[FoRK] Another take on deficits, employment, etc.

johnhall johnhall at isomedia.com
Sat Mar 20 20:55:11 PST 2004

An old Japanese rerun
Alan Reynolds

March 18, 2004

When people talked about the U.S. "exporting jobs" jobs a decade ago,
they always assumed the jobs had moved to Japan and Germany. Why?
Because those countries exported more than they imported, and thus had
chronic trade surpluses. They still do. 

The 1992 Clinton-Gore campaign book, "Putting People First," somehow
imagined that "Japan and Germany "threaten to surpass America in
manufacturing by 1996." The Tokyo-based journalist Eamonn Fingleton's
subtitled his 1995 book "Blindside" as "Why Japan Is Still on Track to
Overtake the U.S. by the Year 2000." Americans were being sold an
economic inferiority complex, and many bought it. Or at least they
bought the books. 

 What was really happening? From 1990 to 2000, industrial production
increased by 49.5 percent in the United States, 13.4 percent in Germany
and 1.5 percent in Japan. By 2003, Japan's industrial production index
was still much lower than it was in 1990. Trade surpluses appeared in
Japan and Germany only because their economies, and therefore their
imports, grew slowly, not because exports grew rapidly. Japan's
merchandise exports grew by only 3 percent a year from 1990 to 2001,
slower than Europe's 4 percent pace and only half as fast at the 6
percent yearly increase in U.S. exports. 

Manufacturing jobs declined in all three countries, and most others, but
industrial job losses were much greater in Japan and Germany. From 1990
to 1995, manufacturing jobs fell by 1.6 percent a year in Japan and by
4.2 percent a year in Germany, but only 0.6 percent in the United
States. From 1995 to 2000, manufacturing jobs fell by 1.9 percent a year
in Japan, by 0.8 percent in Germany but only 0.1 percent in the United

Neo-Luddites who view productivity gains as bad news should take note
that annual increases in manufacturing productivity from 1990 to
2001were 3.8 percent in the United States and 2.8 percent in Japan and
Germany. The country with by far the largest gains in industrial
production and productivity also had by far the least traumatic loss of
industrial jobs. That country was not Japan, which probably failed to
overtake the United States even in sushi consumption 

In the United States, unlike Japan and Germany, the secular trend toward
automation of arduous manufacturing tasks was more than made up for by
increased employment opportunities in finance, health, education and
various professions. From 1990 to 2001 (which includes two recessions),
employment rose 1.2 percent a year in the United States, compared with
0.3 percent in Japan and 0.1 percent in Germany. 

Most of these facts are easily verified at the Bureau of Labor
Statistics website, bls.gov. But in the mid-'90s, as today, those who
claimed that U.S. jobs losses were due to trade deficits never bothered
to look at facts. Instead they assumed trade deficits meant lost jobs.
So they likewise assumed that trade surpluses in Japan and Germany have
meant those countries were gaining the jobs we lost. At last count,
Germany still had a huge trade surplus -- $153 billion over the past
year -- and an unemployment rate of 10.3 percent. 

Trade was balanced in the United States in 1981 and 1991. Economies in
recession don't need to import much oil, copper, bauxite, high-tech
components, etc. The trade deficit increased after those recessions
ended. But it would be absurd to claim (as some really do) that such
increases in the trade deficit meant we would have had more jobs by
staying in recession forever. 

Despite the evident nonsense of equating trade deficits with job loss,
and surpluses with job gains, that assumption is nonetheless still used
by the AFL-CIO and Progressive Policy Institute to estimate or "impute"
job losses to trade deficits. It follows that Japan and Germany must
still be gaining all those jobs we are supposedly exporting. But nobody
is foolish enough to try repeating that claim again. So those afflicted
with chronic trade phobia have recycled their faded stories by simply
replacing the words "Japan and Germany" with "China and India." 

Fingleton's latest effort is an article called "Trading Down" in The
American Prospect. Citing fellow curmudgeons Lester Thurow, Pat Choate
and Lou Dobbs, Fingleton predicts "a devaluation from hell ... a truly
devastating devaluation." Given the author's forecasting record, the
dollar naturally started moving up on this non-news. 

Such efforts to rewrite the old "Japan will overtake us" melodrama lose
a lot in translation. Unlike Japan, India has a chronic trade deficit in
merchandise, averaging about 3 percent of GDP, so India has to export
services to pay for rapidly increasing imports of food and machinery.
Diehard "twin deficits" zealots have even more explaining to do. India's
budget deficit has ranged from 9 percent to 10 percent of GDP for a
number of years, but that doesn't seem to have slowed the economy a bit.

China still has a small trade surplus, but the notion that China has
been stealing our manufacturing jobs faces a bigger problem. According
to the Asian Development Bank (adb.org), China's industrial employment
fell from 109.9 million in 1995 to 83.1 million in 2002 -- a drop of 24
percent. Anyone who wonders where U.S. manufacturing jobs have gone need
not bother looking for those jobs in China, Japan, Hong Kong or South
Korea. All those countries suffered much larger percentage declines in
manufacturing jobs than the United States has. Politically inconvenient,
perhaps, but true. 

Nobody denies that many manufacturing industries went through rough
times from July 2000 to June 2003. Yet super-economist Brian Wesbury at
gkst.com notes that the manufacturing component of the U.S. industrial
production index rose at an impressive 7.1 percent annual rate over the
past six months. Six months is not enough time for that big turnaround
to have had much impact on employment, but it will. People who keep
reminding us that many measures of employment are not yet back up to the
very top of the previous peak -- which took nine years to reach -- are
making a lot of noise without saying anything. 

Whenever overly excited journalists, politicians and pseudo-economists
start telling you the United States should worry more about economic
strength in China and India than about economic weakness in Europe,
Mexico and Canada, remember to check what they said about Japan and
Germany overtaking the U.S. economy a mere decade ago. 

C2004 Creators Syndicate

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