Saturday, January 14, 2012

An excellent article on the state of manufacturing and employment in that sector. Please read it to get beyond the screeches of "It's the foreigners fault! "(Righties) or "It's the greedy corporations fault!" (Lefties). Unless you want to just screech and be uninformed

Manufacturing in the US is not, I repeat NOT, what it used to be for many reasons.  Manufacturing output for the US is higher than at any time in history, however, employment in the manufacturing sector is about at 1940's level (surprised by that? I was too).  In other words, we make a lot more stuff than ever but are doing it with significantly fewer workers.  I know, that seems strange.  But if you take the time to read the article below, you will begin to better understand the issues surrounding the alleged demise of US manufacturing. 

The level of detail in this article is excellent does a nice job of covering the human aspect of technologically driven change in manufacturing.  One of the best I have read on the topic. Enjoy! :)

Making It in America

I first met Madelyn “Maddie” Parlier in the “clean room” of Standard Motor Products’ fuel-injector assembly line in Greenville, South Carolina. Like everyone else, she was wearing a blue lab coat and a hairnet. She’s so small that she seemed swallowed up by all the protective gear.

Tony Scalzitti, the plant manager, was giving me the grand tour, explaining how bits of metal move through a series of machines to become precision fuel injectors. Maddie, hunched forward and moving quickly from one machine to another, almost bumped into us, then shifted left and darted away. Tony, in passing, said, “She’s new. She’s one of our most promising Level 1s.”

Later, I sat down with Maddie in a quiet factory office where nobody needs to wear protective gear. Without the hairnet and lab coat, she is a pretty, intense woman, 22 years old, with bright blue eyes that seemed to bore into me as she talked, as fast as she could, about her life. She told me how much she likes her job, because she hates to sit still and there’s always something going on in the factory. She enjoys learning, she said, and she’s learned how to run a lot of the different machines. At one point, she looked around the office and said she’d really like to work there one day, helping to design parts rather than stamping them out. She said she’s noticed that robotic arms and other machines seem to keep replacing people on the factory floor, and she’s worried that this could happen to her. She told me she wants to go back to school—as her parents and grandparents keep telling her to do—but she is a single mother, and she can’t leave her two kids alone at night while she takes classes.

I had come to Greenville to better understand what, exactly, is happening to manufacturing in the United States, and what the future holds for people like Maddie—people who still make physical things for a living and, more broadly, people (as many as 40 million adults in the U.S.) who lack higher education, but are striving for a middle-class life. We do still make things here, even though many people don’t believe me when I tell them that. Depending on which stats you believe, the United States is either the No. 1 or No. 2 manufacturer in the world (China may have surpassed us in the past year or two). Whatever the country’s current rank, its manufacturing output continues to grow strongly; in the past decade alone, output from American factories, adjusted for inflation, has risen by a third.

Friday, January 13, 2012

Video explaining the basics of GDP...Whoa! Slow down with the enthusiasm... :)

A very nice and concise video explaining the basics of GDP...(HT: Jason Welker)

Would you like a little sugar with your plastic? Yes, plastic contains sugar! It also has another ingredient that is THE most important one. See what it is here...

BASF Will Join Venture to Make Plastics for Sugar
""Renmatix, based in King of Prussia, Pa., is one of several start-ups that have been pursuing a cost-effective replacement for fossil fuels from non-edible crops, amid mounting concerns about high oil prices and global warming over the past decade. ""
I did not know sugar was used/could be used in the manufacturing of plastic. We under-appreciate the significance of chemistry/science in the production of, well, just about everything.

The use of science in the pursuit of lowering the cost of producing has a three-fold effect: (1) better utilizes societal resources in a more efficient way (2) increases profits, and (3) lowers prices for consumers. 

However,  HOW this research actually gets conducted is what most interests me:

""Renmatix, which is backed by the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers, has raised $70 million.""
This particular research and development would not take place without this outside financial capital from this (or any other) firm.  Venture capital is vital for funding innovation "at the margin" of the marketplace. Innovations that have potential but in general are "not quite there" yet.  It is investment that, by definition, is very risky. 

