A Satirical Allegory: Politicians are like bugs..

I've learned a lot since being in Texas: Big really is BIG here. If you never thought you were prone to sweat, come here and you will be. Southern hospitality abounds. And the difference between politicians here and elsewhere is the drawl. And because this is a big state, politicians are prolific--as much as its sub-tropical topography is prolific with an array of bugs.

I recently discovered I have a propensity to being totally creeped out by bugs. Politicians are a lot like bugs. They are weird, (and creepy), hide in dark places, and you can't often tell the good ones from the bad.  Let me illustrate my point with a brief (true story) analogy:

The spider , its belly bigger than a half dollar, lost more than half its web thanks to me.

I was in my back yard (yes, in Texas) a couple nights ago when I suddenly walked right through a enormous spider web. Swishing it away and out of my hair and face, I turned around to see an appropriately enormous yellow spider with a huge round belly and white spots on it, furiously trying to repair the damage I just made to its bug collecting domicile.  It and its domain were gone the next morning. So, I assume either the neighborhood Hoot Owl had a midnight snack or it relocated to a more hospitable neighborhood.  I looked up the spider online only to learn that spiders--like politicians can be difficult to find. But I learned that spiders that make circular webs like the one I ran squarely into cause the most heart attacks due to the shock going headlong into encapsulating, gooey web fibers. You think? 



The bug fell to the prickly pear cactus below.
A fate most of us would wish for many politicians.

Fully recovered from the previous night's run-in with a mammoth-sized Texas bug, I was grooming a Star Jasmine today that was taking over a window. It was so aggressive I had to take the screen off to pull the plant from between it and the window. No sooner had I done that when I was looking squarely at another bug. The thing was hanging on the jasmine vine for dear life. We were in a stare-down. Thinking like a constituent, I looked around for something to get rid of it with. 
Next thing I know it is gone. So I carefully pulled the vine from its rooted position around the frame of the window, copiously searching for the big bug in the process. I didn't see it.  A second later, I discovered that it was sneakily hiding itself in plain view, covering nearly all of the back of my hand!

I could hear my neighbor's windows rattle with my scream. The bug fell to the prickly pear cactus below.

Like some politicians, I know these bugs exist; haven't a clue where they are this instant, or whether they are good or bad; and don't know anything more about them than I did before I encountered them...except that I am totally creeped out by some of them.

Armed Forces Day: In honor of a legacy of defending liberty

Armed Forces Day, always the third Saturday in May notes the combined duty and mission of the branches of American military in defending our liberties.  Prior to 1949, each branch of the military was honored on separate days.  But in August of that year, all but one branch agreed to combine their honorary days into one.  The first year of Armed Forces Day, three branches of the military united leagues, the Army, Navy, and Air Force. Today, Armed Forces Day includes those three, plus, the Marine Corp and Coast Guard leagues.

When Harry S. Truman spoke of the first Armed Forces Day, conflagrations smothered the earth.  Most noted, and one of the major impetus for the show of unity and strength of our military were attacks by communist entities. One in particular stuck in America's craw—the Chinese Communist Government seized two buildings American purchased prior to that communist regime and owned outright at the time of confiscation.  Along with Red China, Austria, East Germany, Burmese, Nicaragua, Bolivia, Cuba and the Soviet Union were entangled in expanding communist efforts.  The Armed Forces Day intended to demonstrate the patriotism and unified strength of American military might despite the world's circumstances.

That first year, May 20, 1950, the theme way “Teamed for Defense”.  Each year the combined leagues chose a new theme.  This year, the themes are “Strong and Resilient” and “Prepared to meet any challenge”.  The combined themes suggest a focus and mission different from more than a half century ago.  Enemies were clearly visible then. 

Today, the enemy is transparent, elusive, and evolving.  The combined leagues’ challenge to be “strong and resilient" and, "prepared to meet any challenge” is indeed a daunting task.  Americans of all backgrounds surely must rise to salute a contingency that often does not know what enemy will surface at any given time. They are our country’s first line of defense.  Their vigilance and support of the country at their own peril cannot be ignored lest we lose the right to call ourselves Americans. In fact, they pass on a legacy they did not create. 

