Archive for the 'How Did We Get Here? The Loss of Clothing Manufacturing' Category

23
Jun
14

How Did We Get To Here Part IV: Years 2014 – 2034

The long awaited fourth part of “How Did We Get to Here” (about the downfall of the U.S. economy)  is now completed. The last edition was published in 2013 (for the years 1980- 2013), but there has been a lot of time that has passed since then. First, we will take a brief look from the strong economic times of 1950 to the the downfall of the U.S. economy after 1980, with 2010 (as the midpoint) up to the present year, 2034. And then we will look at a couple of the factors that have caused this downfall.

 

History

The United States was once the most powerful country in the world in many ways, but that was 50-80 years ago. Multiple changes have occurred since then. We will cover some of the more important causes of what happened in a little bit.

U.S. Manufacturing Overview

First, we will do a quick look at U.S. manufacturing in categories such as their position in their world, the number of manufacturing jobs, the percentage of jobs to the rest of the workplace and how it met our domestic needs in respect to the years: 1952, 1980, 2010 and 2034. Obviously, overall manufacturing has greatly diminished. Manufacturing of clothing was 2% in 2012, now it is only a novelty or a hobby (percentage-wise, probably, 0.0001%).

Year                                      1952                    1980            2010              2034

# in economy/world            1                            1                     1                       3

# in manufact/world            1                            1                     1(tie)              13

# manufact jobs in U.S.      16.5M                  19.5M           11.5M                  3.2M

% US manufacturing of

total needs                        95%                      60%                5%                 <0.1%

% US manufacturing as part

of total U.S.economy          53%                       20%             11.5%              2.5%

U.S. manufacturing jobs from 1980 - 2034

U.S. manufacturing jobs from 1980 – 2034

The Decline of U.S. Manufacturing (Causes)

Manufacturing and exporting has been the backbone of strong economies for many centuries. However, starting in 1980, a new economic movement started in the United States, Europe and Japan, but not in China. The theory that was followed has been called “Supply-Side Theory”, a form of extreme Free-Trade policy, which insinuated that any regulation was bad. And any tax was also bad. Therefore, the United States ultimately abolished all import taxes. This caused a major problem that wasn’t discovered until much later – that American workers had to directly compete with 4 billion other global workers – it is a “flat world” after all. This caused a major disappearance (outsourcing) of American manufacturing jobs to the point that almost nothing is made in America today except some military weapons. But, the loss of manufacturing also created not only chronically high unemployment and an unstable economy but it created a high dependency on imports. This caused massively high Trade Deficits (no exports, high amount of imports, lots of borrowed money) . After ignoring the ever increasing massive Trade Deficits for many years, the U.S., in 2025, under President Tad Romney, declared that debts caused by Trade Deficits were not legally recoverable (part of the Balanced Budget Act), which eventually escalated into major financial depressions all over the world. Then, the austerity cuts  made things much worse and government was constantly kept out of any recovery plan. This was exactly the Herbert Hoover plan, only this occurred in the 21st Century. But, did attention to Trade Deficits bring back manufacturing by increasing exports? No. The Depression further decreased manufacturing jobs and even as the U.S. economy has slightly improved over the past two years, there was never any push to increase American manufacturing. Present situation as of June 15, 2034: terrible economy, manufacturing sector dead.

National Economies

Below is a list of the top countries as far as their economies (GDP). We will look at the countries with the top three economies: China, India and the USA.

Top Economies of 2034

  1. China
  2. India
  3. U.S.A.
  4. Japan
  5. Germany
  6. Brazil
  7. United Kingdom
  8. France
  9. Indonesia
  10. U.S.S.R.

China

China has been the leading manufacturer in the world since 2012, and has been the number one economy since 2019. The Chinese economy continues to grow with rare setbacks due to shrewd governmental interventions with industry. Growth rate from 2030-2034 is stable at 6-7%, down from the double digit growth of the 2010’s and down from 8-9% of the 2020’s. But still impressive in this age of oversupply (less world-wide demand of products, [however, supply-side advocates still do not acknowledge this fact of worldwide overproduction]). Shanghai is the leading financial center for the past ten years. Other countries follow the news from China closely as they are, pardon the old fashioned term, “the movers and the shakers”. China carries the most political clout in the United Nations with an ever increasing number of allies (aligning with the #1 economy of the world is pretty easy actually). Allies include India, Russia, Southeast Asia, the Middle East, most African Nations, about a half of the South American nations and about a third of the European nations since the dissolution of the European Union in 2021.

India

After many miscues in the 2010’s, India came into its own in the 2020’s with government becoming more involved and totalitarian in regards to industrial policy. Growth had been in the double digits for several years, but has slowed to 6-7% for the past eight years. India has surpassed China as being the most populated country just two years ago, 2032. Pollution and income inequality continue to be major problems.

