss’ gambit have been fascinating, to put it mildly. Richly ironic was Sarah Palin’s denunciation of the deal as “crony capitalism.” She wrote ruefully, “When government steps in arbitrarily with individual subsidies, favoring one business over others, it sets inconsistent, unfair, illogical precedent. . . . Republicans oppose this, remember? Instead, we support competition on a level playing field, remember? Because we know special interest crony capitalism is one big fail.” This is rich, considering Palin was one of the Republican Party elite who came out in support of Trump. And she may come to rue her small speck of intellectual honesty, since she has been rumored to be under consideration for government positions and The Boss has shown he tends to appoint his supporters to administrative posts.

Moving now from the ironic to the surreal, the arch-free-market opponent Bernie Sanders also criticized the deal. Yes, socialist Sanders was angry that The Boss didn’t “save” all the jobs by immediately imposing a massive import tax on the products of any company that dares to offshore its operations. Sanders thinks that “United Technologies took Trump hostage and won,” by getting tax breaks in exchange for only half the jobs. In fact, Sanders holds that The Boss has endangered the jobs of countless American workers, because “he has signaled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives. Even corporations that weren’t thinking of offshoring jobs will most probably be reevaluating their stance [now].”

Surreal indeed! The loopy old Stalinist tool can’t imagine any other reason why businesses would legitimately want to move operations abroad than to get tax breaks. Certainly not to escape our punitive corporate income taxes, currently the highest in the industrialized world, and about triple the rate of Ireland. Certainly not because of our dysfunctional common law system, the only one without the “loser-pay” (or “British”) rule that limits frivolous lawsuits. Certainly not to escape Obamacare, a law that saddles companies with the obligation to provide costly health insurance to their full-time employees whenever they have more than 49 of them. And certainly not because of the metastasizing cancer of regulation, which under Obama has simply exploded. Here the senile socialist Sanders complains that United Technologies made a profit last year of $7.6 billion, and its top execs received $50 million each. (Imagine that! Top execs being paid less than one tenth of one percent of the billions in profits they helped produce! Outrageously generous!)

The loopy old Stalinist tool can’t imagine any other reason why businesses would legitimately want to move operations abroad than to get tax breaks.

In a revealing interview with CNBC’s Jim Cramer, United Technologies’ CEO Hayes explained his thinking. Nobody listening to the interview could doubt that Hayes is a decent and patriotic man, but also a man committed to running his company profitably and for the long term. He signaled that he caved to The Boss’ demands because he feared government retaliation against the other three United Technologies divisions — Pratt Whitney engines, Otis Elevator, and the aerospace division — no less than against Carrier. As he put it, “I was born at night, but not last night. I also know that about 10% of our revenue comes from the US government.”

Hayes outlined the reasons why his company had moved Carrier’s — but no other divisions’ — operations down to Mexico. While the skills of the employees at the other divisions are extraordinarily high, the skills at the assembly line for HVAC units are much lower. Moreover, Hayes noted, not only are labor costs lower in Mexico (80% lower) but the company’s existing Mexican plants, the absentee rate was only 1% and the turnover rate only 2%. These figures are much lower than those for the American plant.

Here Hayes touched upon two points I have to work to explain to my business ethics students — who, despite their choice of major, often incline to the Clinton-Sanders-Obama view of capitalism. First, besides intellectual virtues, employers have to consider moral virtues as well. And employees are often not “perfect substitutes” here: some are more inclined to show up for work reliably and work enthusiastically and conscientiously, because for them work is a moral prerequisite for being a virtuous person. Unfortunately, this attitude is more prevalent abroad than in heavily unionized American factories. (I attribute this to the unionization, not the Americanization, of the workers.) Second, what makes employees more valuable is their productivity, not their relatively low salaries. The top paid quarterback in the NFL is a lucky fellow named Luck, who earns $26.4 million a year from the Colts organization. Suppose I called the Colts management and offered my services for a mere 1% of that cost. Would the Colts jump at the chance to “snap up” an old, out-of-shape, overweight, nearsighted, clumsy, uncoordinated philosopher who has never played football in his ludicrous life? Hardly. But if the Colts management could find a man with the skill set of Mr. Luck for significantly less, then they might consider it.

What makes employees more valuable is their productivity, not their relatively low salaries.

Hayes explored this latter point when he noted that United Technologies sent 45,000 employees through their “employee scholar” program, with 38,000 receiving degrees. United Technologies spent $1.2 billion over the last two decades on increasing the skills — the intellectual virtue — of its workforce. And Cramer — an intellectually honest progressive liberal, which is as rare as a sympathetic fascist — pointed out for his CNBC audience (to wit, progressives who make money off capitalism even as they despise it) that United Technologies had early moved a plant from Nogales, Mexico to Florence, South Carolina — at a cost of $60 million in the first year. Notice that neither The Boss’ propaganda machine nor the Herd of establishment Republican apologists even mentioned the onshoring of the bigger Otis plant at great expense, nor the huge amount of money the company has put into improving the skills of tens of thousands of American workers. They mentioned only the 800 inefficient assembly-line jobs.

Hayes noted that United Technologies will now invest $16 million in the existing Carrier plant, to automate it as much as possible, to make it “cost competitive.” So the jobs “saved” by The Boss are not destined to last long. Yeah, the Mexicans won’t “steal them,” but the robots will. In short, don’t blame Juan — blame R2D2!

Hayes made one other point that one wishes The Boss could grasp: “The genie of globalization is not going back into the bottle. . . . Free trade is still essential to the growth of this country. This country was founded on two principles: immigration and free trade.” Boss, let me introduce you to Thomas Jefferson!

But the Herd was mightily pleased with what The Boss did to United Technologies. Larry Kudlow and Neil Cavuto, who should know better than to tout protectionism and cronyism, approved on air, with Cavuto adding the deft ad misericordiam touch that these jobs were saved just in time for Christmas — which rather makes The Boss the Savior.

The jobs “saved” by Trump are not destined to last long. The Mexicans won’t “steal them,” but the robots will.

One of the founding members of the Herd — Glenn Reynolds — chimed in his support for The Boss’ crony capitalism. Reynolds wrote an amazing — really, psychedelic — piece favorably comparing The Boss and his tweets with FDR and his radio “fireside chats.” Like, far out, man, America is in the Great Depression redivivus, and the Boss is here to save us!

Of course, as Reynolds himself concedes, FDR probably extended the Depression by seven years, but he certainly made economically illiterate Americans feel like he cared. And I guess it’s better to feel the pain you cause in others than to be oblivious to it, although I am more inclined to say you shouldn’t cause the freaking pain to begin with.

But Reynolds’ point is that The Boss, in “saving” these pathetically few jobs, showed more “compassion” than Obama, because when Obama was asked about saving jobs at this Carrier plant, the Prez said that the answer was improved job (re)training. That caused Reynolds to wax sanctimonious, saying that when a factory closes (from outsourcing, free trade, automation, or just plain producing a product the public doesn’t want), the people laid off and the local economy suffer. And the existing job retraining programs — including the Trade Adjustment Assistance program (TAA) — don’t work well. Here Reynolds quotes a study done by the Heritage Foundation that says the TAA doesn’t work — though considering the infamous hit-report the Heritage Foundation did some years back on the cost of immigrants to the nation, which cemented the organization’s turn from conservativism to populism, I no longer put any credence in its reports.

Now, readers of this journal over the last eight years will, I believe, not accuse me of being a blind Obama supporter — far from it. But in this case, Obama is correct and Reynolds, the Heritage Gang, and the rest of the Herd is wrong. We all learned from Joseph Schumpeter that economic progress is driven by “gales of creative destruction,” when old, less efficient ways of doing business are eliminated by newer, more efficient ones. Cathode ray tube TVs died rapidly when flat screens came out; VHS tapes died rapidly when DVDs became available. And human-piloted cars, trucks, and buses may soon be replaced by autopiloted ones. And we all know what Schumpeter pointed out, that this process is often a hardship on some workers as they undergo retraining for more productive jobs. No doubt, if truck, delivery van, and bus drivers, as well as cab and Uber drivers are all put out of work by self-driving cars, some people will find it hard to find other, more productive jobs over a relatively short period of time. But most will find other, more productive work, easily.

FDR probably extended the Depression by seven years, but he certainly made economically illiterate Americans feel like he cared.

For those workers who can’t make the shift easily, the answer is precisely to retrain them. What other options are there? To let them languish on food stamps? Or (as the lumpenprotectionists, Luddites, and nativists would urge) simply outlaw progress? Let’s face it: progress is a bitch!