The pride and passion to defend the land of liberty came by the sacrifice of those very first defenders, the troops of the Revolutionary Army.   Scraps of clothing—if you can call it that—barely covered their war beaten bodies.  The soles of their feet were their shoes. They had none other.  Most came from impoverished families promised a salary, food, and clothing in exchange for defense of the rebellion.[1]  Most learned loyalty, American compassion, and undying faith in a fledgling country on the trail.  Many died of wounds. Many more died of exposure, starvation, and the darkest of plagues at the time, small pox.  In the end, the army persevered.  

What many including King George, and perhaps even the Colonists themselves, failed to realize is that a hundred fifty years of Salutary Neglect created, promoted, encouraged, and propagated a nation of fierce defenders of liberties. The military exemplifies the tradition, its nurture, and naturally American tendency in us all. It deserves our utmost allegiance and support. 

God bless America and her troops.

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[1] There are numerous accounts of men and women who joined the Revolutionary Army against horrendous odds. The most complete journal of that experience is of Joseph Plumb Martin who recorded every campaign of his engagement from 1775-1783.  Martin, Ordinary Courage. Ed. Martin. Wiley-Blackwell. 2013

Do US Trade Deficits indicate the downfall of US manufacturing, production and economic decline?

Trade Deficits and Trade Mechanisms: The power of Currency

If ever there was a demonstration of the Fallacy of Composition it would be with the way we look at trade. This term, "Fallacy of Composition" is a condition where part of something that is true is mistakenly assumed to be true for the whole of something.  In this case, it is to assume that a trade deficit is indicative of our competitiveness abroad and our economy in general. The way we are assessing the trade deficit leaves the public (and politicians) in fear of being overtaken by other countries.  Outsourcing and manufacturing by American companies to countries where labor is extremely cheap by our standards leaves many feeling threatened by the perception of an inevitable shriveling of our job market while developing nations grow in our stead.  With these concerns in mind, the purpose of this article is to explain the mechanisms of trade at work, including what the public sees but does not understand; and a myriad of things they do not see—indeed, are never shown—that, were they seen and understood, would alleviate unjustified fears of an America with diminishing returns on export investment versus import spending.  Additionally, this article will discuss the health of America’s trade dynamics by looking at the operations of an American global company.

Double vision

Let’s start with what is seen. When we talk publicly of the trade deficit, we are typically shown two totals with which to assess our position in the global market. One is the total of what we spend overseas and the other is the total of what others spend for our goods. The difference  between the two is either a trade surplus--we sell more abroad, or a deficit--we buy more, simplistically speaking. The latest figures for income and outgo of trade were published May 1, 2013.  USA Today reports, “Exports fell 0.9% to $184.3 billion as sales of machinery, autos and farm products declined. Imports fell 2.8% to $223.1 billion, led by a 4.4% drop in foreign petroleum.”  The conclusion made in the article, based upon this small shrinkage in the deficit gap, is that Americans will have more money in their pockets to spend on stuff. [1]  It appears that there is also a general assumption that we are losing money when our imports exceed our exports (deficit).  The article continues,

U.S. exports to Europe are down 8% compared with the same period in 2012, reflecting the impact of a recession in the 17 European Union countries that use the euro.

The European Central Bank announced Thursday that it was cutting its benchmark interest rate to a new record low in an effort to stimulate growth in the 17 countries that use the euro currency. The 27-nation European Union is the USA's largest trading partner.[3]

The conclusions are wrong-headed for several reasons.[2] It would be hasty to jump to conclusions how the European economy has shrunk or why.  But, based upon the last sentence, it is implied, whether by the writer or by the ECB, that the drop in our exports is caused by the European recession. He draws a correlation that while our drop in exports could have an affect, it is not necessarily so. He does not consider that both markets could be changing independently of each other due to internal fluctuations in their respective economies.