United States

The United States has slipped to number 3 in regards to national economies. Automation continues unabated. Drones check forest fires, there are very few human forest rangers. Automation is now the standard at fast-food and regular sit-down restaurants. The  “Mega- Merger” movement continues to expand. There are four major banks. There are five major insurance carriers. There are three major airline carriers.There are three companies that control multi-media communications. Free Internet is as dead as the horse drawn carriage. Income inequality continues to grow unabated. Geographic differences continue to expand, for example, minimum wage in Washington, D.C. is $20.35, Austin, Texas is $7.25, and in some states, minimum wage has been repealed. Chinese-made automobiles flood the market, since 2026.  3-D printing is extremely big, but most of the raw materials come from China. Miami has had to make major renovations for its ever rising water level. Gay marriage is legal in 40 states. Here is one interesting story: the New Balance factory in Massachusetts was put out of business by its own subsidiary. In a major power play, Yue Yuen, in the fall of 2022, had been over-producing New Balance shoes secretly for six months, when it suddenly announced that they were going to be the sole maker of New Balance shoes, enforcing contracts with all the major shoe chains to buy only from them and then selling the shoes at a reduced rate, so that the U.S. shoe manufacturer could not survive. There were threats to sue, but these were quietly dissuaded by prominent members of Congress. Mandarin is taught in most schools, and many Americans travel to China to get jobs. The economy forecast of 2035 and beyond, (like my prediction back in 2013)  is bleak, only worse.

Conclusion

The United States once the most powerful nation has continued to slip, still clinging to Free Market Thinking, even after 50 years of results that show it doesn’t work, but reason and facts never get processed when it’s political. The U.S. has no economic plan, it has entirely abandoned manufacturing, and is awash in a mountain of debt. It is impossible to find anything made in the USA anymore. This blog which once was a portal to find “Made in USA” clothing in stores and on the internet and an avid backer of American manufacturing has become a blog on how to find American made clothing at Vintage shows and how much these clothing gems are worth. (They are worth a lot). So, hold on to those old “Made in America” garments, see my blog entry on “How to Preserve Your Made in America clothing.”

Long live the American Dream.

 

15
Jul
13

How Did We Get Here? Loss of American manufacturing Part III

Tax the Rich: An animated fairy tale – YouTube. (This animated video is 7 minutes and 30 seconds.) How did we get to Here? Once a manufacturing monster, the USA has a struggling economy with little manufacturing, chronically high unemployment, an ever expanding trade deficit, and a continued outsourcing problem that goes unfettered. The video explains a lot of it: with the drop of trade quotas, the signing of the World Trade Organization Agreement which dropped import taxes to 125 countries which fueled an explosion of outsourcing – the shipping of American jobs to other countries, never to be replaced. The only thing missing from the video are some of the statistics.

1980                                                                        2009

19.5 million manufacturing jobs               11.5 million manufacturing jobs

Loss of 8 million jobs due to outsourcing

5.5 million jobs lost from 2001 to 2009 (- 32%)

1.7 million jobs lost to outsourcing in 2010.

Predicted another 3.4 million private sector jobs may be lost to outsourcing by 2015.

14 million jobs are presently able to be shipped overseas (about 11% of all jobs).

Potential loss of obs – 13.7% in professional services.

Potential loss of jobs – 12.4% in manufacturing.

Currently white collar jobs (service jobs) make up 61% of all U.S. jobs.

(86,006,000 out of 139,877,000 total jobs).

Many service jobs can be outsourced or automated.

This is a result of outsourcing which is a result of the World Trade Organization agreement and NAFTA.

————————————————————–

Top 20% owns 80% of all U.S. wealth in 1980.

Top 20% (earns $68,000 and up) owns 89% of all wealth in 2009.

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94% of all new financial wealth from 1981 to 2008 went to the top 20%.

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Income for the bottom 90% (bottom 90% less than $110,000 per year) has gone down since 1997.

This is the result of trickle down economics and outsourcing.

—————————————————————————————–

1950                                                                                 2012

Corporations pay 26% of all federal taxes.      Corporations pay 9%.

Payroll Taxes make up 11% of federal taxes.  Payroll taxes make up 35%.

Fact: A lower tax rate actually destroys jobs. When tax rates are low, businesses will pull money out of their business and re-invest in other investments or tax shelters. When the tax rates are higher, businesses will re-invest money into the business, which cause an increase in jobs.

This is a result of big corporations fixing the tax code by buying politicians to do their bidding.

