Please enjoy the first two Chapters Spencer P Morrison’s latest book, America Betrayed.

book-cover

 

not only the wealth; but the independence and security of a Country, [is]  materially connected with the prosperity of manufactures.  Every nation, with a view to those great objects, ought to endeavour to possess within itself all the essentials of national supply.

~Alexander Hamilton

A free people ought not only to be armed, but disciplined; to which end a uniform and well-digested plan is requisite; and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies…

~George Washington

…experience has taught me that manufactures are now as necessary to our independence as to our comfort: and if those who quote me as of a different opinion will keep pace with me in purchasing nothing foreign where an equivalent of domestic fabric can be obtained, without regard to difference of price…

~Thomas Jefferson

Give us a protective tariff and you will some day see the greatest nation the sun ever shone over.

~Abraham Lincoln

For centuries England has relied on protection, has carried it to extremes and has obtained satisfactory results from it. There is no doubt that it is to this system that it owes its present strength. 

~Ulysses S. Grant

The country has acquiesced in the wisdom of the protective-tariff principle. It is exceedingly undesirable that this system should be destroyed or that there should be violent and radical changes therein. Our past experience shows that great prosperity in this country has always come under a protective tariff.

~Theodore Roosevelt

Author’s Note

Ever watched Bar Rescue?  It is one of the best shows on TV, hands down.  I love it.  The concept is simple: there is a crappy bar on the verge of closing down, and Jon Taffer, the show’s “hero”, fixes it.  Easy.  There are two reasons why I really love this show: first, I like seeing the grungiest, dirtiest, crappiest bars in the country—every bar is worse than the last, and each is crappy in a different way.  Some have horrible service, some have gross food, and some are stuffed with roaches.  That makes for great TV.

Second, I love watching Jon turn bad bars good.  At first his methods seem incomprehensible: he changes a million things at once, everything from the drinks, to the menu, to the floorplan—even the owner’s attitude.  But the more you watch, the more you realize that Jon is not a magician who reimagines every bar from scratch; he just takes what works in successful bars and applies it to the failing bar.  For example, successful bars usually attract lots of women (and therefore men) by serving drinks that women like (fruity cocktails).  If a bar is failing, what does Jon do?  He serves fruity cocktails, and this attracts more women, and thus men.  Bar rescued.

True, it is more complicated than that, but my point stands: successful bars succeed in the same ways, failing bars fail in different ways.

Why?  Because there is a best (most profitable) way to run a bar, just as there is a best way to run a lemonade stand, or an airline.  Ever notice that when you walk into a busy supermarket, it looks the same as every other busy supermarket?  How about a gas station?  A burger joint?  This is because all of these businesses figured out the best way take your money.  How?  Through competitive trial and error: successful businesses flourished, bad ones failed.  The same is true for business practices—good ones were copied, bad ones were not.  Eventually, this rooted out the weak and rewarded the strong.  Now we have better drinks, and better burgers.

This logic also applies to countries.  Policies that enriched countries survived the test of time, while bad policies were gradually abandoned.  Therefore, if we want to make America richer, we just need to learn how other countries got rich, and copy them—rich countries all got rich in the same ways, poor countries are poor for a million different reasons.

This book is like Bar Rescue for countries.  First, I show you just how crappy the bar (America’s economy) truly is.  Next, I tell you why it is crappy (bad trade deals), and then show you the rats and roaches (global free trade) up close.  After that, I give you some examples of successful bars (historically rich countries), and explain why they are successful (show you how they got rich).  Finally, I tell how we can fix the bar (make America richer).

I enjoyed writing this book, and hope you enjoy reading it.

God bless,

~Spencer P Morrison

Manifest Destiny

the cold, hard truth

Our politicians, academics, and the media say that the economy is great, that Americans have never been richer.

They are lying.

The truth is that global free trade helps the elites, and hurts everyone else.  In their greed, the elites abandoned the middle class and left the working man for dead.  They threw our companies to the wolves.  I am no conspiracy theorist: I am an independent intellectual, an empirical historian, and a practical economist who has had enough.  It is time we fixed America’s economy so that it works for everyone.  To do this, we must open our eyes.

I began this book by quoting some of my favorite founding fathers and presidents, including every face on Mt. Rushmore, from George to Teddy.  Although separated by centuries, what unites them all is that they put Americans, and America’s economy first.  They knew that for America to survive, she must be self-sufficient.  If she cannot make weapons, she cannot defend herself.  If she does not grow food, she cannot feed herself.  If America depends upon foreign goods, then she is beholden to foreigners.  Dependency enslaves America.

They also understood that America grew fastest when she invested in herself.  Lincoln said it best:

I do not know much… but I know this… when we buy manufactured goods abroad, we get the goods and the foreigner gets the money.  When we buy the manufactured goods at home, we get both the goods and the money. [i]

Of course, we get more than goods and money.  We get infrastructure, capital equipment (like machines and buildings), and skills and business knowledge that help grow the economy in the future.  Our founding fathers disagreed on many things, but they all knew that American industry should be protected and diversified.  Why?  It worked.

what your teacher forgot to mention

In school we learned that America was always a free-trading nation, an open port in a sea full of mercantilist pirates.  This is completely and utterly wrong.  The first shots fired at Lexington in 1775 were, in part, fired over America’s desire to industrialize and end their trade deficit.  How so?