Let’s consider this for a moment. No doubt many truck and cab drivers will oppose self-piloting vehicles. But we as a country lose roughly 38,000 people a year in auto accidents, more than we lost in the Korean War. Does Mr. Reynolds — so much more compassionate than we unpatriotic, cosmopolitan, hard-hearted, elitist, and egoistic globalists — really want to see those deaths occur forever, lest some cabbie in Queens can’t find work?

As to why the TAA and the other few dozen other government retraining programs don’t work well, they don’t work well for the same reason public schools don’t work well: when the government runs a monopoly, it fails just all other monopolies do. The answer (in both cases) is to separate the government funding from the service by voucherizing it.

Specifically, we should kill all the retraining programs, along with (say) the Department of Energy, and use all that money for vouchers for long-term unemployed so that they can go to a public or private community colleges to get retrained (or get the high-school diploma they should have gotten when they were young). I would allow trade unions and private industries to use these vouchers to expand their apprenticeship and training programs they already have, and to open full-fledged trade schools as well. For example, the United Electrical, Radio and Machine Workers of America could run a chain of trade schools where people could come to learn the trades, paying the union with vouchers and perhaps by agreeing to be dues-payers for some period of time (say, ten years). Oh, and end the Obama Administration’s war on for-profit colleges, a war that killed so many hundreds of decent trade schools for no reason other than a desire to please the teacher’s unions. (The fall of the ITT college chain alone eliminated 130 campuses.)

There are several reasons why The Boss’ “victory for American jobs” is in fact disastrously bad.

First, it forces Carrier to keep paying high wages to its employees, thus ensuring that it will be unable to compete with foreign-produced products in the long term. This is the kind of “good deal” the US autoworkers received: ludicrously sweet contracts that drove two of the major American automakers into bankruptcy.

Government retraining programs don’t work well for the same reason public schools don’t: when the government runs a monopoly, it fails just all other monopolies do.

Second, it punishes American consumers, who will be forced not just to pay continuing high prices for Carrier’s products but also to pay higher taxes to provide the subsidies. The Boss’ “big-hearted” concern for the workers obviously did not extend to the consumers or taxpayers.

Third, as Bastiat would note, while the populace — with the Herd leading the cheers — hails the Boss for the 800 jobs saved, it will not see the many of thousands of jobs that will be lost. Any company, foreign or domestic, that is thinking of building new plants here knows that if any of those facilities turn out to be unprofitable — say, because the workers form a union as unreasonable as the UAW — and the company moves to close the plant, The Boss will punish it with whatever sort of sanctions he can dream up. As the French have discovered, the harder you make it to fire workers, the more reluctant companies will be to hire them in the first place, so you wind up with chronic high unemployment.

This is where the Herd may be miscalculating. Kudlow, Moore, Laffer, Cavuto, Reynolds, et.al. assume that with lower corporate taxes and fewer regulations, the economy will boom and job growth explode as companies repatriate foreign profits and open new plants here. But in the face of The Boss’ demagogic, autocratic governance, the companies may instead use the money to buy back stock in their own outfits or invest the money abroad. The good effects of The Boss’ more classically liberal policies may be trumped by the bad effects of his populist ones.

The harder you make it to fire workers, the more reluctant companies will be to hire them in the first place, so you wind up with chronic high unemployment.

In fact, the Herd’s admiring lowing in response to his bullying of Carrier may be confirming to The Boss that his protectionism is working. He moved on rapidly to attack another company — Rexnord Corporation — for daring to move a plant to Mexico and “viciously fire” 300 existing employees. So far the company hasn’t caved, leading The Boss to renew his threat to hit Mexican imports with a 35% tariff. Ford, which he threatened earlier, still appears to be moving forward with plans to build small cars in Mexico. So The Boss may well be forced to carry through with his threat.

This is all reminiscent of Obama’s first year, in which he started trade wars with Mexico and Canada, while engaging in crony capitalism with environmentalist companies. As the cynical but insightful French put it, the more things change, the more they stay the same.




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The Sounds of Silence

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People make up their ideas of the world by listening to what other people say — in a speech, on a survey, to their friends. But maybe we could learn something if we reflected on what people do not say.

Here are 33 things that nobody in America says. Or, possibly, thinks.

  1. The tax rates are just about right, except for people like me. My taxes should be higher.
  2. I am a member of the 1%.
  3. The policeman is your friend.
  4. I hate all people of other races, but I keep quiet about it, to avoid being criticized.
  5. I got my job from affirmative action.
  6. No one is qualified to teach kids their ABCs unless certified by the government.
  7. I know someone who died from climate change.
  8. The Constitution was written to abolish capital punishment, preserve the lives of endangered fish, and ensure a living wage for all Americans.
  9. When the government provides a service, it usually does a better job than private business.
  10. Some Americans are so poor that they have to steal from other people.
  11. Some Americans are so poor that they have to murder other people.
  12. Open borders would increase Americans’ pay rates while improving Americans’ security.
  13. American public schools are very good.
  14. American public schools are good.
  15. American public schools are acceptable.
  16. American literature, music, and art are better than they were in the past.
  17. I have a perfect right to tell my neighbor what opinions she may express.
  18. The government is better at handling my money than I am.
  19. The American government has a good plan for dealing with terrorism.
  20. I believe in everything my pastor says.
  21. If you don’t like this country, stay right here.
  22. If you graduated from an elite university, you must be smart.
  23. Few people actually get important jobs just because they come from wealthy families.
  24. It makes good sense that people can vote before they are trusted to drink a legal beer.
  25. It makes good sense that people can serve three years as Special Forces operatives before they are trusted to drink a legal beer.
  26. At least one Muslim country recognizes equal rights for Christians, gays, and women.
  27. America’s Middle Eastern wars succeeded.
  28. The War on Drugs succeeded.
  29. The War on Poverty succeeded.
  30. The Libertarian Party will eventually take power.
  31. President Obama has improved race relations.
  32. Donald Trump is a deeply spiritual man.
  33. When I have an important decision to make, I ask myself, “What would Hillary Clinton do?”



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Once Again, Spontaneous Order Beats the Dead Hand of Statism

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A number of recent reports on American energy illustrate anew the power of markets to deliver prosperity — rapidly — and the impotence of government to do the same. In short, spontaneous order has once again accomplished what the dead hand of statism could not.

The first report concerns the unsurprising demise of yet another solar power company. SunEdison is filing for bankruptcy, after seeing its stock price drop a whopping 98% in less than a year. Wall Street mavens such as David Einhorn (billionaire owner of a hedge fund called Greenlight Capital) and Leon Cooperman (of Omega Advisors) had considered the company a sure bet, but it proved to be a sure loser.

SunEdison is just one of an endless stream of solar companies that started, during the reign of the Obama administration, with the promise of giving us cheap power while healing the planet of global warming. Typically, they began with direct or indirect government subsidies — only to fail miserably.

Other stories tell us of better news. Just two months ago — in a nice piece of negotiation for which he received only vilification from the pestilent swarm of populist talk show hosts — Speaker of the House Paul Ryan (R-WI) reached a budget deal with the administration that once again (after a ban of biblical proportions — 40 years) allowed the exportation of domestically produced oil abroad. I have argued before that this is a major geopolitical game changer. We can now sell the fruits of our petroleum fracking revolution on the world market, thus ending, once and for all, the power of the oil cartel (OPEC) to gouge the rest of the world. Oil prices can now be kept low indefinitely. If Russia or the OPEC thieves try to cut back on production to extort more money from Europe and Asia in the form of higher prices, or if the demand for oil goes up because of a future worldwide economic boom, the Great American Frackers can just drill more wells, with no shortage for the foreseeable future.

SunEdison is just one of an endless stream of solar companies that started with the promise of giving us cheap power while healing the planet of global warming, only to fail miserably.

Less remarked upon, but no less remarkable, has been the flourishing of American natural gas production — driven again by the fracking companies. The miracle of fracking has dramatically reduced the prices of domestic natural gas — in fact, driven the price of natural gas to the lowest it has been in 17 years. Moreover, North America’s natural gas production is now about 450% greater than Africa’s, 80% greater than the Asian Pacific’s, 50% greater than the Middle East’s, and only 5% smaller than Eurasia’s; and it is set to grow apace over the next few years.

Why? Because the domestic price is now so low that American energy companies find it attractive to liquefy natural gas and ship it abroad. And that’s what is starting to happen. For example, just last month, the first shipment of American produced natural gas — ethane — left the Marcus Hook terminal in Philadelphia, headed for Europe. The purchaser of the liquefied natural gas (LNG), Swiss petrochemical company Ineos, plans to use it in its Norway facility. (Ethane is primarily a feedstock for plastic production. Methane is what is typically used for heating and power generation.) Given current trends, the US could become the world’s third largest exporter of LNG, right behind Qatar and Australia — in just four years.

