Summary Notes

Irrational belief in the infallibility of the "free market" and "free trade" has led to devastating offshoring of good-paying manufacturing and IT jobs.  This has undermined the US economy, leading to its collapse. Nationally, policies continue to be a disaster for Mfg Jobs, IT Jobs, and Advanced Technology Products "trade".

Below I explain why both stimulus and trade policy reform are necessary. The tax cuts of recent years, ostensibly to stimulate the economy by increasing investment and supply, don't work when demand is collapsing.

The accompanying undermining of US wages is largely responsible for The 9/22/08 Economic Crisis ... collapsing demand has inevitably led to a collapsing economy. Yes, financial fraud and speculation precipitated the debacle, but the economy has become more and more unstable as U.S. wages have been systematically undermined.

• Nationally, as of Apr 09, the U.S. lost 32% of manufacturing jobs and 23% of IT jobs since their peaks.
• Nationally, jobs haven't kept up with population growth ... Gap: 11.9 million jobs in Apr 09. After last month's Official Employment showing a gain of 120,000 jobs, May brought another 437,000 job loss. Job Losers (U-2) continued to soar, jumping to 6.2% ... accelerating upward at an astonishing rate. The U.S. has lost 6.1M jobs since Nov 07. 
• Colorado jobs also haven't kept up with population growth ... Gap: 353K jobs in Apr 09 (K= 1000s).
• Colorado Springs has been a major disaster for manufacturing and information technology, worse than the state or nation. The Springs has lost 46.8% of manufacturing jobs and 49.0% of IT jobs since their peaks. See the summary below.

All this is of course, according to "conservatives," all Obama's fault though he's only been in office a little over three months.

On the "banking crisis," conservative historian and proponent of a McCain presidency, Niall Ferguson, had this view, 4/26/09:

Ferguson also agreed with advice offered by Paul Krugman (an "unprecedented" event, by Ferguson's own admission) that the "only way to deal with these big insolvent institutions is to take them into temporary conservatorship, let's use that lovely euphemism not nationalization, as happened with Fannie Mae and Freddie Mac, institutions that they quite closely resemble anyway. It's going to happen; we're going to end up doing this. And you restructure them."

Unfortunately, Obama is not doing this even though he's being charged with taking over the banks and being a "socialist." As with Bush's Treasury Secretary Henry Paulson before him, Obama's Tim Geithner is bailing out the banks with few, if any, strings attached. That's the banks controlling government, not the government controlling the banks. That's fascism, not socialism.

Looking at the graphs below, is there any wonder that the U.S. economy is in shambles thanks to "free trade" offshoring? Examples of what "trade" policy has produced: Tent Cities in LA 3/16/09, Cities Deal With a Surge in Shantytowns 3/25/09.

On stimulus, "trade" anti-stimulus, and the GDP equation

Obama's stimulus is necessary, but not sufficient, and will fail unless the "trade deficit" is addressed ... and so far it doesn't appear that it will be. As Uchitelle wrote in Economy Falling Years Behind Full Speed By LOUIS UCHITELLE 4/7/09 : "... imports, entering the country in ever greater quantities, will slow any expansion by siphoning sales from domestic producers."

The Rock and the Hard Place: Obama needs the Chinese to keep buying U.S. treasury bills to fund necessary stimulus to address the short-term cyclical recession; therefore he can't upset them by confronting them on "trade" issues. But because Obama won't address "trade" issues that have caused a long-term secular economic decline, the stimulus will fail. Bummer. :-(

Damn. We are so screwed.

The equation for GDP is useful for explaining why both Stimulus and Trade Policy Reform are necessary. It's an important equation -- it's really simple math, not rocket science:

Gross Domestic Product = GDP = C+I+E+G

That's:
Consumer spending (C) + Investment (I) + Net Exports (E) + Government Spending (G)

C: Consumer spending has collapsed because of undermined wages.
I: Investment has collapsed due to lack of demand because of those undermined wages.
E: Net Exports = Exports - Imports ... we have an annual ~$700B deficit ... see the Trade Deficit & Trade Agreement History graph below.
G: Government Spending is all that's left ... and that's why stimulus is needed.

References on the GDP equation:
Why the Stimulus is Needed by Hale "Bonddad" Stewart, 1/31/09
Senator McConnell -- Idiot of the Highest Order by Hale "Bonddad" Stewart, 12/29/08

Unfortunately, compared to the annual ~$700B "trade" deficit alone, a $787 billion stimulus package added to G (Government spending) doesn't look all that big. Considering also collapsed C (Consumer spending) & I (Investment), it's apparent it's not enough.

