Are Mexicans and Chinese Really Stealing Americans' Jobs? - Vivek Kaul's Diary
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Are Mexicans and Chinese Really Stealing Americans' Jobs?

May 31, 2017

27

GUALFIN, ARGENTINA - Now comes a report from the Financial Times that tells us the nation's No. 1 industry - homebuilding - has been backing up for a quarter of a century.

According to the newspaper, US homebuilders 'started work on the same number of houses in the past year as they did a quarter of a century ago, even though there are 36% more people working as residential builders now than then'.

The report puzzled over the apparent collapse in productivity in the sector.

'Somewhat difficult to believe,' say researchers.

(It's not so difficult for us to believe...but we'll get to that in a minute.)

Tremendous Flop

As we've written about before, so far, the 21st century has been a tremendous flop.

At least for America.

Economic growth rates have been trending down for forty years. The number of people with 'breadwinner' jobs - as a percentage of the working-age population - is at a forty-year low. And homeownership is back to where it was half a century ago.

There are pockets of prosperity. But get too far from the good neighbourhoods and you find dilapidated houses...minimum wages...and drugs.

What happened to all that dazzling new technology from Silicon Valley?

What happened to all that super-duper capital allocation being done by Wall Street - matching young entrepreneurs with trillions of dollars in financing?

And where did all those trillions of dollars in new money - put out by the Fed via its quantitative easing (QE) program - go?

Many are the bogeymen...the fall guys...and the stooges in this spectacle.

Ask around: Some blame the Democrats. Some blame the Republicans. Some blame robots. Most don't know whom to blame.

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Creative Destruction

In this last category, we put the authors of another new study by the Economic Innovation Group (EIG) think tank.

The study tells us more of what we already knew: The US economy is slowing down. Now it creaks along, walking with a cane and trying to remember where it left the car keys.

The study also highlights a question that weighs on the minds of economists and demagogues alike: How come there are so few good jobs?

The current occupant of the Oval Office got there largely by blaming the Chinese and Mexicans for stealing jobs from the American heartland.

Americans wanted a 'better deal'; he said he could make one.

But the study in front of us suggests that the foreigners had little to do with it.

'Creative destruction' was how the great Austrian-American economist Joseph Schumpeter described the workings of a healthy economy.

Jobs in the vacuum tube industry had to disappear so the sealed silicon circuit business could flourish. Amazon.com can sell stuff, at a loss, online but only at the price of crushing malls and retailers from coast to coast.

Old businesses need to be destroyed to make room for new ones. But government is essentially a backward-looking, crony-coddling affair. And it is at war with this process.

Businesses, and their insider owners, make campaign contributions and hire lobbyists. But politicians get no invitations to speak to industries that don't exist yet. They get no votes from people who haven't been born nor tax revenues from businesses that have not yet been formed.

That's why government looks into the future - but only to try to stop it from happening. And the bigger, and the more powerful and more ambitious, the insiders become...the longer it takes the future to arrive.

Unrecorded Recession

In an economy, the future sits at cheap desks in low-rent offices in bad neighbourhoods.

Old businesses have yesterday's methods and technologies; new business startups have tomorrow's.

But 'Americans are less likely to start a business, move to another region of the country, or switch jobs now than at any time in recent memory,' says the EIG paper. And 'dynamism is in retreat nationwide in nearly every measurable respect.'

Forty years ago, nearly 6% of the population worked for a new company. Now, only 2% do. The job 'turnover rate' was 12% in 1977; now it is barely half that.

Similarly, the startup rate has collapsed to only half of what it was in the 1970s. In 2010, more businesses closed than opened for the first time in history. Between 1983 and 1987, the nation added nearly 500,000 new firms. Between 2010 and 2014, only one-fifth as many saw the light of day.

The new businesses seem to be concentrated in small geographic areas, too - mostly between DC and New York, in South Florida, and in Southern California, with a significant block of growth between Houston and Dallas.

Most of the rest of the nation has been in an unrecorded recession - with more businesses closing down than opening up - for decades.

This means the average business is older than ever before...and that more people are more likely to work for one of these dinosaurs than ever before.

Also, as firms age, they tend to discard employees, not add them.

The idea of China or Mexico 'stealing' jobs is largely fantasy. Old industries typically shed jobs as they age and die. Practically all net new jobs come from startup businesses.

The EIG study goes on to suggest that, in 2014, 1 million jobs went missing because of the lack of new business startups.

A startup business typically creates six new jobs in its first year. In 2014, there were some 150,000 fewer startups than in the 1980s.

American Malaise

What happened?

The federales supported the old businesses with cheap loans. This led to consolidation and rising profit margins. As for the newborn businesses, they strangled them in the cradle with red tape and regulation.

The authors of this study have done an admirable job of identifying a major part of America's economic malaise: the lack of business startups. But then, like almost everyone else, they want to treat the symptoms.

'Policymakers need to' do this. 'Policymakers need to' do that. But it was policymakers - aka the insiders - who created this situation.

They aren't going to fix it, for the same reason they aren't going to allow the swamp to be drained, regulations to be cut, government spending to be reduced, or wars to be ended: They like it this way.

Why has productivity in housing declined?

Just try to build a house...

In most communities, zoning, building, administrative, and environmental regulations slow you down and add costs. You'll know how it feels to start a business.

Regards,
BILL BONNER Founder, Agora Inc
Bill


Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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1 Responses to "Are Mexicans and Chinese Really Stealing Americans' Jobs?"

DDMisra

Jun 1, 2017

All the woes of American economy described here are due to the administrators of a period when Trumph was no where in site. Can we know

Whether he has made any change in the Government policy and if o what are those?

If so what are the effects so far and what is expected of it.

For example before Trumph the policy was

The federales supported the old businesses with cheap loans. This led to consolidation and rising profit margins. As for the newborn businesses, they strangled them in the cradle with red tape and regulation.

Has there been any change?

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