Now consider the Cheniere Energy company’s Sabine Pass facility (located on the Gulf Coast), which aims to be fully operational in less than three years. By itself alone it will be able to export 3.5 billion cubic feet (Bcf) per day.

US producers have a key cost advantage: they can reconfigure import facilities to become export facilities relatively inexpensively. So as domestically produced natural gas replaces all imports, we can seamlessly start sending LNG abroad. The US Department of Energy has approved projects that will increase the potential exports of LNG to 10 Bcf per day, and is swamped with new applications that if granted could boost those exports another 35 Bcf per day. That is nearly the size of today’s global market.

Of course, already some people have raised worries that by exporting so much of our domestically produced natural gas, our own consumers will face shortages and see domestic prices soar. This is doubtful. For one thing, the US already has something like four trillion cubic feet (Tcf) of natural gas stored underground, and produces 30 Tcf a year. So even if the Department of Energy approves all the projects under submission, the effect on domestic prices will be limited. One recent estimate by the US Energy Information Administration is that an increase of 12 to 20 Bcf per day in exports would raise domestic natural gas prices by 4–11% per million Btu.

The miracle of fracking has driven the price of natural gas to the lowest it has been in 17 years.

Making the chance that increasing exports will raise domestic prices of natural gas even more remote is the fact that, with the colossal amount of American shale deposits of natural gas — not to mention our immense amount of conventional supplies — the number of fracking operations will grow dramatically as our exports increase. That will increase domestic supplies as well, and hold their price down. Moreover, because building out export facilities is costly, the rate of increase will be relatively tame.

Still, the excellent economic news is that we will have another great export market to exploit, providing hundreds of thousands of high-paying blue-collar jobs all over this country — jobs sorely needed, as our older manufacturing jobs are automated away. For example, it is estimated that America will need 100 more LNG tankers over the next 15 years, as our exports surge ahead.

American natural gas exports will soon be headed to Asia as well as Europe. China is increasing its own production of natural gas, in part because the pollution caused by all its coal-fired power plants is making city life intolerable, but developing its own shale resources is proving difficult. Japan is perennially in need of natural gas (and petroleum as well). The export route to Asia will be dramatically improved by the $5.3 billion expansion of the Panama Canal just being completed. This will cut an average of 11 days off the time it takes to ship oil from the Gulf Coast to Asia.

This is also great geopolitical news. We will be able to supply natural gas to Europe, which right now depends upon the thoroughly corrupt and evil Russian company Gazprom. Russia has shown a vicious propensity to price-gouge when it can, and it uses its supply as an instrument of state power in the revanchist quest to reestablish the Soviet Empire. That quest will be sharply curtailed by American natural gas exports to Europe.

The prospect of American natural gas liberating Poland, the Baltic states, and other formerly Soviet-controlled countries from Russian hegemony was the subject of another recent report. It notes that several countries are eagerly awaiting buying LNG from the United States, and some — such as Poland — are building import terminals in anticipation that American shipments will increase. Russia supplies about a third of all Europe’s natural gas. Some of the former Soviet countries (such as Bulgaria) get 90% of their supplies from Russia.

As Lithuania’s energy minister has said, “In Russia, gas always goes together with politics.” But he added, “Russia is extremely aggressive in gas pricing and the arrival of US LNG will change that.” Goldman Sachs estimates that the arrival of American LNG should drop the price by one-quarter in just two years.

The US will have another great export market to exploit, providing hundreds of thousands of high-paying blue-collar jobs all over this country.

Russia feigns unconcern about the arrival of American LNG. Alexander Medvedev, Gazprom’s deputy chairman, discreetly claimed, “We are very relaxed about US LNG, though very attentive.” Analyst Trevor Sikorski explains that while Russian gas currently costs about $4.60 per million Btus, American gas will cost about $3.60 (when the cost of shipping is included). So Russia could “chase out” the US (as Sikorski suggests) by, say, lowering its price to $2. But I think the Russians are merely whistling past the graveyard. For one thing, Russia has for several years funded European environmentalist organizations, enabling them to propagandize against fracking. If it were so easy for the Russians to undercut the price of gas produced by fracking, why does Russia so oppose it in other countries?

Second, there is a flaw in the argument that Russia can just chase the US out of the European market by dumping its own natural gas at (say) half what it currently charges. The problem with that argument is — against all “dumping” arguments — that the Americans would stay out only as long as Russia incurred that 50% lower revenue stream. But the reduction would severely limit Russia’s ability to continue upgrading its military and taking over more of Eastern Europe. Worse for Russia, the minute it decided to raise its prices back up, American oil companies would need only a day to start shipments to Europe, and only a couple of weeks for the oil to arrive.

It seems likely that Russia will simply lower its prices to match or slightly undercut the American pricing — say, pricing its natural gas at $3.50. But this will still be quite damaging to Russia’s revanchist goals, and therefore good news for the rest of us. Russia will lose 20–25% of its current revenue stream — a major hit indeed. More importantly, even if Russia charges approximately what American companies do, the former Soviet countries will probably still order American gas, the better to keep their freedom from Russian domination.

In sum, American LNG may forever free the Eastern Europeans from Russia’s paws. This is reason for rejoicing.

But there are two reasons for not rejoicing. First, both candidates for the Democratic nomination for president — Clinton and Sanders — have said that they utterly oppose fracking. No doubt whichever one wins the nomination will be lavishly, if covertly, funded by the Russians.

Worse, the two leading candidates for the Republican nomination — Trump and Cruz — would almost certainly lose to the Democrat in the general election. The Republicans are hellbent on losing the best shot they have had to take back the White House in eight years. Go figure that out.




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I Hate When That Happens

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American manufacturing, once the principal source of American economic power, has become a pale shadow of the world-dominant competitor it was only 30 years ago. Although the productivity of American workers still vastly exceeds the worker productivity of all major manufacturing economies, America has become a laggard in the global marketplace. For decades many have bemoaned the descent of America's industrial power. Now they say that the decline has been the result of economic misfortune: globalization, technological advance, foreign competition, unions, and so forth.

The actual misfortune is that US economic policy has been formulated by feckless politicians in Washington DC. It's as if the nebbish Willie (from the “Willie and Frankie” sketches of Saturday Night Live fame) had been behind it all. Because Willie had no grasp of causality, his life was fraught with excruciating experiences, experiences of his own making. In one skit, he came up with a scheme to test mouse traps, only to discover that "the thing came down right on my tongue!" It was an accident, even though "after 40, 50 times, I . . . I . . . I couldn't even feel the cheese." With each painful incident (which included encounters with a meat thermometer, a ball-peen hammer, and a self-threading film projector), the baffled Willie sullenly whined, "I hate when that happens."

Since the turn of this century, 5.7 million American manufacturing jobs have been lost, and the US trade deficit has soared. According to a Council on Foreign Relations study, "between 2000 and 2012, the cumulative total of U.S. spending on imports of goods and services exceeded U.S. export earnings by $7.1 trillion dollars." For manufacturing workers and, for that matter, most Americans, there has been no recovery from the recession of 2008. Two of the Willies that deserve special thanks for this misfortune are former President Bill Clinton — for his role in causing the recession — and current President Barack Obama — for his role in causing the non-recovery.

Although the productivity of American workers still vastly exceeds the worker productivity of all major manufacturing economies, America has become a laggard in the global marketplace.

It's a safe bet that in none of the 542 speeches given since he left office (for which he has reaped $104.9 million) did Mr. Clinton mention how his policies caused the housing bubble and the financial crisis. These policies (deregulation of credit-default swaps, spurious use of the Community Reinvestment Act, and shenanigans with Fannie Mae, Freddie Mac, HUD, and other organizations, to name a few) were discussed here (“Sticking It To Wall Street”), and the following week, at Reason (“Clinton’s Legacy: The Financial and Housing Meltdown”). They set the stage for the recession that occurred seven years later, no doubt to Clinton's astonishment.

The Clinton legacy also included the unfortunate accidents that followed the North American Free Trade Agreement (NAFTA), passed in 1993, and permanent normal trade relations (PNTR) for China, granted in 2000. Clinton expected NAFTA to increase US exports and therefore jobs (one million in five years, he promised). Instead, according to a recent Public Citizen report, "millions have suffered job loss, wage stagnation, and economic instability from NAFTA." The export of manufactured products from the US dwindled and the trade deficit with Mexico and Canada shot from $27 billion in 1993 to $177.2 billion today. And the economic chaos that engulfed Mexico prompted "a new wave of migration from Mexico."

