Manufacturing Redux

    To hear the talking heads in the media, the manufacturing in the USA is all but done. Jobs have gone to China. There is no manufacturing left in the US. Manufacturing jobs are gone forever. Nothing could be further from the truth. While the US did lose it's top spot as the largest manufacturer in the world to China in 2011 we are still the most productive manufacturer in the world and seconf only to China in total manufacturing production. We still make stuff here.
    The discrepancy between wages in China and the US is closing fast. Wages in China a five times what they were in 2000 and are expected to continue to rise about 18% per year. Add to that the energy costs, gas averages $3.30/mbtu in the US while in Asia it is 4 times as high. In addition, inventory costs, transportation costs and logistics combines to drive the costs of manufacturing overseas upwards while lower energy costs, automation and productivity increases continue to drive our manufacturing costs down. That is not to say that that is good news for job seekers. Continued automation, while driving costs down also reduces ot eliminates the need for low skilled workers.
    What this means is this 1) low skilled workers who have a job MUST upgrade their skills either through their employer with OTJ training and tuition support or 2) off duty education that improves skill levels to either get promoted to a better paying position with the present employer or find a better job elsewhere. Low skilled jobs will eventually go away. Walmart cannot charge enough for produce to pay a greeter $20/hour. Prospective employees MUST upgrade their skills and prospective employers MUST help.
   Manufacturing supports an estimated 17.2 million jobs in the United States—about one in six private-sector jobs. Nearly 12 million Americans (or 9 percent of the workforce) are employed directly in manufacturing.
     Manufacturing in the United States produces $1.8 trillion of value each year, or 12.2 percent of U.S. GDP. For every $1.00 spent in manufacturing, another $1.48 is added to the economy, the highest multiplier effect of any economic sector.
 In 2011, the average manufacturing worker in the United States earned $77,060 annually, including pay and benefits. The average worker in all industries earned $60,168.
    Having said all that there are lots of manufacturers in the US. We make everything from electric motors to airplanes and rubber rafts to microprocessors. We make drugs (pharmaceuticals) and we make windows, we make steel and plastic, we make wire and rope and farm equipment, we make chemicals and soap, we make clothes and carpet and locomotives. We make wind turbines and solar panels and steam boilers and jet engines.  Manufacturing is important to this country.
To be continued...
  In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a yea ​​In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year  In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a yearIn dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year
   

Minimum Wage

    The minimum wage not only discriminates against low-skilled workers but also is one of the most effective tools of racists everywhere. Our nation's first minimum wage came in the form of the Davis-Bacon Act of 1931. The goal was to protect white construction workers from the north from black construction workers from the south. Davis Bacon continues to be a way to dicriminate in favor of unions and against lower paid non-union workers.
    Minimum wage laws generally discriminate against low-skilled workers and entry level workers in all industries. In an aricle today Walter Williams writes;
"Let's work through an example. Suppose 100 yards of fence could be built using one of two techniques. You could hire three low-skilled workers for $15 each, or you could hire one high-skilled worker for $40. Either way, you get the same 100 yards of fence built. If you sought maximum profits, which production technique would you employ? I'm guessing that you'd hire one high-skilled worker and pay him $40 rather than hire three low-skilled workers for $15 each. Your labor costs would be $40 rather than $45.
Suppose the high-skilled worker came into your office and demanded $55 a day. What would be your response? You'd probably tell him to go play in the traffic and hire the three low-skilled workers. After all, hiring the three low-skilled workers for $45, to get the same 100 yards of fence, would be cheaper than the $55 a day now demanded by the high-skilled worker."
    It is easy to see in this simple example how a rise in minimum wage will affect low skilled workers. As entry level or low skilled workers get a 24% pay raise as president Obama wants then higher level employees must also get a raise thus ratcheting up all wages. An emplyer can only stand a certain level of increased costs before he must 1) raise his prices (not always possible) or 2) lay off workers and expect higher productivity from those workers left. if he can't raise prices and can't increase productivity the options are 1) go out of business 2) go out of business.
     Whether support for minimum wages is motivated by good or by evil, its effect is to cut off the bottom rungs of the economic ladder for the most disadvantaged worker and lower the cost of discrimination. President Obama has no understanding of basic economics and thus has no idea what his minimum wage proposal can mean.

