How Can American Manufacturing Compete?

America has never been a low cost country in terms of wages.  We were very successful in manufacturing though.  How can this be?  There were numerous reasons:

• Americans are very innovative.  More innovations have originated in the USA than probably the rest of the world combined.
• Our free market economy has allowed many, many entrepreneurs to start companies and make excellent profits.  This high return on investment attracted a lot of venture capital and provided significant incentive to the entrepreneurs to take the big risk of starting their businesses.
• There was a time when American products were considered to be of very high quality.  That includes excellent, innovative design and superb manufacturing quality.  In fact, the quality techniques that the Japanese are known for today came from an American, W. Edwards Deming.
• American workers had the highest productivity in the world.  This was possible because of innovative manufacturing techniques.  This included things like specialization, automation, and computers.
• The USA is flush with all types of natural resources.  This includes various minerals and metals.  There is also plenty of fertile land to produce plentiful, low cost foods, trees for paper or lumber, cotton, and more.  Of course, we have plenty of energy -- oil, natural gas, coal, water power.

The low cost of natural resources and energy and the high productivity offset the above average wages.  This allowed our manufacturing to pay higher wages and still compete.  So what happened?

There have been a number of things that I attribute to the MessAPolitico that have led to this problem:

• People that don't work hard in school and don't go to technical school or college get rewarded with minimum wage levels or more likely welfare, earned income tax credits, aid to families with dependent children (AFDC), food stamps, government housing, medicaid, etc.  Why become a productive member of society?  Minimum wage levels dictated by the government essentially make anyone whose skills are worth less than that level unemployable.  They then become permanent wards of the state.  That creates a huge level of government entitlement spending that requires high taxation.  These people are also unproductive.
• The entrepreneurs that brought all the innovations to the American marketplace are roundly vilified by the liberal politicians today.  Even the conservative politicians are afraid to say anything good about these entrepreneurs.  The successful used to be envied, but today they are ridden out of town on a rail.  They're either greedy or don't pay their fair share of taxes or are guilty of some other horrible evil.  They also don't bother to innovate or start businesses anymore.
• The boneheads in our government have decided unilaterally that we shouldn't use our natural resources.  We can't drill for oil here or there or anywhere.  We can't build any new refineries even if we did get the oil out of the ground.  We don't want to use fracking to get natural gas or oil because, well, that might cause some sort of vague ecological problem to drinking water or something (even though fracking has been around for a long time and there has never been any evidence that it causes any such problems).  All this stuff drives the price of energy through the roof, because the supply has been limited.
• The EPA acts like another legislative branch of the government.  They just arbitrarily issue regulations that work like laws.  They force the electric power utilities to shut down certain coal fired power plants based on some arbitrarily determined limits of kW-Hrs/ton of carbon dioxide.  How was this limit determined?  Well a certain number of power plants had to be shut down to drive the price of electricity high enough to make all that alternative energy profitable.  Is this really necessary?  No.  Not unless you're trying to appease a bunch of "tree huggers."  (Why doesn't the opposition take this to the supreme court?  How can an agency like the EPA legally create regulations that amount to laws.  This is unconstitutional!

So we need to end this MessAPolitico today!  The manufacturing segment of our economy is essential to our prosperity.  It will be lost if this MessAPolitico is allowed to go on!

What About Quantitative Easing?

The Federal Reserve has been taking actions in lieu of overtly printing money or issuing bonds.  They have called it quantitative easing.  The various rounds of quantitative easing have been labelled QE I, QE II, QE III . . .   I'm not sure which QE number we're up to now.  It sounds like a new luxury cruise liner to me.  Of course, this cruise liner will eventually carry us all off the edge of the earth.  When the explorers were sailing off into the unknown in the 1400's a lot of people thought they would eventually sail off the edge, but now the people are convinced that this will never happen.  I believe the people are wrong.  With the MessAPolitico that we have going on in Washington these days, we are steaming toward the edge, full speed ahead!

So what is quantitative easing?  Well the fed issues bonds, but they aren't just sold to regular folks or investors.  Instead the fed buys these bonds.  So, how do they buy the bonds, you might ask?  Where do they get the money?  Of course, the money is printed for the purpose of buying those bonds.  Wow.  Is this one of those shell games like the street people try to get you to play on Times Square in New York?  I think it is!  This is nothing but a roundabout way of printing money and using it to pay the bills.

