Relevant and even prescient commentary on news, politics and the economy.

Hey Rustbelt and beyond, Losing factories is not new

(There’s a movie at the end!)

For decades we have been hearing about the loss of industrial production through out what is called the “Rust Belt”.  It’s presented, even as recent as the prior presidential election as a relative regional problem that only began post Reagan.  What gets me though is that the reporting and ultimately the politics are as if the rust belt is/was unique in their experience with the west and east coast experiencing nothing of the sort.  The presentation is of the west coast Hollywood economy and now the “tech” economy, the east coast (namely New York/Boston) being the money economy.  The south east is not considered other than Disney and orange production.  The north west?  Microsoft and Starbucks.  Well I think it used to be lumber.

Wiki notes that the rust belt is not geographic but is a term that “pertains to a set of economic and social conditions“.     It includes the northeast which is proper in that industry started there but I have had the feeling for a few decades now that such history is forgotten and thus no longer considered when we look to understand what the hell happened to the middle class.

Let me start with this fun fact.  Rhode Island was the most industrialized state per capita in the nation at one point.  Wiki notes that:

…Aldrich, as US Senator, became known as the “General Manager of the United States,” for his ability to set high tariffs to protect Rhode Island — and American — goods from foreign competition.

We were where the super rich came to escape the heat and play.  And then it started to die.  Not just here though.  Neighboring Massachusetts was hit as was Connecticut.  If you ever get a chance, come visit the New Bedford  Whaling museum and read about the massive industry that was there.  Example, the worlds largest mill of weaving looms.  Some 4000+!  Whaling from that city in the later 1800’s generated some $71 million per year!  Not impressed? Well, using the GDP deflator it’s $1.480 billion per year!

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“I’m not sure I follow the arithmetic here.”

“I’m not sure I follow the arithmetic here.”

“Unless productivity goes up by at least 25% to compensate, everyone will be worse off.”

“Dropping hours from 5 days a week to 4 means that the work that would have been done in 5 days now needs to be done in 4, which means each day needs a 25% increase in productivity. Where on earth do you think such an increase is going to come from?”

“OK, but to arrive at the same output in 4 days rather than 5 means that people have to become 25% more productive than they are today. That’s an awfully big jump in productivity. I’m not convinced that people today are that unproductive. Certainly when I think of my past workplaces, I don’t think my colleagues were that sub-optimal. A 10% increase in productivity seems more reasonable.”

Following up on yesterday’s post about comments in the Guardian, here are some thoughts about “where on earth” a productivity increase of 25 percent might come from:

Let’s start from a 40-hour week in which the rate of output declines somewhat toward the end of the day when workers are beginning to tire. Let\s assume the least productive eight hours of work produce only 75 percent of the output of the most productive 32 hours of work. Call the average output of the most productive 32 hours “one unit” of output. Total output for 40 hours work is 38 units.

Now, reduce the weekly hours to 32. Better rested, more motivated workers result in a “reasonable” 6.25 percent increase in average hourly productivity above and beyond the productivity gain from eliminating the least productive hours. Total output in 32 hours is now 34 units compared with 38 units previously produced in 40 hours.

 

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The 1912 Bread and Roses Strike

The 1912 Bread and Roses Strike

Elizabeth Warren made an impressive speech just now in the freezing cold of Lawrence, Massachusetts:

Sen. Elizabeth Warren officially launched her 2020 presidential campaign Saturday at a rally in Lawrence, Massachusetts, using the backdrop of Everett Mills — the site of a historic 1912 labor strike led by women and immigrants — to issue a call to action against wealthy power brokers who “have been waging class warfare against hardworking people for decades.” Over 44 minutes in sub-freezing temperatures, Warren described a political elite “bought off” and “bullied” by corporate giants, and a middle class squeezed so tight it “can barely breathe.” “The man in the White House is not the cause of what is broken, he is just the latest and most extreme symptom of what’s gone wrong in America,” Warren said of President Donald Trump. “A product of a rigged system that props up the rich and powerful and kicks dirt on everyone else. So once he’s gone, we can’t pretend that none of this ever happened.”

Warren has staked herself as the true progressive in terms of those who have already announced. I’m sure many others will comment on the specifics of her speech so let me note this 1912 strike:

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Will INSTEX Replace SWIFT Bank Exchange?

Will INSTEX Replace SWIFT Bank Exchange?

Probably not, but reportedly a “White House insider” is afraid it might.

Instex is the new exchange created by UK, France, and Germany, to be based i Paris and run by a German banker, to get around US sanctions against Iran.  Apparently it will sell Iran humaanitarian goods such as pharmacueticaals and food not subject to the sanctions, with those being paid for with Iranian petroleum that will then get sold elsewhere, none of this involving any US dollars.  It is probably too small to threaten the dominance of the international SWIFT bank exchange system, but this does open up the possibility for nations to avoid US limits on their international financial transactions, with the US having used the SWIFT system in the past to crack down on unfavored nations.

Addendum:

There is a long, front page story in the Washington Post this morning about this matter Griff White and Erin Cunningham. For starters, I can relay that “Instex,” which should probably be INSTEX, stands for “Instrument in Support of Trade Exchanges.”  Second is that the Trump’c campaign to get European, and especially German, companies to obey the anti-Iran US sanctions has beeen very agrressive and largly run out of the US Embassy in Berlin, with US Ambassador ro Germany, Richard Grenell, the point man on this.  He had received press attention and criticism by some German business people when he arrived in Berlin last May and publicly called for German businesses to withdraw from Iran.  That criticism did not slow him down one bit, and his efforts have led to some major German companies to withdraw, notably Siemans, VW, and Daimler-Benz, all of which have large-scale operations in the US.

