People don’t like fuel tax hikes

At this point, I think that’s a safe conclusion to draw from events in France and, now, Zimbabwe:

Violent protests erupted in Zimbabwe’s two largest cities after the government announced a massive fuel hike.

Police fired tear gas in order to contain the protests in the capital Harare and Bulawayo Monday, while protesters threw rocks, burned tires and blocked streets.

There were media reports of riot police using live ammunition to disperse the crowds.

At least 13 people were injured by gunfire, the Zimbabwe Association of Doctors for Human Rights said.

The clashes came on the first day of a three-day strike called by unions in response to an intensifying economic crisis.

On Saturday, President Emmerson Mnangagwa announced a 150 percent rise in fuel prices.

More Zimbabwe news (from last November):

Zimbabwe’s President Emmerson Mnangagwa on Friday laid the foundation stone for huge new parliament to be built with Chinese funds outside the capital Harare.

The imposing circular complex will be built over 32 months by the Shanghai Construction group at Mount Hampden, 18 kilometres (11 miles) north-west of Harare, the Zimbabwe Broadcasting Corporation reported.

Officials say the current colonial-era parliamentary building in the city centre is too small to accommodate lawmakers.

Mnangagwa said at the ceremony that China had provided a “grant, not a loan, to build a new parliament”, without giving a figure.

“Other facilities like banks, hotels will be built around this place,” Mnangagwa said adding that a “modern, smart city” was planned.

Mnangagwa took over from long-time ruler Robert Mugabe who was ousted by the military in November 2017.

He has vowed to revive Zimbabwe’s economy that has been in ruins for nearly two decades.

China has funded and provided loans for many infrastructure projects across Africa in recent years, ranging from roads and power plants to sports stadiums and government institutions.

Critics say China’s increasing sway over the continent undermines democracy and sovereignty.

Some good news for US manufacturing

US manufacturing

Advanced manufacturing is the key to lasting prosperity. The destruction of the US manufacturing base in recent decades – the US lost 55,000 factories and 5 to 6 million manufacturing jobs in the first decade of the 21st century – has dealt a severe blow to America’s economic competitiveness and its ability to generate wealth and provide decent, well-paying jobs to its population.

Reversing this dangerous state of affairs should be one of America’s top strategic priorities. In this regard, the latest US jobs report has some encouraging numbers:

Partly as a result of the last few months’ numbers, 2018 stands preliminarily as the best year for U.S. manufacturing job creation (284,000) since 1997 (304,000). The previous December-to-December manufacturing employment gain was 209,000.

Also, manufacturing jobs as a share of total non-farm jobs (the Labor Department’s definition of the total U.S. employment universe) rose to just under 8.55 percent – their highest level since July, 2016 (8.56 percent).

That’s the good news. The bad news:

Even so, manufacturing’s prior relative employment creation has been so weak that the sector still remains a laggard on this front for the recovery era as a whole.

Since bottoming out in February and March of 2010, manufacturing has regained 1.389 million (60.58 percent) of the 2.293 million jobs it had lost during the Great Recession and its aftermath. Overall private sector employment sank by 8.785 million during the downturn, but since then has regained 20.608 million jobs.

Manufacturing keeps trailing the overall private sector on the pay front, too. In December, pre-inflation manufacturing wages rose by 0.26 percent – considerably slower than the overall private sector’s 0.40 percent.

In summary, manufacturing employment is booming, but wage growth is still terrible. Part of the reason for this could be that some of the best and most lucrative manufacturing jobs are going unfilled. Given the general disdain for factory jobs in current-year America and the lack of emphasis on training people for highly skilled manufacturing roles, it’s unsurprising that the industry faces a sharp shortage of qualified workers:

This week’s new Job Openings and Labor Turnover Survey (JOLTS) revealed that job openings in the manufacturing sector jumped in October [2018] to a record-high 522,000, and it’s only going to get worse.

[…]

There are several causes behind this workforce crisis, notably that many workers lack critical training in the necessary skills to fill these jobs. The manufacturing industry also suffers from inaccurate perceptions among talented students who may avoid career opportunities in modern manufacturing.

In crisis there is opportunity, and the dearth of skilled manufacturing workers implies that a greater focus on closing the skills gap could lead to a boost in wages as the open jobs get filled. Jay Timmons, CEO of the National Association of Manufacturers, appears to think so. At the very least, this could be one piece of the puzzle to addressing the disaster of real wage stagnation in America. Rome wasn’t built in a day, and it will take many years to undo a generational catastrophe.

Also, the tariffs are working.