In the years leading up to the Revolution, the British became increasingly interested in preserving their economic hold on the colonies (mostly by enforcing existing, but often ignored, laws).  They had a good thing going: the colonies bought British manufactured goods, which supported Britain’s growing industries, in exchange for exotic products, like tobacco.  This trade pattern (supporting industry by exporting manufactured products and importing raw materials) is called mercantilism.  Mercantilism was great for Britain, because the colonies fueled her industrial and economic growth.  Need proof?

During the eighteenth century, Britain’s economy grew increasingly industrialized: by the 1770s, nearly one in five British men worked in manufacturing, which was exceptionally high for the time. [ii]  This growth was mostly spurred by colonial expansion.  For example, between 1700 and 1773, manufactured goods, as a percent of British exports, grew from 8.4% to 27.4%. [iii]  In other words, Britain started exporting more valuable stuff.  In turn, this increased Britain’s trade surplus with her colonies.  In fact, the surplus grew from £67,000 (1721-30) to £739,000 (1761-70)—in a few decades it was eleven times as big.[iv]

Remember, if Britain ran a surplus, the colonies ran a deficit, which meant that a massive, ever-increasing, amount of wealth flowed from America to Britain.  Eventually, the colonists realized that they would be better off building their own stuff, rather than buying it.  This was bad news for Britain, who cracked down on colonial industry.  In the 1750s they banned the construction of new iron-slitting mills, [v] and in 1775 they outlawed the production of steel products and certain industrial equipment.[vi]  They even went so far as to ban the export of textile (cloth) manufacturing technology to the colonies, by criminalizing the export of blueprints or equipment, and preventing specialists from leaving Britain.[vii]  They were determined to keep their monopoly.

Eventually, the colonists had enough.  They revolted.  It went badly at first: the would-be Americans had little industry, and were chronically short of war supplies like gunpowder, muskets, knives, even uniforms.  In fact, it was not until European powers, like France, supplied the colonists with weapons that the tide began to turn.[viii]  The rest is history.

After Cornwallis’ surrender at Yorktown in 1781, the Americans were free, but vulnerable.  Their independence was in their allies’ hands: no weapons, no freedom.  To fix this, America needed to develop an industrial base that was capable of building everything she needed to defend herself.  Fundamentally, America’s political independence required economic independence.  This is why George Washington signed the Tariff Act of 1789.[ix]  Tariffs (taxes on imports) made British goods too expensive to buy, and this forced American producers to pick up the slack.

The policy was promising, but progress was slow.  This changed after the War of 1812, when Britain’s naval blockade showed America how dependent on imports she still was.  Congress took action, passing the Tariff Act of 1816, which unified America’s tariff policy, and doubled the average rates. [x]  This further protected America’s industries from British competition, and set the stage for America’s industrial revolution.  In fact, high tariffs were the norm until the 1970s (when everything started to unravel).

So there you have it: everything you learned in school was wrong.

Not only was America never a free-trading nation, but most of our founding fathers (and all the presidents on Mt. Rushmore) were economic protectionists.[xi]  They knew that political independence required economic independence, and they knew that high tariffs were the best, if not the only way to ensure this independence.

I hope you enjoyed your crash course in American economic history.  Next, I will show you that we are not so different from the colonists.  Like them, we depend upon foreign industries to supply us with life’s necessities, we are weighed down by a massive trade deficit, and most importantly, we have had enough. 

Chapter 1: Beggared America: what’s happening, how bad is it?

Our politicians, the mainstream media, the super-rich—the globalist elites—they betrayed us.  They put their personal interests before America’s, and sold her off to the highest bidder, lock, stock, and barrel.  In this chapter I will cut through the lies and show you the America they do not want you to see, the America they are ashamed of.

I will show you the real America.

The truth is this: the economy is a slug, the rich are getting richer (but not us), people are working more for less, finding work is a full time job, our industries are mothballed, our trade deficit is bleeding us dry, and the national debt is strangling us like a back-alley murderer.

Here are the facts.

GDP Growth: how giants fall[xii]

America’s economic growth is the slowest it has been since the Great Depression; all we need are a few tumbleweeds to set the mood and Herbert Hoover would be right at home.

We know this by measuring changes in America’s gross domestic product (GDP), which is simply the monetary value of all the output (everything from cans of  tuna to the latest blockbuster movie) made within the country during the fiscal year.  A bigger GDP means a bigger economy, and the faster it grows, the better.

But there is more to it than that.  GDP growth can be misleading, because it does not account for population changes.  For example, if the population grows by 1%, then the GDP needs to grow by 1% just to break even.  Real economic growth occurs when GDP increases relative to the population.[xiii]

This is where things get interesting.  When we account for population growth (which has been rising dramatically since the Immigration and Nationality Act of 1965 opened the borders), we find that the economy has been slowing since the 60’s, and  shows no sign of improving.  In fact, since 2010’s “recovery” from the Great Recession, GDP growth per person has averaged 0.15%.  Wrap your head around that for a second.  Can you imagine getting a 0.15% raise every year?  That is America.