References

1. The Status of Resourcing.

2. The decrease of corporate tax payments – Huffington Post

24
Jun
12

Manufacturing state by state, 1971-2011 | What Went Wrong: The Betrayal of The American Dream

Manufacturing state by state, 1971-2011 | What Went Wrong: The Betrayal of The American Dream. This is a great interactive map that shows state by state the adding or losing of jobs by year. Just slide the slide bar to change the year.

The major take home points of the interactive map: From 1970 to 1980, the number of American manufacturing jobs fluctuated from 18 to 21 million jobs depending on economic times (decreased in times of recession, increased in times of growth.) In 1980, outsourcing, under President Reagan, started in earnest, there was a continued decrease, from 20.3  to 16.8 million, in manufacturing jobs. The number of manufacturing jobs stabilized from 1992 to 2000. Then, there was a sharp decrease in manufacturing jobs, (even in times when there wasn’t a recession,) going from 17.4 million in 2000 to 11.5 million ending 2010 (at the end of the recession). Since that time there has been a slight increasing in manufacturing which we hope will continue to increase. We have neglected American manufacturing and buying products made in the USA for the past 30 years, it is time that we no longer stand idly by and watch our country’s economy go down the drain due to short-sighted politics.

18
Nov
11

How Did We Get To Here? The Decline in American Clothing Manufacturing Part II

Mainpoint – In Part II we look at the decline of American manufacturing and clothing manufacturing and the effect of government.

In Part I we looked at what the country and its economics looked like in 1952 compared to today. And we went over the basic measures of the economy by using the Gross Domestic Product (GDP).

In Part II, we will look at some of the factors that have lead to the destruction of American manufacturing in particular clothing manufacturing placing emphasis on government attitude and some of the relaxation of protective measures that have accelerated the process. I will try not to be political, but when talking about economic policies, it often does get into some politics.

The Decline in manufacturing

The United States has been an economic power since the late 1800’s, mainly due to the Industrial Revolution. Manufacturing has been the heart and sole of the US economy up until now. In 1965, manufacturing accounted for 53% of the entire economy. The US manufactured 95% of what it needed. Manufacturing has rapidly decreased since the late 1970’s. In 1988, manufacturing has slipped to 39% of the entire economy. And by 2004, manufacturing accounted for only 9% of the economy. Today (2011), the US manufactures only 5% of what it uses and only 2% of its clothing. We are no longer a manufacturing powerhouse, in fact, manufacturing is on life support. Now, we are a nation of service people. Who has ever heard of an economic powerhouse based solely on service? All economics experts agree that in order to improve our economy we need to increase our exports. So,what are we going to export? Service? I think one answer is certainly not agricultural products but manufactured goods. And to have manufactured goods, you have to have manufacturing industries and jobs, but, yet, I hear no solutions to assist manufacturing in the US. The reason for it, many economics think manufacturing is a lost cause. That is true for most European nations as well except for Germany which so happens to have the strongest economy in Europe. Germany’s manufacturing makes 30% of what it uses, compared to the US of 5%.

The Causes for the Loss of Jobs in Manufacturing

1) Globalization. The loss of manufacturing jobs began in earnest in the 1970’s due to global competition. Other countries started making high quality, lower priced steel and the Steel industry was the first major industry to feel the pinch. This was the first modern day victim of what was to be called globalization. Globalization is the increased mobility of goods, services, labor, technology and capital throughout the world. Several factors have improved mobility: air travel is easier;  communications via phone, internet and conference calls are extremely fast and dependable – facilitating easier opening of businesses and continuation of business ventures; technologies can keep track of inventories, supplies and labor/ cost over-runs. Now the entire world is a competitor for US jobs.

2) Improved efficiency in manufacturing. Even if jobs had not been sent overseas, many jobs would have been lost in manufacturing (as well as service) through improved efficiency. Improved technology, software programs, automation and managerial skills specializing in cutting back labor have caused a loss of 20 – 25% of manufacturing jobs alone.

3) Outsourcing (or Offshore Outsourcing). This is the movement of production/jobs to another country. This movement started in the 1990s and caught fire in the 2000’s. The reasons companies offshore/outsource are the following: 1) Decreased labor costs – most CEO’s say that outsourcing saves about 8 – 10% of total expenditures to make a product (compared to US workers); 2) Decreased benefits to workers such as no Social Security, no Health care, no vacations, no overtime, no pension, no worker safety issues, and no lawsuits regarding worker maltreatment; 3) special corporate tax rates with possible tax deferrals and special restructuring if needed; 4) decreased value of money in outsourced country (especially yuan); 5)no special business licenses or certifications needed; 6) to break unions; 7) less bureaucracy (if you know or pay the right people); 8) tax breaks from the US to move the company overseas; and 9) special stipends from the country your company into such as a Country Club membership, new automobile, new house, or even cash for the company’s Board of Directors (they are called kickbacks in this country, but they are legal in many countries.)