===

More on the strong manufacturing employment numbers: another way to put it is that “the U.S. had as many people working in the manufacturing sector in December as it did 69 years ago.” And, although the percentage of the population working in manufacturing is far lower than it was in 1949, it is growing: “As a percent of the total workforce, manufacturing rose for the first time since 1984.”

And here’s a comment from Timmons:

This year was one for the record books, with manufacturers’ average optimism for 2018 hitting an all-time high. Empowered by tax reform and regulatory certainty, manufacturers are keeping our promise to expand our operations, hire new workers and raise wages and benefits. But as this survey also shows, we face challenges, most seriously the workforce crisis. We have more than half a million jobs to fill right now—and by 2028, as many as 2.4 million could go unfilled if we don’t equip more Americans to take on these high-tech, high-paying careers.

Dollar store America

Dollar store groceries

Delicious and nutritious!

Brother, can you spare a dollar?

A new report from the Institute for Local Self-Reliance’s (ILSR) finds that dollar stores tend to target rural and low-income neighborhoods, many of which are considered “food deserts,” meaning they lack access to fresh, affordable food.

“Essentially what the dollar stores are betting on in a large way is that we are going to have a permanent underclass in America,” Garrick Brown, the director for retail research at the real-estate firm Cushman & Wakefield, told Bloomberg in 2017. […]

As dollar stores grow increasingly popular, they’ve become an alternative to America’s biggest retailers, including Walmart, Costco, Walgreens, and CVS.

In the US, dollar stores are now feeding more people than Whole Foods. Their numbers have surpassed the combined total of Walmart and McDonald’s locations.

In 2016, the chain store Dollar General purchased 41 Walmart Express stores that were forced to shut down, despite operating on a similar model.

Though Dollar General isn’t a dollar store in the traditional sense (it sells items that cost more than $1), it’s often the only place to buy cheap groceries in isolated communities.

Clearly I need to revise my vision of the future:

  • Thesis: Dollar Store America
  • Antithesis: The United States of Bezos
  • Synthesis: A fully automated Bezos Dollar Store empire, with a jobless, UBI-collecting population fed by delicious, nutritious packaged foods whisked to their door by Amazon Prime Drones

The average person in the world owes $86,000

Debt bomb

Does anyone seriously think that this is sustainable? And if it’s not sustainable, then how can it end without causing a massive global economic implosion the likes of which humanity has never seen?

Global debt hit a record $184 trillion last year, equivalent to more than $86,000 per person — more than double the average per-capita income.

Borrowing is led by the U.S., China, and Japan, the three biggest economies, the International Monetary Fund said Thursday, highlighting potential risks to global expansion given that their share of debt exceeds that of output. Overall, the amount of worldwide public and private debt is equal to about 225 percent of gross domestic product.

Total debt is up 60% since the global financial crisis a decade ago. In the meantime, the US government has something like $80 trillion in total liabilities, if you include Social Security, Medicare and Medicaid obligations. That doesn’t even count state and local government debt. In 2014, a team of economists estimated the nation’s total “fiscal gap” (defined as “the difference between our government’s fiscal obligations and the present value of all future projected tax and other receipts”) at $210 trillion. The numbers are so large as to be silly.

The social safety net is going to fly apart like a cheap hammock. A lot of people are blithely indifferent about this, which I find puzzling. But I don’t know, I’m not an economist – maybe this is all… fine? Maybe the problem will work itself out somehow, so we can just keep spending astronomically more money than we have, year after year, forever?

Somebody, please explain this to me. Slowly, and using small words so I can understand.

Tiankai’s tariff terror

Chinese ambassador Cui Tiankai

Cui Tiankai

The Chinese ambassador to the US offers a stern but misguided warning about the alleged dangers of tariffs:

Speaking to Reuters before heading to join Chinese President Xi Jinping’s delegation at the Group of 20 summit in Buenos Aires, Cui Tiankai said China and the United States had a shared responsibility to cooperate in the interests of the global economy.

Asked whether he thought hardliners in the White House were seeking to separate the closely linked U.S. and Chinese economies, Cui said he did not think it was possible or helpful to do so, adding: “I don’t know if people really realize the possible consequences – the impact, the negative impact – if there is such a decoupling.”

He drew parallels to the tariff wars of the 1930s among industrial countries, which contributed to a collapse of global trade and heightened tensions in the years before World War Two.

“The lessons of history are still there. In the last century, we had two world wars, and in between them, the Great Depression. I don’t think anybody should really try to have a repetition of history. These things should never happen again, so people have to act in a responsible way.”

The problem is that protectionism did not cause the Great Depression. Like the idea that the Great Wall is visible from space (which was told to me by a certified tour guide in Beijing), this is a myth that just won’t die.

