The German Model

I was asked how Germany manages to keep its manufacturing employment and its manufacturing wages both up and this post is my response. Consider the graph above. The Germans have an export-driven system. They maintain a positive balance of trade, exporting more than they import. Indeed, much of what the Germans import is oil and gas which they use to power their factories. Until quite recently the Germans maintained a trade surplus with China, one of relatively few countries to do so.

Without going too much into the mechanisms by which this operates, in effect the Germans export goods and import employment.

Now consider the U. S. balance of trade:

We import a lot more than we export. We import oil (although slightly less than we used to) and we import consumer goods. We do the opposite of the Germans, importing goods and exporting employment.

Although we could and IMO should import less, we can’t implement an export-driven strategy. The rest of the world isn’t rich enough to buy enough U. S. exports for that to happen.

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The 70s Aren’t Coming Back

One of my commenters took substantial umbrage at my claim that the idea that saying that U. S. manufacturing jobs could be “brought back” from China, Japan, South Korea, etc. was poorly informed enough as to constitute a lie so I thought I’d explain my reasoning. What I’m presenting in this post is widely known among economists and businessmen. It’s not particularly controversial.

Let’s start by defining our terms. First, let’s talk about what a job in manufacturing in the U. S. was like in the past. A half century ago someone with a high school education only (or even less) could get a job working on a factory floor that would pay wages high enough to support a large family in a middle class lifestyle, paid all of their healthcare expenses, and, after they’d worked their entire lives at that company, paid for a graceful retirement.

Millions of those jobs no longer exist. As the graph at the top of this page illustrates, manufacturing employment in the United States peaked in the 1970s and now nearly 8 million fewer Americans are employed in manufacturing than were 40 years ago. But manufacturing output has continued to grow and is higher today than ever. The manufacturing jobs of the 1970s are gone, they aren’t coming back, and there’s nothing that anyone can do to bring them back.

BTW, it isn’t just in the United States that manufacturing jobs have peaked. Manufacturing jobs in China peaked a number of years ago.

To understand why let’s consider one example: what we used to call the “Big 3” U. S. automobile companies—GM, Ford, and Chrysler. Those three companies alone employ 300,000 fewer hourly manufacturing employees than they did in the 70s.

Prior to the automobile industry’s near-death experience in 2007, the hourly labor cost in those three companies (wages plus the cost of benefits) was around $75/hour. Today those companies have tiered payment systems. New employees are paid closer to $15/hour. Let’s talk about the old jobs rather than the new ones which clearly don’t fit the description of the “good, manufacturing jobs” I outlined above.

300,000 X $75/hour X 2,000 hours per man-year = $45 billion. That’s three times the Big 3’s combined net income. The numbers just aren’t there. You could cut their CEOs’ incomes to zero. The numbers still wouldn’t be there. You could impose tariffs on Chinese manufactured goods high enough to start a trade war. The numbers still wouldn’t be there.

Today’s good, manufacturing jobs still pay well but their numbers are not growing rapidly and their requirements are greater than they used to be. They require greater skills, those skills aren’t taught in our high schools and, importantly, they change over time.

The present state of affairs could be improved if we took some substantial steps. First, we should stop tolerating currency manipulation by our trading partners. That isn’t limited to China but includes Japan, Germany, South Korea, and many, many others.

Second, the federal government should stop subsidizing the off-shoring of jobs.

Third, we need to re-balance the emphasis in our schools away from college prep towards vocational training and to do that we’ll need to accept that some people will not go to college and that’s okay.

Fourth, American workers need to realize that learning doesn’t end in high school, college, or, indeed, ever. They will need to continue to improve their skills over their entire working lives.

Fifth, a better division of the costs of improving workers’ skills needs to be struck between the workers and their employers with government playing some role. I’m not prepared to say what that division should be or how it should be decided but I do believe that the present division with most of the onus falling on the workers isn’t working.

Among my regular commenters some have substantially more first-hand knowledge of these matters than I do and I hope they’ll join in the discussion.

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What I Wish the Candidates Had Said About Trade

The bald facts are that Sec. Clinton lied about her support for the TPP. On November 5, 2012 Sec. Clinton said:

This TPP sets the gold standard in trade agreements to open free, transparent, fair trade, the kind of environment that has the rule of law and a level playing field.

She did not say that she hoped it would as she claimed. She said that it did.