Look at it this way: Thanks to what's called "free trade", the U.S. has experienced nearly 3 decades of major anti-stimulus "trade" deficits. From 1980 through 2008, the cumulative "trade deficit", the "trade debt", has totaled over $7 trillion, with $5.1 trillion of that from 2000 through 2008.

Compare that $7 trillion in cumulative "trade" anti-stimulus against the current $787 billion stimulus package and it's quite obvious the latter will be ineffective. "Free trade" has been like an anti-matter black hole that has sucked prosperity from the U.S. economy.

Note: Recall that I put "free trade" in quotes because "transfer of the factors of production" is NOT "trade."

And damn, even if the current stimulus were enough, it's a path to long-term debt and hyperinflation. The "trade" deficit must be addressed! But then there's that Rock and a Hard Place squeeze noted above. Oh, my. Did I mention we are so screwed?

A larger excerpt from John Williams' 4/8/08 article on Hyperinflationary Depression is included below, but it's worth reading twice. So-called "conservatives" are already blaming the coming collapse on Obama, but Williams observed in 2008 that we were already well on the way to a Hyperinflationary Great Depression:

The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, and gross mismanagement. ...

The U.S. economy is in a deepening structural change that has resulted from U.S. trade policies that have driven the U.S. manufacturing base offshore. As a result, a large number of related, high paying jobs have been lost to U.S. workers.

As shown in the accompanying graphs, as the U.S. trade deficit has risen to the highest level for any country in history, U.S. average weekly earnings, adjusted for inflation, have fallen. ...

The cost of those cheap products from China has been enormously greater than what we've paid in dollars.

Job Loss Data Summary: National, Colorado, Colorado Springs since their peaks

Job Loss Summary

Comparison of Percentage of Manufacturing Jobs Lost

Mfg Job Loss Comparison by Region

Comparison of Percentage of IT Jobs Lost

IT Job Loss Comparison by Region

Woe is Colorado Springs ... see also the graphs and table below showing job losses.

Jobs and "Trade" Details

US Job Growth has nowhere near kept up with Population Growth ... especially as jobs have been lost. The gap is over 11.3 million jobs. There are now 6.1 million fewer jobs than in Nov 07.

Last month the reported employment numbers showed (see graph below) that the number of unemployed increased by 120K. This was unbelievable ... as also noted by John Williams in his May 8 Flash Update.

The usually statistically-sounder household survey, which counts the number of people with jobs, as opposed to the payroll survey that counts the number of jobs (including multiple job holders), showed April employment rose by an unbelievable 120,000 versus a decline of 861,000 in March. At work here were poor quality seasonal adjustments.

The April 2009 seasonally-adjusted U.3 unemployment rate, however, still showed another statistically-significant increase, to 8.87% +/- 0.23%, from 8.54% in March. Unadjusted U.3 eased to 8.6% in April from 9.0% in March. The broader April U.6 unemployment rate rose to an adjusted 15.8% (fell to 15.4% unadjusted) from 15.6% (16.2% unadjusted) in March. The less than proportionate seasonally-adjusted increase in the U.6 measure, versus the U.3 measure, again reflected seasonal factor distortions. The adjusted U.3 unemployment rate likely should have been reported higher than 8.9% and should catch-up in the reporting of the next month or two.

In May as expected, the number of employed again showed a loss of 437,000 jobs. Bad as it is, this is also an understatement; Williams in his Flash Update notes that "net of ... [adjustment] gimmicks, the May nonfarm monthly payroll loss would have been about 538,000."

In May, persons who have another job hold about 7.3 million existing jobs; that's 5.2% of employment. The average for the first 5 months of 2009 is 7.6M jobs. See the "multiple jobholders" graph at the bottom of Employment & Unemployment and BLS site for the latest.

Population increasing leaves a huge jobs gap even when jobs are reported to increase:

US Job "Growth"

National Manufacturing Job Trend ... major resumption of downward trend since mid-06 ... now accelerating downward.