The stock market seems to think that we've turned the corner.  Since last week it has been rising steadily.  If the stock market is right, inflation is on the way.  That is one of the evils that results from overspending by the government and paying for it by printing dollars.  Eventually, the money supply is going to arrive in the economy.  This will happen as orders begin to pick up as consumer confidence grows.  Growing consumer confidence will lead to businesses investing in plants and equipment.  Maybe business will even hire some workers.  The growing demand will drive prices up.

I have no doubt that businesses will see higher costs as a driver for higher prices.  However, when inflation starts to kick in, the fed will undoubtedly take actions to curb the inflation.  One of those levers they will adjust will be increased interest rates.  That will limit economic growth, especially for big ticket items.  With all of this government spending and printing, inflation is likely to rise rapidly.  I fear that this MessAPolitico will lead to stagflation.  When Jimmy Carter was president, we had rapidly rising oil prices that led to high inflation.  The fed responded with very high interest rates to curb the inflation.  The thing that made the situation interesting was the fact that we had a high inflation rate while the economy was not growing--that is the economy was stagnant.  According to economic theory, inflation should come from an economy that is growing too rapidly, but in this case we were in recession.

Does any of this sound familiar?  You bet it does.  We have rapidly rising energy costs because our government is limiting the supply of energy.  They limit oil drilling, oil pipeline building, oil refinery capacity, use of coal to produce electricity, etc. etc.  The energy costs are acting as a governor on the economy.  Every time the economy tries to grow, the price of gasoline rises $1.00/gallon.  That removes enough of the money supply that the economy shrinks back and here we go again.

America, please, please vote for politicians with more than half a brain.  I just don't know how long our country can go on with a MessAPolitico this bad.  We've got to stop overspending.  Paul Ryan is proposing a budget that balances in 10 years.  God love him for trying, but that just isn't soon enough.  It needs to happen now.  If the senate won't go along with a budget that cuts much today, then the house needs to go ahead and propose massive cuts.  Make the senate shoot it down.  Use every opportunity to point out that the democrats don't want to balance the budget or cut spending.  Learn to play politics the way they do--with bare knuckles!

How do we Pull Out of a Death Spiral?

I promised an answer to this burning question with today's post.  Here it is.  We need to immediately do several things.  (Immediately if not sooner.)

First, all limits on drilling for oil need to instantly be eliminated.  The Keystone XL pipeline from Canada to the gulf coast needs to be started now.  Fracking must freaking move ahead full bore.  All of the "tree hugging" crapola must cease and desist and now.  The closing of coal fired power plants is also imminent, and the EPA needs to be reined in to stop this before it happens.

All of this stuff limits the supply of energy.  That drives up the cost and drives down the demand for energy artificially.  The demand is driven down in several destructive ways.  First, manufacturing leaves our country for greener (cheaper) pastures.  Second, fewer workers are driving to work, thus using less fuel.  Third, discretionary travel (a vacation) drops precipitously.  (By the way, does driving manufacturing to Mexico or China make the environment cleaner?  Hmmmmm???)

Getting the supply of energy up rather than down will definitely drive the price down.  That will offset a lot of other higher costs of manufacturing in the USA.  That will stem the tide of movement offshore, and I believe it will bring some manufacturing back.  We just absolutely can't roll over and accept the loss of manufacturing jobs.

There are other costs of manufacturing that must be reduced as well.  Get rid of all those new regulations that the Obama administration has put in place.  Those tie the hands of business.  The Dodd-Frank legislation limits the lending operations of banks, and that reduces the money supply that could bring real estate prices back and help generate demand for big ticket items like cars.  It would be a huge oversight to not mention that our employers are paying a lot more today to provide insurance that meets the requirements of Obamacare.  Of course, we also pay more for medical care ourselves for the same reason.  Please, please, please, get this government out of the way.  Get it out of our individual way and out of the way of business.  Stop trying to protect us.  Stop trying to help us.  We wouldn't need any help if it wasn't for the government help.

The minimum wage must be eliminated immediately.  All it does is make people whose work is worth less than the current minimum wage level unemployable.  Let's start to phase out welfare and food stamps and other forms of government assistance.  That will force the unemployed to go find a job, and with lower wage levels, unskilled jobs will be available for these people again.

Revive the old Cut, Cap, and Balance bill that was proposed a while ago.  We need to instantly have a balanced budget, and it needs to be balanced by cutting spending only.  Whole parts of the government need to be instantly eliminated.  The growth in government revenues must come from economic growth, not tax rate increases.  Tax rate increases don't generate new revenue.  If you believe the tax rate increase on rich people or anyone will raise tax revenues, then you are believing a huge myth.