Where does this investment capital come from that helps deliver to YOU goods that are better, cheaper and more widely available?

That is a rhetorical question. I know the answer, and so do you.  Many others know it too but don't want to acknowledge it.  Even they get to enjoy the fruits of venture capital without a nod to where it came from...

Thursday, January 12, 2012

We have a current observable case of income redistribution that promotes significant economic growth. Why don't we try this???

One persons idea of an income redistribution plan is another persons idea of piracy.  A new study suggests that some areas of Somalia are prospering because of the additonal "income" generated by the spending of ill-gotten ransom gains. How do you say Keynesian Multiplier in Somali?

 Below are a some excerpts from a BBC article and below that are the satellite photos from the actual report (HERE)

Somali piracy 'boosts Puntland economy'

""New research suggests piracy has led to widespread economic development in some parts of Somalia....

""Analysis of daytime satellite image showed that Garowe almost doubled in area between 2002 and 2009, with significant housing, industrial and commercial developments...""

""Many houses were newly built or repaired between those dates and a much larger number have vehicles parked outside.""

""The report concludes that significant amounts of ransom money are spent in the regional centres, with the benefits being shared out between a large number of people due to the clan structures in place...""

Nice graph showing how much in US dollars flows to Mexico. This HAS to be bad for "Americans", right???

This chart shows  the changes in "Remittances to Mexico" since the mid-90's.  A remittance is the sending of money from one place to another.  In this case, it would be citizens of Mexico working in the US and sending dollars back home.  You can look at it as "exporting dollars".  Is this a bad thing?

Source: Calculated Risk
Let me put a positive twist on this.  Sure, initially those dollars are leaving the US--The US economy is denied the current consumption of goods and/or services of those dollars.  But do those dollars simply disappear?

No. Eventually those dollars (or most of them) MUST make it back to the US, regardless of the journey they go on to get here and purchase (1) US goods (2) US services (3) Both of these or (4) US Assets--physical and/or financial. There is a fancy name for this category of trade---EXPORTS!

Look at the dollar change in US exports to Mexico during this time period. The two graphs are VERY similar in magintude/amlitude, wouldn't you say?

FRED Graph

I DO understand that the elephant in the room largely responsible for setting the stage for the increase in exports is the NAFTA Trade agreement and our import of oil from Mexico.  Point taken.  However, the free flow of dollars from sources like labor performed in the US certainly factors into the equation.

While dollars earned in the US were not used immediately to consume US goods/services/assets, they eventually did so.  US jobs were supported/created either way.  How come we usually view this as a zero-sum game where one side wins and the other loses?

Capitalism and the Environment---Friends or Foes? See this cartoon and decide for yourself...

Creative Destruction is a feature, not a bug, of Capitalism.  I look this simple cartoon and see Capitalism as a tool for improving the physical environment and conserving resources. 
Think of all the natural resouces that are/were used to produce the techologies on the left-side "In the Old Days" that are not used on the right-side "Now".  Is the net effect positive for the environment?  What do you think?

HT: Jeff Long--AP Govt teacher extraordinaire!!

The mid-90's and the housing/banking crisis befuddles me. Help me understand, please...Do these graphs make sense??

The first graph is from my post yesterday.  It shows the growth in home ownership and the huge spike starting about 1993-94.  It started the trend towards recovering previous losses in home ownership starting in 1977 (notice the decline, then leveling off) and quickly surpassed the previous high established in 1977.

The time period 1993-94 in terms of the dramatic increase in home ownership intrigues me.  In order for this to occur it seems reasonable that the Federal Reserve would have to increase the money supply in order to decrease interest rates to incentivize people to take out loans to buy houses, right?

