Economy

What Trump Gets Right on Trade

Alan Tonelson: “Mr. Trump’s stance on trade is one of his most popular positions, but many economists and policy makers are skeptical: They say that rapid automation will negate any gains made in bringing manufacturing jobs back, while the tariffs and other policies he has suggested using will ignite disastrous trade wars.”

“The doubters are wrong on both points. American manufacturing’s most advanced sectors remain big employers, and much of their payroll shrinkage stems from predatory competition from high- and low-wage countries, as well as offshoring by American multinationals. And the trade-war alarmists overlook the matchless, yet overwhelmingly neglected, leverage America holds over the global economy.”

The Rise of the Useless Class

TED published an excerpt from Yuval Noah Harari’s new book, Homo Deus: A brief history of tomorrow. In a nutshell: “Historian Yuval Noah Harari makes a bracing prediction: just as mass industrialization created the working class, the AI revolution will create a new unworking class.”

One interesting passage from the book: “Since we do not know how the job market would look in 2030 or 2040, today we have no idea what to teach our kids. Most of what they currently learn at school will probably be irrelevant by the time they are 40. Traditionally, life has been divided into two main parts: a period of learning, followed by a period of working. Very soon this traditional model will become utterly obsolete, and the only way for humans to stay in the game will be to keep learning throughout their lives and to reinvent themselves repeatedly. Many, if not most, humans may be unable to do so.”

The New World Order: China Is Now Germany’s Largest Trading Partner

Quartz: “As China steps into the role of globalization’s biggest supporter—a position vacated by the US since Donald Trump was elected on an ‘America First’ platform—Europe is shifting its focus east. Last year, China unseated the US as Germany’s largest trading partner. An added insult: the US fell to third place, behind France, in the trade rankings with Europe’s largest and most powerful economy.”

Time to Restart That Old Capitalism Death Watch

Justin Fox: “Lots of explanations have been offered for why things have been going so poorly: inadequate regulation, excessive regulation, excessive monetary easing, inadequate fiscal stimulus, inequality, ‘secular stagnation,’ you name it.”

“Wolfgang Streeck has another possibility for you to consider: Maybe capitalism is dying.”

“Streeck is a German sociologist, the emeritus director of the Max Planck Institute for the Study of Societies in Cologne.”

“Streeck writes that the three main symptoms of a crisis of capitalism are slowing economic growth, rising indebtedness, and increasing inequality in the leading capitalist nations. These trends have been in place since the 1970s; the financial crisis of 2008 merely accelerated them.”

Don’t Blame Trade: Low-Skilled Job Losses Will Not Be Solved by Protectionism

Alexander Hitch: “We need to roll TAA into a general job-training program for low-skilled labor. This can be accomplished by including it as part of a larger effort to retrain those in low-skilled labor sectors and struggling regions. Ideally, this program would be expanded into a new social contract for all American workers by providing more focused schooling opportunities and supplementing it with tax-free business incentives in particularly hard-hit geographies. To start, eligibility for benefits can be expanded to include industries affected by global economic trends (automation) that cannot directly prove the loss of jobs to trade, per se.”

“President Trump should tackle the problem of job dislocation broadly – and not focus on trade itself – by building a larger retraining system in sectors where the US possesses a comparative advantage. Yes, determining funding will be key to this effort. But I can think of $21.6 billion ways to begin.”

Trade Grows—Without the U.S.

“…a closer look at just how global trade has been re-aligning suggests that it’s likely to keep growing with or without us – and increasingly, it’s without us. Globalization is alive and well, regardless of whether the trade routes run through the US. And if an ‘America First’ White House does start to retrench and retreat, there’s a good chance the biggest loser will be America itself,” Parag Khanna writes for Politico.

“An example already in the public eye is Obama’s signature international economic effort, the Trans-Pacific Partnership (TPP). With the previous administration unable to push it through Congress and Trump ditching it in one of his first executive orders, most of the other signatories are moving ahead anyway in a ‘TPP minus one’ format. Even more significantly, more than a dozen Asian countries have rekindled their efforts towards advancing an alternative megadeal – the Regional Comprehensive Economic Partnership (RCEP) – which differs from TPP in one crucial way: At the center lies not the US, but our economic arch-rival China.”

How Immigrants Are Helping Detroit’s Recovery

The Economist: “‘We are proud of our Muslim community in Michigan,’ says Rick Snyder, the state’s Republican governor, sitting in his office in the grandiose Cadillac Place, the former headquarters of General Motors. Ever since his first state-of-the-state address in 2011, Mr Snyder has emphasised the importance of welcoming people from across the world to this large midwestern state.”