Granted, Public Citizen is an anti-NAFTA advocacy group, but its claims are substantiated bytrustworthy sources — namely the US International Trade Commission (for the NAFTA trade deficit data, p. 7 of the report) and the Economic Policy Institute (for the job loss and wage decrease data, p. 8). Ironically, the immigration spike was caused by one of the few US export benefits from NAFTA. With NAFTA, Mexico eliminated its corn subsidy, but the US did not. Asa result, “seventy-five thousand Iowa farmers grew twice as much corn as three million Mexican farmers at half the cost." As subsidized U.S. corn flooded into Mexico, displaced Mexican farmers flooded into the US, greatly contributing to the surge of illegalimmigrants, from 4.8 million in 1993 to 11.7 million by 2012 (p. 22).

For manufacturing workers and, for that matter, most Americans, there has been no recovery from the recession of 2008.

NAFTA has paid off well for US corn farmers. American workers who, in the wake of the immigrant influx, lost their jobs or saw their wages shrink, have come up a little short. As have American taxpayers, who foot the bill for the subsidies awarded to corn industry cronies. This should not be confused with the bill from their cousins, the ethanol industry cronies, for subsidizing the ethanol scam — the ongoingenvironment-friendly fuel program, whose accidents include increasedair pollution, water contamination, soil erosion, andgreenhouse gas emissions, as well as increased prices for gasoline, automobiles, farmland, and food.

Clinton had loftier expectations in his efforts to help China gain World Trade Organization (WTO) membership. But instead of wielding American economic power to establish a level playing field for US industry, Clinton followed the wishes of Wall Street power, which did not extend to protecting US manufacturers from the mercantilist antics of brutal, authoritarian states such as China. As Robert Kuttner explained in “Playing Ourselves for Fools”:

In 1999, when China was negotiating its entry into the WTO, it was a lot weaker economically and financially, and the stench of the Tiananmen massacre still lingered, the U.S. had far more diplomatic leverage than the rather pitiful show of humility befitting a debtor nation displayed on President Barack Obama's recent maiden trip to Beijing. But as the memoirs of both Robert Rubin and Joseph Stiglitz confirm, that leverage was used mainly to gain access for U.S. banks and insurance companies to Chinese markets, not to require China to modify its system of predatory industrial mercantilism.

Clinton promised that China's admission to the WTO would provide the US with a vital trading partner who would change its ways and "play by the rules"; trade with China would "increase U.S. jobs and reduce our trade deficit." All the experts agreed. Then presidential candidate and fellow Willie, George W. Bush, agreed. "It is primarily U.S. exporters who will benefit," echoed the Cato Institute. It would be “a win-win result for both countries,” said Clinton, that could only "grow substantially with the new access to the Chinese market."

Alas, the tremendous US-China trade that ensued has, to date, resulted in the loss of 3.2 million American jobs, a US trade deficit with China of almost $500 billion (that grew from $100 billion in 2001), and, according to the New York Times (“Come On, China, Buy Our Stuff!”), American exporters are still waiting for the payoff. The main reason: currency manipulation by China's Central Bank makes American products more expensive to Chinese consumers. Furthermore, our trade deficit, which enables such manipulation, allows China to use its surplus of US dollars to purchase US Treasury bonds, which, in turn, enables the US government to plunge itself more deeply into debt (now at more than $18 trillion), with US taxpayers paying interest for the privilege.

Instead of wielding American economic power to establish a level playing field for US industry, President Clinton followed the wishes of Wall Street power.

American consumers have benefited, but foreign competitiveness has suffered. As a percentage of GDP, US manufacturing has shrunk from 14% in 2000 to about 11% today. According to a recent Economic Policy Institute study, of the 3.2 million jobs shed by our trade with China, 2.4 million were manufacturing jobs. Moreover, trade with low-wage countries such as China "has driven down wages for workers in U.S. manufacturing and reduced the wages and bargaining power of similar, non-college-educated workers [a pool of 100 million workers] throughout the economy."

Under Clinton's version of free trade, the outsourcing of American production, jobs, and technical expertise has flourished. To participate in such trade, observed Kuttner, many US manufacturing companies engage in

deals to shift their research, technology, and production offshore, sometimes in exchange for explicit subsidies for land, factories, research and development, and the implicit subsidy of low-wage and powerless workers and weak environmental or safety requirements. At other times, the terms of the deal are more stick than carrot: If you want to sell here, the companies are told, you must manufacture here. Or even worse, you can manufacture here but only for re-export to your own domestic market and not for local sale.

Describing Clinton’s legacy, the Huffington Post called him the "Outsourcer-in Chief," saying that

Manufacturers never emerged from the 2001 recession, which coincided with China's entry into the World Trade Organization. Between 2001 and 2009 the U.S. lost 42,400 factories and manufacturing employment dropped to 11.7 million, a loss of 32 percent of all manufacturing jobs.

But things are booming in China, which, thanks to US investment in the expansion and modernization of its manufacturing sector, has now surpassed the US as the world's leading exporter, and in our federal government, which now employs twice as many people as the entire American manufacturing industry — an industry to which Clinton could say, "The thing [WTO deal] came down right on my tongue!"

If Bill Clinton was the Outsourcer-in-Chief, then Barack Obama is the Regulator-in-Chief. With annual federal regulatory compliance costs now at an astounding $1.9 trillion, no one has done more to increase the cost, and decrease the desirability, of doing business in America than Mr. Obama. His regulatory obsession has exceeded that of George Bush, who, in eight years, increased regulatory costs by $318 billion. Obama has increased it by $708 billion, in only six years.

Unhindered by a timid Congress that has consigned its legislative powers to regulators, there's no telling how high Obama can drive regulatory costs during his final two years. But American manufacturing is doubly harassed by existing regulatory overreach, paying a staggering $20,000 per employee in annual compliance costs, compared with $10,000 for the average US firm. The cost is $35,000 per employee for small manufacturers (<50 employees), who, if they can't feel the cheese, can smell the pungent odor of our federal government.

The stagnation that began creeping into the economy under Bush is in full stride under Obama, with GDP growth averaging little more than 2% since he took office. Unconventional oil and gas production (i.e., fracking of oil and gas deposits, mostly on non-federal land) has been the only bright spot. Without fracking, even this tepid GDP growth would have been impossible. With fracking, says the Cato Institute, oil and gas prices have plummeted, increasing disposable income by $1,500 per household, 2.5 million jobs have been created, and a tax windfall of $100 billion has been garnered by government.

No one has done more to increase the cost, and decrease the desirability, of doing business in America than President Obama.

After almost seven years of stagnation, the US economy — with its shrinking middle class and its growing cohort of 55 million jobless working age adults, all desperate for a meaningful recovery from the recession of 2008 — has enthusiastically welcomed the fracking revolution. Mr. Obama's greeting has been less ardent. After almost seven years of tightening drilling regulations, his response has been to tighten fracking regulations, followed by more plans to tighten fracking regulations.

Existing regulations "are more than 30 years old, and they simply have not kept pace with the technical complexities of today’s hydraulic fracturing operations,” explained Interior Secretary Sally Jewell. Nor has the 40-year-old crude oil export ban, which is no longer needed, now that the US is flush with oil and gas. Free trade in US energy would help reduce our trade deficit, our national debt, and our dependence on foreign energy. Surging US oil production has been responsible for plummeting global oil prices, thereby improving our national security with respect to countries and terrorist organizations whose bellicosity depends exclusively on oil revenues. Additional production, therefore, would further enhance US security and would likely reduce the frequency with which thugs such as Vladimir Putin and Ayatollah Ali Khamenei embarrass our president.

Crudely Put,” an article that explains the folly of this archaic ban, alludes to Putin's crushing energy grip on Europe and the reason for America’s reluctance to export more energy. Last February, Vaclav Bartuska, the Czech Republic’s energy envoy, pleaded with "American policymakers to liberalise energy exports . . . to safeguard allies under pressure from Russia," and asked, "if freeing crude exports makes America richer, its allies stronger, its foes weaker and the world safer, what stands in the way?" Willie Obama's colossal green mousetrap, of course.

This from the man who promised shovel-ready jobs, then green jobs, and now brags about the low-income jobs created under his stifling reign.

Perhaps American manufacturers will have better luck with Mr. Obama's new free trade brainchild, the Trans-Pacific Partnership, which gives him "fast-track" authority to negotiate trade deals with Pacific Rim countries. Covering the legislation's East Room signing ceremony, Politico's Sarah Wheaton noted its bipartisan support, usually a good sign. But the more telling sign, Wheaton indicated, may have been discerned by the pianist in the Grand Foyer, who played "understated renditions of the theme to ‘Charlie and the Chocolate Factory’ and ‘Puff the Magic Dragon,’ songs depicting fantasy worlds undone by cynicism and lost innocence."