National Mfg Jobs Trend ... note the downward acceleration

Manufacturing Jobs & Trade Agreement History

Here's a graph, suggested by Paul Carson and first included two months ago, showing average U.S. manufacturing jobs for each year along with 'trade-related' agreements. Note the downhill slide began in the 80s with the U.S. giving China Most Favored Nation status. But it really went over the cliff when the U.S. granted China Permanent Normal Trade Relations (PNTR). That coincides with the real cliff in the loss of manufacturing jobs. A coincidence? I don't think so.

Note: Originally Normal Trade Relations (NTR) was called Most Favored Nation (MFN) status, but that sounded just too cosy to have with China, so the free traders changed the name.

The graph shows that the rapid loss of manufacturing jobs has been since China got PNTR. But the growth of manufacturing jobs stopped back in 1980 -- that's 28 years ago when China got MFN status.

National manufacturing jobs with dates of 'trade'-related agreements

National IT Job Trend. Bummer, people who lost their manufacturing jobs retrained for these jobs. But somehow the US needs 65,000 H-1B visas to import workers because there's a shortage?

U.S. Employed Foreign Guest Workers Outnumber Unemployed Techies 5/28/09

It is no secret that the H-1B visa program is rife with fraud and abuse.  The program allows American companies to exploit foreign IT workers at the expense of Americans, drives down the wages of all those in the field and costs the U.S. countless tax dollars.  

... “in January of 2009, the total number of workers employed in the information technology occupation under the H-1B program substantially exceeded the 241,000 unemployed U.S. citizen workers within the same occupation."

... a recent study conducted jointly by researchers at New York University's and the University of Pennsylvania's business schools ... found that the use of H-1B visa workers by U.S. companies drives down the wages of American IT workers by as much as six percent. 

"We simply sought to dispel the myth that globalization generates no losers," the researchers wrote.

Seriously now, this would be laughable if it weren't so sick and despicable. Why is it U.S. policy to systematically undermine the educational investment of its citizens by causing them to lose their jobs and depressing the pay of those who do have a job? Answer: to depress wages and increase profits ... to increase return-to-capital and reduce return-to-labor.
_________ 

Added 7/8/09: And they want even more. Incredible!

Task Force to Recommend Overhaul of U.S. Immigration System By Spencer S. Hsu, Washington Post Staff Writer, July 8, 2009.

A bipartisan task force will recommend today that the United States overhaul its immigration system in response to national security concerns, saying that the country should end strict quotas on work-based immigrant visas to maintain its scientific, technological and military edge.

"The continued failure to devise and implement a sound and sustainable immigration policy threatens to weaken America's economy, to jeopardize its diplomacy, and to imperil its national security," concluded an independent Council on Foreign Relations panel, co-chaired by former Florida governor Jeb Bush (R) and former Clinton White House chief of staff Thomas V. "Mack" McLarty III.

The report comes as President Obama and Congressional Democrats say they expect to begin debate on a comprehensive immigration plan within a year. But key Republicans -- including  Sen. John McCain (R-Ariz.), the 2008 Republican presidential nominee and co-sponsor of previous overhaul legislation -- have said a plan must include expanding temporary-worker programs. ...

Edward Alden, the task force's director and a CFR fellow, said the involvement of Bush, a prominent national Republican and the brother of former president George W. Bush, and McLarty, a Democrat and senior international fellow at the U.S. Chamber of Commerce, was intended to create political space for centrists in both parties.

The Council on Foreign Relations, Republicans, the U.S. Chamber of Commerce ... the usual suspects ... supporters of "free trade" and undermining wages. Excellent!
___________

Many of those who lost their jobs in manufacturing retrained in IT, but those jobs are going, too. What are they going to retrain for now? Note that Advanced Technology Products jobs are being lost, too? (... see below ...) The truth is they'll be expected to get jobs at WalMart.

National IT Jobs Trend

Colorado Manufacturing Job Trend ... also accelerating downward.

Colorado Mfg Jobs Trend

Colorado IT Job Trend ...

Colorado IT Jobs Trend

Colorado Non-Farm Jobs Trend. Colorado would need another 353 thousand jobs to have kept up with population growth. Colorado has lost 93,300 jobs since Aug 08 ... see the chart below for jobs lost by month. Last month the reported CO jobs lost in March was 12,600, this month that number was revised to 18,500. Oops!

Colorado Non-Farm Jobs Trend .. Gap increasing

 

Colorado Springs Manufacturing Job Trend ... also accelerating downward ...

Colorado Springs Mfg Jobs Trend

Colorado Springs IT Job Trend.

