Greg Autry

Fighting for space, not over it.

State of the Union – A recipe for disaster

In tonight’s State of the Union address, our Offshorer-in-Chief, announced a plan custom made to destroy jobs. By combining an ill advised increase in the minimum wage with an utterly blind commitment to two additional “free trade” pacts President Obama is creating a perfect storm of structural unemployment.

The inverse relationship between wages and the availability of jobs is one of the most fundamental concepts in economics. – in fact, I taught it just last night at Chapman University. Employer demand labor, like demand for any commodity, obviously goes down when the price goes up. Further, the supply of workers increases with higher wages as non-workers in various categories (stay at home moms for instance, or students) choose to enter the work force to grab the new higher wage.

Consequently, there are very few economists (whose paychecks don’t come from the administration) who would dispute that wage floors kill jobs. Now, in a robust economy the employer’s burden is offset by strong market demand for their products and services. In those good days, liberals have a foot to stand on when they sing the praises of helping the working poor through wage mandates. In the middle, of a deep, dark employment abyss raising the cost of labor in hopes of helping the poor is simply insanity! And make no mistake, despite the President’s hand waving, we are still very much in that abyss.

The real measure of those who can’t find adequate work is at least twice the government’s fantasy unemployment number. Consider the chart below from the folks at Shadow Government Statistics who have added back in the long-term and short-term discouraged workers that the government wants to bury as well as those who are stuck in part time jobs but want full time. OMG! Not only is that blue line above 20%, but unlike the number we get from the job each every month, this very real situation for millions of struggling Americans is getting WORSE.

sgs-emp

Now, I don’t want to see any American trying to raise a family on minimum wage. Those jobs should be going to teenagers, eager to cut their teeth and learn responsibility. But the sad reality is that the victim of the President’s higher minimum wage who get laid off from Joe’s Burgerstand are more likely to be a 30 year-old former assembly worker or a 55 year old factory foreman. These folks shouldn’t have lost their jobs in the first place and the primary cause of their burger flipping nightmare has been a two decade long, bipartisan effort to export America’s manufacturing capacity, technology and capital to China. We’ve lost not just millions of jobs, but more than 2% of our GDP growth every year – just to China.

Trade  is a great thing for consumers and exporters for nations that play it smart and understand the game is hardball. Countries like South Korea and Germany have been able to power right through the Great Recession and even face down a mercantilist China. Even their neighbors in Asia and Europe are feeling the pain of this. Ask Taipei or Rome what they think about the way Seoul and Berlin conduct their business and you will get an earful. We need to emulate that aggressive and successful approach, but we don’t do that. America prances into the world series of trade wearing shorts and swinging a badminton racket at 100mph fastballs. Our goal always seems to be some fuzzy headed idea like engaging our trading partner not beating them fair and square. Frankly, while it sounds good, that is NOT how a free market actual works. Most of the time real capitalism is a brutally competitive arena with actual winners and very real losers. Apple Computer didn’t get where it is today by trying to find a “win/win” with Dell or HP. Steve Jobs was out to kill and the results of that are pitilessly obvious as Dell tries to crawl under a private equity rock in hopes of staying alive. This ruthless process of creative destruction is how the market improves efficiency and increases the standards of living – for the survivors.

So while we do want to expand trade with our friends in Asia and in Europe, the last thing we should be doing is signing up for another naïve American led trade pact full of wishy-washy objectives with the open-ended specifics left to negotiators who already know they are going to be working as “consultants” for our “trading partner” as soon as they roll out of public service.

The worst possible jobs program I could imagine is a higher-minimum wage combined with more “free trade.” On the other hand, to quote my buddy, Peter Navarro, “The best jobs program is trade reform with China.” Do that and you won’t have to worry about the minimum wage.

 

Greg Autry serves as Senior Economist with the American Jobs Alliance, Economist with the Coalition for a Prosperous America and is co-author (with Peter Navarro) of Death by China: Confronting the Dragon – a Global Call to Action. He teaches Macroeconomics at the Argyros School of Business and Economics, Chapman University and blogs regularly at: http://www.gregautry.us/blog  and on the Huffington Post.

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Memo to Apple CEO: Stop trashing the environment for profit

 

 

In another installment of what Nightline missed in their “exclusive” Foxconn City visit we look at the unsavory way the Chinese Communist Party uses environmental abuse as an economic weapon against the West.

We’ve said before, Apple does indeed make insanely great products. This blog is written on a Mac and the video below was edited on one. Taiwanese-managed Foxconn manufacturers them to a standard far above the normal crap we get from communist China. We have a great deal of respect for Apple’s brilliant business strategy and the business acumen of Hon Hai’s (Foxconn) inspirational founder, Terry Guo. That said, all is not well in the Middle Kingdom.