Allow economist Ian Fletcher to explain:

Let’s start by reminding ourselves of a basic fact: the Depression’s cause was monetary. The Federal Reserve had allowed the money supply to balloon excessively during the late 1920s, piling up in the stock market as a bubble. The Fed then panicked, miscalculated, and let the money supply collapse by a third by 1933, depriving the economy of the liquidity it needed to breathe. Trade had nothing to do with it.

The Smoot-Hawley tariff was simply too small a policy change to have so large an effect as triggering a Depression. For a start, it only applied to about one-third of America’s trade: about 1.3 percent of our GDP. One point three percent! America’s average tariff on goods subject to tariff went from 44.6 to 53.2 percent—not a very big jump at all. America’s tariffs were higher in almost every year from 1821 to 1914. Our tariffs went up in 1861, 1864, 1890, and 1922 without producing global depressions, and the great recessions of 1873 and 1893 spread worldwide without needing the help of any tariff increases. […]

World trade did indeed decline, but this was due to the Depression itself, not higher American tariffs. This is no surprise, as declines in the values of the currencies of America’s major trading partners wiped away much of the effect of the tariff anyway.

Fletcher quotes economic historian William Bernstein as follows:

Between 1929 and 1932, real GDP fell 17 percent worldwide, and by 26 percent in the United States, but most economic historians now believe that only a miniscule part of that huge loss of both world GDP and the United States’ GDP can be ascribed to the tariff wars. .. At the time of Smoot-Hawley’s passage, trade volume accounted for only about 9 percent of world economic output. Had all international trade been eliminated, and had no domestic use for the previously exported goods been found, world GDP would have fallen by the same amount — 9 percent. Between 1930 and 1933, worldwide trade volume fell off by one-third to one-half. Depending on how the falloff is measured, this computes to 3 to 5 percent of world GDP, and these losses were partially made up by more expensive domestic goods. Thus, the damage done could not possibly have exceeded 1 or 2 percent of world GDP — nowhere near the 17 percent falloff seen during the Great Depression…

Fortune magazine sold

Chatchaval Jiaravanon

Chatchaval Jiaravanon

Fortune magazine has a new Thai owner:

Thai businessman Chatchaval Jiaravanon has acquired Fortune magazine for $150 million, in just the latest example of a U.S. business publication ending up in the hands of an East Asian buyer.

Be smart: The day might not be that far off when there are no major American-owned business publications at all. Even Business Insider is German.

Jiaravanon is a nephew of the famous billionaire and senior chairman of Thailand’s CP Group, Dhanin Chearavanont.

This continues a trend of Anglo-American media properties being sold off to Asian and European buyers. More from Axios:

The similar moves in the space:

Uzabase, a Japanese company, bought Quartz for about $100 million in July.

A mysterious Hong Kong-based group named Integrated Whale Media Investments bought control of Forbes magazine in 2014.

Lachlan Murdoch is openly wondering whether his father Rupert might sell the Wall Street Journal. Should that ever happen, don’t be surprised if that buyer, too, turns out to be East Asian.

I would add to that:

  • The Financial Times was sold to Japan’s Nikkei in 2015.
  • The Economist was sold to Italy’s Agnelli family, also in 2015.
  • Science magazines Nature and Scientific American are owned by Germany’s Holtzbrinck.
  • Book publishers Random House and Penguin – now combined as Penguin Random House – are subsidiaries of Germany’s Bertelsmann.
  • While we’re at it: the largest shareholder of the New York Times is Mexican billionaire Carlos Slim.

It’s not necessarily clear that all of these publishers can maintain their intellectual independence under foreign ownership, especially given the very different attitudes towards press freedom in certain Asian countries. For example, I noted last year that Forbes – having been swallowed by Hong Kong’s Integrated Whale Media – apparently told the prominent China skeptic Gordon Chang they were severing their relationship with him and wiping out his archive of articles. (However, his articles are still available on the site, so I’m not sure what the deal is there.) And Fortune will have to tread very carefully in its coverage of a certain southeast Asian monarch from now on…

A defense of economic nationalism

Darren Beattie provided (in 2017) a much-needed defense of the ideological foundations of economic nationalism:

It is entirely possible therefore to support tariffs, immigration restrictions, and various other restrictions on the free market in a manner that benefits the American worker and that is also consistent with the highest respect for individual freedom, enterprise, self-reliance, and other virtues of capitalism.

He makes a great point about the Cold War context which spawned free-trade ideology:

The Soviets who posed an existential geopolitical threat to the United States embraced a generally classical Marxist philosophy that was both an economic and a moral doctrine.

