Every day we see news articles and television commentators talking about creating jobs.  Much of the talk is about innovation, and education.  Certainly important over a long term horizon, but not measurable for results in a shorter time frame.

The results of funds being spent in those areas is poor.

Education:

Much of the funds for “education” has been used up by no deductible health care, and continuing increases in pensions for employees of the education system, not for actual increases in spending on education infrastructure.   When you look at how many people have advanced degrees and cannot find work, why would improving education for more people improve the job situation?

Innovation:

Then we turn to the other most proposed “solution”,  innovation.  So lets look at Apple,  a very innovative company.  How many people benefit from their innovation, from the perspective of jobs?  Mostly a select group, and the products are manufactured overseas, and then marketed and sold here.  So how does this “innovation” help the people who lost jobs in the last 5 years?   Not much.  The people who lost jobs were in manufacturing,  construction and real estate related industries.

Manufacturing:

Now lets turn to manufacturing.  Here is an interesting article.   The copyright stays with the writer or holder, this post is for information purposes only.

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How Can America Create Wealth If Our Industrial Base Is Destroyed? 50,000 Manufacturing Jobs Have Been Lost Every Month Since 2001

Courtesy of Michael Snyder at Economic Collapse

Any economy that constantly consumes far more wealth than it produces is eventually going to be in for a very hard fall.  Many point to relatively stable GDP numbers as evidence that the U.S. economy is doing okay, but the truth is that we have had to borrow increasingly massive amounts of money to keep GDP numbers up at that level.  The U.S. government is going to run an all-time record deficit of about 1.65 trillion dollars this year and average household debt in the United States has now reached a level of 136% of average household income.

But borrowing endless amounts of money and consuming massive amounts of wealth with that borrowed money is a road that leads to economic oblivion. The only way to have a healthy economy in the long run is to create wealth.  But how can America create wealth if our industrial base is being absolutely destroyed?  According to Forbes, the United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001.

Hundreds of formerly thriving industries in the United States are being totally wiped out.  China uses every trick in the book to win trade battles.  They deeply subsidize their domestic industries, they openly steal technology, they blatantly manipulate currency rates and they allow their citizens to be paid slave labor wages.  So yes, the products coming from China are cheaper, but in the process tens of thousands of factories in the U.S. are shutting down, millions of jobs are being lost and the ability of America to create wealth is being compromised.

In 2010, the U.S. trade deficit was just a whisker under $500 billion.  Much of that trade deficit was with China.

During 2010, we spent $365 billion on goods from China while they only spent $92 billion on goods from us.

Does a 4 to 1 ratio sound like a “fair and balanced” trade relationship to anyone out there?

Our trade deficit with China in 2010 was the largest trade deficit that one country has ever had with another country in the history of the world.

In fact, the U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

Needless to say, that is not a good trend.

Our industrial base and our ability to create wealth is being wiped out so rapidly that it has now become a very serious threat to our national security.

According to Forbes, there is only one steel plant inside the United States that is still capable of producing steel of high enough quality to meet the needs of the U.S. military, and even that plant has been bought by a European company.

Meanwhile, China produced 11 times as much steel as America did last year.

Not only that, China is now the number one supplier of components that are critical to the operation of U.S. defense systems.

How in the world did we let that happen?

So what happens if we have a conflict with China someday?

But of more immediate concern is the loss of jobs that the destruction of our industrial base is causing.

For example, the Ivex Packaging Paper plant in Joliet, Illinois just announced that it is shutting down for good after 97 years in business.  79 good jobs will be lost.  Meanwhile, China has become the number one producer of paper products in the entire world.

But China is not just wiping the floor with us when it comes to things like steel and paper.

The truth is that China has now become the world’s largest exporter of high technology products.  Back in 1998, the United States had 25 percent of the world’s high tech export market and China had just 10 percent. Ten years later, the United States had less than 15 percent and China’s share had soared to 20 percent.

So how is China doing it?  Well, as noted above, they are pulling every trick that they can think of.

Most Americans think that we have “free trade” with nations such as China.  That is a complete and total lie and anyone that believes that we have “free trade” with China does not know what they are talking about.

China subsidizes their domestic industries to such an extreme extent that many global industries no longer even come close to resembling “free markets” as a recent story in Forbes noted….