Foxconn and Apple have chosen to operate inside this Orwellian gulag of a nation in order to increase their short term profits. The fact that Apple and Foxconn folks sincerely care about the environment makes it all the worse, because by doing business in communist China they fund, empower and legitimize a system that is inherently evil. Clearly neither of these firms gives a damn about the unemployed and underemployed American workers (and Taiwanese ones) who cannot compete against a country whose brutal rulers secretly advocate environmental abuse while running a big lie propaganda campaign to paint themselves green. While they are far from alone and far from the most culpable Cook and Guo are the visible leaders in the global race to the bottom of environmental standards.

Check this out:

 

httpv://youtu.be/US5OJV5juOo

Or watch the video on our YouTube Channel

 

If you don’t like what you’ve just seen and heard, please forward it to anyone you know at Apple as well as to your US Congressperson and Senator. Do it over and over again until they finally get it. If you own Apple stock (like I do) please send a note to CEO Tim Cook telling him that you’d sleep better at night if you weren’t contributing to the destruction of the Earth and if your neighbors had jobs.

– Greg Autry teaches Macroeconomics at the Merage School of Business, UC Irvine and is co-author with Peter Navarro of “Death by China” and serves as senior economist for the American Jobs Alliance.

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Foxconn and The Fruit of Evil

Apple has been running for cover from harsh criticism of labor conditions at the controversial “Foxconn City” (Hon Hai Precision) assembly plant in Shenzhen, China. Basically all of Apple’s products are made at this giant factory and at another Foxconn facility in Chengdu. Suicides at that facility and reports of underage and over-worked assemblers have driven the California firm to publicize compliance audits and recently announce third party audits. The issue has grown to the point where Nightline is running special report on the subject. All of this misses the point that Apple’s real problem is not Foxconn, Apple’s problem is China.

Foxconn City isn’t quite the “Fear Factory” featured on The Daily Show.
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I’ve been inside, and frankly it is the best factory I have ever seen in China. It’s clean and well organized. The workers are well fed and housed. Their physical working and living conditions are not the Dickensian ones so common in modern China. That said, I don’t doubt there are under-aged workers there or that the staff is pushed into long shifts to meet the punishing demands of American consumers hell bent on getting even more stuff for even less next Black Friday.

However, the “suicide nets” are all too real.
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Every building from dormitory to snack shop to factory is festooned with the ubiquitous webs designed to catch plummeting Foxconn employees. After sitting in the Hon Hai executive conference room and listening to presentations from the corporate responsibility folks and reviewing reports from psychologists on the suicides, I believe these managers were genuinely concerned. Obviously, no firm wants trained workers killing themselves and yet it has happened there with frightening regularity. Why, If this is the nicest factory in China, are those ghoulish nets required?

Well firstly, there is the standard modern Chinese workload: twelve plus hours a day, six or seven days a week, fifty or fifty-one weeks per year. This isn’t some extreme Foxconn or Apple standard, this is normality for China’s workers. If they didn’t like it and organized a labor action or union, the police would beat them into submission. If they publicly protested or editorialized against such treatment they’d be jailed or much worse. That’s not Foxconn or Apple, that’s just how communist China rolls.

Then there are the living arrangements.
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The dorms at Foxconn are a bit crowded, but they are in modern high-rise structures that resemble American apartment complexes — albeit with four to eight men or women jammed into 10ft. x15ft. rooms.

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There are even swimming pools and gyms, though I saw no one in these facilities and they were so pristine it looked as if nobody has much time to. That’s still way sweet by Chinese standards.

So why the suicides?
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The answer that is so elusive for the Foxconn psychologists was starkly obvious to me. These nifty dorms are sex segregated. When I asked the delicate question of “what if a man and women wish to spend sometime together” the immediate response was “That is not allowed!” To put it bluntly, in China an employer can decide that 150,000+ 17 to 25 year olds will not be able to act on their most fundamental natural desires in a situation where marriage is nearly impossible to obtain or maintain. Again, this is not Foxconn or Apple, this is a broken national culture that has replaced Chinese tradition and all human decency with a twisted form of Communism.

This is a system where the “one child” policy denies reproductive rights to more than six hundred million women. It is a system that rips young people away from their families and customary social structures and ships them like chattel to factories thousands of miles away to better serve Beijing’s engine of state capitalism. It is a system that massively pollutes China’s environment in order to steal jobs from American workers and grab market share from American firms. It is a system that funds the largest military build up of a totalitarian regime since the 1930s.

