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Productivity, the Trade Deficit, and Dark Matter: Part II

? Productivity, the Trade Deficit, and Dark Matter: Part I |


| Do I Deserve A Wedgie? ?

February 22, 2006

Productivity, the Trade Deficit, and Dark Matter: Part II

Michael Mandel

I'm going to continue (finally) my previous post. Most commentators implicitly or explicitly assume that that the trade deficit has risen because the U.S. is consuming too much (call this the "Spendthrift America" view of the world).

I find this to be highly unconvincing. The rise in the trade deficit ($700 billion) has come at the same time that U.S. productivity has soared way above expectations (adding an additional $1.2 trillion to output). As a result, the Spendthrift America view of the world requires an absolutely astounding increase in the U.S. propensity to consume over a very short period of time--almost $2 trillion above expectations. This is very unlikely.

In addition, the real reason why the trade deficit is so large has to do with a shortfall in measured exports, rather than an excess of imports. Consider this: In May 1997, the forecasting firm DRI/MCGraw-Hill (now part of Global Insight) forecast that imports of goods and services in 2005 was going to be $1846 billion. The actual number, $1997 billion, was only 8% higher than forecast. By contrast, exports are 30% lower than forecast.

So here's the real question. If productivity and output has gone up so much more than expected in the U.S., we'd expect the U.S. to be more competitive on global markets, not less. So why have measured exports fallen so far short of expectations?

There are four possible explanations for the exports shortfall:

1. Slow growth in our trading partners.

2. China has become more productive even faster than we have.

3. Exports are undermeasured (the "dark matter" hypothesis).

4. Productivity and growth in the U.S. have been overmeasured (call this the "Deluded America" hypothesis).

I think that many of the commentators on the trade deficit implicitly believe #4. I will continue this line of argument...perhaps not in my next post, but soon.

08:38 AM


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Interesting Michael Mandel posts from Newmark's Door

Michael Mandel at BusinessWeek Online--a journalist with a substantial economics background; about time!--has been posting a bunch of thought-provoking stuff recently. He suggests macroeconomics should address, simultaneously, two startling facts: In m... [Read More]

Tracked on March 6, 2006 05:45 AM

I think #3. Go to any country, and it is American music, consumer brands, and movies that are wallpapered all over the place. All this is dark matter. If anything, American dominance over world mindshare is increasing.

A post citing the BW cover story is here :

Posted by: Kartik at February 27, 2006 02:43 PM

Slow growth in our partners can come from less open markets as well as actual slower growth. They can also come from an overvalued dollar stemming from a preference for dollar savings. Outsourcing corporate tax policy has a lot to do with undermeasurement. Productivity has increased but has output? Not in exports obviously, but perhaps in inflated housing assets?

Posted by: Lord at February 27, 2006 03:06 PM

I would be very careful about relating the trends in trade to the productivity issue.

The difficulties with this approach stem from the point the point that a very large portion of the productivity rebound since 1995 has been in non-traded goods like retail and wholesale trade. Moreover, the tradable goods sectors never experienced as sharp a slowdown in productivity in the 1975-95 low productivity era

as the non-traded goods sectors.

Moreover, if you look within the tradable goods sector you will find that much of the productivity growth is closely related to the relative growth of the newer high tech sectors versus the older more traditional industries.

Posted by: spencer at February 27, 2006 03:34 PM

We can look at this set of charts:

About the 5th graph down he shows the increases in Total American Debt. In 1997 it appears the US held about $26 trillion of total debt, whereas in 2004 it was $40 trillion of total debt. Are you telling me we can't find $1-2 trillion worth of extra consumption in there? 1997 to 2004 was 7 years... $40 trillion minus $26 trillion equals $14 trillion. $14 trillion/7 years = $2 trillion/year increase in debt.

If you examine the next chart down, you will also see that in 1997 household debt was about 78% of income. As of 2004, household debt is 105.6% of income. Where did all that borrowed money go? I highly doubt it was used to send Junior to college, or to send intellectual property to Ireland.

Posted by: Brandon at February 27, 2006 03:59 PM

There is a flaw in the "dark matter" hypothesis: no money is changing hands. Something is worth what someone is willing to pay for it, so the fact that foreigners are not paying is a measurement of worth. I think an alternate expanation is that we are giving our property away.