Reminiscent of Clinton's trade deal confidence, Mr. Obama stated that he was "absolutely convinced that these pieces of legislation are ultimately good for American workers." This from the man who promised shovel-ready jobs, then green jobs, and now brags about the low-income jobs created under his stifling reign — while middle-income manufacturing jobs languish.

Last November, Mr. Clinton conjectured, "NAFTA is still controversial but people will thank me for it in 20 years." He might as well have bit his lower lip and said, "after 40, 50 years, we  . . . we . . . we will feel the cheese." It will take much longer for American manufacturing to thank him for hustling China into the WTO. And who knows how long it will "ultimately" take for manufacturing workers to thank Obama for the trade deals that he hopes to negotiate — deals with trading partners who cannot be controlled by the $2 trillion regulatory mousetrap that punishes American manufacturers. It is a mousetrap with a spring force that Obama has increased by $708 billion. And, as the thing comes right down on his tongue, he orders costly new climate change regulations — to be paid for by US manufacturers, and ignored by their foreign competitors.

Federal trade and regulatory policy, not foreign competition and unions, is responsible for the decline of American manufacturing. Free trade, whose banner is routinely hoisted to adorn trade negotiations, exists only in the delusional minds of our hapless political leaders. Indeed, that American manufacturers must conform to inordinately higher standards (of trade, finance, health, safety, environment, etc.) than their foreign competitors is considered an achievement by the causality-challenged Obama. Green ideology, not economics or trade, is his forte. Officious regulation, not sound industrial policy, is his goal. As to the unfortunate accidents — chronic economic stagnation, declining household income, growing income inequality, immense pubic debt, enormous trade deficits, shrinking geopolitical power, and waning foreign competitiveness — that have befallen his presidency, he hates when that happens.




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All the Wrong Moves

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In his 2015 State of the Union address, President Obama asserted that his economic policies are working. "The economy is growing and creating jobs at the fastest pace since 1999," he declared. "The shadow of crisis has passed." Later, in March, a giddy Obama took credit for the recovery, saying that unemployment had fallen to 5.5% and that 60 consecutive months of job growth had created over 12 million jobs.

The crisis has not passed. Nor has its shadow, which, almost seven years after Mr. Obama promised jobs, GDP growth, and a middle class revival, grows darker and broader. Under his stewardship, the economy remains chronically stagnant, despite profligate stimulus spending by the federal government (that has run up the public debt from $10 trillion to more than $18 trillion) and the Federal Reserve (that has run up its balance sheet from $850 billion to more than $4.5 trillion).

The bold policies of Obama’s first term (the Wall Street bailout, the Stimulus, Obamacare, Dodd-Frank financial reform, the Green Economy initiative, etc.) — praised by many, and often considered to be urgently needed — failed to revive the economy, even though the recession was already winding down, officially ending in June 2009. Ironically, all these efforts have stifled the recovery, except for the so-called 1% — the wealthiest Americans, whom Obama frequently excoriates; their share of the national income increased from 18%, when he took office, to 22% today. For everyone else, income share has fallen. They are not part of the Obama Recovery; for them, the recession has not passed.

The crisis has not passed. Nor has its shadow, which, almost seven years after Mr. Obama promised jobs, GDP growth, and a middle class revival, grows darker and broader.

These economic castaways — who have experienced flat, if not diminishing, economic improvement for more than seven years — have not been fooled by the falling (from 7.8%) unemployment rate, so often celebrated as success by the Obama administration. This rate, which measures only unemployed workers who have sought employment in the previous month, provides an incomplete and misleading picture of the US labor force. While it has dropped, so too has the labor participation rate. Today, 93 million working age adults do not participate in the labor force (have no job or have given up looking). Thirteen million of them have dropped out during Obama's tenure. Some of these are retirees, but not as many as one might think. More and more, the elderly have been forced to postpone retirement or return to the labor force. Since January 2000, the participation rate for the elderly has soared by 50%; for elderly women, by 69%.

And the equally celebrated jobs numbers are no less incomplete and misleading. The net jobs gained since Obama took office are barely six million, not 12 million, and most of them are low wage, low skill jobs. The only contribution to middle-class employment under the Obama administration has been the addition of about two million jobs in healthcare, education, and social services (aka the HES Complex). But these HES jobs were not generated by the natural forces of capitalism. According to former Reagan budget director David Stockman, they are a result of "the $1.5 trillion being spent on medical entitlements and another $1 trillion each on tax-subsidized employer health plans and tax-supported education at all levels, including the massive student grant and loan programs."

The April 2015 Bureau of Labor Statistics (BLS) “Employment Situation Summary” posted 109.2 million jobs, excluding HES Complex jobs. The corresponding number for December 2007 was 109.1 million, an increase of 0.1 million jobs. That is, not counting the taxpayer subsidized HES jobs, 7.5 years of economic recovery has produced a net gain of 0.1 million jobs.

All these efforts have stifled the recovery, except for the so-called 1%; their share of the national income increased from 18%, when Obama took office, to 22% today.

Stanford economist John B. Taylor, attributes the slowness of the recovery to policies (monetary, fiscal, and regulatory) that, over the past 10 years, have become significantly "more discretionary, more interventionist, and less predictable." This policy shift no doubt contributed to the financial meltdown that caused the recession of 2008, but Obama's overbearing, anti-growth intrusion has stifled economic activity and made true recovery impossible. Normally, economic recovery proceeds rapidly, even from recessions associated with financial crises. As Taylor notes, the average annual growth rate from such recessions (we have had a total of eight in US recorded business cycle history) is 6%; for the Obama Recovery, it is barely 2%.

An annual capital injection of, say, a trillion dollars (for plant and equipment, research, new hires, etc.) should be more than enough to extricate a $17 trillion economy from its doldrums (indeed, doing so at a GDP growth rate of almost 6%). But American businessmen are paralyzed with fear about Obama's boneheaded, clumsy meddling. Although their profits have risen 35% during Obama's reign, investment in new plant and equipment has risen by a meager 2.6%, as corporations keep to themselves a $1.8 trillion cash hoard. Banks are sitting on $2 trillion, afraid to lend at artificially low interest rates. Another $2.1 trillion in the profits of multinational companies is stashed overseas to avoid taxes. It's not the economy, stupid. It's federal government policy.

Our own government, not unions and cheap foreign labor, is ruining the US manufacturing sector.

In addition to the confusing burden of fiscal and monetary policy, American business must contend with the crippling effects of regulatory policy. There is no greater middle class job killer than the stultifying morass of federal regulations that in recent years has grown with explosive speed. In his annual review of federal regulation (“Ten Thousand Commandments”), Wayne Crews of the Competitive Enterprise Institute calculates the annual regulatory compliance cost as $1.88 trillion, an amount that exceeds the combined total of corporate and individual income tax revenues. Such an astounding cost significantly reduces American competitiveness, innovation, and job creation, and punishes US households, who, in Crews’ estimation, are assessed "$14,976 annually on average in regulatory hidden tax."

Incapable of grasping the connection between excessive regulation and chronic stagnation, no one has done more with regulatory authority to destroy middle class jobs than Obama (“Regulator without Peer”). During its eight-year reign, the Bush administration increased the annual regulatory compliance cost by $318 billion. In only six years, the Obama administration has increased it by $708 billion. According to a recent study by the National Association of Manufacturers, the annual cost for the average US firm to comply with federal regulations is $9,991 per employee; for small companies, the engine of job growth during economic recovery periods, it is $11,724. Railing against the loss of middle class manufacturing jobs, Democrats blame companies that have outsourced to countries with cheap labor. Republicans blame labor unions. Yet the average US manufacturing firm must pay $19,564 per employee to comply with regulations; small manufacturing firms pay $34,671. Our own government, not unions and cheap foreign labor, is ruining the US manufacturing sector, and its unbridled fiscal, monetary, and regulatory "discretion" is destroying the middle class.

Unfortunately for the middle class, Mr. Obama's next move is to revive the middle class. According to the Washington Post, after six years of failure, "he's giving it one more try." His new plan is designed to reverse the decline of a beleaguered middle class that has been shrinking (in income, wages, savings, home ownership, stock ownership, pension ownership, and business ownership) since the day he took office. Its implementation once posed a "conundrum" for Obama, thinks the Post: "How to pitch policies aimed at a middle-class turnaround that his policies thus far have failed to deliver."