This systemic Chinese problem that cannot be fixed by investigating, auditing, or even opening up Foxconn, or any other Chinese factory. Apple can never be compliant with any objective standard of social responsibility as long as it chooses to be dependent on the politically repressed labor of totalitarian dictatorship. Of course, this wasn’t a problem when Apple both designed and made its wares in California.

– Greg Autry teaches Macroeconomics at the Merage School of Business, UC Irvine and is co-author (with Peter Navarro) of “Death by China” www.gregautry.us and serves as senior economist for the American Jobs Alliance.

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The Time has Come to Haul Obama’s Fox Out of our Jobs Hen House

Hidden amongst the chaos of the debt ceiling / deficit circus, you may have missed a news story trying to sneak by on that ticker at the bottom of your TV screen. This was the announcement that General Electric was quietly moving the headquarters of its 115 year old X-Ray division from Waukesha, Wisconsin to Beijing. Yes, that’s the HQ, not merely some assembly jobs; we’re talking the executives and the whole shebang here! The plan has been in the works for sometime and the press announcement was clearly being held for a moment when it would get the least possible media exposure.

This is another in a long series of kowtows that GE CEO Jeff Immelt has made before the throne of state capitalism as a means of proving that GE is a “friend of China.” That’s the phrase Communist Party apparatchiks use to signal US firms that they will be expected to perform certain acts that cannot be explicitly required by the Chinese government because they would violate WTO rules China has agreed to. However, it is needless to say that those who do not prove to be “friends of China” often find that they have problems with market access.

Just last year GE invested about $2Billion of mostly American capital into authoritarian China despite having disappointing returns. Revenues of $5billion were half of what GE projected for 2010 and down $300million from 2009. Perhaps this is what prompted Mr. Immelt in a rare moment of honesty to warn some Italian Executives that:

I really worry about China . . . I’m not sure that in the end they want any of us to win, or any of us to be successful.
He went on to share his concern that China was “colonizing” many resource rich nations and blasted President Obama with:
Business does not like the US president and the president does not like business.

Tough talk, indeed, but something – we may never know what, but we would love to – inspired Mr. Immelt to do a quick 180 the administration’s pet business guy. In January of this year the GE CEO accepted the President’s invite to a cozy session with Chinese dictator Hu Jintao at the White House – a state visit all the ethical members of congress snubbed. Just a couple of days later he was anointed our nations “Job Czar” or officially “Chairman of the Council on Jobs and Competitiveness” and along came this plan to move an entire GE division to Beijing! You just can’t make this stuff up, because nobody would believe it.

Immelt announced his appointment to the newly named council in a self-congratulatory piece in the Washington Post last January. Among other ironic gems, the king of outsourcing commented:

Persistent and high unemployment – and the pessimism it breeds – should not be accepted.

Tell that to the folks in Waukesha. Yes, GE has promised none of the 120 employees will be laid off when the division closes – that is if they don’t mind sending their kids to a Chinese high school this fall or only seeing them during the Lunar New Year break. It’s a cynical vow from a cynical guy, but even if it were true the ripple effects of tearing out that division will surely contribute to persistent and high unemployment in that municipality of just 70,000. It’s probably not a coincidence that GE recently made a $25,000 donation in support of homeless shelters in the little Wisconsin town where Immelt once lived.

Greg Autry is the co-author of Death by China. He teaches Macro Economics at the Merage School of Business, UC Irvine. He writes and speaks on China, space, economics, investing, and business strategy. He also blogs at The Huffington Post at http://www.huffingtonpost.com/peter-navarro-and-greg-autry

Obama was Wrong, Congress was Wrong and Together they are Still Wrong. Growth and China are our Problem, Stupids!

 

 

I absolutely believe China’s peaceful rise is good for the world, and it’s good for America.

– President Barak Obama

 

Watching America’s leaders wrestle each other over how to cure the nations budget deficit while the specter of default loomed was all the more frightening when one realized that neither the congressional Republicans nor President Obama and the Senate Democrats have a clue as to how we got into this mess, much less how to get us out of it. They have limited their thinking to the disastrous and false choices of cutting spending or raising taxes. Last week’s frighteningly anemic GDP growth figures show that we are for all intents and purposes still mired in the middle of our longest post war recession. Following either party’s path to debt reduction would be economic suicide and there is an obvious third choice.