I believe that just balancing the budget is not enough.  We may never even get to that point, but I don't think that our goal should limit us to this incomplete outcome.  Our government must do what we do at home.  We don't take out a mortgage on a home, but never even pay it down a bit.  We pay it off.  The government needs to take the growth that happens, whenever it finally happens, and use the revenue growth to rapidly pay down the debt.  Let's cut the crapola, and there's a bunch of it in the government.  If you cut half of the waste, fraud, and crapola in government, we will run a $750B annual surplus forever.  Do it!  Use it to pay off the debt!  End this MessAPolitico today!

Growing Fears of a Great Depression

Will our economy go into a greater great depression than we had in the 1930's?  I'm not sure.  We've never been closer though.  What does our future hold if we continue down the path set by the liberals running our government?

There are definitely several things pulling our economy in different directions.  Generally those directions aren't good directions.  This has left the economy stalled out, with no hiring and virtually no growth.

I've heard Bob Beckel on Fox News say that he doesn't see any problem with the big deficits.  He is apparently a faithful follower of John Maynard Keynes.  Liberals like Mr. Beckel believe that government spending not only leads to economic growth and jobs, but apparently it is the only source of these desirable outcomes.  The problem is that they are woefully mistaken.

Excessive government spending in excess of revenues requires one of two things:  either the government must borrow money by issuing bonds or they must print money in the treasury.  It is widely believed that printing money will devalue the currency and lead to inflation.  I personally believe that it does create inflation by increasing the money supply and thus increasing demand.  Issuing more and more bonds consumes investment dollars that could be placed in banks or used to purchase stocks and other investments, including starting businesses.

The only way investors can be enticed into investing more and more in bonds is to offer better returns.  If the stock market is flat or moving down, bonds might look pretty good with relatively low interest rates.  The interest expense in the federal budget is consequently low with low interest rates.  However, when the economy and the stock market do begin to take off, returns in investments that compete with government backed securities start to look pretty good.  That forces new bonds to be issued at increasingly higher interest rates.  Today, bond interest rates are historically low, around 1%.  If the interest rates just rose to the normal range, the cost of bond interest would triple or more.  In FY2012, the interest on the national debt was $360B.  That's not chicken feed, but if the interest rates were to triple, we would be spending over $1 trillion here.  If the interest rates rise to high levels to develop the needed demand for riskier bonds, then the annual cost of the debt could rise to $2 trillion or more.

If the interest rates for bonds rise up and successfully take money from other investment options, then those options don't have the capital needed to keep operating or to start new businesses.  If the businesses are started, they must make more earnings to get a return on investment that is commensurate with the level of risk incurred.  Yet the amount of profits is tougher to achieve because the cost of borrowing money is higher.  When consumers go out to buy big ticket items like homes and cars and boats and motor homes, the cost of borrowing will drive the costs of those items up and reduce the demand.  That tends to slow down the economy, put a lid on hiring, and hold the stock market back.

If the economy is slow, unemployment is high, profits are low, sales commissions are low, dividend are non-existent, capital gains are non-existent, etc., then the government collects fewer tax dollars.  They also have to pay out more for unemployment, welfare, food stamps, etc. at the same time.  This is the description of a death spiral.  Another description might be a serious MessAPolitico.  Why can't the American voter see this coming?

I believe that inflation will eventually happen.  Eventually will arrive as soon as the economy finally, really gets out of this recession.  No, I don't believe the recession ever ended.  We haven't had much growth in the GDP, but by definition, a recession ends when any growth occurs for a certain number of consecutive quarters (I can't remember how many).  The thing to remember is that oil prices have doubled over the past four years.  Has the economy as a whole grown that much in four years?  No, not even close.  I believe that the energy sector has grown more than the economy as whole, therefore most, if not all, other sectors have contracted.  The growth in energy has not been caused by growing demand either.  That growth has been caused by the "bone heads" running our government limiting the supply of energy.  With the limited supply, every time the economy tries to take off, the cost of energy rises, and that sucks the life out of the economy.

How will we ever get out of this MessAPolitico?  It can be done.  Come back for my next post on Monday to find some answers.

