A simple economic question

As the US President seeks to close our borders and retrench from global markets, there is a simple question to ask. Let’s set aside what’s right or wrong from a humanity and safety standpoint. Let’s focus on a simple economic one.

Do we grow our economy more by letting people bring their ideas, work ethic and entrepreneurial spirit to our country and making it easier to do business with us, or do we accomplish more economic growth by closing our borders and forcing other countries and businesses therein to look to other markets for sales and supplies?

This thought struck me Sunday morning as I caught the Women’s Open Championship in the UK. What struck me is there were not any American golfers among the top two pages of the leader board. Thinking back to the World Cup in Russia last month, the American team was not present for this global event.

I recognize these are sporting events, but they are metaphors. If you don’t keep up, the world will move on. But, not keeping up does hit our economy, as well. In the US, unemployment is low, but we are having a hard time filling higher tech manufacturing jobs. US customer service jobs abound in Asia and the Philippines. And, many of our IT jobs are being done by people in India or who have moved here from such locations.

The first book which spoke to this is The World is Flat,” by Thomas Friedman. We live in a global economy with a global workforce. Employers need the best, cheapest talent they can find. The more commoditized the job, the pendulum swings to cheapest. The less commoditized, the pendulum swings to best. If we cannot fill the jobs here, they will be filled elsewhere. And, it should be noted that companies are leasing robots for $18 an hour, if they cannot fill the job.

We must be mindful of a key data point, immigration is accretive to our economy. Since Innovation is portable, new talent coming here brings more innovation. And, jobs are created around the Innovation. So, we need to be welcoming with better governance over immigration.

We also need to be easier to work with than we have become. When an entity makes it more difficult and less profitable to partner with, its trading partners look to other sources of sales and supplies. This has been happening for the last several months. And, as one farmer said, a subsidy won’t help if the customers go away.

Sadly, this issue has now been politicized, with fear and over-emphasis of causes. As I briefly noted above, the key reasons some areas are suffering are due to chasing cheaper labor and technology. The last issue is the larger concern as a CFO noted  in the book “The Rich and the Rest of Us,” by Cornel West and Tavis Smiley, “employers would do without employees if they could.”

So, look back at the simple economic question. What kind of country do we want to be? Then, add in the seasonings of doing the right thing and being safer. Global commerce actually makes the world safer, as you are less likely to go to war with your trading partners.

 

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Ports, trade and jobs

In Steven Solomon’s book “Water: the Epic Struggle for Power, Wealth and Civilization” he notes two of the greatest water decisions that helped make America a global power are the building of the Erie Canal and Panama Canal. Both gave the US the ability to conduct trade more easily. I mention these decisions as many east coast US ports have dug deeper channels to permit larger ships to enter their harbors. And, non-port cities have developed trans-modal distribution facilities to get goods on and off planes, trains and trucks often going to or from ports.

The leaders of ports and these trans-modal facilities have concerns over the tariff wars that are beginning because of the short-sighted decision of the US President. While some industries will see job increases, peripheral and other industries will see job losses. But, the ones who see red flags are those who handle the distribution of goods.

The port leaders are concerned the return on the investment to dig deeper ports may be watered down. But, less trade also means fewer truck drivers, rail workers, dock workers and distribution handlers. This is on top of industries specifically hit by tariffs.

Nick Hanauer, a venture capitalist spoke on a Ted Talk about his frustration that business leaders called themselves job creators. He asked “Do you know who creates jobs? Customers.” It should be noted the first and third Presidents who witnessed the most jobs were Bill Clinton (22.9 million) and Ronald Reagan (16.1 million). Per David Smick, an economist who worked for both, this was in large part due to their emphasis on free trade.

Tariffs hurt the wrong people. They may help some targeted industries, but they end up hurting far more employees than they help.They do hurt business owners, but in the end, they reduce the number of customers. And, fewer customers cause fewer jobs. The math is that simple. Any decision that adds to customers is job accretive, while the converse is also true. And, one thing is certain – we cannot shrink our customer base to greatness.

Relationships with countries are vital

There are no perfect people, so we cannot expect perfect leaders. There are also no perfect countries, so we cannot expect perfect agreements among countries. To respond to these short-comings, we must do our best to value relationships.

This works for people as it does for countries. An ambassador noted America’s strengths are its military might and its relationships with other countries. Our relationships predate the existing leadership team, so it is imperative to nurture them. This will help us resolve problems as they arise.

This is not just a US problem where its current front man acts rashly and chaotically, breaks commitments and agreements and lies more than he does not. He has made America less trustworthy and other countries are finding a need to seek better agreements with others that do not include the US.

The imperfect European Union is experiencing significant tension with the pending Brexit, the current difficulties in Italy and the growing nationalistic movements in EU countries. This is made worse by targeted social media efforts by countries that would benefit from a dysfunctional EU and US. Russia is one of those countries and they have been accused of such targeting.

A key part of these relationships is a financial one. The global economy is larger than it otherwise would be due to these relationships. If each country only tried to maximize its own profits in a zero-sum effort, the total pie is smaller and we all lose. This concept is called the Nash Equilibrium, which won John Nash a Nobel Prize in Economics.

Yet, it is more than that. These relationships make the world more secure and safe. The nationalists argue the opposite, but the more commerce is intertwined, leaders work harder to nourish those relationships. A strong EU makes Europe safer and prosperous. A strong relationship with the US and other countries does the same.