According to a story in the January 20, 2009 New York Times, government subsidies so thoroughly disrupted pricing in the global market for antibiotics that many western producers had to either move facilities to Asia or exit the business entirely. The reason this might matter to intelligence analysts is that the last U.S. source of key ingredients for antibiotics — a Bristol-Myers Squibb plant in East Syracuse, New York — has now closed, leaving the U.S. dependent on foreign sources in a future conflict.

Our politicians and our business leaders have pursued economic policies that are so self-destructive that it defies explanation.

How in the world could anyone be so stupid?

Since 2001, over 42,000 U.S. factories have closed down for good.  Millions of jobs have been lost.  The ability of the once great American economic machine to create wealth has been neutered.

The business environment in America is completely and totally pathetic at this point.  The number of small businesses that are being created is also way, way down.

According to the U.S. Census Bureau, only 403,765 small businesses were created in the 12 months that ended in March 2009.  That was down 17.3%from the previous year, and it was the smallest number of small businesses created since records began being kept in 1977.

The truth is that the U.S. economy is dying.

We continue to consume about the same amount of wealth that we always have, but our net worth is declining.

According to the Federal Reserve, more than two-thirds of Americans have seen their net worth decline during this economic downturn.  In fact, the Fed says that between 2007 and 2009, the wealth of the average American family declined by 23%.

So if it seems like your family and everyone around you is getting poorer, that is because it really is happening.

We really are becoming poorer as a nation.

We can see evidence of this all around us.  Just consider a few of the examples that have been in the news in recent days….

*One school district in the Chicago area is laying off 363 teachers.

*The U.S. Postal Service is offering $20,000 buyouts to thousands of workers as they attempt to slash 7,500 good paying jobs.

*The city of Detroit, once a shining example of middle class America, is now a rotting cesspool of economic decline and it saw its population decline by 25 percent over the decade that recently ended.

Americans are not feeling the full impact of America’s industrial decline yet because we have been filling the gap in wealth creation with massive amounts of debt.

In the years since 1975, the United States had run a total trade deficit of 7.5 trillion dollars with the rest of the world.  That 7.5 trillion dollars could have gone to support U.S. businesses and U.S. workers, but instead it left the country and went into the hands of foreigners that do not pay taxes.

Therefore, the U.S. government, state governments and our local governments have had to borrow massive amounts of money to make up the difference.

Most people do not realize it, but the destruction of America’s industrial base has played a very significant role in the government debt crisis we are facing today.

In addition, the millions upon millions of workers that have lost their jobs as America’s industrial base has been destroyed are now a drain on the system.  Instead of creating wealth and being involved in economically productive activity, millions of American workers are now totally dependent on the U.S. government for survival.

Do you think that it is just some sort of accident that we have 44 million Americans on food stamps?

Don’t you think that a large percentage of those people would actually like to have good jobs that would enable them to sufficiently feed their families?

If we continue on the path that we are currently on we are not going to have much of an economy left.

Not that all trade is bad.  Certainly not.  For example, trade with Canada is generally a very good thing.

However, the horribly unbalanced and unfair trade relationships that we have with nations such as China are ripping our industrial base apart.  Our politicians have not been telling us the truth about what the “global economy” will mean for American workers.  Most U.S. workers never realized that globalism would mean that they would be competing for jobs with workers willing to work for one-tenth the pay on the other side of the globe.

Those people that believe that we can indefinitely maintain an economy where we consume far more wealth than we create are completely and totally delusional.

Until the American people wake up and start demanding change from our politicians on these issues, 50,000 (or more) manufacturing jobs will continue to fly out the doors every single month and even more Americans will become dependent on government welfare.

Is that what you want?

End of article by: Michael Snyder.

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Impairments:

For the purposes of this article, impairments is defined as “anything that impairs a manufacturer or a job producer from operating”.

We need to discuss all the impairments to manufacturing in the United States, and roll back the most onerous regulations and impairments.  Certainly we can sit down with manufacturers in the United States and determine which impairments hurt the most, analyze the reason for the regulation, or litigation problems due to laws on the books, figure out if the” cost”   of these impairments is worth the jobs lost.