4) Free Trade Agreements. This is an agreement between countries that they will waive any import taxes to each other, such as the North American Trade Agreement (NAFTA) – the trilateral agreement between the United States, Canada and Mexico. One major critic of NAFTA and outsourcing was 1992 Independent Presidential candidate, Ross Perot, who said in a national televised debate,  [it would create]” the giant sucking sound” [of jobs going to Mexico]. NAFTA passed in 1994. Now, Ross Perot has a workforce of more than 7,000 in India. The Central America Free Trade Act (CAFTA) was an agreement between the US, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua passed in 2004. Last month, the US passed  another free trade agreement with South Korea, Panama and Columbia. Free Trade Agreements remove an important disincentive to outsourcing, which makes it very attractive to many companies to outsource.

5) Removal of Import Quotas. All of the above together, but especially this last one has been the death knell for American clothing manufacturing. The World Trade Organization Agreement on Textiles and Clothing as part of the 1995 Uruguay Round Agreements, mandated a phase out of import quotas sanctioned for decades under agreements like the 1974 Multifiber Agreement. This called for a full phase out by 2004. Since 2004, there has been a massive avalanche of slave-labor clothes dumped onto American shores (especially from China) and this has caused a massive loss of American clothing manufacturing factories. Isn’t it strange that you can buy jeans now for less than in 1980? Back in 1980 how much did you have to pay for a gallon of gas? ($ 1. 19 per gallon), For a 1/2 gallon of milk? ($0.85), For a new car? (Average $7,210). And we pay less for clothing than we did in 1980?

Is Globalization Good?

Globalization has been regarded by many economists as a very good thing. The experts say globalization has decreased prices of goods and, therefore, stimulates spending, which is one measure of the Gross Domestic Product (GDP). However, if you look at the formula of the GDP (as clarified Part I: Consumer Spending + Investment + Government Spending + (Exports – Imports) = GDP, then if you spend one dollar on an imported product, you have: + $1.00 for Consumer Spending, and then -$ 1.00 for Import for a resultant $0.00. For the other measures (Measuring the products made, or measuring income), they would also be $0.00. However, if you bought American, the result would for that one dollar would be +$ 1.00 to the economy. If that item was also exported, and was purchased for $1.00, the result would be +$ 2.00. ( I do realize that spending $1.00 on imports is not really $ 0.00 to our economy, but it does not plug into the computations of the GDP.  I agree that selling goods [whether homegrown or imported, but still much better homegrown] does help to employ people and help the economy as does profits to the company [if that company is a tax paying US owned company]).

There has never been an easier time in history to move your company out of the country without any ramifications, even if it means slave labor or child labor is happening in those other countries. If there is a story of a sweatshop say in California, it is a big news story, a real public outrage. But when it happens overseas, we say nothing. One reason nothing is said is because we don’t see it, and it is hushed up. But, on the other hand, if you receive a phone call from a credit card company and that representative on the phone talking to you has an East Indian accent, many times that representative gets an earful. Out of sight, out of mind.

Globalization and the technology have erased the boundaries of countries. The economies have become interdependent, all tied at the hip, for better or worse. It is as the economist, Tom Friedman titled his book “The World Is Flat”. The problem is that the United States will have to “compartmentalize” itself to keep its economy running. Let us imagine the United States and its job creation in the following way: the world is cold and barren, void of jobs, but the United States is a powerful furnace warming up a great area with new jobs and opportunities. Outsourcing is the placing of many ventilation shafts and siphoning the heat from the United States. The problem is that the economy of the United States is not large enough to heat all of Asia, Central America, India, etc. The United States has economically improved certain sections in China and Singapore, but at the expense of its own economy. Plus, we have lost the ability to create the “great fire”, from loss of infrastructure and manufacturing. In addition, the US is competing with the rest of the world for jobs, this creates a tremendous downward pressure on wages. And as the US continues to try to warm up the rest of the world, wages will continue to go down for the middle class forever. And as wages continue to stagnate or decline, the price of real estate should also stagnate in the future.

Historically, America’s wealth grew when profits from manufacturing were re-invested into buildings, machinery and technological changes. But now outsourcing is diverting income, wealth and technology to foreigners. Do you remember the trickle down theory of economics? The theory goes, if you gave more money to the rich people it would trickle down to the middle class and poor (not that there was any evidence that it did). This theory certainly does not work now because the money is invested in other countries like China and that money does not trickle far from there. Maybe if you invest trillions upon trillions for the next 40 years, maybe the Chinese will buy American made products or maybe there will be hordes of Chinese tourists coming to visit the U.S. Maybe it is better to dig a hole in China, put a trunk of money in the hole, bury it, and see if it comes out the other side of the world in the United States.