To understand: The Balance of Trade is simply a circular flow of currencies. It is separate and different from each country's economics.  Balance of trade is not the comparison between exports and imports (income and outgo of cash--receipts and payments).  Those are not on opposite sides of the balance sheet. They are on the same side of the balance sheet. Together they represent the current of payments for imports and exports.   The other side of the balance sheet is Capital assets, what we and our trade partners get from each other. Capital assets account for our investment in foreign goods, bonds, securities and so forth; and likewise foreign investments in ours.  Herein lays the balance of trade. It follows the algebraic equation, which is the cardinal theory of accounting: What is done to one side must be done to the other because they both exist and their ratio to each other must be maintained.

 If not manufacturing, then what?

In truth, though it is not readily seen, our manufacturing industry has stayed remarkably consistent for over 80 years.[5] What have not stayed consistent are our population and our efficiency in production. Population and production have outpaced creation of—and need for—more manufacturing jobs. Thus, we think we see manufacturing jobs disappearing. It is true that this causes a net decrease in the percentage of manufacturing jobs. But our output has soared since 1959—nearly quadrupling.[6]  Purchasing power derived from productivity, not trade or a deficit, is the measure of economic prowess. In fact, the deficit shows our ability to buy more stuff than anyone else. It also shows our ability to borrow for it. But it does not represent jobs. They are unrelated.  In fact, a trade surplus might indicate others want to borrow our money but it may well signal that our dollar in ratio to foreign currency is undervalued, or that we have lost purchasing power due to domestic unproductivity, or by poor policy.[7]  And while the total number of manufacturing jobs has declined (percentage wise), it does not follow that the total number of jobs has declined respectively. By creative destruction jobs have developed in other sectors beyond manufacturing.

It’s important to understand unseen advantages we have over other countries. We earn more and our cost of living is moderately less than other industrialized nations.[8] We do not see that real income (not nominal income) has dramatically increased since the better part of the last century.  To the question of where our jobs are if not in manufacturing: We actually do create manufacturing jobs. For every one of our jobs, we create four other less skilled but important jobs in manufacturing, which combined equal the income of our one. We mostly outsource those to other nations.[9]

The lack of lesser skilled manufacturing jobs here pushes our working sector to develop higher skills. This creative destruction is sorely overlooked.  Our focus in the production cycle is on invention, creation and service.  Those skill-sets provide us far more income and are actually more productive than the jobs we outsource.  Without even seeing it, we are expanding creative destruction here and abroad. In other words, we are no longer domestic inventors of gadgets but global inventors of products and jobs for others around the world to grow into.

From shoes to autos: 69 is a powerful number.         

In 1996, Viet Nam opened its economy to free market enterprise.  Within a year of five Nike plant openings, tension and consequent scrutiny arose from factories in Ho Chi Minh City, especially. To understand, NIKE,Inc. has mastered the system of outsourcing via subcontractors, meaning that plants are independently owned; and produce Nike products by contract.  When NIKE,Inc. moved into the labor force of Ho Chi Minh City, the minimum wage was $42 monthly. Today it is $112.60. That is unbelievable poverty by our standards. But it is a 300% increase in income in 16 years,[10] more than a 17% increase per annum, and nearly double the hefty national inflation rate.[11]

But Ho Chi Minh became a hotbed of controversy. Expose΄ after expose΄ detailed the atrocities of the factories. Everything from paying below the minimum wage, 12 hour days up to 7 days per week, physical, emotional and sexual abuse, to child labor were incessantly arising from investigations. Still, Phil Knight, President, CEO and Founder of Nike took a hands-off approach to the problems. The root of the problems lay with Vietnamese culture which had been practicing these behaviors as an agrarian (rice) farming society.[12] Western European societies saw the behavior as wholly unacceptable and they demanded Nike do something about it. Nike, by then a hugely successful global entity, ignored the outcry and boycotts.  That is, until its revenues plummeted by 69%.  Sixty-nine is a powerful number: Seeing his corporation in a tailspin got Knight’s attention. He not only changed his philosophy on enforcement of the (until then, mostly ceremonial) Code of Conduct, he created a global mentorship for countries around the world.

The critical point here is that neither foreign manufacturing jobs nor a trade deficit caused the near collapse of Nike. Politics did. Today, NIKE, Inc. owns nearly half the world’s shoe market, plus over 900,000 products—most produced outside the US.  Nike contracts with over 600 plants around the globe, of which more than a third are in Third World counties.[13]  Not seen, however, are the results of their global footprint.