The graph below shows the growth, in billions, of the "cash" money supply (aka "M1 Money Stock") in the banking systems that banks presumably lend out to borrowers.  Notice that towards the end of 1993 the M1 Money Stock actually DECREASES then levels off until 2001.  In your mind, isolate the time period 1993 to 2001 on both these graphs and ask yourself: "How can the money supply decrease but the "money" to buy houses increases?  There seems to be an inverse relationship! What is up with that???

The graph below from The New Arthurian Economics is important to understanding how this happened. It shows the  "Debt per Dollar" in circulation (M1 Money).  Isolate the Debt per Dollar change during the time period discussed above.  Notice the steep slope indicating a rapid rise in Debt per Dollar, going from a ratio of 15-1 to 25. That is an increase of 66% in under 7-8 years.

Source: The New Arthurian Economics
Another way to look at it is each dollar in circulation is loaned out (leveraged)  multiple times.  We know this better as "credit". 

What happened in 1993 (that did not happen to a significant level prior to this date) to create the conditions for the rapid formation and use of credit in the US?

Am I just too narrowly focused on the mid-90's and missing something?  Help me, please.

Wednesday, January 11, 2012

Great....Now we going to have to import our rain from China...

Sounds like they have not let go of their totalitarian roots by claiming they can do pretty much anything...

Chinese Government Plans to Cause Ten Percent More Rain By 2015

""China is starting four regional programs to artificially increase precipitation across the country by 10 percent before 2015, under a newly released 12th Five-Year Plan (2011-2015), according to the state-run China Daily. “Weather intervention” could bring an additional 230 billion cubic meters of precipitation per year — that’s on top of the 50 billion China already artificially creates annually, China Daily says.
 I LOVE this highlighted quote:
Because clouds are boundless, weather control is boundless. The five regional weather control programs will coordinate the ground resources, such as the cloud seeding rockets and planes, across provinces to increase potential rain or snow,” said Zheng Jiangping, deputy director of the China Meteorological Administration’s department of emergency response.""

The Price of Orange Juice is set to increase dramatically...I think comedian Eddie Murphy has something to do with it! See video (and related real-life article) HERE...

See video below as to how the "marketplace" responded to this news... :)

Orange juice at 34-year high on fungicide fears

""The price of orange juice futures contracts hit a 34-year high on Tuesday after the main US food safety regulator said it would block imports containing a fungicide commonly used in Brazil, the leading producer of the citrus fruit.

The Food and Drug Administration’s announcement sent traders scrambling to prepare for the possibility of lower inventories in the middle of the US winter, when the New York futures market is most at risk of a harsh freeze in Florida’s orange groves. ""

Who is responsible for the Housing Crisis that lead to the banking crisis (or vice versa)? This graph shows me it was a massive group effort. What do you think?

Source: Cafe Hayek

Look at the time span 1993-94.  SOMETHING happened to cause the vertical trajectory of homeownership.  This might be a rare example of "correlation IS causation".  Wall Street greed? Politicians gone wild for votes?  Entitled Baby-Boomers? The Federal Reserve catering to ALL these constituencies? 

I kinda think it was a group effort.  If you are a Occupier then you think it was 100% Wall Street. If you are a Tea-Partier you think it was 100% Federal Government.  As always, the relative truth lies somewhere in between. 

However, policy (political and Federal Reserve) DID play a role, both explicitly and, perhaps more influencially, implicitly.

Below are a couple of statements from the Clinton and Bush era Presidencies that illustrates this point. As I said, a group effort...

From President Clinton (1994):
""Our nation’s greatest promise has always been the chance to build a better life. For millions of America’s working families throughout our history, owning a home has come to symbolize the realization of the American Dream. Yet sadly, in the 1980s, it became much harder for many young families to buy their first home, and our national homeownership rate declined for the first time in forty-six years. Our Administration is determined to reverse this trend, and we are committed to ensuring that working families can once again discover the joys of owning a home.

