FT119: “To save American jobs the Left tries to keep out low-priced Mexican imports but does little to keep out low-priced Mexican labor.” -Old Pithy

Posted by PITHOCRATES - May 25th, 2012

Fundamental Truth

The Left opposes Cheap Mexican Labor in Mexico but they like having it in the U.S.

One of the more interesting things about the political left is their inconsistency about their opposition to free trade.  They opposed the North American Free Trade Agreement (NAFTA) because they said all the good manufacturing jobs would go south of the border.  They said Mexicans work too cheap.  And that was unfair to the American worker.  For the American’s generous wage and benefit packages could never compete with the Mexicans who are willing to work for so much less.  With NAFTA rich American capitalists would just screw their American employees and move their operations to Mexico.  Where they would exploit the poor hapless Mexican workers.  Forcing them to work at a fraction of the American wage and benefit package.

Of course that’s not the way the poor hapless Mexican workers see it.  They loved those manufacturing jobs.  Because those jobs had some of the most generous wage and benefit packages available in Mexico.  They flooded those factories.  And the lucky few to get those jobs did quality work.  The things they made in these Mexican plants were as good as anything in the U.S.  And they cost less.  Allowing the American consumer to buy more.  Which raised the standard of living for everyone.  The American consumer.  And the Mexican consumer.  The only ones who lost were the few working in those U.S. plants that closed.  Who became bitter.  And demanded the government impose tariffs on those low-cost imports.  To save American jobs.  While lowering the standard of living for the American consumer.  And the Mexican consumer.

So the Left opposes this cheap Mexican labor.  In Mexico.  They don’t seem to mind it so much, on the other hand, when it’s in the U.S.  The Left opposes building a wall on the border.  They oppose asking for proof of citizenship from anyone who looks Mexican in a region with a high concentration of illegal aliens.  They oppose requiring a photo I.D. to vote.  They oppose deportations of illegal aliens who’ve been living and working in the U.S.  While they are in favor of blanket amnesty for those here illegally.  And providing them a fast-track to U.S. citizenship.  Which is rather odd considering the way the Left feels about that cheap Mexican labor.  So why are they opposed to imports manufactured by low-cost labor while they are in favor of bringing that low-cost labor into the United States.  For either way it will displace a higher-paid U.S. worker from a job.

The Lost Tax Revenue from Abortion and Birth Control comes to about $155 Billion per Year 

 Yes, that is a good question, isn’t it?  Some, I’m sure, will say once those illegals become legals they’ll join unions.  Which would make them no longer cheap labor.  Perhaps.  But with the decline in U.S manufacturing there aren’t a lot of union jobs anymore.  It is more likely that they will go to where there are good manufacturing jobs.  In the nonunion South.  So it is likely they would add further pressure on those high union wages and benefits.  So why, then, would the Left want to grant citizenship to those here illegally while at the same time opposing cheap Mexican labor?  Two reasons.  Abortions.  And birth control. 

As it is in most things in life it’s about the money.  The Left likes to tax and spend.  Well, not so much like but love.  It’s what they live for.  They want to spend money to provide pensions.  Health care in retirement.  And now health care before retirement.  They want to spend money to end poverty.  They want to spend money to give everyone a college education.  They want to spend money to subsidize green energy.  They want to spend money for school lunches, childcare, art, public television/radio, birth control, abortions, etc.  If it’s something they can spend money on they want to spend money on it.  Of course to spend all of this money you need what?  That’s right.  Money.  And two of the Left’s defining issues have actually reduced the available money to spend.  Birth control and abortion.

According to Public Agenda the number of abortions increased during the Seventies until they totaled approximately 1,300,000 by the end of the decade.  They stayed at or above this level for a little over a decade and then started falling in the late Nineties.  Let’s take one year of these numbers and crunch some numbers.  If 1.3 million abortions didn’t happen and the women carried these babies to term and they earned the median income of $46,000 (and paid $7,530 in federal income taxes) today that would have come to an additional $8.4 billion in tax revenue per year.

According to the Guttmacher Institute there were 62 million U.S. women in their childbearing years (15-44) in 2010.  Approximately 62% of these women were currently using birth control.  Bringing the number of women using birth control in 2010 to 38,440,000.  If birth control was unavailable let’s assume 50% of these women would have stopped having sex.  And let’s assume the women who continued to have sex became pregnant and carried their pregnancy to term.  Bringing in 19,220,000 new babies into the world.  Based on the median salary of $46,000 they would have contributed another $145 billion in tax revenue.  Added to the lost tax revenue from abortion that comes to a grand total of $155 billion in lost tax revenue per year.  Over a decade that comes to $1.5 trillion.

Granting Amnesty to Millions of Illegal Aliens can make up for Lost Tax Revenue due to Birth Control and Abortion 

During the Obamacare debates the Congressional Budget Office (CBO) projected the cost of Obamacare over a 10-year period at $940 billion.  They have since revised that up to $1.76 trillion.  The opponents of Obamacare say it is too costly.  With a national debt of already $15.7 trillion we simply can’t afford to pay for Obamacare.  The proponents of Obamacare have been using questionable accounting practices to get that number down.  Such as collecting new taxes before paying any benefits in some of those years in that 10-year projection.  But the interesting thing to note here is that these discussions would be moot had it not been for birth control and abortion.  Which has cost the nation in tax revenue what Obamacare will cost.