Colorado Springs IT Jobs Trend

Think about this: 47% of Mfg and 49% of IT jobs lost from Colorado Springs. Read about this in the corporate media that promotes "free trade"? Manufacturing and IT jobs have taken big hits, for a total 19,600 jobs lost since their respective peaks; while other jobs have come in, there have not been enough to offset the losses.

The chart below shows that as of April, Colorado Springs has lost 12,000 jobs since Nov 07, 7,400 jobs since Sep 08, and 4,400 jobs since December. Can there be any wonder Colorado Springs is in so much financial trouble? For an analysis of what to do about this, see Economic Development: What to do locally?

Colorado Springs Nonfarm Job Trend

Jobs in what areas have been gained and lost? You can do your own research on the BLS site. Here are some examples of what's happened. Note this local data is not seasonally adjusted, so some of the sectors show considerable seasonal variation. Last month I showed a table of the number of jobs & changes from Mar07 to Mar09. Below is a bar chart showing the percentage losses Apr09(prelim) - Mar07.

Colorado Springs Job Gains & Losses

Trade Deficit & Trade Agreement History

Note on the Census Bureau and "trade" deficit history graph below:
Census Bureau: Trade Deficit Decreases in January 2009 The Nation's international deficit in goods and services decreased to $36.0 billion in January from $39.9 billion (revised) in December, as imports decreased more than exports. (13 March 2009)

The "trade" deficit has declined somewhat in 2007 & 2008. This is indeed because the decrease in imports was more than the decrease in exports. That's because the U.S. economy is failing.

Note that NAFTA, China PNTR, and China into the WTO have been on the forefront of massive borrowing to support the "trade" deficit. The "trade" deficit was growing exponentially through 2006. It's no surprise that that's over; no exponential increase can be sustained.

The graph shows that the trade deficit began its major climb in 1996 following NAFTA in late 1994 (that's 14 years ago). It would have been sooner, also in 1980 (that's 28 years ago), had Reagan's Plaza Accord not devalued the dollar -- a form of theft from everyone who holds, or is paid in, dollars.

U.S. Trade deficit with dates of 'trade'-related agreements

Newly posted data shows the trade deficit in 2007 & 2008 was greater than previously indicated:

US Trade Deficit Revised ... greater than previously indicated

Advanced Technology Products "Trade" Trend

This should be one of the most frightening trends of all. The U.S. is so proud of its technological prowess. However, most people are unaware of the rate at which we're losing it.

The U.S. had a $38.4B surplus in 1991. The ATP "trade" balance in 2008 was -$55.6B, a deficit much larger than the surplus in 1991.

This is the "progress" the U.S. has made thanks to the "free traders" that have undermined the U.S. economy?

We've been told that the US is going to let others (e.g., China) do the low-tech manufacturing and the US is going to retain high-tech manufacturing. So much for that; it's not true. It should be no surprise that students aren't attracted to high-tech education. It's difficult subject matter ... and high-tech jobs are disappearing. Note what's happened (shown above) to Computer & Electronic Product Manufacturing: a 26% drop in employment over just the last two years.

Advanced Technology Products "Trade" Balance Trend - Annual ... a downhill slide

Here's the monthly ATP trade balance trend since 2006 with a linear least-square fit showing the overall downward trend.

April data has been added to the graph below. Exports fell by $2B and imports were about the same. This caused the ATP balance in April to revert to less than the long-term trend.

Advanced Technology Products "Trade" Balance Trend - Monthly

US Unemployment Rate - Official vs. Actual

While there's concern that the Official Unemployment Rate (U3) rose to 9.4% in May (it was 7.6% in Jan, 8.1% in Feb, 8.5% in Mar, 8.9% in Apr), there should be even more concern. What I call the "Real Unemployment Rate" is 22.7%.

It would be a mistake to dismiss this as absurd. John Williams (Shadow Government Statistics) has his SGS-Alternate Unemployment Rate for May at 20.5% ... my estimate isn't all that much different. From his June 5, 2009 Flash Update:

During the Clinton Administration, "discouraged workers" — those who had given up looking for a job because there were no jobs to be had — were redefined so as to be counted only if they had been "discouraged" for less than a year. This time qualification defined away the bulk of the discouraged workers. Adding them back into the total unemployed — unemployment in line with common experience — as estimated by the SGS-Alternate Unemployment Measure, rose to about 20.5% in May, versus 20.0% in April and 19.8% in March.