Sequester: Here Come the Clowns II

The administration, Obama and his minions have made a full court press exclaiming about all the doom and gloom that will befall us if we DARE to allow any sequester cuts to take place.
Obama stands before first responders, firemen and policemen and tells his audience we will not be as safe after Mar 1 as we once were never mind the fact that most first responders are paid by local governments. He stands before an audience and claims that 100s of kids will not be eligible for Head Start and 1000s will not have schools lunches and hundreds of thousands will not have day care. He even threatened that health care providers will not be able to provide immunizations or flu shots in spite of the fact that these are reimbusable expenses through Medicare and Medicaid and MUST be paid for. Then he trotted out all his Cabinet Secretaries to increase the gloom and doom. Defense would not be able to buy ammunition or deploy aircraft carriers. Transportation would be forced to lay off Air Traffic Controllers, Homeland Security would lay off border security, Justice of course would lay off FBI agents and Federal prosecutors. On and on it went, fear mongering, demigogury, scare tactics all in an effort to pressure the Republicans to back down on their pledge to let the sequester cuts be enforced. Make no mistake, this was simply a ploy to pressure the opposition to back down. The cuts represent less than 2% of the overall budget and the federal spending for 2013 will still be higher than 2012.
     Now in the final hours before the cuts will take affect Mar 1 President Obama is singing a different tune. Now that it is inevitable that the cuts will take place the President says we may not notice the cuts for a week or a month. His greatest fear is that we won't notice AT ALL.

Sequester: Here Come the Clowns

Most of the news these days revolves around the "SEQUESTER" a form of budget cutting that requires across the board cuts when the various Congressional players and the President cannot agree on specific cuts. Designed to be "drastic" and "so egregious" as to encourage the Congress to actually CUT the budget. The result of this is the circus we see playing out in the media on a daily basis.
    The President, in an effort to avoid any cuts at all has revved up the scare tactics. "Our National Security is at risk, FBI agents will get laid off, US Attorneys will have to let criminals go and not prosecute, no air traffic controllers, no border security, no day care, no funding for disabled children or school lunches. No money bullets for soldiers in harms way. No money for training for troops deploying to Afghanistan." I was born at night but I wasn't born last night.
    The Federal Budget has increased an average of 6% since the 1986 Budget Control Act defined "baseline budgeting" which allows the government to grow at approximately 6% from the previous years "base" Add to that the fact that somehow Obama's Stimulus has been added to the baseline.
The long and the short of this is that government continues to grow. Even after the sequestration the government will spend more money in 2013 than it did in 2012 and is projected to spend more money in each successive year than the previous. We are barely slowing down the rate of growth much less actually cutting government spending.
    The President already has tranfer authority and could decide that it is more cost effective to cut the economists at the Labor Department rather than Air Traffic Controllers or cut conferences at GSA rather than school lunches. However, this President is a political animal and any admission that we have spending that we can cut is an admission that is agenda may be wrong for the economy.
  At this point it looks like the sequester will happen inspite of all the rhetoric and demagogury. The Democrats and the Presidents worst fear is that no one will notice. 

High Prices Cure High Prices

Being from an area not particularly impacted by the drought of 2012 I am sympathetic to farmers and ranchers who are impacted. While it is part of farming, it is never fun to see crops you have worked so hard for wither in the field. Likewise ranchers with their animals struggling to find something to eat and drink when normally they would be on their own for the summer. As we go into the fall, unfortunately the damage is done. Cattle and pigs are headed for slaughter because at $8.00/ bushel it is just too costly to feed them corn to fatten them up. This will impact the food chain across the board and not for the good. The good part of this scenario is that with high prices in the Spring many farmers planted way more than a typical normal year. This additional acreage in production may somewhat offset the looses in the drought areas. We will have to see what happens at harvest. One thing is sure. This entire system gives us a lesson in Economics 101. As supply drops and demand remains the same the price will increase. Prices will continue to increase until one of two things happen. Either the price gets so high that people stop buying which reduces demand or the high price brings on additional supply from foreign sources which will mitigate further increases. Either way the market will act in a way that both rations supply and increases supply on the one hand or reduces demand as buyers find alternatives that are cheaper on the other.
This process works in virtually any market. In my area the gasoline price is approaching $4.00/gal. Up to that point, I have noticed that people continue to fill up and while they bitch, they don't change their behavior. At $4.00, something happens. People begin to change their habits. They no longer fill up, rather get $20 or $40 and hope the price goes down. If and when the price drops $.15 or $.20 they swarm to the station to fill up. I do it too. If I think the price will continue up I fill up. If I think it has peaked and likely will come down, I get $20. My own form of rationing. High prices cure high prices.