These numbers are only crude calculations.  A more detailed mathematical analysis would have produced a far greater number in lost tax revenue.  Because the population would have also been expanding.  So the numbers used as constants in the 10-year projections above would have been growing larger in each year of that 10-year projection.  And producing larger amounts of tax revenue in each of those 10 years.  This is why Social Security worked so well for the first few decades.  There was a growing population.  And there was always far more new workers entering the workforce than leaving it.  What changed that was birth control and abortion.  And people choosing to have smaller families.  Not a bad thing in itself.  But this decision to have smaller families has doomed Social Security and Medicaid.  For they created those programs based on larger population growth rates.  That simply no longer exist.  And the only way to fix that is by having a lot more babies quickly.  Or for the baby boomers to die off quicker.  Which critics of Obamacare say Obamacare will help do via death panels.

Or you could try something else.  You can jumpstart the population growth rate by granting amnesty to millions of illegal aliens.  To make up for lost tax revenue due to birth control and abortion.  And what makes the illegals from Mexico so attractive to the Left is that many of them are devout Catholics.  Thanks to the Catholic Spanish Empire who brought their language, culture and religion to the New World.  And Catholics frown upon the use of abortion and birth control.  But this can be a risky bet for those on the Left.  Yes, they could really boost the population growth rate.  And they may get these new citizens’ votes in the early years out of gratitude.  But eventually the Left’s attacks on religion may eventually make these people vote Republican.  So they may get a large increase in tax revenue to spend.  Just as they lose power in Washington.

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Debt Crises are Far Greater than Many choose to Believe

Posted by PITHOCRATES - June 17th, 2011

Was it the Plan to Bankrupt the Nation?

The IMF is worried about a technical default on U.S. debt.  But it’s the budget deficits that really concerns the IMF.  In the U.S.  And in Europe.  For the entitlement spending of these welfare states has proven to be beyond unsustainable.  They’re downright dangerous.  And if unchecked, it will destroy these nations (see IMF cuts U.S. growth forecast, warns of crisis by Luciana Lopez posted 6/17/2011 on Reuters).

The International Monetary Fund cut its forecast for U.S. economic growth on Friday and warned Washington and debt-ridden European countries that they are “playing with fire” unless they take immediate steps to reduce their budget deficits.

They’re not saying that the U.S. had better raise their debt limit.  They’re saying that they better reduce their deficit.  Either by raising taxes.  Or cutting spending.  And with the IMF cutting their forecast for U.S. economic growth, that pretty much means they’re leaning towards cutting spending.  Because higher taxes don’t stimulate economic growth.  And the U.S., and all countries with huge budget deficits, needs as much economic growth as possible.  For ‘economic growth’ means ‘tax revenue’ growth.  And that’s what they need.  Tax revenue.  Add to that spending cuts and you start making headway in reducing those deficits. 

Meanwhile, Greece has edged closer to default as euro zone officials disagree on a possible second aid package for the indebted country. With strikes and protests around the country, political turmoil has added to uncertainty, stoking fears that the government will not be able to tighten its belt enough to reduce crippling deficits.

“If you make a list of the countries in the world that have the biggest homework in restoring their public finances to a reasonable situation in terms of debt levels, you find four countries: Greece, Ireland, Japan and the United States,” Vinals said.

With strikes and protests over austerity measures to reduce their deficit, it doesn’t look good in Greece.  They’re getting closer and closer to a default on their debt.  And not a technical default as in being late on an interest payment.  But an all out default as in making their bonds worthless.  What’s worse is that the U.S. made it to the short list of nations with the absolute worst public finances.  And that’s before Obamacare adds another trillion dollars or so of federal spending.

You know this didn’t happen overnight.  We knew about the crushing weight of U.S. entitlement spending for decades.  Even Ronald Reagan raised taxes to save these programs.  So it wasn’t a secret.  And for the Obama administration to spend to the tune of a $1.4 trillion deficit was ill advised to say the least.  Unless the plan was to bankrupt the nation.  If that was the plan then kudos to them.  They may actually have something work as planned yet.

Overheating Economies are a Bitch on the Downside

Greece may be beyond saving.  Worse, when she goes under she may drag others with her (see IMF warns of increased risks to the world economy posted 6/17/2011 on the BBC).

Many analysts believe Greece will not be able to pay back all the money it has borrowed.

“I don’t think there is a question over whether Greece is going to default, it is just a question of whether it is an orderly or disorderly one,” says George Magnus, senior economic adviser at UBS.

The IMF warned that if Greece was unable to pay its debts, other countries such as Spain or Portugal may also be affected.