Now prepare to have your mind blown.  The economy grew twice as fast (0.34% per person) during the Great Depression (1929-39).  Yes.  It is that bad.

The economy is a slug.[xiv]

Increasing Inequality: for he who has, to him more shall be given

a Gini for your thoughts? [xv]

Income inequality has been growing since 1974, and it is currently as bad as it was during the 1920s.  Now, unless you are the Great Gatsby himself and have money to burn, this means trouble.

Income inequality is encapsulated in a number called the Gini Coefficient (GC): “0” is perfect equality, where everyone earns the same income, while “1” is perfect inequality, where one individual earns everything (leaving none for anyone else).  All you need to know is that a higher GC means more inequality.

Now, do not misunderstand me: inequality is not necessarily a bad thing, but too much (or too little) is.[xvi]  Too much inequality leads to corruption, crime, and political instability (think Brazil or Russia), while too little inequality leads to onerous and odious governments (think the USSR or Sweden). [xvii]  Both extremes are bad—a healthy balance must be struck.

Historically, most Western democracies have had GCs somewhere between 0.25 and 0.45, and only rarely has this range been violated.

America long obeyed this rule.  From 1950 to 1974 the GC dropped from 0.421 to a low of 0.394— America was becoming more equal as the economy grew at record pace.  But something changed.  For the last four decades the GC has increased relentlessly, smashing through the “stability range” in the mid-1990s. [xviii]

America now tops the charts among Western democracies, with an income GC of 0.48.  But do not worry, we are in good company with the likes of Russia, Mexico, and China.

Adios functional democracy, hola political instability.

Sisyphus’ curse

For most Americans, wages have been falling since 1973.

In 1973 the median[xix] hourly wage was $4.14, while in 2014 it was $20.74. [xx]  Looks good right?  Wrong.  Although it went up in nominal terms (the number got bigger), in real terms (what you can buy with it), it went down.

If we convert 1973’s median hourly wage into 2014 dollars, it works out to $22.07—which is 6.4% higher than 2014’s median wage ($20.74).  That may not sound like a lot, but it is: over a year it is almost three grand.  This is a huge blow to the middle class and the working man.

That being said, not all wages went down.  Since 1974 most of the economic gains have gone to the top 20% of earners, which is why inequality has been increasing. [xxi]  If today’s income was dispersed like it was in 1973, then the average middle class household would earn a whopping $90,943 per year, as opposed to $74,434—an eye-popping difference of $16,509 per household. [xxii]  You could buy a new car every year with that kind of money.

No matter how hard Americans work, their wages just keep falling. [xxiii]

being Benjamin Button

When wage stagnation meets the real world, the consequences are ugly.

Between 1901 and 1985 the portion of their income that the mean American household spent on wants, as opposed to needs (food, clothing, shelter), increased from 20.2% to 48.6%.  In other words, they were spending more money on things that made them happy, on things they liked. [xxiv]  Living standards improved.

Since then, this pattern has stagnated, which is bad.  But it gets worse.  If we look at median household spending (which is less skewed by rising inequality), we find that spending on wants has actually been declining since the 1980s.  In fact, it is now down to 36.7%—a level not seen since the 60s. [xxv]

Look at that chart.  You can literally see our economic progress melt away.  At the end of the day, the middle class is spending less and less on stuff it wants, and more and more on stuff it needs.  That benefits no one.[xxvi]

Time for us to hit rock bottom.

If you love burgers, pop, or chocolate, look away.  In 1985, you could buy 19,208 McDonald’s hamburgers, 10,791 bottles of Pepsi, or 27,440 Hershey Bars with the median household’s disposable income.  Now that is a meal.  However, in 2014, you could only buy 11,619 McDonald’s hamburgers, 7,532 bottles of Pepsi, or 15,140 Hershey Bars.  We live in dark times. [xxvii]

The Unemployment Rate[xxviii]

lies, damned lies, and statistics

Officially,  8.3 million Americans are unemployed (5.3% of the labor force)—in reality, 22.81 million are (13.3%).  The official number is not even in the right ballpark.  This is a national emergency.

Here is the proof.

The unemployment rate is calculated by a government agency called the Bureau of Labor Statistics (BLS).  They begin by taking America’s total population and subtracting everyone under sixteen years old, everyone in the military, and everyone who is “institutionalized” (in jail, asylums, or old folks homes).  This gives them the non-institutional population, which is everyone who can potentially work.

This population is then divided into two groups: the civilian labor force and those not in the labor force (everyone without jobs, who does not want one).  The labor force is then sub-divided into employed (everyone with jobs, who want jobs) and unemployed people (everyone without jobs, who want jobs).  The unemployment rate is simply the percentage of people in the labor force who are unemployed.  Officially there are 8.3 million unemployed Americans.

How did they screw up?

To be unemployed, you must actively look for work.  In other words, if you stop sending out resumes or contacting employment agencies, you drop out of the labor force, and are no longer technically unemployed—even if you stopped looking for work because there was no work.

This leads to some ridiculous distortions.  For example, pretend you live in a small town whose livelihood is tied to the local factory.  One day the factory shuts down and half the town loses their jobs.  If these people do not bother looking for work (because there is no work), then they are not officially unemployed—they drop out of the labor force.  Poof.  No unemployment, even though a whole town is starving to death.