At any rate, the fact that traditional ways of measuring our economy show that we are on a troubling path is something that should not be ignored. We can wonder at the strength and resiliancy of our economy all we want, while at the same time taking action to reverse some of these dangerous trends. Failure to take action in the face of such serious warning signs is pure foolishness.

Posted by: Cyberike at February 27, 2006 04:06 PM

*** Failure to take action in the face of such serious warning signs is pure foolishness. ***

What action, Cyberike? If I as an American am foolish for not taking some action, what do you propose that I do? And, is it my free choice, or do you want the government to force me to do this something?

And, will your proposed action that I'm to be forced to take, make me better off or worse off?

Posted by: Kevin at February 27, 2006 08:17 PM

So the argument boils down to the observation that we need the 'dark matter'-hypothesis to explain the trade balance, because we cannot explain the unexpected surge in consumption.

What about the weath effect of the rapid increase in house prices? That goes a long way in explaining the consumption increase. I know, it is not a very exciting explanation, esp. compared to the dark matter story, but in my view it is much more convincing.

Posted by: mattew at February 28, 2006 06:23 AM


Last week the Bureau of Labor Statistics re-benchmarked the payroll jobs data back to 2000. Thanks to Charles McMillion of MBG Information Services, I have the adjusted data from January 2001 through January 2006. If you are worried about terrorists, you don’t know what worry is.

Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth. That’s one good reason for controlling immigration. An economy that cannot keep up with population growth should not be boosting population with heavy rates of legal and illegal immigration.

Over the past five years the US economy experienced a net job loss in goods producing activities. The entire job growth was in service-providing activities--primarily credit intermediation, health care and social assistance, waiters, waitresses and bartenders, and state and local government.

US manufacturing lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.

The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is “the envy of the world.” Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.

The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized “new economy” never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by Sarbanes-Oxley, accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.

In five years the US economy only created 70,000 jobs in architecture and engineering, many of which are clerical. Little wonder engineering enrollments are shrinking. There are no jobs for graduates. The talk about engineering shortages is absolute ignorance. There are several hundred thousand American engineers who are unemployed and have been for years. No student wants a degree that is nothing but a ticket to a soup line. Many engineers have written to me that they cannot even get Wal-Mart jobs because their education makes them over-qualified.

Offshore outsourcing and offshore production have left the US awash with unemployment among the highly educated. The low measured rate of unemployment does not include discouraged workers. Labor arbitrage has made the unemployment rate less and less a meaningful indicator. In the past unemployment resulted mainly from turnover in the labor force and recession. Recoveries pulled people back into jobs.

Unemployment benefits were intended to help people over the down time in the cycle when workers were laid off. Today the unemployment is permanent as entire occupations and industries are wiped out by labor arbitrage as corporations replace their American employees with foreign ones.

Economists who look beyond political press releases estimate the US unemployment rate to be between 7% and 8.5%. There are now hundreds of thousands of Americans who will never recover their investment in their university education.

Unless the BLS is falsifying the data or businesses are reporting the opposite of the facts, the US is experiencing a job depression. Most economists refuse to acknowledge the facts, because they endorsed globalization. It was a win-win situation, they said.

They were wrong.

At a time when America desperately needs the voices of educated people as a counterweight to the disinformation that emanates from the Bush administration and its supporters, economists have discredited themselves. This is especially true for “free market economists” who foolishly assumed that international labor arbitrage was an example of free trade that was benefitting Americans. Where is the benefit when employment in US export industries and import-competitive industries is shrinking? After decades of struggle to regain credibility, free market economics is on the verge of another wipeout.

No sane economist can possibly maintain that a deplorable record of merely 1,054,000 net new private sector jobs over five years is an indication of a healthy economy. The total number of private sector jobs created over the five year period is 500,000 jobs less than one year’s legal and illegal immigration! (In a December 2005 Center for Immigration Studies report based on the Census Bureau’s March 2005 Current Population Survey, Steven Camarota writes that there were 7,9 million new immigrants between January 2000 and March 2005.)

The economics profession has failed America. It touts a meaningless number while joblessness soars. Lazy journalists at the New York Times simply rewrite the Bush administration’s press releases.

On February 10 the Commerce Department released a record US trade deficit in goods and services for 2005--$726 billion. The US deficit in Advanced Technology Products reached a new high. Offshore production for home markets and jobs outsourcing has made the US highly dependent on foreign provided goods and services, while simultaneously reducing the export capability of the US economy. It is possible that there might be no exchange rate at which the US can balance its trade.