Such riddles are child's play for the clever Obama, who nimbly dubbed his new policies "Middle Class Economics" and, without taking the trouble even to define the concept, declared that "Middle-class economics works." He did, however, say what it is about: "lowering the taxes for working families by thousands of dollars, putting money back into their pockets so that they can have a little bit of cushion in their lives." Finally, the turnaround would be underway.

The 8.3 million jobs lost during the recession were mostly middle-class jobs. They have yet to return.

But a February Tax Policy Center report indicated otherwise. According to the New York Times, the Center’s analysis "found the president’s plan produced an average tax cut of just $12 for families in the middle quintile." The Obama Treasury Department shot back, insisting that "the average middle-income family would get a tax cut of about $150 under the president’s plan." No doubt this is intended to dispel any fear that the forgotten, shrinking middle class, which has lost thousands in annual income and tens of thousands in net worth over the last six years, will think it won’t get a big enough cushion.

American businessmen and entrepreneurs, intimidated and confused by fiscal and monetary policy, hoard trillions that could be injected into the American economy to create millions of good jobs. Oppressive regulations with dubious benefits continue piling up, diverting capital from, and stifling, industries such as manufacturing and energy — stalwarts of solid middle class occupations. Jobless working age adults also pile up, as fast as the federal government can borrow more money, or have it printed, creating a labor surplus that depresses the wages of those lucky enough to have a job. The 8.3 million jobs lost during the recession were mostly middle-class jobs. They have yet to return.

This is the Obama Recovery: a timid, sputtering burger-flipper economy, incapable of generating meaningful growth and high-paying jobs. The jobs that are being created are low-wage, low-skill jobs, appearing in monthly quantities large enough to fool Obama into thinking the crisis has passed. He flaunts this “growth” as evidence of a recovery, for which he then takes credit. To the low-wage cohort that is experiencing unprecedented growth under his policies, he offers an increase in the minimum wage. To the middle class, whose jobs are being replaced by the low wage jobs his policies generate, he offers a $150 tax break, calls it Middle Class economics, and pats himself on the back. He couldn’t even get the PR move right.




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Manufacturing Hubbub

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American manufacturing is in decline. It has been for decades, shrinking to half of what it was at its peak in 1979. During the 2000s alone, it lost one-third of its workforce — largely blue-collar workers who, without a college education, could still earn a middle-class wage — and, today, its output and employment remain below their pre-recession levels.

Who cares? We still make stuff. And we still have enough money to get the stuff we don't make — from countries such as China and Mexico, at cheaper prices. In an advanced, services-oriented economy like ours, so what if our trade balance (which was in surplus prior to the mid-1970s but has been in deficit since) has plummeted to -$508 billion (-$741 billion for manufactured goods) today? We can always borrow or print more money. Right?

By outsourcing critical engineering and manufacturing expertise, the US is frittering away its industrial leadership.

Indeed, politicians, especially liberal politicians, welcome the decline. America has the coolest companies (Facebook, Amazon, Google, Apple, etc.), run by cool, billionaire geniuses. President Obama, our coolest president, uses them to run his campaigns, promote his polices, tweet his followers (a twitterati of 63 million), and post his selfies. America's future lies with these energy-efficient, planet-friendly, high-tech giants. To the liberal elite, America can do with fewer factories, even ones making things that America invented. Besides, factories pollute and warm the planet.

Except that America is now losing its high-tech manufacturing dominance as well. By outsourcing critical engineering and manufacturing expertise, the US is frittering away its industrial leadership, eroding what once was the world's font of scientific discovery, technological advance, and product innovation, and guaranteeing future decay. In a 2009 Harvard Business Review article (“Restoring American Competitiveness”), it was noted that "Beginning in 2000, the country’s trade balance in high-technology products — historically a bastion of U.S. strength — began to decrease. By 2002, it turned negative for the first time and continued to decline through 2007," reaching -$53.6 billion. Today, it has dropped to -$81 billion.

This development has even alarmed the Center For American Progress (CAP), which attributed the deterioration to "the dramatic difference between U.S. innovation policies and those of our global competitors." The high-tech trade deficit "finds its roots in the negligence of our innovation policy," claimed CAP, which, after deep liberal think-tank thought, recommended "a strong policy response." Maybe, liberals suggested, a Department of Innovation is what this country has needed all along — one with strong policies, not those negligent ones.

In President Obama's first Hub, a handful of highly paid computer engineers diligently work to develop machines that will eliminate countless blue-collar jobs.

CAP's prescription may have been what caused President Obama to spring into action with his Manufacturing Innovation Hubs, to "create high-quality manufacturing jobs and enhance America’s global competitiveness." The idea is to bring industry, academia and, of course, government together into a joint effort to convert scientific knowledge into jobs — "a steady stream of good jobs into the 21st century," said Mr. Obama.

The first such hub, America Makes, opened for business in October 2012 in the Rust Belt city of Youngstown, Ohio. It focuses on 3D printing, and will be used as a model for subsequent hubs. As many as 45 hubs are planned, with projects that are intended to have a multiplier effect: each job created will support 1.6 other jobs, outside the factory. A Reuters article described the facility as "a sleek new laboratory" housing "a Silicon Valley-style workspace complete with open meeting areas and colorful stools." Inside, "Several 3-D printers hum in the background, while engineers type computer codes that tell the machines how to create objects by layering materials." That is, a handful of highly paid computer engineers diligently work to develop machines that will eliminate countless blue-collar jobs.

As of March 2014, when the Reuters article was published, none of the six businesses participating in America Moves had hired new workers. But the government component, the National Center for Defense Manufacturing and Machining (an organization funded by the US Army, i.e., funded by taxpayers), which manages the project, had hired ten. At this rate, 450 jobs will have been created when all 45 hubs are operational, soaring to 1170 jobs once the multiplier effect kicks in.

To be fair, it’s too early to tell how much of a dent, if any, Obama's struggling Hubs scheme will put in the 5.7 million manufacturing jobs that have been lost since 2000. For example, at a similar stage, the success of Obama's green economy scheme could not be determined. But after spending billions of dollars on green manufacturing companies such as Solyndra (solar panels), Nordic Windpower (windmills), and A123 (lithium batteries), all of the green jobs that were created ended up in China — which now manufactures all of our high-tech solar panels, windmills, and batteries. Whoops, bad example. But at least the Hub jobs have not left America, yet.

In 2011, Mr. Obama — the man who said that he wakes up every morning and goes to bed every night thinking about jobs — held a “town hall” meeting at Facebook, to discuss his economic policies. To Obama, Facebook is especially cool. Its young multi-billionaire CEO, Mark Zuckerberg, wears a hoodie to work. Its 500 million users (at the time) were available to watch Obama pal around with Zuckerberg, who "offered questions submitted online that gelled with Obama's key talking points and victories."

To Obama, factories are hulking, dilapidated buildings where glum Americans used to work, producing goods the world used to buy from us.

No one asked why — if Mr. Obama cared about creating jobs, in general, or manufacturing jobs, in particular — he didn't choose a company like Boeing, which, in 2011, was comparable in value (about $50 billion) to Facebook? Boeing — which is the only remaining American manufacturer of large jetliners in our declining Aerospace industry — employed 160,000 workers. Facebook, which apparently manufactures little more than narcissism and low self-esteem, only employed 2,000, all of whom, no doubt, gelled with Obama.

Factories, on the other hand, do not gel with Obama. To him, they are hulking, dilapidated buildings where glum Americans used to work, producing goods the world used to buy from us. That is why the regulatory policies he supports are designed to ensure fewer factories. The annual cost to comply with federal regulations for the average US manufacturing company is almost $20,000 per employee, twice that of the average US company (manufacturers included). For a small (<50 employees) manufacturing company, perhaps an innovative startup firm inspired by an Obama Hub, the cost is almost $35,000.$35,000! So much for global competitiveness.

Factories provide middle-class jobs for blue-collar workers. And, at $77,506 per year ($37.26 per hour), the average compensation for US manufacturing workers, millions of jobless Americans would like to see more of them — and may have wondered why Mr. Obama chose an Amazon fulfillment center as a venue to pitch middle-class jobs. Amazon is where middle-class jobs go to die.

Most of Amazon's 150,000 employees are seasonal workers — 80,000 of them hired just last year — who make $10 to $11.50 per hour, when there is work. Known as "pickers," they scurry about "the massive warehouses plucking item after item for shipment" and are paid no more than Walmart's "lumpers," who scurry about loading and unloading trucks all day. A smattering of Amazon employees, the ones with the good middle-class jobs ("the skilled direct-hire positions, like supervisor or forklift operator — the sort of gigs hyped during a high-profile visit by the president") shared Obama's stage. The pickers were offstage, scurrying. The slowest scurriers are discarded at season's end, or sooner; the fastest are rewarded with full-time employment, where they can earn as much as $27,000 per year, for as long as it takes Amazon to find robots that are faster.