These are America’s invisible people.

America’s ghosts

The question is, how many people are falsely excluded from the labor force?  A lot.

To its credit, the BLS tries to account for this problem with its U-6 Unemployment Rate, which includes the 8.3 million officially unemployed people, plus 6 million involuntary part-time workers (people forced to work part-time because there is not enough work), and 1.7 million “marginally attached” workers (people who looked for work sometime in the last year).[xxix]

This brings the real unemployment rate up to 9.7%, or 16 million people—almost double the official rate. But that is not all.

The BLS tracks why people drop out of the labor force in a comprehensive national survey.  In 2015, 1.7 million people said they dropped out for “other reasons”.  Curious as to what these reasons were, I did some digging.  Turns out that 1.5 million of those people said they stopped looking for work because there was no work.  Apparently “other reasons” is the corrupt government’s code word for “the economy sucks”. [xxx]

This brings the running total up to 17.5 million unemployed people.

On top of that, millions of Americans claimed they dropped out of the labor force because they went “back to school”.  Great, if it were true.  But it is not.

When we check labor force dropout rates against actual school or college enrollment numbers, the results are staggering.  For example: in 2014, 31% more teenagers (16-19) claimed they could not work because of school than in 2004. [xxxi]  However, school enrollment only increased by 1%.  The same is true for young adults (age 20-24): in 2014, 28% more of them claimed they could not work because they were going to college than in 2004, but post-secondary enrollment only increased by 8.4%.[xxxii]

Unless young people stopped skipping class or drinking, and started studying like never before, it is safe to assume most of them stopped working because there were no jobs.  So many bright, young people are being denied their chance to make their own way in life, to learn the value of a hard day’s work, to get their hands dirty at a tough job—no wonder socialism is on the rise.

This accounts for another 3.35 million people, which brings the running total up to 20.85 million unemployed people.

Another major category that distorts the picture are disability claimants.  In 2014, fully 31.5% more people said they could not work because of disabilities, but the number of disabled people only increased by 13.6% (according to Social Security). [xxxiii]  In effect, the jobs market is so bad, that 1.96 million people with (sometimes minor) disabilities have been squeezed out of the labor force.  Many are now chronically unemployed, while others live off government handouts.

This brings our final total up to 22.81 million unemployed Americans (13.3%).  That is not even close to 8.3 million.  The government lies.

Keep in mind this does not include people who retired early because they could not find work, nor does it include people who are underemployed (think of all those people with college degrees working at Starbucks).  For America to work, Americans must work.  Until then, this is a national emergency.[xxxiv]

Manufacturing and Industrial Decline

quietly into that good night[xxxv]

American manufacturing has been decimated.  We used to be the world’s leading industrial power, not anymore.

In 1979, 19,553,000 Americans worked in good paying manufacturing jobs; last year, only 12,300,000 did.  In a few decades we shed over 7 million jobs[xxxvi]—5 million of which went to China since they joined the World Trade Organization.[xxxvii]

So what happened to all those unemployed people, you might ask?  Two things.  Many got new jobs, although most of them took a hefty wage cut in the process (it pays better to build cars than to wait tables).  The rest dropped out of the labor force altogether, and therefore no longer show up in the unemployment rate.  Very convenient.  If you want to know how all this job loss hurt America, just look at the “rustbelt” (the hardest-hit area in the Mid-West and North-East): urban decay and post-industrial rot has become the norm in hundreds of, once-great, American cities.  Look at Buffalo.  Look at Flint.  Look at Detroit.  The list goes on and on.

But we lose more than jobs.  We also lose capital equipment (factories, machines) and labor skills.  Eventually, we lose the ability to make things.  Just look at what happened to America’s automobile industry.  In 1950 we made 70% of all vehicles; now we make 12%.[xxxviii]  Embarrassing as that is, what is worse is that we are not even the biggest manufacturer anymore.  China makes over 25 million vehicles a year—more than double what we make (just over 12 million). [xxxix]

Our politicians lied to us when they said trade with China would help American automakers.  They build their own cars.

But it is not just cars.  America no longer builds cutting edge products like laptops (aside from one small, ironically, Chinese-owned factory), [xl] or mobile phones[xli], or even televisions—our country damn near runs on laptops and mobile phones and yet we buy them all from China.  I tell you what, we better never tick them off, because they could pull the plug on the modern world.  Not only that, we also buy stuff as basic as lightbulbs (Thomas Edison would be spinning in his grave), dress shirts, spoons, and forks. [xlii]  We are literally importing America at this point.

This would be comical were it not reality.

poison the root, poison the fruit

Who cares if America makes forks?  We are building the big ticket items like airplanes, right?  Yes, for now.

The truth is that even America’s most advanced industries, like aeronautics, Information Technologies, and pharmaceuticals, are bleeding out. [xliii]  This is especially dangerous because they produce $2.7 trillion dollars worth of output (17% of our GDP), employ 80% of our engineers, file 85% of our patents, and provide 90% of private sector research and development (R&D) funding.  Not only that, but they anchor America’s economy by bringing wealth into the country (they make 60% of our exports) and supporting large supply chains (27.1 million spin-off jobs depend on them).[xliv]  They are our inventors and innovators.  They are our breadwinners.  They are building the future.  We cannot afford to lose them—but we are.

