HAPPY DAYS

[Donutboy 0]

Things are looking up—according to George W. Bush and the Times, anyway. Last Tuesday, the paper led its front page with this sunny triple-decker: “manufacturing at highest level in two decades; hiring outlook is upbeat; stocks at 18-month peak on run of positive data—bush optimistic.” The headline’s main claim, however, was inaccurate. It misinterpreted an economic indicator that is designed to gauge whether factories are churning out more or less stuff than they did last month, not absolute levels of production. The most reliable measure of how manufacturing is doing is the Federal Reserve’s index of industrial production, which in October was 112.7, compared with a high of 118.4 in June of 2000. The November figure comes out next week. A six-point jump isn’t impossible, but it would be virtually unprecedented.

What we can be sure of is that most manufacturing companies are still operating well below capacity, and that millions of manufacturing jobs have been lost. In October, 73.5 per cent of plants and equipment were in active use. Three years ago, more than eighty per cent were. When President Bush took office, about 17.1 million Americans worked in factories; today, 14.5 million do. Last month, another seventeen thousand manufacturing jobs disappeared. Manufacturing employment has now fallen for forty straight months.

Over all, the economy is rebounding from three years of stagnation, but the fate of manufacturing can’t be dismissed, especially since we’re entering an election year. Although manufacturing now accounts for only about a seventh of G.D.P., it remains the sector most attuned to the economic cycle; it is an irreplaceable source of innovation and exports; and it has great symbolic importance. Many more of us spend our day shuffling papers and hitting keyboards than actually making things, but we still like to think of the United States as the workshop of the world. (Moreover, many people who do make things happen to live in swing states.)

The President, understandably, doesn’t linger on the facts that Toyota recently overtook Ford as the world’s second-largest car company and that Levi Strauss is closing its remaining American plants. “Our economy was strong and it is getting stronger,” Bush declared last week. “Productivity is high; business investment is strong; housing construction is strong. The tax relief we passed is working.” That is all true, even though the economy created far fewer jobs in November than had been expected. But the lesson of this resurgence is not one that Republicans usually like to celebrate: together with Alan Greenspan and his colleagues at the Fed, the Bush Administration has demonstrated that an activist economic policy can revive even the most moribund of economies, at least for a while.

Just a few months ago, some experts feared that the United States might be heading for a Japanese-style slump, in which poor economic growth persisted for a decade or more. To head off this possibility, the Fed kept interest rates at historic lows, and the White House trumpeted its third set of tax cuts in two years, while quietly signing off on a big increase in federal spending. Such a combination of expansionary monetary and fiscal policy is the standard cure for recessions, and has been since Keynes.

Millions of homeowners took advantage of cheap money to refinance their mortgages, which meant that they had more cash to spend on S.U.V.s, outdoor grills, and summer vacations. Meanwhile, government agencies, and not just the Department of Defense, spent more, too. Between 2001 and 2003, total federal expenditures increased by almost three hundred billion dollars, or sixteen per cent, prompting howls of outrage from places like the Heritage Foundation and the Cato Institute. “It’s a far cry from the less-government, ‘leave us alone’ conservatism of Ronald Reagan,” Cato’s David Boaz recently lamented in the Washington Post.

Then there were the tax cuts. Although many commentators focussed on the giveaways to the rich inherent in reducing the taxes payable on dividends and capital gains, these changes had little immediate impact on spending patterns. It was the income-tax rebates for families with children which gave the economy a boost when it was most needed. And, while the resultant growth spurt may have been, in part, a “sugar high,” it won’t drop right away. Economies are like hot-air balloons: the hard part is raising them aloft. Once they get there, they can move on their own steam for some time. Although the third-quarter growth rate of more than eight per cent can’t be maintained, the economy will probably still be looking fairly lively as next November approaches.

This is reassuring news for Republicans, but it isn’t necessarily good for the country. We are living through the early stages of an old-fashioned “political business cycle,” in which the post-election stage is likely to be much less fun. Once the votes are counted, whoever is residing in the White House will have to deal with record-breaking budget deficits and trade deficits, both of which are symptomatic of a nation living well beyond its means. In only three years, the federal government has gone from a surplus of two hundred and thirty-six billion dollars to a deficit of three hundred and seventy-four billion dollars. Most independent experts see big deficits stretching to 2010, or beyond. The economic slowdown that began in 2001 was partly responsible for this fiscal calamity, but the chief culprit was Republican profligacy. Tax cuts and higher spending have set the country’s finances on an unsustainable course.

The trade deficit, which has received less public attention, also represents a major threat to the economy. It now exceeds five per cent of G.D.P. Other countries that have run up trade deficits of this magnitude have eventually lost their creditors’ confidence, and faced a currency crisis, higher interest rates, and a sharp recession. Of course, the President won’t mention that the United States could follow the path of Brazil, Argentina, and Indonesia in his next stump speech. After all, the Dow is once again on the verge of ten thousand, Wall Street traders are getting ready to pocket their heftiest bonuses in years, and Google is planning the biggest Internet I.P.O. yet. Close your eyes and think of 1999.