Donald Trump lied, too, when he said that he will bring good-paying manufacturing jobs back to the United States. That horse has already left the barn. It is beyond his or anyone else’s power. Our efforts would be better directed to mitigating the effects that our poorly-constructed trade agreements of the past have wrought on ordinary Americans.

The plain truth is that today’s trade agreements are less about free trade than about picking winners and losers. Too long have a privileged, connected handful been anointed the winners while most Americans were made the losers. That has to stop. Economic winners must start bearing more of the costs for remediating the harm done to those who have been who lose due to our trade agreements. Too long have our trading partners become prosperous by manipulating their currencies, exploiting the openness of our markets, and imposing backdoor tariffs on our goods and services. That has to stop. Too long have our trading partners allowed unhealthy and unsafe conditions for their own workers to prevail and polluted the environment in the interest of exporting their manufactured goods to the United States at low prices, undermining American manufacturing. That has to stop.

I am grateful to President Obama for his efforts in negotiating the Trans-Pacific Partnership Agreement and I am committed to expanding our relationship with our neighbors on the Pacific Rim. I believe, however, that the agreement is flawed and will return to the bargaining table to renegotiate the agreement along the lines I’ve suggested.

The “fast track authority” that some have sought to approve the TPP is nothing more than letting the president go over the heads of the American people to adopt trade agreements they don’t like. There’s another alternative to that: adopt trade agreements they do like.

The issues of trade and immigration are inextricably intertwined. No country is more accepting of new immigrants than the United States, a quality we have had for our entire history. Today there are six times as many immigrants in the United States as there were when our immigration policy was liberalized in the 1960s and as many as a percentage of total population as at any time in our history. Frankly, the American people need some time to adapt. We need to strike a better balance among restricting immigration, enforcing our laws, getting the workers that American industry needs, and providing a haven for those fleeing persecution. To that end we will fully implement and enforce a program of workplace enforcement. It will be fully funded by a surtax on companies that employ immigrants and foreign workers. The surtax will be borne by the federal government in the case of refugees, who will receive thorough screening prior to their admission into the United States.

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What I Wish the Candidates Had Said About NATO

As Lord Palmerston said more than a century and a half ago, we have no eternal allies…our interests are eternal and perpetual. Conditions change over time and it makes sense to revisit the alliances we have contracted from time to time.

NATO was formed when the greatest challenge to the free nations of Europe was an external one and those countries, still reeling from the lasting effects of the Second World War, could not meet that challenge without our help which we provided. The greatest challenge for those nations today is an internal one. What kind of countries will they be? That is not a debate in which we should interfere.

The United States remains committed to Europe and is prepared to render aid to the countries of Europe as we have in the past. We are grateful for the aid that our NATO allies have rendered to us. That commitment to Europe cannot be greater than the commitment that the countries of Europe themselves have. If our NATO allies decide that the alliance no longer matches their needs and they have other priorities, who are we to disagree?

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Charles Lipson’s Take

I think that Charles Lipson’s take on the debate at RealClearPolitics is about right:

Neither candidate accomplished all their major goals.

Clinton probably shored up her minority constituencies by her direct attacks on Trump, especially on the birther issue, where he is vulnerable.

Her ability to press home her attacks while still seeming likable could well reverse her recent downward slide in the polls. But it is not enough to weaken Trump badly.

He lives to fight another day. He will continue to fight like the Donald Trump of the Republican primaries. He is not backing away from his stance as a full-throated, often abrasive nationalist, an outsider who touts his successful businesses as proof enough that he can get things done.

He may have learned that a little formal debate prep is not such a bad thing. He left a lot of his opponent’s vulnerabilities unexploited. She hit all of his. The question now is whether Clinton accomplished enough to stop her slide.

The overnight polls will probably give us a better picture. Voters just don’t see things the way that pundits do and it’s hard if not impossible for a writer who covers politics day in and day out to put her- or himself in the voter’s shoes.

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The First Presidential Debate of 2016

Somewhat to my surprise I ended up watching the first presidential debate last night between Hillary Clinton and Donald Trump. To my eye in essence it met my expectations. I found it troubling and difficult to watch.

If there was a winner, it was probably Hillary Clinton. I thought her strongest moment was when she explained why Trump’s birtherism was problematic. I don’t know that Trump had a strong moment. He probably did, however, accomplish what he needed to. He didn’t sound like a lunatic.