This past year, I directed HUD Secretary Henry G. Cisneros to work with leaders in the housing industry, with nonprofit organizations, and with leaders at every level of government to develop a plan to boost homeownership in America to an all-time high by the end of this century. The National Homeownership Strategy: Partners in the American Dream outlines a substantive, detailed plan to reach this goal. This report identifies specific actions that the federal government, its partners in state and local government, the private, nonprofit community, and private industry will take to lower barriers that prevent American families from becoming homeowners. Working together, we can add as many as eight million new families to America’s homeownership rolls by the year 2000.

From President Bush (2007):
""The Administration supports legislation to modernize and reform the National Housing Act (NHA) and to ensure that the Federal Housing Administration (FHA) continues to play a key role in serving low-and moderate-income homebuyers. The President has called on Congress to expeditiously pass the Administration's FHA Modernization bill to assist more homeowners during this period of stress in the mortgage markets. H.R. 1852, as reported by the House Financial Services Committee, includes provisions that are essential to maintaining FHA's core mission of expanding homeownership opportunities for borrowers who are underserved, or not served, by the existing conventional mortgage marketplace....""

Monday, January 9, 2012

If you buy Fair Trade products you need to read this. Not to change your mind but to point out its limitations. Information is power...

A fundamental problem (or issue, to be more politically correct) with traditional, agrarian-based economies when it comes to "Fair-Trade" is that they are, well, traditional, agrarian-based economies.

The Fair Trade franchise has admirable goals---getting farmers a higher price for their commodity and making sure children are not used/abused as laborers.  The latter is a requirement for a farmer to get the Fair Trade designation and the requisite benefits.  The idea is to get children out of the fields and into school, hopefully. 

So, while a farmer may not have his (or other children) work in, say, the Fair Trade designated cotton field, the children will LIKELY work in another part of the agrarian society not engaged in Fair Trade practices. By definition, in an agrarian society food MUST be grown by someone. If adults are working the Fair Trade designated fields in order to get a higher price for one commodity, then the children are likely to be working in another non-Fair Trade field producing another food commodity.  The problem of child labor may not be any better, and could be worse!  It may have just shifted from one place to another...

I post this to informed and to ask you to think about the issue in more complex terms.  I often see it portrayed as a panacea for problems in poor countries.   Feel good about what you do, but be realistic about the results it can actually produce.

The source of this post is this one from Matthew Yglesias at Moneybox.  If you don't read him on a regular basis, you should!

""Back in December I flagged Cam Simpson's story about allegedly fair trade cotton being grown by child slaves in Burkina Faso. Given that, it's only fair to note that last week Fair Trade International published a report on their own inquiry into this and they say Simpson has it all wrong:

Most significantly, according to our information, the “girl” who featured prominently in the article is not 13 years old as reported. We have seen her birth certificate and corroborated her age with school records. She cannot accurately be described as a child as defined by the UN Convention on the Rights of the Child (i.e., under 18 years old).

In addition, she is not involved in cotton growing and therefore is not participating in Fairtrade certified cotton production. Instead she works on a family-owned vegetable farm, growing locally consumed products for which there are no Fairtrade Standards nor Fairtrade certified producers in this region.

I find it, frankly, difficult to believe that Bloomberg made the error being alleged here but I think I'm going to have to let Simpson and Fairtrade fight that it.

The point about the vegetable farm is, however, very interesting and highlights some of the limits of piecemeal efforts to improve labor standards. If you think about an agricultural economy centered around a cash crop for export—it could be cotton, coffee, or whatever else you like—then realistically locally focused food production is also going to be part of the picture. The cotton farmers need food after all. So you could easily have a situation in which a bunch of farmers are clustered in a village, partially growing vegetables for basically their own consumption and partially growing cotton. In the unfair trade paradigm, children and adults alike grow both cotton and vegetables. Then when you switch to a fair trade paradigm, what you get is labor market segmentation. Maybe children stop working in the export-oriented cotton fields, but now children are doing all the vegetable farming. The household- and village-level economies, however, are still dependent on child labor...."
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