Government Policies

What may be surprising to some people is how much the Government effects: the economy;  businesses and growth. And conversely, how no government intervention can slow the economy. For example, the past three years except for the bail-outs and a very small stimulus package, the Government really hasn’t done much to invest in the country and growth has been very slow. Government has been getting out of the way while big businesses make big money yet no growth (in the US, but  good growth in Asia). The main problem has been there is no big vision plan on the economy from Government since the 1970s. Another side, that bad government decisions in deregulating and removing of protective barriers instead of growing the economy can actually destroy the economy. The best example is the allowance of the almost complete gutting of the American manufacturing sector and loss of millions of service jobs as well (see above).

Past Administrations

We started this scenario with the Eisenhower administration. Eisenhower’s  great vision for the economy was the creation of the Freeway system. It was an incredible boost not only to the economy but also the country to create a brand new infrastructure that greatly improved commerce. (But, it did destroy the railway systems). It created millions of new jobs in construction, engineering, and transportation. Also, it created many new business opportunities, businesses (restaurants and hotels) along the new freeways, increase of sales of cars and recreation vehicles. This was all due to massive government intervention and investment. For John F. Kennedy it was the “Space Program”. For Lyndon Johnson, it was Urban Renewal and the big push for education. Other strong government investment in the past has been in areas such as: jet airliners; computers; materials handling; mechanization; automation; and the internet. Of course, I forgot to mention that the continued investment in the military and department of defense which never gets cut, no matter what administration is in power.

Examples of economic “Bad” policies from government: Shrinking government investment in education(especially higher education), decreased investment in research and development and infrastructure (except for Defense); passing the Free Trade Agreements such as NAFTA; and the elimination of import quotas.

Protectionism

Many free trade economists are against anything that may hinder free-trade with anybody or any country. Their idolatry of the economics pioneer, Adam Smith, has only grown. In 1776, he wrote “The Wealth of Nations”. He theorized that self interested competition in the world will indirectly promote the good of society (through an invisible hand) and that anything interfering with this makes things worse. The problem is there is no invisible hand. Time and time again, we have proved this. (The Great depression is the best example, non-regulation caused the problem and no intervention for four years by the government extended the Depression). But still, we have many stalwarts and for some reason they are getting louder, obviously never learning from history.” Protectionism” – protecting the country’s self interest through intervention has become a dirty word by too many modern economists. Maybe, we shouldn’t use the term protectionism but “Self-Preservation”. In order to do this, I will use an extreme example that many Adam Smith followers will not like: Suppose you are the lone maker of a commodity, and you are a self-interested entrepreneur. You find that another country will buy all of your products, at twice the price than your home country will pay. So, as a business person, obviously you would sell all of your product to the other country, correct? Now let us say, your commodity was nuclear warheads? As a business person in unfettered capitalism, this should make no difference. It, also, means that if you sold even one of your products to your home country at the lower price, you are practicing “protectionism”. I like to think instead of “protectionism”, we are practicing “self-preservation”. And “self-preservation” has not been practiced here since the 1970s. We are literally selling our manufacturing industries to the other countries, leaving ourselves totally dependent on other countries manufacturing goods for us (as well as continuing to be dependent on our number one import – oil).

Dependency on Imports

The problem with being dependent on imports is as follows, taking a very current example. As we all know, the United States has an on again – off again relationship with mainland (Communist) China for years, both politically and economically. Now, China has become one of our country’s largest loan holders (creditors) and our number one importer of goods – it accounts for 19% of all of the total imported goods into the US (2nd is Canada – 14.5% mainly because we import 70% of our oil from Canada). Let us say sometime in the near future something strains our relationship with China, like a trade war, or China decides to takeover Taiwan, because they believe it is part of China anyway. Then what would happen, us being so dependent on their money and imports?  I would say panic would probably be the normal response. We could offer other countries much more money to make up for the loss of imports from China – which would the most probable response from the Government because it is the easy and lazy thing to do, but it will cause flagrant inflation by doing so. A more pragmatic approach would be to build up our own manufacturing base to the level that it will produce at least 20% of what we need, thereby easing our dependency on imports, so that in time of crisis, we simply increase input from our own factories, avoid inflation, as well as improving the economy.

Criticisms of Increasing Manufacturing

1) “We don’t need manufacturing – our manufacturing numbers declined yet our economy improved.”