Of Obama's visit, the White House asserted, “The Amazon facility in Chattanooga is a perfect example of the company that is investing in American workers and creating good, high-wage jobs.” No wonder he brags about the record-breaking number of fast-food and service jobs that his economic policies have created. He thinks they are high-paying, middle-class jobs.

Obama thinks that a steady stream of $27,000 service jobs is thrusting the economy in the right direction.

High-tech companies such as Amazon, Google, and Facebook, as important as they are to our economic power and prosperity, are not the places to go for middle class job creation. The American manufacturing industry is a much better bet. Existing US manufacturing companies would export more products if they were allowed to compete on a level playing field with foreign trading partners. Subsidies and tariffs are not needed. They would hire more workers, if they expected higher profits — profits now eroded by excessive taxes and regulations. A steady stream of $77,506 manufacturing jobs would stimulate the economy, increase tax revenues, reduce the trade deficit, and do many other substantial things.

Despite almost seven years of economic stagnation and the rise of a vast underclass of Americans stuck with lousy jobs, Obama thinks that a steady stream of $27,000 service jobs is thrusting the economy in the right direction. US manufacturing, hobbled by his trade, tax, and regulatory policies, needs only a nudge from his manufacturing hubs.

But it's not clear that Obama's Hub program is the place to go for good manufacturing jobs either. After all, it is a scheme whose principal objective is to invent and develop machines that will eliminate manufacturing jobs. Then there is his bizarre fascination with high-tech companies that either employ a very small number of the high-wage, high-skill elite or very large numbers of the low-wage, low-skill drudge.

His Hub scheme may indeed help US manufacturers. They would certainly welcome any technology that increases their productivity and profits — especially if it was paid for with taxpayer money instead of company R&D funds. Companies such as Amazon may already have agents salivating in the demonstration areas of the robotics hubs, looking for faster pickers. But peering inside a future factory spawned by Obama Hub technology may surprise even Mr. Obama.

These factories will not create the "steady stream of good jobs into the 21st century" that he had hoped for. Rather, they will create a flood of lousy, underclass jobs — the scurrying human labor needed to feed parts and raw materials to Obama's deft, voracious machines, and relieve them of their prodigious yield. All the jobs in such a factory will be held by these pickers and lumpers, except for one: the cool job held by a geeky-looking guy from an elite engineering school, who runs the factory computer system and earns a six-figure salary. He wears a hoodie and fastidiously controls every function performed (by both scurriers and machines) for the entire operation, from his colorful stool. He gels with Mr. Obama.




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The Rise of the Underclass

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If you are a working-age adult who is stuck in a low-wage job, or have no job at all, then you belong to the largest segment of the American labor force: a vast, sprawling underclass, with little, if any, economic value to the society that it burdens. Despite the ongoing monthly celebration of job growth, the number of working-age adults without a job is increasing rapidly and the jobs being created are, for the most part, of the subsistence variety, driving tens of millions of Americans into the lower reaches of the labor force.

During the recession that began in December 2007, 8.2 million American jobs were lost, 60% of which were middle-class jobs. The rest of the decline was split evenly among high-wage and low-wage jobs. Today, more than seven years later, the number of high-wage jobs has finally returned to its pre-recession level. But most of the middle-class jobs have not returned. They are being crowded out by low-wage jobs, largely the result of a stagnant economy, automation, and an enormous labor surplus.

The overwhelming majority of jobs are found in the two lowest wage earner quintiles. The bottom quintile, Q1, is 91.2 million strong, with an average income of $14,600; Q2 is 29.8 million strong, with an average income of $45,100. The other three quintiles, which I will call middle class (Q3), upper middle class (Q4), and upper class (Q5), include 19.1 million, 11.7 million, and 4.0 million, respectively, with average incomes of $70,100, $115,000, and $335,000. These three quintiles, which total only 34.8 million, have all the good jobs. The 121 million workers in the bottom two quintiles have the lousy ones.

As these jobs vanish, our already enormous labor surplus will grow ever larger, depressing wage rates still more.

Writing in the New York Times, Annie Lowrey reports that "the poor economy has replaced good jobs with bad ones." Most of the job growth has been in retail trade, administrative and waste services, and leisure and hospitality — the lowest paying sectors of the economy. Lowrey cited a National Employment Law Project analysis, which found that "fast food is driving the bulk of the job growth at the low end." To David Stockman, former Reagan budget director, the recovery has created a "Bread and Circuses" economy; he is not alone. To experts such as author and investment banker Daniel Alpert, it is a burger-flipper economy; "we have become a nation of hamburger flippers, Wal-Mart sales associates, barmaids, checkout people and other people working at very low wages.” Or, as Pulitzer Prize winning economics journalist Mark Whitehouse ("A Nation of Temps and Burger Flippers?") found, temporary burger flippers.

At least the burger flippers have jobs. With today's labor force participation (LFP) the lowest it's been in 37 years, there are 93 million working-age (16 years of age or older) adults who don't. This isn't to say that there are 93 million American who need jobs. Most retirees don't need them, and the Bureau of Labor Statistics cites "the aging of the baby boomer cohort" as the number one cause for the LFP decline. But in the 16–65 labor force age range, which excludes retirees, there are about 55 million chronically unemployed who might want a job. It's hard to whittle this number down much further. For example, the number two cause cited for the plummeting LFP is "the decline in the participation rate of those 16–24 years old." In other words, 16–24 year old Americans can't find jobs. They, along with many millions of others in this 55 million subset, are in the same boat as the 121 million with dead-end jobs — the underclass.

And it is growing fast. A recent Federal Reserve Bank study of eight major industrialized economies found that only the US has experienced a decline in LFP. Between 1997 and 2013, US LFP has decreased 4.6%, while Canada, France, Germany, Japan, Spain, Sweden and the United Kingdom experienced increases. Then there is the so-called "Great Decoupling." Beginning around the turn of the century, employment gains, which have historically followed productivity gains, ceased. Job growth and wage increases have become decoupled from the economic progress produced by technological advance. While productivity increased linearly, employment remained flat through the Bush presidency, declining thereafter. Of today's 93 million work force nonparticipants, more than 13 million (3% of the 4.6% decline since 1997) have dropped out since President Obama took office.

Automation played a significant role in this exodus to the underclass, and will only augment its future contribution. Many companies have not rehired the people they laid off during the recession. Instead, they have adopted new technologies — hastening the return to pre-recession profits, at a lower cost — that automate tasks previously performed by humans, including high-skill, middle-class humans.

Automation is no longer confined to tedious, repetitive tasks. Jobs in services, sales, and construction, even jobs in management, science and engineering, and the arts will be vulnerable to takeover by machines. So says an Oxford University study, which concluded that 47% of US jobs are likely to be replaced by computerized machines. And a technology research firm, Gartner, forecasts that smart robots will replace one of every three jobs by 2025. As these jobs vanish, our already enormous labor surplus will grow ever larger, depressing wage rates still more.

Obama's policies have created a record-breaking number of shitty jobs, which he brags about, and now promises to make less shitty.

Yet, as if existing wages were not low enough, we add one million new legal immigrants annually. Politicians, Democrat, Republican, and libertarian alike, tell us that we need them: they start new businesses, they invent things, they help support our aging population. In 1970, with a population of about 200 million and 53% of all households in the middle class, Americans competently started new businesses, invented things (almost everything that mattered), and took care of the elderly. Economic prosperity was achieved through productivity increase, not population growth. Today, with a population of about 320 million, the middle class has shrunk to only 43% (along with its wages and net worth), and we struggle in an economic mire. It seems likely that, with more people (438 million by 2050, under our current immigration policy), the underclass will continue its relentless growth.

Meanwhile, there is no serious attempt by our political elite to help create good jobs — middle class, "breadwinner" jobs that can support a family and reanimate the American Dream. The Obama administration, apparently fooled (monthly) by the declining unemployment rate, is encouraged by an economy that systemically produces low-wage jobs, as long as the number is large enough to flaunt. Mr. Obama regularly brags about record-setting job growth, 12 million at his latest count, asserting that "the economy is headed in the right direction."

It is not. By instilling fear and confusion in American business, recent tax and regulatory policies (including immigration policies) are the chief contributors to underclass expansion. For example, there is a growing preference for companies to employ temporary workers instead of permanent ones. The use of employment services, observed Mr. Whitehouse, is "a practice that makes firing easier and reflects their caution about the economic outlook." Ironically, computer and management consultants, one of the few labor categories to have experienced job growth during the so-called recovery, consist of "people who help businesses figure out how to make do with fewer workers."

