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Thursday, October 10, 2013 3:14 PM

Ten "Real" Problems With the US Economy; A Behind the Scene Look at Auto Manufacturing

Mish Moved to MishTalk.Com Click to Visit.

Here is a fascinating look at auto manufacturing at Tesla. Reflections on "Real Problems" follow. I will tie the two seemingly unrelated ideas together.

Link if video does not play: How the Tesla Model S is Made

"The Real Problem"

Please take that video into consideration when considering a rant from Paul Craig Roberts called The Real Crisis Is Not The Government Shutdown

Roberts claims the "The real crisis is that jobs offshoring by US corporations has permanently lowered US tax revenues by shifting what would have been consumer income, US GDP, and tax base to China, India, and other countries where wages and the cost of living are relatively low. On the spending side, twelve years of wars have inflated annual expenditures. The consequence is a wide deficit gap between revenues and expenditures."

I will grant him that war-mongering is a huge problem. As for the loss of manufacturing jobs, I would point out that even China is losing them - to automation.

More importantly Roberts fails to understand the relationship between Fed policy and Nixon closing the gold window for the initial outsourcing. Roberts also fails to understand that unions wrecked GM and that GM is on the rebound because of wage reductions made in GM's bankruptcy.

Gold and the Trade Deficit

For an explanation as to how gold is related to the trade deficit, please see Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited
 Roberts continues with his mostly-nonsensical rant:

The real crisis is the absence of intelligence among economists and policymakers who told us for 20 years not to worry about the offshoring of US jobs, because we were going to have a “New Economy” with better jobs.

As I report each month, not a single one of these “New Economy” jobs has appeared in the payroll jobs statistics or in the Labor Department’s projections of future jobs. Economists and policymakers simply gave away a good chunk of the US economy in order to enhance corporate profits. One result has been to create in the US the worst distribution of income of all developed countries and of many undeveloped ones.

In the scheme of things, the enhanced profits are a short-run thing, because by halting the growth in consumer income, jobs offshoring has destroyed the US consumer market.
Disability Fraud and the Demand for Goods

The demand for consumer goods is surprisingly high. And I believe that's a bad thing. People ought to be more concerned about retirement, and less concerned about the latest toy or gadget, than they are.

Rampant fraud in collecting disability checks and welfare just may explain the lack of concern, or at least a healthy chunk of it.

I have been talking about disability fraud for five years, but mainstream media is just now investigating: Mainstream Media Finally Catches on to Disability Fraud: 60 Minutes Reports on "Disability USA"

The "real" problem is not offshoring, NAFTA, or declining real wages as Roberts suggests. Those are symptoms of problems not the "real problem". However, I can easily name many real problems.

Ten Real Problems

  1. Fractional Reserve Lending
  2. The Fed
  3. Lack of a gold standard
  4. Deficit Spending
  5. Public unions
  6. Davis Bacon and prevailing wage laws drive up costs
  7. Disability fraud
  8. Warmongering
  9. Politicians get into bed with corporations, unions, and crony constituents
  10. Lack of incentives to hold down costs on medicare, food stamps, and entitlements

If you fix the first four or five, most of the rest of the problems will be fixed automatically.

Wage Inequality and Declining Real Wages

The primary reason for wage inequity is the Fed's inflationary boom-bust practices. In addition, public unions and untenable pension obligations drive up costs (and taxes).

As I have stated dozens of times, inflation benefits those with first access to money (the banks and the already wealthy).

Three Key Reads On Who Benefits From Inflation

Ironically, "onshoring" is now the buzzword. Thanks to robotics, some manufacturing has returned to the US (but the jobs didn't, and won't).

When it comes to "real" problems, Roberts really misses the boat.

Mike "Mish" Shedlock

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