The reason our economy improved was a once in a lifetime technological bubble. From 1970-2000, there was the two phases of this technological bubble. The first portion was the invention of the computer, computer chips (Silicon chips), word processors. At that time, we still built things ourselves, creating the new computers, constructing multiple new buildings, manufacturing plants, businesses and creating new jobs. The second phase was later, “The Internet Bubble”. The story of the Internet, if you hadn’t heard goes like this. A member of the Department of Defense, Vinton Cerf invented the “Internet” for the Defense in 1972. (Remember Defense always gets funds for research). The internet is basically data that is sent in packets at first through telephone lines, then radio waves and presently through optic cables. Senator Al Gore met with Cerf in 1986. Gore had just informally asked what Cerf had been doing, and Gore thought that maybe commercialization of the internet might be a good idea. The end result was in 1991, a bill passed called The High Performance Computing and Communication Act of 1991. It is now called the Gore Bill. The government heavily invested money and the rest is history. The problem is that the boom is still going on, and we have been sitting on the sidelines since 2000. We have sold ourselves short. We do not make the computers, the Droids, the Ipads, the Ipods, the e-readers or the video games. We no longer make silicon chips in Silicon Valley anymore. We are in an economic recession while there is a huge boom going on, enjoyed by China, and maybe some of the 1%, but not for the American people. And what do the brilliant economists say will bring us out of this recession ? Their answer – maybe another technological miracle will happen in the future. But look at this advice seriously, let us say, we did discover a great new world changing technology, how long could we hold on to it? I suspect only three years maximum, because we won’t be producing them, the technology will be sent overseas, copied, produced and sold back to us just like today’s cell phones.

2)” Who cares about low skill, low paying jobs anyway?”

These are the thoughts of most economists today –  “That the battle has been lost, let’s move on”. I clearly remember the lecture of John Naisbitt, author of Megatrends in 1982. He correctly predicted that in the near future that America was going to get out of manufacturing and that America was going to become a country of service people, especially in the high tech world and would lead in that manner. But little did he realize that after the manufacturing jobs left, then so did the service jobs, and the highly skilled jobs, and the engineers as well. This was one of the rare cases where the “Slippery Slope” argument was correct – once you lose one, you eventually lose them all. (He was correct about the banks getting bigger and bigger as well as insurance companies getting bigger and bigger, hence the name Megatrends.) So, now, here we are, that is how we got here. Adam Smith’s invisible hand is trying to drown us. Government intervention if placed in an intelligent manner may be quite helpful to get us back on track.

Part III will deal with consumer attitude, corporation practices and possible solutions.

“No fashion has ever been created expressly for the lean purse or for the fat woman: the dressmaker’s ideal is the thin millionaires.” – Katherine Fullerton Gerould

26
Oct
11

How Did We Get To Here? What Happened to the Clothing Manufacturing? Part I

Mainpoint – The economy of the USA has changed for the worse. We will look at some of the root causes- Part I will look at the basic economy – the Gross Domestic Product and Trade Deficits;  Part II will look at loss of American manufacturing and government intervention; Part III will look at consumer attitudes, changes in corporation practices and possible solutions.

How Did We Get From an Economic and Manufacturing Powerhouse to an Ailing Economy, 2% Clothing  Manufacturing and No Plan to Revive The Economy?

Time Capsule

The year was 1952. Former General Dwight D. Eisenhower was President of the United States of America. The country was mostly rural and agricultural-based. There were no freeways. Telephone service hadn’t reached the entire nation yet. There was very little commercial  air travel. Television was the new fad. Nationally, the US was #1 in manufacturing by infinite margins. The U.S. made almost 100% of things that were used in the country. There were no other major importers. All other major manufacturing countries were re-building after World War II. The individual income tax rate was high and extremely progressive: 22% over $4,000; 42% over $10,000; 60% over $20,000, 80% over $60,000; 92% over $250,000. The corporation tax rate was 30% under $25,000; 52% over $25,000.  The unemployment rate was 6%. 34% of workers were in unions. There was only one person working per household. The motto was: a happy worker is a productive worker. There were no CEO’s, only Presidents of corporations. These Presidents made good money but not extremes. The middle class was prospering, there was no class warfare. The reason for this: everybody had survived a difficult 15 years, a decade of Depression and 5 years of WW II, everybody, rich and poor, had to pitch in for the war effort and hundreds of thousands friends and relatives lost their lives, we were a kindred spirit. Employers gave jobs to injured vets, without Federal coaxing, Congress passed the GI Bill to help retrain the vets and  gave low interest mortgage rates for housing. Brotherhood was the flag that was most saluted.