Evidence abounds.  For example, in 1980, 59 of America’s 100 largest cities were “innovation capitals” (meaning more than 10% of their labor force worked in advanced industries); by 2013, only 23 were. [xlv]  This is hurting America’s inventive spirit: when looking at the number of global patent cooperation treaty applications per capita (which is a rough estimate for the number of significant inventions made per person), we find that only 2 American cities (San Diego and San Jose) break the top 20 globally. [xlvi]  Americans used to dominate this category, not anymore.  Other countries are picking up the slack.  Not only has America’s share of global research fallen faster than our share of the world’s GDP (meaning we are researching proportionally less), America has moved 38% of its research jobs abroad. [xlvii]

We are literally importing science.  We are buying the future we should be building.

This is happening because America is importing ever-more advanced stuff: last year alone we ran a $632 billion trade deficit in advanced goods.[xlviii]  Worse still, 56% of the increase to our trade deficit over the last decade has been in advanced goods.  Basically, we are buying more of our most advanced technology, rather than inventing and building it at home.  And this is not because foreigners make better stuff, nor make it more efficiently: America’s advanced industries are the second most productive in the world (behind only Norway), and as of 2010 (the most current data I could find) our industries were 50-70% more efficient than our Western competitors like Sweden, Italy, or Germany.  Yet our industry is eroding, not Sweden’s.  Not Italy’s.  Not Germany’s.[xlix]

We must rebuild America.

indoctrination nation

Many people do not think America’s manufacturing decline is a problem, because they believe it is inevitable (some even say it is good).  They claim we are losing jobs because of automation and better technology.  They are deluded.  This is why.

Employment is balance between output and productivity.  If output increases, more workers are needed, while if productivity increases, fewer workers are needed.  For example: say a company builds 1,000 cars with 100 workers.  They have a banner year and decide to make 1,100 next year.  To do this, they hire 10 more workers.  In this case, employment increased because output increased (it takes more people to make more stuff).  Now consider this: rather than building more cars, the company decides to invest their profits in better welding torches, which make their workers 10% more productive.  This allows them to make 1,000 cars with 90 workers.  In this case, employment decreased because productivity increased.  Finally, pretend that the company decides to both make 1,100 cars and buy better welding torches (they increase both output and productivity).  In this case, they will still need 100 workers, because although their workers are more productive, they are also building more stuff.  Employment does not change.

The real economy works the same way.  Between 1950 and 1979, manufacturing employment increased because output grew faster than productivity.  This was great for Americas: real wages were high, the middle class was growing, and economic inequality was decreasing—the economy grew and everyone benefited.  After that, employment stagnated, because output stopped growing as rapidly.  Between 1989 and 2000, output grew by 3.7% on average, while productivity grew by 4.1%.  This led to an average employment decline of 0.4% per year.  However, since 2000, output has grown by only 0.4% per year on average, while productivity increased by 3.7%.[l]  This has been a disaster—over 4 million American factory workers have lost their jobs since 2000.[li]

Why is output not growing like it used to?  Because we started building our factories in China and Mexico rather than in Michigan or Illinois.  We are buying goods from foreigners rather than making them ourselves; this slows our output growth but not our productivity growth, which leads to job loss.[lii]

It was not always this way.  We can still change our fate.

The Trade Deficit[liii]

pharaoh drowned in a red sea, so will we

America has run a trade deficit (meaning we bought more from other countries than we sold to them) ever since 1974, and it is only getting bigger.

In 2015, the deficit was over $736 billion—$4,845 per employed person.  If it were a country, it would be about as large as the Netherlands, South Africa, or the Philippines.[liv]

If that sounds bad, you ain’t seen nothin’ yet.  America is bleeding cash: we lose between $80 and $120 billion dollars a year in remittance payments (when people work in America, but send their money back to their homeland),[lv] $43 billion a year in foreign aid and UN subsidies,[lvi] $105 billion a year in interest payments to foreign creditors, [lvii]  and $300 billion a year in stolen intellectual property (things like Chinese knock-off products or stolen music).[lviii]  All totaled, we lost over $1.3 trillion last year alone.  That is 7% of our GDP.  Gone.

This happens every year.

Over the last two decades the cumulative trade deficit (not including the other stuff) was over $11 trillion, or $81,725 per employed person during the period—double what the ordinary person makes in a year.  To put this into perspective: that is about as large as America’s entire GDP in 2003.

We are not out of the woods yet.  The deficits are growing.  Just look at our trade with China: in the last twenty years the deficit grew from just under $30 billion to over $365 billion.  Or look at Mexico: since Bill Clinton signed NAFTA in 1994 (and sold out his country to the globalist machine), trade with our southern neighbor soured from a modest surplus of $1.3 billion to a massive deficit of nearly $60 billion.

It looks like free trade is working, for Mexico.

always keep good company

There is a stark difference in the type of trade that occurs between America and developed nations, as opposed to developing nations.

A survey of our 20 largest trading partners reveals a few interesting facts.  First, we are almost twice as likely to run a trade surplus with a developed country as with a developing country; second, the surpluses with developed countries are, on average, larger as a percent of total trade volume than are surpluses with developing countries (39.2% vs 10.4%); and third, the deficits with developing countries are larger, as a percent of total trade volume, than with developed countries (35.1% vs 26.6%).