As manufacturing goes, shoe making is on the lower end of production skills, utilizing mostly assembly line tooling. High skill sets for production include invention and manufacturing technology and automation such as electronics and cars.[14]  A few years ago, South Korea thanked Nike for its pivotal role in advancing its labor force skills and asked them leave. As their president put it, the nation had reached its goal of skilled laborers (of shoes) and wanted to advance their workforce skills further.[15]  Because of improved knowledge about how to operate manufacturing the country expanded it placement in the high tech world.

Their skill level has advanced to the point that the 2013 Hyundai Elantra [16] is out-pacing demand by competitors including the perennial favorite, Toyota Corolla. There is no evidence that their advancement has created a burden upon our country. In fact, what can be seen is the positive relationship between rising countries and already developed ones. When emerging markets elevate their standard of living, boosting their purchasing power, it elevates ours as well.[17]  It goes largely unseen that international trade is an asset to our economic success. Nike philanthropy in Third World communities in health, education, sports, and leadership programs for the rising generation, especially, is not indicative of trade and trade deficits as destructive.

Moreover, Nike’s business model includes hands-on training for over 50 countries producing Nike products.  Four expatriates per factory assist in oversight and training to insure proper working conditions. Leadership training held at the global headquarters in Oregon provides classroom instruction. Subcontractors from 47 countries attended the conference in 2012.[18]   NIKE,Inc. has more than 1 million employees in the US and around the globe.

If trade has any impact upon the American economy, it must be seen as a highly profitable one that improves the entire global economy and their societies, despite the inability to understand the bottom line of the double ledger. 

[This article was originally a memo I wrote for a class on ethical economics culminating from research and long standing principles of economics. The class was part of a project under the direction of Dr. Jim Granato, Dir. of the Hobby Center for Public Policy, University of Houston.]

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[1] Crutsinger, Martin, (Associated Press), “U.S. trade deficit falls to $38.8 billion”, USAToday. 2 May 2013. http://www.usatoday.com/story/money/business/2013/05/02/trade-deficit-march/2128791/ There was no date source citation from an economist for the conclusion which the journalist drew. It is apparent from the article that the writer knows to combine a number of economic facts, but it is also clear he doesn’t know what to do with them or what they mean. The scope of this paper is too brief to critically discuss all that he says. However, certain parts of his article will be used illustratively as this report advances.

[2] It is enough to say all the indicators Crutsinger includes have merit in a discussion on economics but he makes no association between them pertinent to the subject of trade deficit. A full discussion of them is beyond the scope of this memorandum.

[3] Crutsinger, Martin. “US Trade Deficit…”, USAToday, 2 May, 2013.

[4] Krugman, Paul, Pop Internationalism. MIT Press, 1998.

[5] Roberts, Russell, “Does the Trade Deficit Destroy American Job?” George Mason University, Nov 2006.

[6] ibid

[7] Krugman, pp42-46

[8] The U.S. ranks 3^rd in the world in purchasing power but less than average on the consumer price plus rent index. ( ̴137:60) http://www.numbeo.com/cost-of-living/rankings_by_country.jsp

[9] Krugman, pp46-52

[10] Wage Indicator, Western Governors University. www.wageindicator.org/main/minimum-wages/vietnam

[11] Runckel & Assoc. ,“Vietnam’s Labor Problems Amidst it High Inflation”. http://www.business-in-asia.co/vietnam_workers.html.

[12] Norberg, Johan. “The Noble Feat of Nike”, The Spectator. June 13, 2003.                

[13] www.Nikeinc.com

[14] Guntrie, Doug, “Building Sustainable and Ethical Supply Chains”, Forbes. Mar. 9, 2012

[15] There are two remaining Nike plants with a total work force of less than 20 in South Korea.