If it is an environmental issue, lets figure out the benefit of the impairment and the cost to jobs and roll back those with the least benefit and the most cost.  If it is a tort reform issue, or a tax issue lets do the same.

Environment:

Environment.  This one has not made sense to me.  We have world environment.  If you raise regulations in a City, County or State, and the company is creating a negative environmental impact rated from 1 to 10, and the manufacturer is a 3, and that same companies products are replaced by a manufacturer outside the legal boundaries of the regulation, and the replacement manufacturer creates a negative 7, then you have made the environment worse, while destroying jobs, ability to gain revenue from taxes from that manufacturer and all of it’s associated employees, and all of the industries and services that they purchased from.

Tort Reform.

Tort reform has been discussed over the years, so we need a more direct and simple way to analyze whether allowing individuals and small groups to cause massive costs to manufacturers and job producers.  Who really benefits from these lawsuits and damages? Is it worth the cost, in the cost/benefit analysis.  Can we afford to continue this process of trying to punish manufacturers, small business and any other job producers for alleged harms to society.   Perhaps an appointed board of professionals to evaluate claims and set damages like is done with workers compensation etc.  We do need to reduce the incentives for those that feed off of the impairments.  Perhaps we could afford this in the past, but now our economy is at risk.

Product Standards.

Another way to assist in increasing real jobs in the U.S. is to begin creating and enforcing product standards on all products sold in the U.S.

This would require products made inside and outside the United States to meet the same standards for manufacturing, including the manufacturing process.   The manufacturing process includes pollution, energy usage, etc.  The manufacturers would provide the information on how their processes etc compare to the standards, and a formula would be created to pay a fee, equivalent to the cost of the differerence to the  US Treasury.

This is not a tariff.  A tariff applies to all products.  This manufacturing standard, would not impact many countries, such as Canada, South Korea, Germany, Japan etc.  It would impact China, and many of the lowest “cost”  countries that have undercut our manufacturers due to their ability to have lower  costs, in countries that have lower impairments to manufacturing than the United States.

Economic Waves:

The first graphic here is based upon normal economic activity, using manufacturing jobs as a base for the waves.  The Fed usually is in charge of the overall economic wave, (manufacturing jobs as a subset) and raises interest rates and makes other moves to push an economy down when it feels things are overheated.  Then because they “caused” the resulting recession, they can reverse course and lower rates to “cause” a rebound and recovery.

In the case of manufacturing jobs, the Fed is left without effective tools, because of impairments created by local, regional and Federal enactments.  The impairments function in both low and high interest rate environments.  In attempting to create full employment, the Fed has had to use extraordinary measures to counteract the impairments, and or watch bubbles be created by the results of  the broad based stimulus measures they have deployed.  The tech bubble and the real estate bubble were two examples of excessive growth above the top line of the chart, (not shown on these charts).

The problem lies when we have a long term downtrend in manufacturing jobs, while many other parts of economy are functioning close to normal.

The result is that even in a “recovery” jobs levels are still in decline, and in recession they are a huge drag on the economy.

This is where the economy is today, with manufacturing jobs  equal to the bottom of the past recession, waiting for the next wave down, with no recovery due to the down slope of the chart.

The solution is we need to take manufacturing jobs seriously, and move the chart slope from down sloping back to level or up slope.  We cannot educate or innovate ourselves out of this kind of economic decline.

Median Wages effect on asset values:

When middle and family wage manufacturing and other similar jobs in construction, real estate, and the rest are reduced, by downtrends in the economy (some purposely caused),  purchasing power declines, which leads to assets being devalued, and the whole economy declines.

Exporting manufacturing to lower cost countries, results in lower costs for products here in the U. S. but the benefit is short lived.  We have received the benefits of lower cost products, and then people started losing jobs in greater an greater numbers.  Now the resulting job losses and related effects on real estate, commercial property values, banking, and government entitlements and subsidies has become apparent.

The tech and real estate bubbles masked the effect of the manufacturing and middle wage job losses, and then when those two bubbles were pulled away, we now see the true picture.   Economic decline.

Wage declines lead to drops in purchasing, and then beyond, to loss of housing, loss of retirement, loss of ability to even maintain a basic living, and then cause huge outlays to support this group.  Food-stamps, Unemployment benefits, rental subsidies, health care subsidies, higher insurance rates as hospitals pay for those without insurance and pass costs on to those that pay, and more.