Capitalists believe that the way to reverse the trend is simply to reduce the taxes and regulations that have made businesses afraid to spend. Companies, then in possession of more capital and the freedom to invest it, would purchase new plant and equipment, create new products and services, develop new markets, etc., requiring better jobs and more workers to support the expanding operations. And with the increased demand for labor, wage rates would rise.

President Obama has different ideas. He is content with his Burger Flipper economy. Unlike his Green Economy, which briefly created a paltry number of green jobs, the Burger Flipper economy produces enough low-wage jobs each month (now 61 consecutive months) for him to gloat (now, it seems, 60 consecutive months). He apparently believes that this stream of lousy jobs will continue in sufficient quantity to accommodate the five million illegal immigrants that he wants to add to our existing labor surplus.

It is only the very wealthy who prosper, with the top 1% having reaped an astounding 95% of all of the nation's net income gains since Obama took office.

Hillary Clinton, likely our next president, is dismayed by his restraint. She "advocates expanding Obama's executive actions to allow millions or more undocumented immigrants to obtain legal protection and work permits." And if that does not expand the labor surplus enough, Clinton has said that she will "welcome back people who have already been deported."

With the labor surplus driving wage decline and "fast food" driving job growth, Obama has accordingly shifted his policies to help the burgeoning underclass. As Lowrey noted,

The swelling of the low-wage work force has led to a push for policies to raise the living standards of the poor, including through job training, expansion of health care coverage and a higher minimum wage.

Obama's new plan is to improve the quality of the lousy jobs that his old plan created.

Will it work? Those without a job will get no raise. That number, now at 93 million, will increase as businesses encounter the artificially increased labor costs. Those who have a qualifying job will be happy, at first — until they discover that (A) everything they buy will cost more, (B) they will pay more in taxes and receive less in benefits, and (C) at $10.10 an hour, they will still belong to the underclass.

To date, Obama's policies have been largely aspirational, and, for existing American citizens, lamentable. According to the BLS, only 6 million net jobs (not 12 million) have been created under his stewardship. And, according to a Center For Immigration Studies report, all of them have gone to immigrants (legal and illegal). "The number of immigrants working returned to pre-recession levels by the middle of 2012, and has continued to climb. But the number of natives working remains almost 1.5 million below the November 2007 level."

Given the immensity of the underclass, the thinking at the White House might be that Obama's plan will yield more bang for the buck than a plan, say, to help create high-paying jobs. Besides, they already think that the economy is headed in the right direction and expect that, in the burger flipper economy that their old plan created, nothing could possibly go wrong with a new plan designed to lift the wages of burger flippers.

Enter the Burger Robot, the fast food industry's answer to rising labor costs. The Burger Robot can make 360 sandwiches per hour (including gourmet sandwiches); it reduces liability, management duties, and food preparation footprint; it pays for itself in about one year (even at the existing minimum wage); and it doesn't need a hairnet. The machine is not designed to improve the efficiency of fast food workers; rather, says company cofounder, Alexandros Vardakostas, “It’s meant to completely obviate them.”

The rise of the underclass is a glowing symptom of our decline. Today's politicians are singularly incapable of fulfilling their economic promises. Their glib, clumsy, overbearing laws and regulations have forged a pathetic burger-flipper economy offering little more than peonage and destitution to the majority of its labor force. After more than six years of feckless meddling, Obama's policies have created a record-breaking number of shitty jobs, which he brags about, and now promises to make less shitty. After more than six years of Obama's promises to help the poor and the middle class, it is only the very wealthy who prosper, with the top 1% having reaped an astounding 95% of all of the nation's net income gains since he took office. For everyone else, there is stagnation and decline — unless you are an immigrant or a robot.




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Discovering the New American Dream

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Much has been written recently about the death of the American Dream. The collapse of the real estate market in 2008, followed by a worrisome three-year recession, a struggling job market, and the rising cost of college tuition have caused many to wonder: is the American Dream still alive? Can it be restored? Should it be laid to rest?

James Truslow Adams coined the phrase in 1931 when he wrote,

The American Dream is that dream of a land in which life should be better and richer and fuller for everyone. . . . It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position. (The Epic of America)

For over a century the American Dream was characterized as having a house in the suburbs with a white picket fence, two cars in the garage, 2.5 children in the house, a faithful dog in the yard — and a chicken in every pot. The twin equalizers of democracy and laissez faire promised social mobility, financial security, judicial equality, and prosperity through hard work. Next door to that house in the suburbs lived the Joneses, and keeping up with them was part of the dream too. Bolstering the dream was “an underlying belief that hard work pays off and that the next generation will have a better life than the previous generation” (Ari Shapiro, NPR).

Today’s dreamer, however, keeps the dog on the bed, not in the yard, and children are likely to be delayed into the mid-30s, if they come at all. Bicycles stand next to the hybrid or electric car in the garage, and the house is controlled remotely by smart phones. The chicken in that pot must be free-range, antibiotic-free, and served with locally grown vegetables.

The average student leaves college saddled with more than $30,000 in student loans. Debt is a prison they dream of escaping.

Unlike the Joneses next door, the new dreamers are less materialistic and more likely to be getting rid of stuff than accumulating it. Bigger is no longer considered better, and tiny houses are the latest fad. The new dreamers eschew self-interest and care about connectedness and global awareness. Buzzwords like “sustainability,” “social responsibility,” and “green” drive their dream. They want to live in downtown urban areas and prefer apartments or multi-family dwellings where they can share amenities and reduce their carbon footprint. Ellen Dunham-Jones, a professor of architecture and urban design at Georgia Tech, says, “this generation is more interested in the amenities of the city itself: great public spaces, walkability, diverse people and activities with which they can participate.”

But even this smaller, more earth-friendly dream seems remote to many. The new dreamer no longer believes that hard work: necessarily pays off and worries that, for the first time in our history, the next generation will not be better off than its parents. In fact, according to columnist Adam Levin, being debt-free is a key factor in the new American Dream. According to his study, only 18.2% of Americans today see homeownership as part of the American dream, while 27.9% cite having enough money to retire at 65 as their goal and 23% of young people today simply dream of being debt-free. This is not surprising, when the average student leaves college saddled with more than $30,000 in student loans. Debt is a prison they dream of escaping.

Contrary to media pundits and government analysts who push the idea that consumer spending drives the economy; any move toward saving and fiscal responsibility is good for the economy, and thus good for the American Dream. In fact, the Bureau of Economic Analysis recently acknowledged the distortion of focusing so much on consumer spending and recently began issuing GO (gross output) statistics that include the production sectors of the economy.

Meanwhile, welfare and unemployment are dragging down the American dream. Not only is welfare expensive in terms of how much transfer payments cost, but also in how much is lost from the lack of productivity from those who aren’t working and contributing to the economy. The Personal Responsibility and Work Opportunity Act of 1996 made progress toward ending lifelong welfare, but today, 35.4% of Americans are living on welfare of some sort, according to the Census Bureau. This nightmare has to be changed if the dream is to stay alive.

Throughout the 20th century, home ownership was encouraged as a way to stabilize and improve communities, because people who own their homes are more likely to stay put, take care of their property, get involved in local politics, and remain employed. Millennials, however, avoid home ownership for those very reasons. They don’t want to “stay put” but value spontaneity, mobility, and the freedom to accept unexpected opportunities without having to worry about selling a house. Home ownership has, in fact, been declining since 2004. In a survey conducted last year, only 61% said they would buy a house if they had to move (New York Times, Feb. 8, 2015). In the words of Thoreau, “our houses are such unwieldy property that we are often imprisoned rather than housed in them” (Walden).

Today’s dreamer keeps the dog on the bed, not in the yard, and children are likely to be delayed into the mid-30s, if they come at all.

Don’t make the mistake of assuming that today’s generation is lazy, however. Most work hard, but they work, or want to work, at doing things they love. Many are turning from corporate America to entrepreneurial America and rely more on developing a horizontal social network than on climbing a vertical corporate ladder. And, while it is fashionable to hate capitalism, many are capitalists by default, creating businesses and often working from home. The new American sells advertising to support blogspots and engages in crowd-funding campaigns to raise capital for projects.

In short, the New American Dream is more about finding happiness and sustaining the planet than about achieving financial prosperity — although we are happy to accept prosperity if it finds its way to our door. Personal satisfaction is more important than keeping up with the Joneses, and making time for oneself — to work out at the gym, go to a concert, read a book, post a blog, or create a work of art — is more important than putting in overtime at the office.

Is the American Dream alive? It is, but it’s changed. And it isn’t just for Americans ant more. What’s your dream? And how are you making it come true?




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