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February short leading data starts out decent

February short leading data starts out decent

We’ve had two pieces of forward looking data in the last week (in addition to the leading bits in the employment report).

The first was the ISM manufacturing index:

Contrary to my expectations, the most leading new orders component rebounded sharply, up to 58.2. This is closer to its “hot” readings of mid-2018 than to its tepid 51.3 in December.

 

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“Just doesn’t add up'”

“Just doesn’t add up'”

  • “I’m not sure I follow the arithmetic here.”
  • “It’s all down to the numbers – something the article avoids and so is just pie-in-the-sky.”
  • “That clearly does not add up.”
  • “If you produce X in 30 hours you will produce > X in 40 – unless you are just sitting on your arse for the extra 10 hours.”
  • “If you work 40 hours your total output will be higher than if you work 30 hours – unless you are actually destroying output in those extra 10 hours.”
The U.K. think tank Autonomy has published a report on working time, “The Shorter Working Week: A Radical And Pragmatic Proposal.” Autonomy’s co-director, Will Stronge, wrote an Op-Ed for the Guardian on Friday that outlines some of the proposal’s main points. The Guardian piece received over 600 comments, around a quarter of which were opposed to the proposal. I am always fascinated with why people are hostile toward seemingly good things so I downloaded the comments and sorted and coded them.
Twenty-eight percent of the negative comments included gratuitous disparaging remarks about the article and its author. “Riiiiight. …whoever dreamed up this silly notion hasn’t got a clue about the realities of life.” “This drivel is always coming from some useless twit who sits on their backside…” “Yes, the article is nothing but pie-in-the-sky.” “Really?  It’s all a bit if a pipe dream isn’t it?” “Comrades , rejoice!  Tractor production will still be up 130%.” “Along with flying cars and pet unicorns for all, presumably.” “Following the columnist’s logic, why not a three day week? Or a two day week?” “better still just pay me full time but I don’t want to turn up at all.”

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Q4 Senior Loan Officer Survey says …

by New Deal democrat

Q4 Senior Loan Officer Survey says …

The Senior Loan Officer Survey is one of my list of long leading indicators. The Q4 report came out yesterday.

The news wasn’t good. This post is up at Seeking Alpha.

Meanwhile, since the dates for publication of neither housing permits nor Q4 GDP were announced last week, I am going to go ahead and put up a preliminary forecast for the second half of this year sometime this week.

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How To Go After The US Wealthy Reagan Style

How To Go After The US Wealthy Reagan Style

Ah yes, this is going to be another one of those ironic posts about what a big leftist liberal Ronald Reagan was compared to the current GOP gang in charge of so many of our policies, especially our tax policies. Certainly, the image of Reagan is one who cut taxes for the high-income wealthy, and in general that is the case. But there were a few items going the other way, and again, compared to current policies some combination of what came out of the two major Reagan tax cuts looks downright progressive by comparison.

Let us start with taxing wealth, with the Elizabeth Warren proposal to put a 2 to 3% annual wealth tax on those holding over $50 million. I am not opposed to this in principle, but worry that it faces very serious practical problems of implementation due to the high costs involved in simply determining the wealth of these large and complicated portfolios, especially given the hollowing out and reductions at the IRS, which would have to do all of it. As it is, whereas not too long ago 20 nations taxes wealth, that is now down to three: Norway, Spain, and Switzerland, with the latter lacking either a property tax or a capital gains tax. What have those other 17 nations done? Well, going in the opposite direction from where the US has gone under Trump with his tax “reform.” Indeed, a model might well be what we saw in the Reagan tax laws. So, one of the most important both as a redistribution mechanism taxing wealth while also raising revenue would be to return to the Reagan 1986 tax law’s taxing capital gains at the same rates as income is. The other one is also to undo the cuts in estate taxes Trump has put it and move back to what Reagan had in place after his 1981 tax law, a much more redistributive system than we see now. Both of these, especially the capital gains tax change, would be easily to implement and enforce.

On income taxes, the proposal by AOC for a top marginal income tax rate of 70% does not face the implementation problems the straight wealth tax faces. As noted, putting this only on those earning over $10 million per year should not be too damaging on various fronts, although it would probably not raise all that much revenue. It might be better to go with what came in with the 1981 Reagan tax law of a top marginal rate of 50%, but having it on a broader set of upper income people. This would arguably both raise more money than the AOC proposal while also arguably having fewer disincentive effects. So, returning to a combination of the Reagan 1981 and 1986 tax laws might be something that can be adopted, implemented, and enforced, which would both raise more revenues, and engage in wealth and income redistribution.

Barkley Rosser

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Foxconn update

UPDATE: Foxconn now says that it will indeed still build a factory, citing a conversation between CEO Terry Gou and Trump (h/t commenter Joel at Angry Bear). This is certainly clear as mud. As others have pointed out, several promised investments from Foxconn have failed to materialize at anywhere near the scale promised, including in BrazilPennsylvania, Indonesia, Vietnam, and India. So I am going to remain skeptical on what was a terrible deal in the first place.

 

Original AB post Foxconn is flailng in Wisonsin. Post on Wisconsin and Foxconn in 2017 Foxconn cashes in.

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Leading scenes from the employment report not so positive

Leading scenes from the employment report not so positive

I seem to have been the only person to pick up on the weakness in the underlying leading aspects of last Friday’s jobs report.

While the number of job gains was great, and that average wages for non-managerial workers had their second best showing, at 3.4%, of the entire expansion, just behind last month’s 3.5%, the leading aspects of the report, with one exception, were not so positive.

Let’s start with temporary and manufacturing jobs. Here are two graphs showing their month over month percentage gains over the last 20 years (manufacturing is multiplied *2 for scale purposes):

Both of these advance less than 0.2% m/m and ultimately decline m/m before a recession begins.

Now here is a close-up on the last year:

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