Manufacturing in America

Mary Andringa, president and CEO of Iowa manufacturer Vermeer Corporation and then-board chair at the National Association of Manufacturers recently said in an NBC interview.
"What’s really outstanding is the fact that in 2010, the U.S. had an output of $4.8 trillion of manufactured goods. That was up from $4.1 (trillion) in 2000 — and we’ve been through two recessions in the past decade.
Five million manufacturing jobs were lost in the U.S. in the last decade. But new jobs have been created too, and believe it or not, many manufacturers in the U.S. are looking for help.
As economist and George Mason University Professor Walter Williams pointed out in a 2011 column:

(In) 1900 … about 41 percent of our labor force was employed in agriculture. By 2008, fewer than 3 percent of Americans were employed in agriculture. … [O]ur farmers are the world’s most productive. As a result, Americans are better off.
In 1970, the telecommunications industry employed 421,000 workers as switchboard operators, annually handling 9.8 billion long-distance calls. Today the telecommunications industry employs only 78,000 operators … (processing) more than 100 billion long-distance calls a year.
Fifty years ago, a typical textile worker operated five machines capable of running thread through a loom 100 times a minute. Today machines run six times as fast, and one worker can oversee 100 of them.
You say, “Williams, certain jobs are destroyed by technology.” You’re right, but many more are created.
 

 With all due respect to Professor Williams above, he would be right about enough replacement jobs being created if we were living in a genuine free-market economy. Unfortunately, that’s not where we are in this nation. Virtually all of the reasons why sufficient job growth isn’t occurring can be traced to the Obama administration’s market-hostile economic policies and postures.
Here are some of the administrations policies that limit the economic growth in the economy.

The war on fossil fuels, which has limited job growth in energy-related industries and caused prices to be higher than they should be for everyone else.

Cronyism on steroids.

Trillion-dollar deficit spending.

New bureaucracies like Dodd-Frank’s Consumer Financial Bureau, which Congress can’t legally touch.

Unemployment and other government benefits which make remaining unemployed relatively attractive, or a least a more tolerable circumstance than it should be, and for a longer period of time than should be necessary.

Onerous labor laws and regulations.

Federal, state, and local tax increases.

Last but certainly not least, Obamacare

Until recently when we were overtaken by China the USA was the largest manufacturer in the world and we are still the most productive, exceeding #2 China by 40%.
Manufacturing is not dead in America, yet.

 

Debt Ceiling Debate

    I get really sick of politicians including the POTUS spouting about how if we don't raise the debt ceiling that SS checks won't go out, our military won't get paid and we will default on our debt. BALONEY. I call BS on all of it and resent the insult to my intelligence.
    First of all. Our debt is denominated in dollars and we can print money so if we needed to we could print money to pay our debtors/bond holders. Default therefore is technically off the table. However, it is more complicated than that. Consider the following.
1) The President and the Treasury Department decide what bills get paid. The Treasury Secy works at the will and pleasure of the President and has the responsibility to manage the countries finances. If the borrowing power is limited the Treasury Department would have to decide which bills to pay and in what priority. If the President said "Pay the troops, the SS checks and interest on the debt" then that would be what he would do.
2) In aggregate interest on the debt is 6% of the total budget, SS is 20% and Department of Defense payroll is 22%. So if push came to shove since we have only $.60 cash from receipts (we borrow the rest) we could easily pay these major obligations.
    Based on this basic information, even if Congress refuses to raise the debt ceiling during the negotiations the government could pay the basic obligations of interest, SS and soldiers. To say otherwise is scare tactics plain and simple and is unbecoming of a President of the United States.