“Mr. Snyder and Mike Duggan, the mayor of Detroit, are making population growth a gauge of their efforts to revitalise a state that is slowly recovering from a ‘lost decade’ and a city devastated by the largest municipal bankruptcy in American history. Between 2000 and 2010 Michigan lost nearly 800,000 jobs, income per head fell from America’s 17th-highest to 39th, and residents fled. In the same period the population of Detroit, a city built for 2m, plunged to just over 700,000. By the start of the next decade the city’s roads had fallen into disrepair; public schools were among the worst in the country; thousands of households had no running water and tens of thousands of building plots were derelict or vacant.”

“In his most recent state-of-the state address last month, the governor set the goal of reaching 10m state residents again in the next three years. He proudly pointed out that, in the past six years, Michigan had gained 50,000 new people. ‘Immigrants account for all of that population growth,’ explains Steve Tobocman, head of Global Detroit, a non-profit organisation promoting immigration.”

The Next Financial Crisis Might Be in Your Driveway

Bloomberg: “Lured by low interest rates, low gas prices, and a crop of seductive vehicles that are faster, smarter, and more efficient than ever before, American drivers are increasingly riding in style. Don’t be fooled by the curb appeal, though—those swanky machines are heavily leveraged.”

“The country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion. The combination of new car smell and new credit woes stretches from Subarus in Maine to Teslas in San Francisco.”

“Another way to look at: Every licensed driver in the U.S., on average, owes about $6,100 in car payments.”

Here Comes the Next Wave of the U.S. Oil Boom

“U.S. oil companies didn’t merely survive OPEC’s attempt to drown them in low prices. The energy industry is emerging from this dark period of bankruptcies and job cuts much leaner and ready to thrive, even at prices that were once too low,” Matt Egan writes for CNN Money.

OPEC’s decision in November to abandon its strategy of flooding the world with excess supply allowed oil prices to stabilize above $50 a barrel. That bottom in prices has allowed the U.S. shale oil producers that have driven the boom in American oil production over the past decade to once again start pumping more oil. And many have even started to rehire some of the thousands of workers laid off during the downturn.

The Biggest Economic Issue Facing America Is Not Job Creation

Quartz: “The biggest economic issue for the future is closing the skills gap and retraining workers who have been displaced from their old jobs that have been automated. Both the US unemployment rate and the total job openings have been relatively unchanged in the past year. The unemployment rate in January was 4.8%, down only 0.1% from the same time in 2016. The total job openings were 5.5 million in Dec. 2016, up from a mere 100,000 the same time in 2015. We simply don’t have people with the right skills to fill millions of jobs, yet many of them are still underemployed or living in poverty.”

“The problem is that one in every five adults globally has no formal education, which is a total of 682 million people, and jobs that require formal education are the ones expected to grow by nearly 8% in the next seven years.”

The Damaging Impact of the Relentless Pace of Automation

MIT Technology Review: “The White House report points in particular to the current wave of AI, which it describes as having begun around 2010. That’s when advances in machine learning and the increasing availability of big data and enhanced computation power began providing computers with unprecedented capabilities such as the ability to accurately recognize images. The report says greater deployment of AI and automation could boost economic growth by creating new types of jobs and improving efficiency in many businesses. But it also points to the negative effects: job destruction and related increases in income inequality. For now at least, ‘less educated workers are more likely to be replaced by automation than highly educated ones.’ The report notes that so far automation has displaced few higher-skill workers, but it adds: ‘The skills in which humans have maintained a comparative advantage are likely to erode over time as AI and new technologies become more sophisticated.'”

“The problem is that the United States has been particularly bad over the last few decades at helping people who’ve lost out during periods of technological change. Their social, educational, and financial problems have been largely ignored, at least by the federal government. According to the White House report, the U.S. spends around 0.1 percent of its GDP on programs designed to help people deal with changes in the workplace—far less than other developed economies. And this funding has declined over the last 30 years.”

The Next Big Blue-Collar Job Could Be Coding

“The Valley employs only 8 percent of the nation’s coders. All the other millions? They’re more like Devon, a programmer I met who helps maintain a ­security-software service in Portland, Oregon. He isn’t going to get fabulously rich, but his job is stable and rewarding: It’s 40 hours a week, well paid, and intellectually challenging. ‘My dad was a blue-­collar guy,’ he tells me—and in many ways, Devon is too,” Clive Thompson writes for WIRED.

“Politicians routinely bemoan the loss of good blue-collar jobs. Work like that is correctly seen as a pillar of civil middle-class society. And it may yet be again. What if the next big blue-collar job category is already here—and it’s programming? What if we regarded code not as a high-stakes, sexy affair, but the equivalent of skilled work at a Chrysler plant?”