Reader James has free trade and jobs on his mind. James asks: How does the election affect free trade and jobs?
Let’s start there.
I responded, to James … It’s doubtful the election changed much of anything. More precisely, the election is a reflection of change that already occurred.
Q: What changed?
Changing attitudes handed the election to Trump. I talked about attitudes numerous times.
Here’s a pertinent flashback from January 31, 2016: Nate Silver’s Continual Underestimation of Donald Trump’s Chances
On January 18, I sent the article below (starting with the title Nate Silver Off the Mark on Donald Trump Nomination Odds) to the New York Times as an Op-Ed. They did not publish it. …. I just cannot accept Silver’s current assessment of Trump’s chances of winning the Republican nomination. … This is a one-on-many play, where voter attitudes have consistently sided with Trump, no matter who he offends. It’s a mistake to discount such sentiment.
People are upset. Donald Trump fed off that anger. He promised them better jobs and better deals, and more protectionism, precisely what they wanted to hear.
But will he change anything regarding jobs? No.
Nor would Hillary Clinton or Bernie Sanders. All three of them had the identical anti-free-trade rhetoric. I discussed that on June 29 in Today’s Quiz: Donald Trump, Bernie Sanders, Hillary Clinton – Who Said It?
Anyone who thinks policies under Hillary would have been much different are mistaken.
Some suggest Hillary was just taking a stance because Trump was clobbering her in the rust belt states. Others suggest Trump fed off voter attitudes and will now change his tune.
A more pertinent question might have been: Could (not will) Trump do anything about jobs? Ponder that question for a bit while turning back to the question of “change”.
Change You Can Believe In
Obama promised “change you can believe in”. What changed?
Drain the Swamp
During the election campaign, Trump chastised Hillary as beholden to Wall Street. He pledged to “drain the swamp”.
Guess what? Trump selected ex-Goldman Sachs banker Steven Mnuchin for Treasury Post.
In response, many quipped “So much for draining the swap”.
Trump May Deliver
Trump may indeed deliver more protectionism. But what about jobs?
Trump brags about saving 1000 Carrier jobs and jobs at Ford as well. So what? NAFTA was never the problem, nor was China.
The entire world is losing manufacturing jobs thanks to increased productivity.
Changing social attitudes got Trump elected, but attitudes cannot stop the march of technology.
Stagnation Sets In
Reader “Prophet Without Profit” made this pertinent comment on my blog.
We live in an age of economic stagnation. Unlike the 90s when the economy was growing we have stagnated over the last 16 years since the turn of the century. We have punished savers, who form the basis for capital formation, with ZIRP and negative real interest rates. We have also favored debt over savings through our tax policies and creating a consumer society.
When you have a shrinking economic pie you remove an important social lubricant. It is now wonder that whites are pitted against minorities, men against women, the coast against the middle of the country. Negative social mood breeds social conflict.
Enter someone like Trump who simplistically promises to make America great and you appeal to a bygone era which is not likely to return.
If you follow through with Mish’s point about self driving cars you can also put a stake through the heart of the auto industry whether it be domestic or imported vehicles and the related suppliers, auto dealers, repair outlets, oil and transmission shops, etc. Self driving cars means you can have a one car or no car family. Your self driving car could take you to work and then return on its own (or pick up some passengers) return to your home and take your children to school, drive grandma to the food store and return at night to pick you (and some ride sharing friends) up and take you home. How many cars will be produced? Plus there will be fewer accidents, cars driving at fuel efficient speeds etc. There will be repair and insurance implications as well. This is deflation writ large.
That brings us to communities where I used to travel to: Seneca Falls, NY, Williamsport, PA, Hillsboro, NH, Caro, MI. First some of those businesses are never returning like cathode ray tubes produced in Seneca Falls and Ottowa, OH. Second, If you were going to build a factory why would you put it in a cold area of the country, with unions, a low skilled workforce, high local taxes, added energy costs, transportation costs for good to reach market, etc? Third, if you decided to build the factory it would be highly automated with robots, computers, etc employing a fraction of the employees employed before.
It is going to take more than the simplistic bromides of the President-elect and the policies which have led us to consuming and speculating rather than saving to improve the lot of the working man. I suspect it will also require re-training and moving away from some these middle American communities.
Affirmative action, NAFTA are good for demagoguery put obscure the need for thinking about the policies which got us here, the current realities of a globalized world and the hard work to face the new world.
Education Not the Answer
Reader Robs accurately assesses …
Today’s millennials are proving that it is a stupid exercise to spend 4+ years in higher education only to wind up in the bottom two skills quintiles anyway. It is practically criminal that we cajoled millennials into borrowing money for 4 more years of inadequate education.
Millennials stayed home and Gen X voted for Trump. “Free college” may sound like a nice come on, but the reality is that it’s just 4 more years of inadequate education, 4 more years of having to be dependent on mom-and-dad or Aunt Hilary. Trump doesn’t have any answers, but he’s wasn’t peddling the same proven-failure that Clinton was.
It also explains the insolvency of Social Security and pensions: government policy keeps pushing adulthood later and later – but the later you start becoming a self-reliant individual, the fewer self-reliant children you can raise.
The very same millennials who who turned out en masse for Obama, sat this election out.
What happened? Attitudes changed. They believed in change then stopped believing when it never came. Had millennials showed up, Trump would not have won.
Reflections on Protectionism
Reader Madashellowell commented:
There is nothing wrong with protectionism except that it is imposed by government. It is natural and good that people act to protect themselves. If people understood the ramifications of their own actions, then we would all deserve exactly what we get. Instead, our government creates massive numbers of unintelligible rules that no one truly understands, and then they lie to us about their implications.
That’s close. Actually the lobbyists who write the laws know precisely why every line of law is written.
Reflections on Productivity
The last word from readers goes back to Robs who says …
Theoretically, if productivity explodes, the cost of goods and services becomes so low that you don’t need a high-paying job to take advantage of the productivity. Who had refrigerators and thermostats 100 years ago? Only the rich. Now all but the homeless have them.
Bingo. We have a Fed hell bent on producing inflation in an inherently price-deflationary thanks to technology.
The Fed forced wages up and up and up, until globalization was the only possible consequence. Then public unions got a hold of states like Illinois and cities like Chicago. They are now insolvent.
All along, the Fed bailed out banks every time they got in trouble. In Europe, the alleged bailout of Greece was really a bailout of creditors in Germany and France.
Financial repression via negative interest rates and QE is now the global norm. That’s what it takes to keep the credit bubble from imploding.
Meanwhile, real household income declines even if one believes the CPI rates the government cram down our throats.
All of these problems escalated the moment Nixon closed the gold window.
Free Money Cannot Help
Giving away free money or free housing or free education will not help no matter how many economic illiterates believe in it.
If everyone had a PhD, then PhDs would be collecting trash off our streets. If everyone had a guaranteed “living wage”, then too many people would choose to do nothing.
This is so blatantly obvious, but thanks to illiterate academics, people have been trained to believe that inflation is a good thing, deficits don’t matter, college education should be free, and we can spend ourselves to prosperity if only we handed out enough “free money”.
It seems to me we have handed out too much free money already, borrowing from out future while doing so.
One must fix the problem at the root cause: The Fed, fractional reserve lending, and Nixon closing the gold window. Add to that list the endless parade of charlatans who propose inflation, free education, and free money or free living wages as the solution.
Mike “Mish” Shedlock