Polls indicate that the Bush administration is succeeding in whipping up fear and hysteria about Iran. The secretary of defense is promising Americans decades-long war. Is death in battle Bush’s solution to the job depression? Will Asians finance a decades-long war for a bankrupt country?

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at:

Posted by: johnkonop at February 28, 2006 08:50 AM

Matthew--Nope, housing wealth won't do it. From 2001 to the third quarter of 2005, the value of real estate owned by households rose from $12.5 trillion to $19.1 trillion. That's a rise of roughly $7 trillion. By the usual rule of thumb, a $1 increase in wealth produces a 5-7 cent increase in spending. That means the housing boom might be able to explain as much as $500 billion of the additional consumption. That's only a quarter of the problem, though.

Posted by: Mike Mandel at February 28, 2006 08:54 AM

"requires an absolutely astounding increase in the U.S. propensity to consume over a very short period of time--almost $2 trillion above expectations"...are you questioning whether this consumption increase actually took place at all, or only how it was funded?

I would think consumption would be fairly easy to measure, since revenues by business sector are readily available.

Posted by: David Foster at February 28, 2006 11:02 AM

*** The US economy came up more than 7 million jobs short of keeping up with population growth.***

Wow, Paul Craig Rpberts is right! If you look at the BLS stats you see that the job market consist of 143 million employed persons. The unemployment rate is 4.7%. The number unemployed is almost exactly ... 7 million!

So never mind that despite Robert's mouth-foaming doomspeaking, the unemplyment rate has dropped rapidly over the last couple years to an incredibly low number that 10 years ago economists would have thought was so low as to be unsustainable. No forget that.

Because if the economy had done what it "should", and those extra 7 million jobs were created, then there would be a 0% unemployment rate. No one unemployed at all! Derelict alcoholic street bums would be doing your taxes; imprisoned convicts would be designing aircraft. Dead people would not only vote, they'd be winning the elections and serving in congress.

That's where we "should" be right now. According to Paul Craig Roberts. Yeh that makes sense.

Posted by: Kevin at February 28, 2006 12:31 PM

OK, Mike, I see that using the usual rule of thumb the wealth effect of house prices won't do the trick.

But: how reliable is this rule of thumb? I am an economist in Holland, and between 1998 and 2000 we saw a huge increase in consumption in Holland caused by a much higher than usual wealth effect of higher house prices. In one year the total sum of new mortgages exceeded the increase of the value of the total stock of houses. That means: a 1 euro increase in wealth produced more than 1 euro in extra spending! Remember: I am talking about the thrifty Dutch, who used to have an allergy for borrowing.

One of the reasons was of course the unusual low interest rate, combined with a general feeling of optimism and a keen financial industry that was more than willing to invent all kind of new mortgage related products to seduce house-owners.

Could it be that something comparable is happening in the USA?

Posted by: matthew at February 28, 2006 02:30 PM

Kevin, I suspect the 7 million "officially unemployed" is only coincidentally the same as the 7 million number Paul Craig Roberts came up with. Having said that, I think, perhaps, he underfigures the number of $7/hr retail and $9/hr customer service jobs that have been created. A lot of those college grads that couldn't find jobs for the past 5 years, as well as a large number of formerly middle-class professionals, have wound up working *someplace* to try and survive. I know quite a few high flying "techies" from a few years ago that are now doing such things as loading trucks at a greenhouse and trying to scrape money up teaching Internet browsing to the elderly. So much for new, innovative jobs being created in this country. Maybe the unemployment rate isn't 9.4%, but the job market sure isn't what the alleged 4.7% unemployment rate suggests.

Posted by: Brandon at February 28, 2006 03:38 PM

I have 3 suggestions:

1 - Quit buying crap.

2 - Make credit harder to get.

3 - Force the government to use GAAP.

These would be hard, but not impossible to achieve. Compared to the risk (however remote) of a complete economic meltdown, we should at least take steps to reign in our profligate spending habits.

Posted by: Cyberike at February 28, 2006 09:22 PM

I think the point of Mr. Mandel's post is to focus attention on a significant gap between two explanations of economic activity. Thus advocating crisis solutions, when we can't even adequately describe the crisis, seems rash.

For example, the Smoot-Hawley Tariff of 1930 looked to its supporters like it might help the country out in desperate times. However it proved devastating in the long run.