President Obama's Biggest Fear

Over the past couple of weeks, President Obama and all of the Democrats have been telling us that the world would end because of the sequester.  The Republicans in the House supposedly gave us this terrible thing that was forcing the government to shut down all of the things that make America work.  The teachers were going to lose their jobs, and your kids would be left ignorant, even though teachers work for county and city schools.  The criminals would run amuck, because all the police would be laid off. Your house would burn down with no firemen to put out the fire, and if you were hurt in the fire, there would be no ambulance service to take you to the hospital.  Of course, police, fire, and public safety personnel are all employed by local governments.  Janet Napolitano told everyone that the TSA lines at the airport would increase drastically, and after the sequester went into effect, she said that wait times in TSA lines in Atlanta, Chicago, and LA were 150% longer than normal.  It turns out that officials at these three airports denied that anything had changed with the TSA lines this week; they said everything was flowing normally.

The Democrats had planned to use the media to scare America and blame the Republicans, hoping that John Boehner and the House would back down.  The plan was to put the Republicans under mounting pressure until they caved and eliminated the cuts.  Maybe they could even get another tax increase on the evil rich people.  None of that worked, Boehner held his ground, and the media didn't totally fall in line perpetuating the lie.

The president's biggest fear is coming true.  The American people woke up, and the sun came up just like always.  The electricity is still on.  In fact, they can't even see the difference.  Wow!  Maybe we can stand more cuts.  In fact, we all need to balance our budgets at home, and the government needs to do the same.

This little tax cut wasn't enough to amount to a hill of beans.  In fact, outside of Washington, DC this wouldn't have even been a cut at all.  Government spending will actually rise this year with the "sequester cuts" in place.  Now America has seen the man behind the curtain.  The wizard is just a regular guy that has pulled the wool over so many eyes.  Will the America that woke up stay awake?  Will we demand meaningful cuts in the hundreds of billions of dollars?  I hope so.  Otherwise, the MessAPolitico will just continue to roll along until America will be just a bedtime story -- a fairy tale -- that we can tell our grandchildren about several years from now.

Where's the Integrity?

In the past year, I've had more correspondence with my Representatives and Senators and Speaker John Boehner than in the rest of my life combined.  Americans need to complain to these elected officials instead of their friends and family.  How else will these folks know what's on our minds?  I also subscribe to their newsletters to keep abreast of what's happening in government.  I don't want anyone to accuse me of being an uninformed voter.

Since the election this past November, I've gone from despair to frustration to fear.  That's fear of losing our country.  America has had the greatest system of government ever in the recorded history of the world.  That all came from our constitution that was created by true government servants.  They were rich, important people in this fledgling young nation, but they didn't write the constitution for personal gain.  The first politicians did that job not as their chosen vocation, but as a side job.  They did it as a service to all citizens of America -- young and old, rich and poor, workers and business owners, etc.  These were men of integrity that wouldn't have thought of using public office to steal from the unfortunate and feather their own nest.

The politicians of today are a much different breed.  They go to college and study political science and often go on to study law as well.  The goal is to make a career out of politics.  Success is measured by election results and by how far up the political ladder they can climb.  Getting elected or re-elected is job one.  They will support any bill or policy that can be made to play well in the press (and that's not an unbiased press).  The good of the country or, more specifically, the general citizenry of America is not of prime importance.  In fact, the actions I've seen indicate that many politicians would send America down the proverbial tubes if it would get them votes and a win.

There is a serious MessAPolitico in this country, and this is the root cause.  Our politicians lack integrity.  Career politicians need to go!

Frustration

I haven't made any posts for a long time.  Why?  I have been totally frustrated with our MessAPolitico.  I wasn't happy with the results of the big debt ceiling debate in August.  I've got to get started again though.  The congress still couldn't pass a balanced budget amendment.  This is simply the typical gridlock in Washington.  The majority of Americans want a balanced budget.  We, the people, understand that we must live within our means.  That goes for our home spending, and it should also go for our government spending.

There are still things in these balanced budget bills that make them unpalatable to conservatives.  In particular, if this bill simply says the budget must be balanced without placing limits on spending, then the government may be forced to raise tax rates if congress passes heavy spending bills.  The people want the balanced budget amendment to limit spending, not force taxes to go up.  That was the beauty of the "Cut, Cap, and Balance" bill that the senate refused to even bring up for a vote.  Harry Reid, Barack Obama, and the democrats are playing personal politics with our country's future.  This bill would have limited spending based on revenues.  What's not to like about this bill?

I have also been really frustrated because this blog has no followers.  Over the past couple of months, I have been reading up on search engine optimization and blogging.  I will be trying some things to get this blog noticed shortly.