In short: we are more likely to run a big surplus with a developed country, and we are more likely to run a big deficit with a developing country.  We should rethink our trade partners. [lix]

paying the piper

There are 4, and only 4, ways for the US to acquire foreign goods:

(i) we can acquire them for free (theft or gifts), this option is (sadly) irrelevant;

(ii) we can trade for them with our current output (exchanging newly made goods or services), which results in an even trade balance;

(iii) we can trade for them with our past output (by selling our assets, like stocks, buildings, land, for their goods), which results in a trade deficit;

(iv) or we can trade for them with our future output (selling our debt, like bonds or US Treasury Bills, for their goods), which results in a deficit.

Since we have a trade deficit, we must be dealing with options (iii) and (iv).  In both options, the US must sell assets or debt to foreign entities (to acquire foreign currency), in exchange for goods (which are purchased in said currency); nothing is for free.

That is the theory, here is the proof.

As for option (iii): the US sells enormous quantities of assets (past production) to pay for imports.  Foreign investors now own 20% of all US equities, up from 12% in 2007. [lx]   They are buying up our property too.  In 2015 alone, foreign investors bought over $100 billion worth of US properties.[lxi]  You wonder why houses are so expensive?  You wonder why rent keeps going up?  This is why.

As for option (iv): the US sells astronomical amounts of debt (future production) to pay for imports.  Debt is especially pernicious because we must eventually pay back both the principle and the interest—this means we pay extra for whatever we buy using debt.  Additionally, we can only sell so much debt before the interest payments crush our economy, and hinder our ability to buy things in the future.  We are fast-approaching this limit.

Right now, 43% of all of America’s corporate bonds are owned by foreigners. [lxii]  Likewise, foreigners own 47% of our $13.5 trillion national public debt.[lxiii]  Not only do we eventually need to pay this principle back, but we also owe interest.  In 2006, America became a debtor nation, meaning that we pay more in interest than we are paid. [lxiv]   The last time this happened was during the Great Depression.  The results are ugly: in 2015 we paid foreign entities $105 billion more than they paid us—that is enough to fund 5 NASAs.[lxv]

Soon we will run out of stuff to sell.  I would start hording soup cans if I were you.

the land of (rancid) milk and honey

America is rotting away, and something must be done—fast.  How can you help?  You can spread the word.

You must.

Here are the best points you can use to convince your family, friends, and coworkers of America’s economic decline:

  1. America’s GDP growth per person is the slowest it has been since the Great Depression. Between 2010 and 2015 it grew 0.147% on average, during the Great Depression, it grew 0.34% on average—twice as fast.
  1. Income inequality is the worst it has been since the 1920s, and it is still widening. Right now, America is on the same level as Brazil, Russia, and Mexico.
  1. American’s wages have fallen since 1973, and it is costing the median household $17,000 a year in lost income.
  1. The median family’s purchasing power has declined since the 1980s. They used to spend 50% of their income on wants (not needs), now they spend 36.7% on wants—the worst performance since the 1960s.
  1. Over 22 million Americans are unemployed, not 8 million. The unemployment rate is 13.3%%, not 5.3%.  The government is lying.
  1. America has lost over 7 million good-paying manufacturing jobs since 1979—over 4 million since China joined the World Trade Organization. If they say this was caused by automation, tell them that is only half the story: the real reason was that output did not increase alongside productivity.
  1. America no longer makes laptops, mobile phone, TVs, lightbulbs, dress shirts, or spoons and forks. On top of this, we are losing our most advanced industries: 38% of America’s research has been offshored.
  1. The trade deficit is over $700 billion per year. It is as big as the Netherlands, South Africa, or the Philippines. If you include remittances, foreign aid and UN payments, stolen intellectual property, and interest payments on foreign-owned debt, it is over $1.3 trillion per year.
  1. The cumulative deficit over the last 20 years is over $11 trillion: as big as the USA in 2003.
  1. America is being bought up by foreigners, who now own 20% of US stocks, 43% of US corporate bonds, and 47% of our national public debt. We pay them $105 billion per year, and this number is going up. With that money, we could fund 5 NASAs.

 

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[i] Curtiss, Industrial Development of Nations Vol 3, 6.

[ii] Shafaeddin, “How did developed countries industrialize?” Table 3.1.  The American colonies absorbed 72% of this increase.

[iii] Ibid. 76.

[iv] Shepherd and Walton, Shipping, Maritime Trade and the Economic Development of Colonial North America. 42.

[v] Shepherd & Walton, The Economics of Early America, 68.

[vi] Ibid. 159.

[vii] Tucker & Tucker, Industrializing Antebellum America, 95.

[viii] Shepherd & Walton, The Economics of Early America, 197.

[ix] United States Congress, United States Statutes At Large, Vol 1, 24.  This was, in fact, America’s second ever piece of legislation.

[x] Northrup, The American Economy, 233.

[xi] Some may protest, and claim that Thomas Jefferson was a free trader.  He was, for a time.  But following the War of 1812, he realized that some degree of economic protection was necessary to secure America’s independence.  He also recognized that so long as Britain (and Europe) protected their economies, America was obliged to reciprocate.  The man was no fool.