[16] I own one and can attest to the reliability of the car and the demand, having had offers by multiple car dealerships who have asked to purchase my car outright with no strings attached to purchasing or trading it for another. They just need the car. http://cars.findthebest.com/compare/191-399/2011-Toyota-Corolla-5-Speed-Manual-vs-2012-Hyundai-Elantra-GLS; http://www.thecarconnection.com/compare/toyota_corolla_2013_choices; http://www.thecarconnection.com/news/1075169_toyota-corolla-vs-hyundai-elantra-compare-cars; http://www.newcars.com/reviews/toyota-corolla-vs-hyundai-elantra-sedan.html,

[17] Krugman, 52.

[18] www.Nikeinc.com

 

 

 

 

 

 

Fear vs. Knowledge: Which will prevail with sequestering?

          Fear is the nutrient of ignorance; and vise versa. A people who by deliberate negligence or unwitting apathy is starved of knowledgeable to the purpose and mechanisms of their government and society will fall prey to leaders who will feed them a diet of fear in order to fulfill their own interests rather than the real needs and concerns of the society.
         It is no wonder that Congresswoman Maxine Waters can publicly say that the sequestration due tomorrow will cause a catastrophic collapse of the Federal government with the loss of 170 MILLION federal employees' jobs.  There are, according to reports only 150 million federal employees throughout the entire United States. Maxine Waters needs to refresh her math skills. 
        However, it does signal a larger, more ominous problem. Maxine Waters constituents are ignorant. Not in a social way, mind you: but they either don't have decent math skills also, they are unaware of the facts, or they cannot read or don't care to read news.  Sure enough, Maxine Waters, who has been a representative in Congress for 20-plus years will be reelected.
        The situation is merely a symptom: Waters is not the problem.  We, the constituents, are.  Our own lack of knowledge is the well-spring for opportunistic leaders who are not only not following their constituents, they vacillate between dangling carrots and threatening poison if we don't follow their "lead". 
        Unfortunately there is no small shortage of such manipulations of the public.  One could argue the Founding Fathers also used fear to warn the people.  There is one difference between the use of fear then and the use of fear now. They lived through the warnings they disseminated. There has been a shift from warning to conjuring. The former based upon experience, the latter upon imagination. While each was intended to move the people to action; the action intended by each was vastly different in purpose.
       Today, we experience fear as a virtual world of literalness based upon the surreal of politicians aiming to fill empty minds with wilting flowers of rhetoric by bad math and bad logic. President Obama is claiming that the sequester will destroy budgets: Children will go off insurance;  severe loss of fire departments and police forces will leave us unprotected; education budgets, including Head Start will end; and a myriad of other vital functions will die with the sequester. But knowledge is king: A quick view of the graph of federal spending versus the sequestered reduction of it kills all fear of a collapsing government. Quite the contrary.
       On the other hand, is there a time when fear is valid and real--based upon knowledge? Certainly, this is the concern of the Founders and the impetus behind the framing of the Constitution with its multiplicity of intertwining checks and balances. I would argue that this is not fear, but repulsion.  Once one has put their hand on a hot burner, fear--the anxiety of the unknown--is replaced with wisdom by experience. Greater than experience are those who learn by that of another so to avoid repeating the offense. Their knowledge brought wisdom.  Thus, while the Founders warned of the ills of an illiterate and ambivalent society, it was not fear but wisdom that they disseminated. The graph above proves the point. It's knowledge does not invoke fear--but action to the gravity of our federal spending. This knowledge should, in the good conscious of every American provoke a sense of duty to speak out about the absurdity of our fiscal direction.  A call to Congressmen, Senators, and the President is in order.  Note-taking on who responds is imperative. Searching for future leaders armed with knowledge--not fear--is the outcome.
       Ezekiel Cullen, a leader of the Texas Republic, a Congressman and Supreme Court Justice in the 19th Century is remembered  and his words memorialized on the exterior facades of multiple buildings at the University of Houston. His convictions are written on one facade saying that a free people is a knowledgeable people. On another, "Intelligence is the only true aristocracy in a government like ours and the improved and educated mind has and will ever triumph over the ignorant uneducated mind."
        Indeed, ignorance feeds fear. But knowledge will continually prevent the captivity of ignorance that poor leaders hope for and great ones dissolve. The Americn public can appease shouts of doom that would have them in fearful nightsweats, by feasting at the banquet of easily acquired knowledge that provides wisdom rather than fear.