by BILL WADDELL
I had a chance to browse some of the US dotgov statistics over the weekend (my pathetic idea of a good time, I suppose) and thought I would share a few items that may surprise some folks.
This chart shows the trade imbalance by year from 1970 through 2008. Lest anyone think that policies of one party or the other are to blame – or represent the solution – this should pretty well demonstrate that to be false. It started with the Carter Administration and has grown steadily wider since, through Reagan, two Bushes and Clinton. Our widening gap between exports and imports is not rooted in political ideology – it is clearly systemic.
As lean experts, we should be even more attuned than anyone to the difference between special cause and common cause. It is typical – but incorrect – to explain away the astronomical gap between our huge imports and lesser exports which are rapidly eroding our nation's wealth by blaming one party, one President, one policy decision, one trade agreement. It is obvious that no such political 'special cause' is to blame. That means that reversing that cause, or implementing an isolated correction will not change things. Kicking out the Democrats or Republicans has not changed the course of things for many years – no reason to think it will now.
Presidents and economists go on at length about our growing economy, This chart shows that the Gross Domestic Product per person in the United States is more and more in services – which is not real growth. The growth rate in things we actually produce – goods and structures - is much flatter. Our GDP 'growth' is overwhelmingly in the service sector, which is really just dollars we trade back and forth between ourselves. In lean terms, the production of Goods is value adding – it adds to our national wealth. As a percentage of our economy, it is shrinking and has been for a very long time.
There are many ways to measure the economy, but I believe this is the most accurate. It is a measure of the actual wealth created, divided by the total number of men, women and children in the United States over which it is spread. It is also a very accurate – and discouraging – measure of our overall productivity. How much value are we creating per person.
The dotted line in the chart above shows the average annual increase in Goods produced per person. You can see that during the Nixon-Ford-Carter years we routinely increased our wealth by 9.1% annually. During the Reagan-Bush 1-and Clinton first terms, the rate of improvement in our national wealth slowed by almost half to 4.7% per year. Then, during the back half of the Clinton administration and through the Bush 2 years, it almost halved again to a dismal average increase in Goods produced per person of only 2.5%.
The next chart is a look at the same thing – the annual change in Goods Produced Per Person. The decline has been steady and steep across both parties and all administrations.
Obviously the problem is not political or the result of one tax or regulatory scheme or another, but how about the standard whipping boys – OPEC, NAFTA and China?
There is no question that they are big contributors, but you might be a bit surprised by a few facts. For one, India is almost negligible. Our trade imbalance with them in 2008 was a paltry $7 billion and change. Anyone who has really looked into India knows that they have a long way to go before they deserve to be rated in the same league with China. I added them into the chart just to get them out of the way. So China accounts for about a third of the trade imbalance – a big contributor, but not the cause.
NAFTA is also a contributor, but one surprising fact is that we are deeper in the trade red ink with Canada than Mexico: Last year we were $78 billion in the hole with Canada versus $65 billion with Mexico. When NAFTA was first proposed Ross Perot railed about the 'big sucking sound' we would hear from the south as US jobs were lost to Mexico. The reality is that, if there has been a 'sucking sound', it has been more from the north.
And, of course, the oil situation is what it is. Most significant, however, is that OPEC and NAFTA combined can only account for 40% of the trade imbalance.
Most startling is the 27% from "Others". This is where it becomes plain that there is something deeper at work here than the allure of cheap labor and the unreasonable policies of the Middle Eastern oil sheiks. We import more than we export to places like Sweden, Denmark and Norway; Italy, Austria and Germany; and even Finland and Liechtenstein. We import more from the UK than we export to them – same for Israel and Portugal. In fact, our trade imbalance with the EU is one and half times our trade imbalance with Mexico. So much for cheap labor – over 27% of our imbalance comes from places just as developed and just as expensive as we are. Throw in the Canadian piece of NAFTA and the number is more than a third. And every year the hole gets deeper.
The picture that emerges is that China and OPEC are big drivers of our hurtling decline in wealth creation, but just as great is what is clearly an 'anywhere but here' syndrome. What is just as clear is that most of the dogmatic arguements many people offer are false.
Unions have declined radically over the course of the last 30 years to a now paltry 8% of manufacturing employees. Kicking out the unions has not resulted in a boost for American manufacturing.
The period covered by these statistics also mirrors the presence of Toyota and Honda on the American manufacturing scene – both of whom have been very successful. American manufacturers have not emulated them to any significant degree.
Neither political party gets it. Defenders of one party or the other have little to stand on.
The 'economic recovery' plans put forth by just about everyone in Washington is based on keeping us on this track – which is a formula for an even longer term disaster than the one we currently face.
All of this only reinforces the points we made in "The Hollow American Economy"