A Trade War Win Won’t Boost the U.S. Economy Enough
DUBLIN, IRELAND – The big news leading up to today was that the president was going to make an important announcement.
Bloomberg reported yesterday:
If we were an SEC bloodhound, we’d be on the trail. We’d look to see who’s placing big bets.
No matter how tight you try to control it, word gets out. Some insiders are bound to know, in advance, what the president will say whenever he gives a speech. And they know, too, that the stock market will react.
A big (anonymous) bet on the upside likely means the president will announce a great victory in the trade war. A big bet on the downside means he’s not ready to settle. And no bet at all leaves us wondering.
But wondering is what we do… And today we wonder how anyone could take the headline news and numbers seriously…
If The Donald announces a victory, stocks are likely to rise. But there is no plausible trade war victory that would boost the value of America’s capital stock appreciably.
And the stock market is already at all-time highs. (Trump’s trade advisor, Peter Navarro, says the Dow could hit 30,000 in 2020!) Buy! Buy! Buy!
Unemployment is at all-time lows. And the economy is still rolling along – at the same 2.5% growth rate it did under Obama.
But let’s squint and look beyond the headline news.
In the first place, the dollar and the stock market no longer accurately record the real value of America’s industries. In terms of America’s most reliable money – the dollar before 1971 – even with recent gains, the typical stock owner has less than half as much real wealth as he had in 1999.
And even that is more a feature of the Federal Reserve’s cheap-money policies, buybacks, and other financial shenanigans than it is a real measure of what corporate America is worth.
Nor is the unemployment rate a good measure of what the working man is up against. This century has seen a continuing shrinkage in America’s high-wage manufacturing industries… and a big expansion in low-wage service jobs.
The Bureau of Labor Statistics’ unemployment rate makes no distinction. But there’s a big difference between a job with a $58,000 paycheck and one that earns only $25,000.
The laboring class sells time. If a worker sells his time to a manufacturing business, he gets an average of about $28 an hour. If instead he parks cars or waits tables, he is likely to get about $14 an hour.
The trend towards fewer jobs in manufacturing and more in service industries has been going on a long time. There were 21 million “goods-producing” jobs in America in 1965. Today, there are… 21 million! Not a single additional high-paying job in manufacturing has been added in 54 years.
This means that anybody who is just wading into the employment pool is much more likely to find a job in the service sector… and more likely to get $25,000 a year rather than $58,000. And since 10,000 of these tadpole “millennials” turn 21 every day… that makes a lot of new people with “jobs” but not much money.
And it looks to us like the hard times are just beginning…
Limping Into Recession
In China and Hong Kong, our man on the ground – Tom Dyson – reports bad signs for both economies. Tom:
Meanwhile, in Europe, Germany is already “limping into recession,” and Britain is not far behind. The Financial Times reports:
The sluggish growth in Europe has been blamed on Brexit. Businesses and investors are said to be reluctant to undertake new ventures when they don’t know when or how Britain will leave the EU.
And in the U.S., fingers point at the “trade war” when a culprit is needed. But how much damage Trump’s trade attacks have done to the economy is debatable. After all, the growth rate under Obama – without trade wars – was exactly the same.
But wait… One of the biggest components of GDP is government spending. During the Obama years, GDP increased 2.5% per year with the help of $75 billion per year in extra federal spending.
Trump increased the government component to $185 billion. That additional federal spending – $110 billion above and beyond the Obama total – toted up to about one-half of a percent of GDP.
Take out the extra (borrowed… printed… wasted) government spending, and the Trump GDP growth rate falls to only 2%. And the Atlanta Fed is projecting it to fall to 1% in this fourth quarter.
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