[xii] Figures calculated by author, drawn from: Angus Maddison, The World Economy: Historical Statistics.

[xiii] Think of it this way: would you rather live in India or Denmark?  On the one hand, India’s GDP is higher, but Denmark’s GDP per person is higher.  Obviously Denmark, because although India’s economy is bigger overall, the average Dane is still far richer than the average Indian.  Likewise, real economic growth occurs when the GDP per person increases, as opposed to overall GDP expansion.

[xiv] The economy grew 60% faster before 1974 (2.8%) than afterwards (1.7%).  As subsequent sections will make clear, 1973-4 is when everything changed.

Year Avg. GDP/Capita Growth Avg. GDP Growth
1950-59 2.35% 4.3%
60-69 3.08% 4.5%
70-79 2.49% 3.2%
80-89 2.21% 3.2%
90-99 2.00% 3.2%
00-09 0.869% 1.8%
10-15 0.147% 2.2%

 

[xv] Unless otherwise stated, the figures in this sub-section are from:  Townhall.com “The Major Trends in US Income Inequality Since 1947.”  & United States Census Bureau. “Income and Poverty in the United States: 2014.”

[xvi] Some degree of inequality is necessary for society, and the economy, to function, because it imposes a set of intrinsic rewards and punishments.  It is what allows the free market to price goods, and motivates people to work hard.  Inequality is necessary for the free market itself.

[xvii] The Soviets were able to achieve a fairly equal society, with a Gini Coefficient in 1989 of only 0.275, but it came at an unreasonable political price.  See: Alexeev & Gaddy , “Income Distribution in the USSR in the 1980s.” 29.

[xviii] Here is the data-set, by decade.  The nadir was in 1974 (GC 0.394), the apex is today (0.48).  It is only getting worse.

Year Avg. Gini Coefficient
1954-63 0.4016
64-73 0.3948
74-83 0.4033
84-93 0.4285
94-03 0.4588
04-13 0.4702

 

[xix] I use the median because it gives a more accurate picture, because it cannot be skewed by a few hyper-rich people (as can the mean).

[xx] Desilver, “For most workers, real wages have barely budged for decades.”

[xxi] Bivens et al. “Raising America’s Pay”, 11.  In raw numbers, the top quintile incomes grew an average of 0.65% per year, while the bottom four quintile’s incomes grew at an average of 0.2% per year.

[xxii] This is not an idle fantasy. Between 1950 and 1973 the median income rose faster than inflation, meaning that they were able to buy more stuff with the median income—their lives improved.  In 1950 the median wage was ~$1.40/hour, which translates into $2.58 in 1973 dollars.  In 1973, the median wage was $4.14, which is 60% higher.  This means that the standard of living improved dramatically during this period.

What changed was that since 1973 pay has stopped rising in tandem with productivity.  Between 1948 and 1973 the average productivity of an American worker increased by 96.7%, while hourly wages increased by 91.3% (ie. if you did more work, you were paid more).  However, between 1973 and 2014 productivity increased by 72%, while real wages only increased by a meager 9.2% (real wages per hour actually declined, the increase was made by working more hours).  Furthermore, this trend appears to be accelerating: between 2000 and 2014 productivity increase 21.6%, while wages only raised 1.8%.

See: Bivens & Mishel, “Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay,” 3.

[xxiii] Data for graph from Federal Reserve Bank of St. Louis. —“Average Hourly Earnings of All Employees: Total Private, Jan 1964- Oct 2016. & Desilver, “For most workers, real wages have barely budged for decades.”

[xxiv] Chao, “100 Years of US Consumer Spending, Data for the Nation, New York City, and Boston.”

[xxv] Author’s calculations based on data from Chao, “100 Years of US Consumer Spending, Data for the Nation, New York City, and Boston.”

[xxvi] It should be noted that this is not because of inflation in general: not all goods have increased in price.  In fact, the Consumer Price Index has tracked remarkably closely with the median household income (both increased by ~2.2x during the period).  It is the cost of housing which has engulfed an increasing percentage of the middle class’s income.  In August 1985 the median new home price was $83,300 (3.5x the median household income), whereas in 2014 the median new home price was $291,700 (5.5x the median household income). Overall, the cost of housing grew by 3.5x during the period, greatly outpacing inflation.

For graphs, see: Brown, “Money Income of Households, Families, and Persons in the United States: 1985,” 1. & Bureau of Labor Statistics “Inflation Calculator,” & DeNavas-Walt & Proctor & Smith. “Income, Poverty, and Health Insurance Coverage in the United States: 2012 current population reports.” & United States Census Bureau, “Median and Average Sales Prices of New Homes Sold in United States.”

[xxvii] Olver, “The Food Timeline.”  Pepsi bottles equated to 1 metric litre in volume. For pictograph, income data is from Chao, “100 Years of US Consumer Spending, Data for the Nation, New York City, and Boston.”

[xxviii] Unless otherwise stated, employment data is from: Bureau of Labor Statistics, “Labor Force Statistics from the Current Population Survey,” & United States Census Bureau, “Population Estimates: National Totals.”

[xxix] Federal Reserve Bank of St. Louis. “Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons (u6RATE).”