Williams' Employment and Unemployment Reporting primer is educational, as is his special report on the coming Hyperinflationary Depression. Note the latter was written on 4/8/08, well before the stimulus package that has raised so much ire; we were already well on the way to a Hyperinflationary Great Depression. Excerpt:

The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, and gross mismanagement. ...

The U.S. economy is in a deepening structural change that has resulted from U.S. trade policies that have driven the U.S. manufacturing base offshore. As a result, a large number of related, high paying jobs have been lost to U.S. workers.

As shown in the accompanying graphs, as the U.S. trade deficit has risen to the highest level for any country in history, U.S. average weekly earnings, adjusted for inflation, have fallen. Even using official CPI for deflation, current real earnings are below their peak back in the 1970s. Adjusted for the SGS-Alternate CPI measure, real earnings have been falling since the early 1980s. ...

The effect of this structural change has been that most consumers have been unable to sustain adequate income growth beyond the rate of inflation, unable to maintain their standard of living. The only way that personal consumption — the dominant component of GDP — can grow in such a circumstance is for the consumer to take on new debt or to liquidate savings. Both those factors are short-lived and have reached untenable extremes. Debt expansion and savings liquidation both were encouraged by the investment bubbles created by Alan Greenspan; he knew that economic growth could not be had otherwise. Part of what is happening today is payback for those policies.

Another report noting the major understatement of unemployment is Not Out of the Woods: A Report on the Jobless Recovery Underway by Niko Karvounis 6/8/09. Excerpt:

Because of the incompleteness of official measures, Leo Hindery, Chairman of New America’s Smart Globalization Initiative, in cooperation with New America’s Economic Growth Program, has constructed a broader measurement of unemployment called effective unemployment. Effective unemployment incorporates the BLS’ more inclusive U6 measurement along with the 4.4 million-strong “labor force reserve” to give a more accurate accounting of the number of Americans lacking full-time, productive work. Currently, the effective unemployment total is 30.2 million people, more than twice the official BLS unemployment estimate. This number—when compared against a labor force measure that includes the 6.6 million Americans who report wanting work, who the BLS does not officially include in its calculations—represents an alarming 18.68 percent effective unemployment rate (Figure 1).

I maintain this latter is also an understatement. What I call the "Real Unemployment Rate" is more like 22.7% and 41.4 million persons. My number includes adding to the government's U-6 statistic those extra in the Orwellian classification, "Not in labor force, but Persons who currently want a job". It also adds those needed to keep up with population growth ... see the gap at the 4th figure from the top ... that's 11.9 million persons.

For how I arrive at these numbers see Unemployment: Official, Effective, Real. For the real-life impact see There's no 'free market' for Labor. Ever wonder why the official poverty rate in America is between 12% and 13%? It's no coincidence.

Different Measures of the Unemployment Rate

Below is the Bureau of Labor Statistics data on Job Losers: U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force. As you can see, this is rapidly accelerating upward. This is clear evidence that the economy is no where near leveling off.

Job Losers - the BLS U-2 rate: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force

US Unemployment Level - Official vs. Actual

There are now more like 41.4 million persons unemployed in Feb09 compared to the official U-3 number of 14.5 million and U-6 number of 25.8M. None of this counts the underemployed. In 2006 there were 36.5 million people in poverty; no wonder.

Different Measures of the Unemployment Level

Concerned yet?

Data Sources

U.S. Employment & Unmemployment found at historical data for labor force based on the household survey

• Table A-1. Employment status of the civilian population by sex and age. Includes those considered "Not in labor force, Persons who currently want a job"
• Table A-12. Alternative measures of labor underutilization, U-1 through U-6

U.S. Population data at U.S. Census, Estimates

State and Area Employment, Hours, and Earnings Find Colorado and Colorado Springs data here for Total Nonfarm, Manufacturing and Information Technology, and other states, regions, & categories

Colorado Population by Region 2000 - 2006

U.S. International Trade In Goods and Services, Historical Series

U.S. Trade in Goods (Imports, Exports and Balance) by Country find China, Mexico here.

Advanced Technology Products at FT900: U.S. International Trade in Goods and Services, Exhibit 16

Unemployment: Official, Effective, Real, 9/12/06. Calculations of different measures of the unemployed, levels and percentages. Includes those who want a job now but are classified as "not in the labor market" and additional jobs needed to keep up with population growth since April 2000 when employment began to decline.