Given our poor understanding of our economy, I am more fearful of the many suggested solutions to our problems than I am of the problems themselves. - pjw

Posted by: Patrick J. Walker at March 1, 2006 08:16 AM

Mike, I think you may be on to something with your hypothesis about incorrect calculations and accounting for outflows of capital and productivity. However, I also think it's important to look for the same faults in inflows of capital and a myriad of other "official" figures. If trade balance and productivity calculations are so ridiculously wrong, why aren't dozens of other figures like unemployment/underemployment wrong? I point to January 2003, when the government conveniently "adjusted" the unemployment calculation method. During that month, the number of jobless claims went UP, but the unemployment rate under the new calculation went DOWN. Honestly, I don't know what they modified, but obviously the result doesn't make sense.

The point is, if we're going to argue that the calculations and accounting are wrong - which I completely agree they are - why are we only looking at the positive spin and not the negative aspects of the situation? Isn't it possible that actual inflation is much higher than reported (see and it has exceeded the growth rate of wages? Isn't it possible that wage gains are overcalculated based on the way they collect data?

The latest report says that the personal savings rate is (still) negative, and has been zero or less for 10 straight months. The claim is that Americans are dipping into their personal savings.... but if you know any average American you know that's preposterous. They don't have any savings... even a "zero" savings rate means they're borrowing themselves to the hilt; a negative rate shows that people are borrowing beyond their means. The consumer is just about tapped out on credit cards and home equity. *** The banks own this country, now.***

And why? Because a) things really aren't as great as the numbers are claiming, and b) just like the government people are surviving on borrowed money and borrowed time.

Posted by: Brandon at March 1, 2006 09:28 AM

The Economist picks up (published tonight) on Michael Mandel's cover story as well as the more general discussion on the current account deficit and dark matter

The article cites two NBER working papers which attempt to map out/show how much intangibles matter ...


In all modesty I have also made a re-cap of the main sources and arguments

Not that you don't know the arguments ;) but I really believe this discussion is interesting and important and as such a good one to follow.

Posted by: claus vistesen at March 2, 2006 03:30 PM

Of the 4 you mentioned, I think #4 is the most relevant, as the offical productivity growth numbers is based on ignoring the deteriorating terms of trade for the U.S. private sector versus both government and the rest of the world as well as implausible assumptions about reductions in the number of hours worked.

But that is a minor issue. The bigger problem is your assumption that higher productivity growth will reduce the trade deficit. Let's assume for the sake of the argument that productivity growth really have increased substantially. Will this reduce the trade deficit? No, quite to the contrary. Higher productivity implies higher business profits, which will attract more foreign investment capital. Higher capital inflow will by logical necessity equal a higher trade deficit.

Posted by: Stefan Karlsson at March 2, 2006 04:34 PM

The money sent to the United States consists of: 1) dollars previously sent from the United States to pay for the excess of imports over our exports; 2. dollars coming into the U. S. that are matched by a flow of financial assets of equal value going the other way. This later is an accounting convention. It does mean that change in the International Investment Position of the U. S. is determined by the size of the trade deficit plus changes in asset value both overseas and in the U. S. due to earnings and change in currency value.

In short, the U. S. would be richer by 700+ billion dollars at the end of 2005 if our trade deficit were zero.

All the British investment in the U. S. in the mid-1800's benefited both Britian and the U. S. because the railroads increased the ability to create goods and services in the U. S. and get them to market.

All of the Japanese and Chinese investments in U. S. Treasury certificates do nothing to increase productivity in the U. S.

The trade deficit is a net loss to the U. S.

Posted by: W. Raymond Mills at March 2, 2006 09:24 PM

Mandel has the flimsiest argument I have ever seen. Just because a forecast was higher than a measured result he says the measurement is wrong!

I have seen in my day many more forecast errors than measurement errors.

Much more likely the forecast was wrong.

Posted by: W. Raymond Mills at March 2, 2006 09:30 PM

I would like to point a some key indicators about our economy.

: Since the early 90's post NAFTA the saving rate for the average family in America went from 11 % to NEGATIVE 1.

: Wages went flat for 80% of Americans while healthcare went up 4 times faster than wages.Childcare,energy cost and college cost all are rising faster than wages

So you may ask how have Americans been living ? Almost one third of consumer spending are people refinancing their homes and spending their equity to pay off bills. That is why home equity is at a all time low.