The Tea Party spending cuts would have been a great idea eight years ago, back when GW Bush and his old school GOP congress were busy digging our fiscal hole.  We fully agree that no nation finds its way to prosperity by growing its government and that we MUST commit to cut long term spending and limit future entitlements by a much greater amount in the future. However, threatening to cut services the middle of a recession, dumping even questionable federal workers into a crowded job market, and possibly paying these workers extended unemployment benefits for a couple of years was unfortunately flirting with disaster.

On the other side, the President’s best idea seems to be aimed at crushing the spirit of America’s entrepreneurs by burdening the successful few who are still holding our economy up with higher taxes. In 2010, the top 5% of income earners paid more than 60% of America’s income taxes and yet Mr. Obama can simply never pass up an opportunity to suggest that America’s wealthy are “not paying their fair share.” What young American is going to risk everything and work long hours in hopes of being labeled a deadbeat and getting taxed right back into poverty?

What is clear is that none of this would be so bad if we weren’t stuck with 1% GDP growth! Why do our leaders fail to see the much more attractive third option of growing America’s economy and hence revenues while holding both spending and taxes in check? If we want to start making money rather than piling up debt, we must start running this country like it was a business. That is what China is doing and they are cleaning our clock.

Let’s ask ourselves what would a savvy CEO, who actually values all his stakeholders do if he found his firm was unprofitable and his corporate overhead unsustainable? Would he slash investment, fire long-term employees, and punish his best performers? No, he’d refocus expenditures on projects that generate income and he’d grow sales. America must grow its way out of fiscal disaster with the same strategy or face chaos.

The first part of this plan – focusing expenditures for ROI – is easy enough: move spending from entitlements to infrastructure projects, scientific research, and education programs focused on engineering and business. Not surprisingly, this is the simple formula that drove America during her 20th century heyday and it is exactly the plan that China (and just about every other successful economy) has been following for years.

The second part of the strategy – growing our national sales – seems to elude almost everybody in American politics, because they’ve forgotten how wealth is created. Let’s make it really simple: Dispensing with a lot of impressive economic voodoo, real national income growth – and hence higher standards of living – comes from two sources:

  1. Adding value to our domestic resources via innovation and manufacturing.
  2. Producing more value in tradable products and services than we consume.

It’s really that simple and before you try to hit me with your dusty old Keynesian or neo-classical econ text please show me the nation that improved its lot by borrowing money to buy foreign goods and fund entitlements.

As to income source A, our returns from innovation are crushed when we do not defend our intellectual property rights from an unscrupulous competitor, namely China; and the main thing preventing us from manufacturing our own innovations at home and selling them to US consumers is that we’ve laid our market bare to the so called “China Price.”

As long as most of our Republican tax rebates go to buy TVs and smart phones made in Shenzhen and our Democratic shovel-ready projects go to buy bridges made in Shanghai, the only economy we are going to stimulate is a Chinese one. Now, there are a lot economists and clever pundits who will obfuscate this very obvious fact with twisted Ricardian puzzles, but ample empirical evidence has rendered the truth painfully clear to anyone with a drop of common sense. In most other sciences, when the model continually fails to describe the reality we observe, we are forced to reject the model and re-evaluate its foundations, not to enshrine it as an unchallengeable gospel.

For income source B the goal is simply to be able to sell abroad what we make at home. Again, the primary thing blocking that is China, with its web of unfair trade practices. We could write an entire book about the many ways China cheats America – actually we did – but just consider this example:

When a firm like General Motors goes to China to make cars for the “enormous” Chinese market the Chinese government forces the US copy into a minority joint partnership with a Chinese – usually state owned – firm. It may say “Buick” on the car and GM on the building but it’s 51% owned and controlled by minions of the Chinese Communist Party. When this factory needs parts, the Chinese government mandates “domestic content” standards that force it to source most of it subcomponents from Chinese firms, cutting the traditional American suppliers out of the running and nurturing a new generation of global competitors.

Further, if the American firm recognizes any profits both, the Chinese government and US tax policy make it difficult to repatriate those profits to the US. Rather, the once proud US firm will find itself pressured into demonstrating that it is a “friend of China” by reinvesting these profits into new R&D centers and factories in China, not Peoria.

In the not to distant future, when GM and its “partner” (read boss) Shanghai Automotive Industry Corporation (上海汽车工业(集团)总公司) export cars to the US they will be subject to about a tiny 2.5% tariff since the US has given China permanent Most Favored Nation (MFN) status. MFN means that we are required to treat products from China’s brutal regime the same as those from civilized nations like Taiwan or Canada. However, since China doesn’t “favor” any foreign barbarian nation, a car made by Americans sold into China gets whacked with a 25% tariff – 10 times as much.