— John Cassidy

HAPPY DAYS

[TitanTiger 20,519]

I'm not going to waste time rebutting this. I could produce statistics that contradict many if not most of his arguments. But that's the thing about stats. They can say virtually whatever you want them to say. Just depends on how you use them.

[tangent]

What I will take issue with is this: Toyota passing Ford as the number two automaker in the world is the fault of Ford. Toyota consistenly makes higher quality vehicles no matter what survey you use to measure initial and ongoing quality: Consumer Reports, Edmunds, JD Power, you name it. And it's been that way for years. Only now have they overtaken Ford.

Just wanted to identify the red herring.

[/tangent]

[Donutboy 0]

I'm not going to waste time rebutting this. I could produce statistics that contradict many if not most of his arguments. But that's the thing about stats. They can say virtually whatever you want them to say. Just depends on how you use them.

[tangent]

What I will take issue with is this: Toyota passing Ford as the number two automaker in the world is the fault of Ford. Toyota consistenly makes higher quality vehicles no matter what survey you use to measure initial and ongoing quality: Consumer Reports, Edmunds, JD Power, you name it. And it's been that way for years. Only now have they overtaken Ford.

Just wanted to identify the red herring.

[/tangent]

No red herring. You mistook the Ford/Toyota statement, as it was incomplete. Toyota surpassed Ford in THIS country, not worldwide. Toyota has sold more than Ford worldwide for a long time. The Ford/Toyota issue was meant to illustrate the trade deficit, which is as big a problem as the budget deficit.

Ford, GM and Chrysler have admittedly had quality problems in the past but the cars they put on the road today are every bit as good as the imports. However, the perceptions about their poor quality continue and only years, possibly even decades, of proving to be quality-built cars and trucks will reverse the demand for imports in this country. I have a 2002 Chevy TrailBlazer and a 2004 Ford Mustang. I have had no initial quality problem with either. J D Powers and associates has already started listing several American cars in their top ten lists of cars with best initial quality.

[TitanTiger 20,519]

I agree that the American car companies have improved dramatically. But they still lag behind Honda, Toyota, and Nissan. And that doesn't even count the three luxury divisions that dominate the quality rankings: Acura (Honda), Infiniti (Nissan), and Lexus (Toyota). And this surge by Toyota to #2 is the result of at least two decades of putting better cars on the road. The more recent improvements by Detroit can't turn that oceanliner around on a dime.

The trade deficit is what it is. In this instance, it's because Toyota made a better product, not because of the policies of any President, now or for the past 30 years.

And also, Toyota, Honda, and Nissan may as well be American cars...most of the ones they sell over here these days are built in the States anyway. The Nissan plant down the road from me in Smyrna, TN cranks out every Altima, Maxima, and Xterra driven in the U.S. And starting in 2005, it will also be producing the next Pathfinder. Those are American workers drawing paychecks. I know it ultimately counts against the trade deficit, but it's not exactly like money is just flying out of the country when it comes to the auto industry.

[Donutboy 0]

I agree that the American car companies have improved dramatically. But they still lag behind Honda, Toyota, and Nissan. And that doesn't even count the three luxury divisions that dominate the quality rankings: Acura (Honda), Infiniti (Nissan), and Lexus (Toyota). And this surge by Toyota to #2 is the result of at least two decades of putting better cars on the road. The more recent improvements by Detroit can't turn that oceanliner around on a dime.

The trade deficit is what it is. In this instance, it's because Toyota made a better product, not because of the policies of any President, now or for the past 30 years.

And also, Toyota, Honda, and Nissan may as well be American cars...most of the ones they sell over here these days are built in the States anyway. The Nissan plant down the road from me in Smyrna, TN cranks out every Altima, Maxima, and Xterra driven in the U.S. And starting in 2005, it will also be producing the next Pathfinder. Those are American workers drawing paychecks. I know it ultimately counts against the trade deficit, but it's not exactly like money is just flying out of the country when it comes to the auto industry.

I haven't said the trade deficit was the fault of any president. It's a continuing (and growing) problem. I also agree that the American car companies can't turn it around on a dime and said as much in my last post. The only fallacy that I find in your post is the assumption that the purchase of a Honda, Toyota or Nissan made in this country counts against the trade deficit. It doesn't. It's considered a domestic product, as it should be.

The only fault that I find in this administration policy on the trade deficit is their push for the FTAA. I also fault the Clinton administration for their passage of the NAFTA. I have already espoused my reasons for this.

American companies can compete with other industrialized nations, such as Japan, Germany or Great Britain. We can't compete against communist nations (China, etc..) which has no laws against child labor and pays peasant wages. We can't compete against third world countries where labor can be as cheap as $1.00 a day with no health benefits or environmental policies. Our trade problems are not with Japan, Germany or Great Britain, but with these non-industrial nations.

Continuing to export our industries to these third world countries will eventually destroy the entire American manufacturing base. We've already lost almost all of our textile industry and are in danger of losing the steel industries. It's become a domino effect, with industry after industry moving overseas and to Central America.

[TitanTiger 20,519]

Well, you're preaching to the choir, Donut. I happen to agree with you, at least to a large degree (without hashing out every pro and con of free trade) on this subject.