This game works as long as people can afford the payment and home values keep going up. The problem is both are ready to hit the wall. Lenders raised monthly minimums on credit cards. And home values are flattening out. This why you are seeing inventories of non sold homes increase. Also an increase in delinquencies. This is a house of cards. You can not have an economy that buys more products than it makes. This is a race to the bottom. Would like to hear your comments

Posted by: JohnKonop at March 3, 2006 12:26 PM

We are living with two economies in this country. All the national economic indicators show the compiled information of the two economies. However, the top 10% in the United States:

* Have 2/3rds of the nation's wealth

* own 80% of the stocks, including funds and retirement accounts (## see note below)

Gini coefficients aren't perfect, but here is a graph demonstrating that the two economies are diverting further:

We are tied with China for income inequality, and only exceeded by Mexico and Brazil among industrial nations. India and its caste system have markedly less income inequality than the United States has.

So let's remember that as we talk about increases in productivity, increases in wealth, increases in GDP, etc., that we're talking about most - if not all - of those gains going to the top 10%. I would suspect that much of the remaining wealth of the bottom 90% has been sapped up by the top 10% since 2000, when the numbers above were reported, as people have withdrawn their home equity in order to consume. Their debt - an asset if you own it - is now in the hands of the top 10%.

There are two economies in this country, and there's at least a 90% chance you're not in the one that makes the compiled numbers look "good".

##numbers sourced from

Posted by: Brandon at March 3, 2006 01:49 PM

The US saves more than the rest of the world, it is just not counted: (1) A Doctor in Dallas in 1975 refused to put any money into a retirement account. On credit, he purchased land & bldg on the new LBJ freeway for $1.5 mil and signed 35 year lease with a furniture company. His "retirement" is now worth $25 - 30 mil - how much did he save? (2) In the 70's and early 80's (until limits prevented it) I put $8 thousand total into my wife's IRA. It is now worth over $340 thousand. What does the national savings show? (3) My brother deferred salary, which had an interest component added to it. When he retired, he had $5 mil in deferred salary and in addition he and his wife receive $500 thousand (joint survivor annuity) in a pension annually. What did they save in the national accounts.

Posted by: John R Bunt at March 8, 2006 10:36 AM


Re the idea of two economies. There are two versions of this idea. One says that the people at the bottom are being rooked, the other one says that the people at the bottom are actually doing okay, and it's the people in the middle who are being taken to the cleaners. Which one do you believe?

Posted by: Mike Mandel at March 8, 2006 12:32 PM

Mike, if by "at the bottom" you mean the lower 90% of the population, then I mean "at the bottom". Sure, there are people that are getting by. However, it would be interesting if we followed the flow of income and wealth into the US, and see where it winds up. If it is corporate America doing so well then those profits flow through to the shareholders (one way or another), and as I pointed out, 80% of public corporations are owned by the top 10% of the population. I suspect that if you include private companies, that number would actually increase because private companies (that are actually making money) will tend to put their owners in that top 10%. We can also look at who are the "losers" in the stock market. I hypothesize that most of the profits taken out of the market (by that, I mean the game of trading) are sapped from the lower 90% into the hands of the top 10%. I'm sure you've heard this hypothesis before - it's not my own. Lastly, we have wealth - actual owned assets. The dated numbers I listed above show that 2/3rds of the wealth in the US is owned by the top 10%. As for the other 1/3 which is spread out among the remaining 90% of the population, how much of that wealth has been transferred to banks in the past 5 years as people took their equity out of their homes? I hypothesize that much of this equity has been traded for debt, and now that equity resides in the asset column of banks and their shareholders (and we know who owns most of the shares...).

So the entire lower 90% is getting taken to the cleaners one way or another. The result, I'm suggesting, is that the top 10% live in a very different economy than the other 9/10ths of the population. What's the GDP for the lower 9/10ths compared to the top 1/10th?

I suppose we are in a oligarchal meritocracy of sorts, and I ought to just shut up and play by the rules. Frankly, I'm an elitist and think that this is simply the way civilizations play out, and capitalism at least boosts meritocracy a bit in the face of sheer oligarchy. But it'd be nice if we acknowledged it. But then... those annoying peasants might vote the rulers out because of this silly democracy thing we're trying to pretend we believe in.

Posted by: Brandon at March 8, 2006 02:22 PM

The island of Saipan has been very good to Tan Siu-lin and his children.