[xxx] Hipple, “People Who Are Not in the Labor Force: Why Aren’t they Working?”  Footnote 3.

[xxxi] Ibid. 5.

[xxxii] Ibid. 6.

[xxxiii] Social Security Administration. “Selected Data from Social Security’s Disability Program.”

[xxxiv] I should also note that the labor force participation rate is (the percentage of the non-institutional population in the labor force itself) is precipitously low.  As of 2015 it was 62.7%, down 5% from its peak in 2000.  In fact, it is the lowest it has been since 1977, the era of stay-at-home moms and little pink houses.

In raw numbers, the people not included in the labor force increased from 75.95 million in 2004, to 93.67 million in 2015, a 21.15% increase.  Part of this can be explained by overall population growth, which totaled 8.59% (although the category still outpaced natural growth by a multiple of 2.5).  Likewise, a greying population accounts for only a small share: while the percent of Americans over 65 increased from 12.4% to 14.5% in the period, the percentage of elderly people retiring decreased by about 30%.  As a result, the increasing “not in labor force” population is not an issue which can be explained away using the conventional political excuses: it is a real problem that demands action.

See: United States Department of Health and Human Services. “Census Bureau Population Estimates as of July 1, 2004.” & United States Census Bureau, “Quickfacts, United States” & Bureau of Labor Statistics, “Employment Projection.”

[xxxv] For chart, see Federal Reserve Bank of St. Louis, “All Employees, Manufacturing.”

[xxxvi] Jeffrey, “7,231,000 Lost Jobs.”

[xxxvii] Scott, “Manufacturing Job Loss,” 1.

[xxxviii] Fletcher, Free Trade Doesn’t Work, 147.

[xxxix] International Organization of Motor Vehicle Manufacturers. “Production Statistics, 2015.”

[xl] Poe, “Lenovo cranks up Whitsett Plant.”

[xli] Mack, “Are Any Smartphones Not Made in China?”

[xlii]  Gorillawire “40 Surprising Products That Are No Longer Made in America.”

[xliii] The precise metric used has two components that both must be satisfied: the industry must spend in the top quintile in R&D and >21% of its workforce must have advanced skills/education in STEM fields.  See Muro et al. “America’s Advanced Industries: What they are, where they are, and why they matter,” 2.

[xliv] Ibid. 3.

[xlv] Ibid. 6.

[xlvi] Ibid. 7.

[xlvii] Selvaggio, “Outsourcing Statistics: The Pros and Cons.”

[xlviii] Muro et al. “America’s Advanced Industries: What they are, where they are, and why they matter,” 6.

There are other estimates. According to section 20.21 of the China Statistical Yearbook, compiled by National Bureau of Statistics of China, 20.21: the government of China estimates that in 2000 they ran a 15 billion USD deficit with America in high-technology manufactured products; as of 2015 they recorded at 109 billion USD surplus.

[xlix] Muro et al. “America’s Advanced Industries: What they are, where they are, and why they matter,”32.

[l] Scott, “Manufacturing Job Loss,” 1-2.

[li] Ibid. 1.

[lii] A side note: the free trade brigade claims that this importation has provided cheaper products, which benefits consumers, but this is false, because the lower cost of goods walks hand-in-hand with lower labor costs (people lose jobs, they compete for other jobs, this depresses wages).  The proof is in the pudding: remember that the Consumer Price Index, which records the cost of living, shows that goods have risen in price at the same rate as wages, meaning that goods are definitively not cheaper now than they were in 1985.  It is one big lie.

[liii] Unless otherwise stated, all trade data is from the US Census Bureau, “Trade in Goods, 1985-2016.”

[liv] World Bank, “GDP by PPP Statistics.”

[lv] Tomlinson, “Revealed: How immigrants in America are sending $120 BILLION to their struggling families back home.”

[lvi] Amoros, “The US spends $35 billion on foreign aid… but where does the money really go?” & Schaefer, “America, we pay way too much for the United Nations.”

[lvii] United States Department of the Treasury, Bureau of the Fiscal Service. “Interest Expense on the Debt Outstanding.”

[lviii] National Bureau of Asian Research, IP Commission Report: the report of the commission on the theft of American intellectual property. 2.

[lix] Graph  is author’s interpretation of data drawn from: United States Census Bureau, “Trade in Goods, 1985-2016.”

[lx] Jackson “Foreign Ownership of US financial assets: implications of a withdrawal.” 1.

[lxi] Frank, “Wealthy Foreigners Bought $100 Billion in US Real Estate.”

[lxii] Jackson “Foreign Ownership of US financial assets: implications of a withdrawal” 1.

[lxiii] The debt is destroying America.  It is the biggest it has ever been, even compared to both World Wars and the Civil War.

And yes, the debt is over $19 trillion, but $5.5 is held by other US government agencies.  See: Fix the Debt Coalition Inc. “Q&A: Everything You Need to Know About the National Debt.”

[lxiv] Bureau of Economic Analysis. “UN Net International Investment Position, First Quarter 2016.”

[lxv] United States Department of the Treasury, Bureau of the Fiscal Service. “Interest Expense on the Debt Outstanding.” & NASA. “Fiscal Year 2015: Budget Estimates.”