I thought that Trump rambled and frequently stepped on his own points. Clinton, well, was Clinton. I was surprised at Cokie Roberts’s observation that Trump was rude to Sec. Clinton. If anything, I thought it was the other way around.

Watch the debate, at least for a few minutes, with the sound off. In effect that’s the way most non-political junkies saw the debate.

The debate’s moderator, Lester Holt, acquitted himself well, rather better than I expected. Good for him.

Pundits’ assertions to the contrary notwithstanding neither Sec. Clinton nor Donald Trump is a particularly good debater. The measure of a good debater is the ability to convince someone who comes into the debate disagreeing with your position that you’re right. I doubt there was much of that going on.

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The Game

I don’t recall whether I’ve ever mentioned this before. My wife and I have a sort of IQ test for dogs. We call it “the game”. Here’s how it works.

My wife kisses me. Then she kisses one of the dogs. I kiss my wife. Then I kiss one of the dogs. Smart dogs react by kissing each of us back in turn.

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Question

Taking into account the genocide that he perpetrated, should we have invaded Cambodia to remove Pol Pot in the 1970s?

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The Grey Lady vs. Donald Trump

Lest anybody be uncertain about it, I agree with a good deal of what’s in the New York Times’s editors’ diatribe against Donald Trump. I agree most with this passage:

But voters should be asking themselves if Mr. Trump will deliver the kind of change they want. Starting a series of trade wars is a recipe for recession, not for new American jobs. Blowing a hole in the deficit by cutting taxes for the wealthy will not secure Americans’ financial future, and alienating our allies won’t protect our security.

And I agree with their conclusion: Donald Trump shouldn’t be president.

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The End of an Era

There are two notable stories, each of which marks the end of an era. Together they’re even more dramatic.

When I was a kid, the voice of the St. Louis Cardinal baseball team was Harry Caray. His voice was the sound of summertime. And Vin Scully was the voice of the Dodgers. After 67 years Vin Scully has retired:

LOS ANGELES — After 67 years, Los Angeles wasn’t ready to say goodbye to Vin Scully.

With the Colorado Rockies holding a 3-2 lead with two outs in the bottom of the ninth inning, Corey Seager, the Los Angeles Dodgers’ 22-year-old shortstop, hit a home run to right field to tie the game and extend the final home game for the 88-year-old announcer one more inning.

Sunday was the final game Scully will broadcast from Dodger Stadium as he nears the end of a 67-year career that began in 1950, when the Dodgers were in Brooklyn, and spanned nearly seven decades.

“And wouldn’t you know we’d go extra innings,” Scully said after Seager’s home run. “Of course, you didn’t have anything better to do, anyway.”

With two outs in the bottom of the 10th inning, Charlie Culberson homered on a fly ball to left field to give the Dodgers a 4-3 victory and their fourth straight National League West title, a franchise first, in Scully’s final game behind the microphone at Dodger Stadium.

“The Dodgers have clinched the division,” Scully said on the call. “And will celebrate on schedule.”

It was a storybook moment in a storybook career for Scully, who was given a standing ovation after the game from the crowd and the players, who took off their championship hats and waved them at a smiling Scully up in the broadcast booth.

Angelenos were suitably emotional about the farewell. Most of them don’t remember a time when Vin Scully wasn’t the voice of the Dodgers.

And the great golfer Arnold Palmer has died:

Golfing legend Arnold Palmer died Sunday afternoon in Pittsburgh, his longtime spokesman and friend Doc Giffin told ESPN. Palmer was 87.

“I’m just so heartbroken about it,” Giffin said. “As much as Arnold Palmer meant to the world, he meant that much and more to me.”

According to his longtime agent, Alastair Johnston, Palmer died of complications from heart problems. Johnston said Palmer was admitted to the University of Pittsburgh Medical Center Presbyterian on Thursday for some cardiovascular work and weakened over the past few days.

Palmer, who was nicknamed “The King,” won seven major championships during his professional career, which spanned more than five decades. He won the Masters four times, The Open twice and the U.S. Open once.

It’s hard to overestimate Mr. Palmer’s importance to the game of golf and his influence over it. He was really the first golfing superstar, dominating the game for a decade. Not only did he popularize and democratize the game of golf, he changed the business of golf in his involvement in sports marketing.

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