In just two decades, this Hong Kong family has built a business empire there encompassing an airline, a sea freight line, a large fishing fleet, a newspaper and ventures in insurance, logistics and many other sectors. It is an empire whose prosperity has been maintained through an intricate web of money-fueled connections to powerful figures in the United States.

Family companies Tan Holdings and Luen Thai Holdings are together the leading players in the island's two main industries, garment production and tourism, as well as Saipan's biggest employer and taxpayer.

The Tans' success in the Pacific, 3,400 kilometers east of Hong Kong, flows from Saipan's status as what amounts to a special economic zone of the United States. Goods manufactured on Saipan and fellow members of the Commonwealth of the Northern Ma-riana Islands (CNMI), as US territories, can be sent to the US mainland free of tariffs and quotas. At the same time, the commonwealth has autonomy over its immigration, customs, taxes and minimum wage levels.

The Tans exploit this duality by importing thousands of young women from China and other Asian countries to work in their factories and hotels at starting wages 40 percent below the US federal level. The Chinese women sew Chinese-made cloth into "Made in USA'' clothes for Polo Ralph Lauren, Liz Claiborne and other top brands. Luen Thai produced 26.7 million knit shirts and other items of clothing on Saipan last year.

It's a cozy, profitable arrangement which the Tans have been keen to protect from meddlesome mainland US officials and legislators. Over the last decade, the Tan family and their companies have spent at least US$200,000 (HK$1.6 million) on lobbying and contributions to Washington political campaigns.

[rest of the comment cut for length]

Posted by: johnkonop at March 8, 2006 07:35 PM

Um, johnkonop.... there's a reason these "internets" have hyperlinking! I know this isn't my blog to go off complaining on, but it would be preferable if you referenced the story with a link and then commented on the relevance of it to the discussion at hand.

Posted by: Brandon at March 9, 2006 09:04 AM


Sorry, the reason I posted the article was to explain why we have the trade deficit problem. This story demonstrates the interest of lobbyist clients over that of average American family.Congress is selling off our country brick by brick for campaign donations.I Would like to hear your comments if you have time.

Posted by: johnkonop at March 10, 2006 07:25 AM

I think you’re missing a large point. Our economy is shifting away from a manufacturing economy to service based economy. Being an IT worker I really don’t produce anything other than productivity itself. So what are my effects (and most people in the service industry) on the trade deficit. 1) I produce nothing physical that the company can sell or export. 2) If I write an IT program or process that makes the company more efficient(Dark Matter), the net result is we get more out of the resources we are importing. We are basically squeezing a few more dollar of profit from the imported resources but net import/export doesn’t change. 3) If I write an IT program or process that increases productivity(more Dark Matter), more raw material (imports) is needed. A perfect example is Wal-Mart, their productivity gain and efficiency has allowed them to grow and pass the saving onto the consumer but the bigger they get the more imports they purchase. The net result is that the money still flow out of the country with nothing in return.

Posted by: james at March 10, 2006 02:44 PM


GDP is gross not net. The current savings rate from post NAFTA (early 90's) went from 11% to negative 1. The best example is if we owned a pizza parlor and we slashed our price by a third and sold pizza slices at a lose.If you were bragging about wow we are growing our sales (gross}, I would say great, but we are falling faster in the whole. The real issue is not inflation , it is inflation relative to wages.

Wages are flat to down for 80% of Americans , while healthcare is growing 4 times faster than wages. College cost, energy cost, childcare cost are also out of control relative to wages. That is why 31 % of consumer spending our people using their homes like credit cards via refinancing to keep up with bills.

Posted by: johnkonop at March 10, 2006 06:03 PM

There are several million A,B,C,D job chains in the US right now (they may cross comapany lines). A is earning 100 units, B 80, C 65 and D 50. A is a baby boomer who retires. B is promoted and now earns 90, C replaces B at 72, D replaces C at 55 and E, a recent graduate is hired for 43. Labor costs for the A,B,C & D tasks has dropped from 295 units of cost to 260, a decrease of 11%. The jobs all get done because each employee works 10% more hours than their predecessors. There are now 3 happy employees who, in addition to cost of living raises, have received promotion increases of 10% (and one happy new hire and one happy retiree). And the employers are saving money (more profits), and unit labor costs are going down, and there has been a zero increase in total employment.

Posted by: John R Bunt at March 10, 2006 07:08 PM

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