Present Day

The year is 2011. The President is Barack Obama, the nation’s first black President. The country is urban. Only 1% of the population is farmers. The whole nation is connected via satellites and DSL/cable. Global travel is the norm. Because of no overview of the Banking Industry and Wall Street, there has been another crisis which has caused yet another recession (this time quite serious, because the housing market has been hit, and not just due to over-speculation) with an unemployment rate averaging 9% over three years. The United States is # 2 in exporting (depending on who you listen to). We manufacture only 5% of the things we need. Clothing manufacturing is only 2% . The trade deficit with China is $252 Billion (that is per year). The national deficit is $15 Trillion. The individual tax rate is mildly progressive: 10% over $17,000, 35% over $335,000. The corporation tax rate is 35%, but with many loopholes, corporations paying about only 6.6% of total income tax revenues. Many households have two people working. 12% of people are in unions. Class warfare has slowly progressed over 30 years. Money and profits are the flags that most salute. And there is a quiet revolt occurring – Occupy Wall Street.

Money and the GDP

So how did we get to here? We will look at government involvement (in part II) and the economy. But before we get to that, we will have to go into some very basics before we attempt to tackle the GDP (Gross Domestic National Product) and why it is important. Let us start with the most basics of basics, money. Going back to near prehistoric times, people have always valued “pretty stones”. Over time, the “pretty stones” became Gold and Silver. As time passed, gold and silver were pressed into coins. The bigger the coin, the more the worth of the coin. Incidentally, the reason they put ridges on the side of the coins was to protect the coins from people shaving them down. Because coins are heavy, it became rather impractical to haul coins all over, therefore there was the development of paper money. Government banks held on to the “pretty stones” – gold and silver – and issued the paper, promissory notes. At one time, most countries were on the “gold standard” – meaning they held on to reserves of gold – and supposedly printed up and distributed money based only on the reserves of gold they had. At that time, whoever had the largest gold reserves was the richest country.

Local Banks

Meanwhile, local banks, which did not have any gold reserves, have been the distributing point for paper money and coins. They accept deposits for safe keeping, and make money by loaning money at a certain interest rates. What is not common knowledge to most people is that the bank does not physically have enough money to give back to depositors if there is a “bank run” (when everybody wants to take out all their money at the same time).  This is still a possibility today if there is a financial panic. This potential problem has been exacerbated with modern technology, funds are electronically transferred from one account to another all the time. It would just take a very small bank run before the banks would have to close their doors. The Bank Bail-Out of October 2008 was passed so there would not be a run on the banks. So, do you feel less secure about the monetary system? Wait till you get to the GDP! Money and banks (like religion) exist because there is faith. Without faith, there would be no banks and therefore no economy. For a modern example, let us take Japan after their 1980’s real estate collapse, the Japanese lost faith in their banks. Because of this, they did not put their savings in the banks, instead stowing their savings away in large safes at home. They also didn’t purchase much, causing a very prolonged and painful recovery. The safes seemed secure enough until the tsunami in Northern Japan washed many of them out to sea, taking away many of their hard-earned life savings. So, nothing is safe (pun intended). But as long as everybody suffers from the same shared hallucination that banking and the stock market are safe, then they will be.

GDP (Gross Domestic National Product)

The United States has been off the “Gold Standard” for many years. Without gold, how do you measure the wealth of a nation? This is where the GDP (Gross Domestic Product) comes in. It is the measuring stick. Put as simply as possible, the GDP is the total quantity of goods and services produced in a country (in a certain period of time).  The GDP for USA 2011 is approximately $15 Trillion (interestingly, is about the same amount as the current deficit). The GDP is, also, used to determine if the country’s financial health is improving or declining, the GDP is great for this. To demonstrate how bad things were just recently, we can look at the GDP and the Housing/Banking collapse. For the first time since the Great depression, the USA went through an actual shrinking of the GDP for four straight quarters! ( From the third quarter in 2008 to the second quarter in 2009:  July – Sept (Q3) 2008  -3.7%; Oct – Dec (Q4) 2008 -8.9%; Jan – Mar (Q1) 2009 -6.4%; Apr – June (Q2) -0.7%.) In Quarter 2, one can see the effects of the economic stimulus as it started to work. The GDP has been positive since then, but only meekly, since the stimulus has run its course. So, there is growth, but slow and sustained but not fast enough for us impatient Americans.

Mirror, Mirror, Who Is The Wealthiest Nation Of All

To determine who is the wealthiest of  nations – apply the following formula: take the GDP and divide it by the population (GDP per capita) – this will tell you how the U.S.  compares to other countries in the world, which is about # 10. The Scandinavian countries are doing better. So what else do we need to know about the GDP? Actually quite a lot if we want to know how the trade deficit figures into this, which is one of the easiest portions of the GDP that can be changed. I will not go into extreme details of the GDP, but enough so that one can get a handle on things.