If you haven’t already had enough of that version of “Free Trade” just throw on a 40% price advantage created by China’s blatant currency manipulation, a host of illegal export subsidies and the huge advantage of unenforced environmental, product quality, and labor regulations.

Our trade deficit with China is costing the US nearly $1Billion a day and is close to shaving a full point off our already tepid GDP growth. This deficit is destroying nearly a million new jobs each year, far more (and far better) jobs than even the most optimistic advocates of stimulus spending have claimed to create. Is it any wonder that this former factory for the world is stuck with 10% unemployment and has had to contemplate default? What is amazing is that the word “China” is off the table in almost every discussion of our national economic nightmare. It’s the economic elephant in our national living room, but apparently we’d rather choose between laying-off even more Americans and raising our own taxes before we’d even contemplate threatening the cheating, protectionist thugs in Beijing with a fair tariff.

Peter Navarro is a business professor at the Merage School of Business, UC Irvine. He is a gifted public speaker, a CNBC contributor, and the author of several best selling books on economics and investments,

Greg Autry is the co-author of Death by China. He teaches Macro Economics at the Merage School of Business, UC Irvine. He writes and speaks on China, space, economics, investing, and business strategy.

 

 

Schrödinger’s Mice

Whether a cat is black or white makes no difference. As long as it catches mice, it is a good cat.”

– Deng Xiaopeng

 

Deng’s famous quote has long been used to support the assertion that modern China is really an aspiring capitalist state in socialist clothing. The assumption of course, has been that the nature of the mice catching in question is to capture a higher standard of living to China’s people.

China’s Western apologists routinely paint us a rosy picture of a nation maintaining its communist name and symbolism merely to save historical face, but inevitably progressing toward our model of liberal, capitalist democracy.  If we just continue our clever policy of “engagement” China will turn out like a nice, big Sweden.

However, Deng’s clarifying statements such as “socialism is not poverty” don’t spell democracy or capitalism just competitiveness and Hu’s and Jiabao’s continued talk of “stability” and “socialism” do not naturally lead to any assumption of real economic or political reform in the Western style. So, more honest Westerners are happy to admit that the Dragon is actually a militant, totalitarian regime with a command economy while openly admiring its power to deliver the goods in a tough global economy. These folks will even question the value and future of democracy; much like Herr Hitler’s American and British fan-boys from the 30s.

Routine visitors to the carefully groomed “China for Foreigners” branded theme parks that they think are actually Shanghai and Beijing get interact with a tiny subset of the population – tour guides and successful business people eager to please the Yángguǐzi – and they come back supporting this vision of progress. They will tell you: “It’s a great place”, “I had these wonderful meals,” “Everybody is so nice,” and “The economy is so dynamic.” All true enough – within their very limited context.

Heck, I love those sumptuous free meals with the big Lazy Susan too, but I also know that much of China is still pushing a plow behind the ass end of an Ox and sleeping in a mud brick hut, artist and peace advocates are being tortured in jail, and the police bug my phone and read my emails.

The broad, empirical evidence is clear: the actions of Deng in crushing political reformers (both within and outside of government) in 1989 and the heavy hands of those that have followed him leave no doubt about the real nature of his cat in the box. The continued domination of the Chinese economy by State Owned Enterprises (about half of GDP and assets) and the absolute control of all the most critical business sectors (resources, finance, heavy industry, technology) by the government do not offer a story of progress; unless, of course the goal of that progress is the destruction of jobs in America and Europe.

The whole matter of trying to figure out exactly what Deng’s cat is supposed to do – exterminate the capitalist mice with their own weapon or feed the Chinese masses – reminds me of physicists Karl Schrödinger’s famous thought experiment with a cat locked inside a box. The state of any given particle – or cat – that can’t be observed is merely a statistical probability until the box is opened and the truth comes out. The difference in this case is that the viewers outside the box, rather than the cat, that may end up dead based on a process they can’t observe.

Inside China’s opaque box of government we must assume somebody has a plan – not the publicly paraded five year variety with its lofty political statements and lists of lofty goals and technical minutia – but an actual national strategy. Are they striving to join the community of free nations or simply exploiting them? Outside the box, we are give the choice of inferring what is really going on via the statements of those who fear free speech or by observing their actions. With those two things in conflict, any rational person would conclude that capitalist mice should be very shy around Mr. Deng’s cat. To do otherwise would be to be as trusting as the students packed into Tiananmen Square on June 3, 1989.

–       Greg Autry teaches Macroeconomics at the Merage School of Business, UC Irvine and is co-author (with Peter Navarro) of the new book “Death by China” www.gregautry.us