A cascading electrical blackout is a lot like bank failures.  The North American electrical grid is interconnected.  Power plants attach locally but their power can be sent almost anywhere on the grid depending on demand.  Back in the Northeast Blackout of 2003, downed high voltage power lines triggered a sequence of events.  With some power disconnected from the grid, more power flowed from other sources to make up for the loss.  Higher currents caused these lines to sag and eventually they, too, failed.  Other lines then surged with higher currents to make up for the loss supply and then they failed.  As lines failed power plants disconnected from the grid.  Those still attached tried to make up for the lost supply.  Until they exceeded their safe limits and then disconnected from the grid to protect themselves.  And this continued until a large part of Northeast North America lost all electrical power.

Now think of governments as power stations.  Government spending as high currents in power lines.  The economy as the electric grid.  And Greece as the first failure.  Right now the European Union and the European Central Bank are trying to minimize the cascading damage.  Before financial trouble spreads further and stresses other governments.  Causing additional stresses on the European banking system.  But it doesn’t look good.  All that spending has only overheated those ‘power lines’.  But the problem is still attached to the grid.  Greek spending.  Unable to stop their spending (i.e., commit to their austerity plans), that ‘power station’ will fail.  And then the cascading will begin.

Outside Europe, the fund said it expected economic growth in developing countries to remain strong.

This, in turn, presents a risk of overheating – where economies grow too fast leading to a rapid contraction later.

Like in Japan in the 1980s (Japan Inc).  The U.S. in the 1990s (the dot-com bubble).  And the U.S. again in 2007 (the housing bubble and the subprime mortgage crisis).  Overheating economies can be a whole lot of fun on the upside.  But they’re a bitch on the downside.  Not to mention the economic impact on the rest of the world economy.  And it’s the rest of this world economy that’s scaring the IMF.  For it’s these growing economies that are buying what little manufacturing there is in the older established economies.

It’s going to Suck Worse before it gets Better

There’s no relief for the American consumer.  But the stock market is doing well.  In a normal economic recovery this would benefit the consumer.  But this isn’t a normal economic recovery (see U.S. Confidence Out of Sync With Stock Gains by Bob Willis and Alex Tanzi posted 6/17/2011 on Bloomberg).

The Bloomberg Consumer Comfort Index has stalled near its recession average as the Dow Jones Industrial Average has risen 83 percent from a 12-year low in March 2009. A tight correlation between the index and Dow that lasted more than two decades has broken down as joblessness above 9 percent, stagnant wages and near $4-a-gallon gasoline outweigh the benefits of higher share prices, even after a 6.6 percent retreat in the Dow since the end of April.

“Consumers are fairly depressed, yet the stock market continues to improve,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in an interview. “It’s foreign demand that is really pushing corporate profitability. Consumer confidence is pretty constrained by the labor market.”

U.S. manufacturers in particular have profited from faster growth in emerging economies, including Colombia and Indonesia, where expanding middle classes are demanding more roads and utilities, as well as higher-protein foods and more consumer goods. Deere & Co. (DE), the world’s largest farm-equipment maker, raised its fiscal 2011 earnings forecast on May 18 to $2.65 billion from $2.5 billion, citing increased demand for farm and construction machinery outside the U.S, along with growth in America.

If it wasn’t for these emerging economies there would probably be no corporate profitability.  High unemployment, stagnant wages and $4-a-gallon gasoline is leaving the American consumer little disposable cash to stimulate anything.  That’s why they’re depressed.  Because it sucks out there.

U.S. corporations have gotten “a pickup in sales growth, but they’re not responding with a big pickup in wages and labor growth,” said Rob Carnell, chief international economist at ING Bank in London. “This is helping them to keep their margins intact in the backdrop of rising commodity prices…”

The 18-month recession shaved 4.1 percentage points off gross domestic product before ending in June 2009, making it the deepest downturn since the 1930s. Growth has averaged about 2.8 percent since then, enough to restore only 1.8 million of the 8.8 million jobs lost as a result of the slump.

And now inflation is raising commodity prices.  That means corporations, small businesses and consumers all have less disposable cash.  Which means there will be no job creation.  Because there is no new demand they need to hire people to meet.  Which means it’s going to suck worse out there before it gets better.  Which makes it hard to believe that the recession ended in June of 2009.  High unemployment.  Low economic growth.  Stagnant wages.  If it looks like a duck, walks like a duck and quacks like a duck, we’re probably still in a recession.  The worst one since the Great Depression.  And if things continue as they are we may have to call the Great Depression the worst economic downturn before the Great Recession that started in 2007.

Making the easy Difficult

Things are looking bleak for Greece.  And the other three nations that have spending problems as bad as theirs.  Ireland, Japan and the United States.  Boy.  I’d sure hate to be in our shoes.

We know what caused their problems.  Excessive government spending.  So you’d think it’d be easy to fix their problems.  Just stop spending so much.  But when you get people used to that government spending.  And politicians get used to the votes that spending buys, it makes the easy difficult.  So they continue to spend.  Ask for bailouts.  And plead to Congress to raise the debt ceiling so they can spend some more.

The politicians either don’t believe in the magnitude of the problem.  Or they are counting on being dead before they have to pay the piper.  But someone will eventually pay the piper.  And it’s going to hurt.  And the longer we wait to pay the more it’s going to hurt.

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