Measuring the GDP

The Gross Domestic Product can be calculated in three separate ways. #1 – Measuring the products that are made. This would be the most accurate, but it is the most time-consuming and (correct me if I am wrong) can only be determined yearly. #2 – Measuring of income. The theory behind this is that income will be equal to the value of products. This can be determined only yearly (through Income Tax records). The first two methods certainly are dependent on jobs and to a lesser extent the production of goods. #3 – Measuring of expenditures – the most frequently used. The theory behind this is any money you spend is income to somebody else. For every debit there must be a credit – basic accounting principles. This can be determined each month, which is handy. The number of jobs indirectly affects the GDP by increasing or decreasing consumer spending.

Now let us look at how they determine the GDP in #3. The formula takes into account four factors: Consumer spending (C), Investment (I), Government Spending (G) and Exports vs imports (N for Net, X for Exports) . The formula is: GDP = C + I + G + NX.

Consumer Spending

Consumer spending is far and away the largest driver in the calculation of the GDP. It accounts for 70% of the GDP. So, when the recession hit, people stopped spending and the GDP went down. So, does this mean you have to spend more money to be patriotic and pump up the GDP? The answer is no. The US already spends a higher percentage of their household income than any country in the world. We, actually, should be saving more than we have been. Maybe spending smarter should be the axiom.

Investment

Investment: This is the money that corporations invest on new capital goods such as buildings, factories and equipment. Investment has been down in the past couple of years and there has been a lot of hand-wringing because corporations who have done quite well and have trillions of dollars, usually used for investment, are sitting on them. If they would just invest, then our GDP would go up. Are they unpatriotic for not investing?  No, they have never been patriotic since they became multi-national in the 1980’s, not that they were all that patriotic before that. But, obviously, investing would help our GDP (the measurement of our economic health).

Government Spending

Government Spending: In most countries, the government consumes a large portion of the GDP. In Europe, it is about 50%. In the United States, it is between 35 – 40% of our GDP. Government buys goods and services from taxation and borrowing. As strange as it seems, more government spending increases the GDP and is therefore, good for the economy. Decreasing government spending will slow down economic growth. You would think that decreasing a national deficit by decreasing government spending would help, but in reality, it really hamstrings the economy. Now, let us say that our deficit was more like $150 Trillion and not $15 Trillion, then that indeed would cause trouble, because then the government may have difficulty securing loans and borrowing  money to purchase goods and services. No country in the world is worried that the US won’t pay back its debts, unless it has to do with political shennanigans. To think even more grandly, if the US ever really defaulted, the entire world economy would collapse. China and Europe have Billions if not Trillions tied up in US Bonds as do banks, stock traders, everybody. The world economies are linked at the hip. So, when you hear a politician talk about the US defaulting because of a $15 Trillion deficit, just give them a good laugh for me. Not that we shouldn’t be serious about trimming our deficit, it’s just that $15 Trillion is small potatoes in the large scheme of things.

Net Exports

Net Exports -or more precisely, exports minus imports. Exports have been the driving force of economic growth for decades. At first, it was the US, then it was Japan, and now it is China. When you are exporting more than you are importing, it means economic growth. In 1993 the US had a $1.6 Billion trading surplus ( exports > imports). In 2010, the US had a $9.72 Billion deficit (imports > exports) and remember we have a $262 Billion deficit just from China, which means we have made up the differences on the other countries.

Trade Deficit

A trade surplus is where your exports exceed your imports, which raises your GDP, therefore, you look like a richer country. A trade deficit is where your imports exceed your exports, which decreases your GDP, makes you look poorer, right? Well, kind of. In reality, the importer is purchasing assets. For example let us say you purchased a fighter jet for your military, like the de-commissioned F-22 Raptor for $150 million. Now you have a real asset in your bank, but it shows up as a deficit on your GDP. Now, let us say you buy a bunch of cheap junk that will make it to the landfill in three months, then you have no assets, more trash in your country and a trade deficit. Some free trade economists see this last example as not all that bad either. Their reasoning: Americans spend more money on cheap products and therefore increases the GDP, which partially offsets the trade deficit.

Conclusion to Part I

Now we can see some of the drivers and inhibitors of the economy in general terms. Things that drive the economy or factors that improve the GDP are: increased consumer spending, increased investment, increased government spending (and, of course, jobs) and increase in net exports. In Part II, we will investigate how the government involvement has changed over the years, and how we lost manufacturing jobs. Part III will view, the change in consumer’s attitudes, changes in corporation practices  and possible solutions to all the above.




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