Free-trade doctrine provided an ideological foil to an expansionist Marxist regime. From that standpoint, it has served its purpose.

But today’s threats of concentrated power do not seem to conform to the “government dangerous, private sector benign” picture as easily as they may have during the Cold War. This is because 1) the distinction between public and private seems to no longer apply to many of the most powerful sectors of the economy, and 2) new forms of technology have enabled equally dangerous concentrations of power to accrue in the private sector (think of Silicon Valley). So, with the end of the Cold War, we must reevaluate the relationship between economics and liberty.

Furthermore, several structural features in the economy have accelerated since the end of the Cold War that severely threaten the middle class, whose robust health is often considered indispensable to a culture of individual freedom.

It is also indispensable to political stability.

Beattie is right that the public discourse is very superficial on this issue, as I pointed out with reference to trade policy in my post on Ian Fletcher’s book Free Trade Doesn’t Work: What Should Replace It and Why. In fairness, trade policy is boring and makes for poor clickbait. Also, most pundits and politicians have absolutely no clue about economics. Fortunately, this article is free of economic jargon and just addresses the ideological assumptions underpinning most people’s thinking on the trade topic.

Mending fences

The first state visit by a Japanese leader to China in seven years suggest that the two countries, which allegedly have deep-seated mutual animosity, are in the process of strengthening ties:

What Happened: China and Japan signed multiple agreements intended to strengthen bilateral ties during the first day of Japanese Prime Minister Shinzo Abe’s official visit to China, the South China Morning Post reported Oct. 26. Both countries will cooperate on roughly 50 third-country infrastructure projects and agreed to resume currency swaps. Additionally, they will further discuss joint East China Sea energy cooperation and China’s lifting of food import restrictions following the nuclear disaster at Fukushima.

Why It Matters: Both China and Japan are recalibrating their strategies toward each other as they look to hedge against uncertainties as well as increasing trade protectionism from the United States.

This makes sense; as the neoliberal world order falls apart, regional trade blocs will emerge and solidify, and Japan and China, with their proximity and shared Confucian heritage, can be expected to align more closely.

Stratfor argues, however, that any Sino-Japanese rapprochement is complicated by China’s maritime ambitions, which clash with Japan’s interests as an island nation. Japan is also expanding its activities in the South China Sea, recently sending a submarine to conduct drills there for the first time. The duo may need to remain frenemies for a while.

The beatings will continue until morale improves

China port source BBC

From Axios, we learn that the Sino-American trade relationship will remain… strained… for a while:

President Trump has no intention of easing his tariffs on China, according to three sources with knowledge of his private conversations. Instead, these sources say he wants Chinese leaders to feel more pain from his tariffs — which he believes need more time to fully kick in.

What we’re hearing: “He wants them to suffer more” from tariffs on $200 billion of Chinese goods, said a source with direct knowledge of Trump’s thinking, and the president believes the longer his tariffs last, the more leverage he’ll have. […]

Behind the scenes: Trump has privately boasted that his China tariffs have driven down the country’s stock market. Experts say the trade war has hurt market sentiment, but the stock market has never been a reliable barometer of Chinese economic strength.

As 罗臻 points out:

A-shares are not a good measure of Chinese economic sentiment, it’s housing. In order to crack the housing market, however, Trump would need to inflict more pain for longer, to the point where China can’t contain the fallout and home prices start sinking 1 or 2 percent per month.

Trump is pursuing the right strategy for his intentions, even if he isn’t watching the right signals. Or maybe the stock market comments are for public (and China’s) consumption.

The Navarro effect

There’s no such thing as a free lunch — anymore:

President Donald Trump announced that the US would pull out of an obscure 144-year-old postal treaty, in what looks to be his latest direct shot at China.

The Trump administration announced Wednesday that the US would leave the the Universal Postal Union treaty, an agreement from 1874 that helps to standardize postal rules among the international community.

The interesting aspect of the UPU decision is a more recent addition to the agreement. The UPU, which is now under the United Nations’ purview, sets rates that national postal services pay to ship goods internationally. Under a deal reached in 1969, developing countries can ship smaller items at lower rates than developed nations like the US. The provision is designed to help facilitate exports from smaller countries to give a boost to growing economies.

But the provision also allows Chinese producers to ship items to the US at significantly low rates even compared to some US domestic shipping rates. The Trump administration says many companies even offer free shipping to the US from China because of these lower rates — and as a result, roughly 60% of inbound shipping to the US comes from China.

Trump’s trade adviser Peter Navarro appears to be the instigator of this move.