Real estate is only worth what someone will pay ( and qualify for the financing) , and if wages drop they can only pay less and less.  As residential and commercial home values decline,  Lenders and investors lose money, and pull back or stop lending to all but the largest companies.  Many of   those companies making money (which are the only ones getting loans) are importers or exporters, and  workers incomes are still in decline. Those people who lost jobs will not see their related industries recover, because, in part they are not very healthy and cannot attract financing, nor is their a good prospect for their recovery unless wages rise back to levels prevalent in a healthy manufacturing based economy.

Home re-financing and  Stated Income Loans.

Financing, stated income loans, and etc is a big enough topic for an upcoming post.  In short this author believes that Fannie May and Freddie Mac, should allow anyone who has one of their loans to refinance at the current rate, no matter what their credit score or loan  to value ratio is.  If we (taxpayers) already own the loan, what difference does it make what the credit score or LTV is, we are better off letting the owners refinance, which cuts their risk of default and stabilizes the market.

We should also allow Stated Income Loans again, with some very different conditions.  25% down in cash, credit score of 750 or better.
That’s it, if the borrower feels good enough about the house to put down 25% in cash, then most likely the loan is of low risk.  This would allow investors, and small business people, with income, that does not qualify under IRS guidelines as income, to purchase.  For example: in a standard loan, the underwriters do not allow most capital gains (which is still real income) to qualify as income.

The government went too far in allowing stated income loans to be abused (multiple loans, no income, etc.) and then went too far the other way an eliminated them.  A better solution is allow them with specific conditions. ( used for what they were originally conceived for ).

These two changes would put a bottom under the real estate valuations in many markets.   This would help the financial condition of many people and be very worthwhile.

World Equalization of wages and assets.

We are on a path to world equalization of assets and wages.  Do you want your assets, and wages to reflect the average of the rest of the world?  We have a long way down to go if we sustain the current policies.  If you feel your job is not impacted by the loss of manufacturing jobs,  it soon may be.   Let’s look at trade policies and correct imbalances, create real free trade as in equal trade.

In Summary.

We  need to look past the headlines of the Banks, and a real estate bubble causing the decline in the economy.  If those were the sole causes of the down trend then we would be recovering jobs at a much faster pace than we are.  We need to look back further than those bubbles to the long term trend.

If we had a strong sustainable growing economy, the Banks and the impact of the burst of the real estate bubble would have been much less, and we would be back to a good economy by now.

The lack of a good sustainable economy is knocking the legs out from values  of residential and commercial real estate, which causes losses for banks, and then limits lending for growth.

Innovation and education are long term goals, and the jobs benefits from those areas are not measurable in the short run, and so a gamble to put all our hopes and resources into that direction.

Manufacturing and manufacturing jobs is much more measurable, and improvements in the environment for manufacturing can increase jobs ( and government revenue from taxes) immediately.

1) Ask U.S. Manufacturers who still manufacture here, what the largest impairments to manufacturing in the U. S. are.  Manufacturers who have shifted much of their operations outside the U.S. are poor choices to discuss this with because now they have vested interest in maintaining the existing import of manufactured goods.

2) Examine those impairments and develop a “cost” / “benefit” analysis, taking into consideration, unemployment compensation, loss of tax dollars for property taxes and etc, Food stamp programs, cost to subsidize the economy by the Fed, inflation of dollars, Quantitative easing and other effects of job loss.

Roll back impairments that have higher “cost” than “benefit”.

3) Investigate and implement a Manufacturing  Product Standard, for all products sold in the United States.  The standard includes the product and the manufacturing process.  Provide for a fee to be paid by any manufacturer who does not meet the standard.  This would also assist in the discussion of impairments that are lower in other countries, whether we need that level of impairment in the US.  If other countries object to the imposition of a requirement for an impairment they do not have, perhaps they make a good point and we can reduce or eliminate it in the United States.

I look forward to your comments, and if you want our economy to improve send a copy of this to your elected officials and let them know you feel this is of top importance in their agenda.

Bryan F. Smith
MBA, Small business consultant.

http://bestbreedmarketing.com

Bend, OR.