Yet, these agreements are imperfect. Not every citizen within a country may benefit equally from a global economy. There is a graph called the “Elephant Curve,” which is a silhouette of an elephant with its trunk raised. The body forms the rampant growth in income of the poorest workers around the world, while the trunk represents the even more significant growth in the highest income earners. The trough inbetween represents the middle income earners who are seeing stagnant incomes, who are in more flourishing economies. This trough has led to populist politicians who over-simplify the problems and come to short-sighted solutions.

Their needs must be addressed, but first we must understand the causes are more than the global economy. The larger threat is techonology advancements. Through our relationships we must invest together on addressing these issues. If we do not, we will create zero-sum contrasts, that will cause even more tension. The rise of fascism in Germany evolved out of dire economic circumstances after WWI.

This last example should inform us of why working collectively is so important. We must value our relationships and make them as beneficial as possible. Going it alone may seem like a good idea to some, but we need to think through the benefit of trade and mutual investment in each other.

If this concept sounds theoretical, let me explain it better by BMW, Mercedes, Hyundai, Toyota and Nissan making cars in America, with GM and Ford making cars around the world. And, Chrysler is owned by Fiat, an Italian company. Jobs are created as we invest in each other’s countries. This is true for other industries and suppliers. And, we may be less inclined to create war, when so much is invested in each other.

Two Western Leaders came to Washington

Last week, the two leaders of the western world met with the US President, who has ceded the US role in the world. Emmanuel Macron, the President of France, and Angela Merkel, the Chancellor of Germany visited with Donald Trump.

Of course, the US has the most powerful military in the world. We’d better as we spend far more than other countries. Yet, with our pulling back on diplomacy and the number of diplomats, with our imposition of tariffs on even our allies, with our retrenching from global agreements and with an unprecedented level of untruthfulness, we have ceded our global leadership role to China, overall, and Germany and France in the western world. And, while the UK remains important and formidable, I am sad to say Brexit will precipitate its decline from these ranks.

Macron and Merkel beseeched the US President to remain in the Iran Nuclear deal signed by seven parties (including the four countries above). As with other issues, Trump does a lot of chest beating without the benefit of being factually accurate. John Oliver of “Last Week Tonight,” does a nice job of defining the terms of the agreement and noting three untruthful things the US President says about it.

And, at least Macron openly requested the US to remain in the Paris Climate Change accord. We know this as Macron was allowed to speak with Congress and did so with an eye to the future and a statesman like flair. Yet, Merkel did not get such an opportunity. It puzzles me why Trump does not like her as his contempt easily shows.

He dotes on Macron, but he looks like he would rather be elsewhere when he is with Merkel. Is he jealous because Putin will actually listen to her? Is he superficial to not like her because she does not have a model’s shape or looks? Or is it her policies of openness to refugees? Or, it may be she is a student of understanding issues and he is not?

Nonetheless, she sees the future in the appropriate light as does Macron. “Narrow-minded nationalism” is something we must guard against Macron said to the US Congress. Global trade and relationships make the world safer.

I firmly believe if Trump remains in office for four years (and God forbid eight years), history will judge this period as when the US gave up its leadership role in the world. And, this happened with others not firing one shot, just a well-orchestrated influence campaign by the Russians who want a weaker west. But, don’t trust my judgement. Pulitzer Prize winning journalist and former State Department official Ronan Farrow has penned a book called “War on Peace” that notes the same premise with definitive examples. The decline in diplomacy is a huge mistake – we sent two people to a global issues meeting, while China sent twenty. They worked the rooms.

This is a sad state of affairs. We have listened to a populist President who does not care to know historical context and is not beholden to the truth. He has listened to people who want us to retrench. And, there is one thing for certain, we cannot shrink to greatness. It matters not what the ball caps say at Trump rallies.

Global Trade and Tariffs

While the US President proceeds with tariffs, 11 countries sans the US just signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership that will reduce tariffs among theses countries. This is the infamous TPP that the President pulled out of early in his Presidency.

David Smick, an economic advisor to Presidents Ronald Reagan and Bill Clinton said both Presidents loved global trade. It should be noted that more jobs were created under these two Presidents with Clinton #1 at 22.9 million and Reagan at #3 at 16.1 million (FDR was second). While we need to be mindful of and help employees impacted by job loss, we need to recognize global trade is accretive to the US economy and creates more jobs. We do well when we all do well.

As one global economist said, tariffs and trade wars are how recessions start. So, in protecting some jobs, we will likely be impacting negatively a much greater number.

Saturday’s Alright for Fighting

One of Elton John’s more boisterous songs is the title of this post. It is OK to stand up for the rights of others and yourself, but we need not resort to physical fighting. We must do so with our words that express our ideas. Words that are hurtful or demean are a verbal form of fighting.

I mention this as we must not follow the example of how the President chooses to communicate. We must be civil and listen to each other’s ideas and perspectives. Name calling is a shortcut when the speaker does not have a good argument. When I hear the President or anyone else name call, it makes me pay attention to the opposing side’s argument. The same holds true when he berates people.

The sad truth is people who act like this do so to be tough and bully others into doing things their way. Eventually it wears thin and others won’t want to be around people who act this way. It is one reason the White House has so much turnover. It is reported the latest departure is due to her being constantly berated by her boss. It came to a head when she admitted under oath she told “white lies” on his behalf.

Our issues are complex and deserve rational and reasoned debate. The causes are often multi-faceted and deserve holistic solutions. They do not need to be based on whims or inaccurate information. They do not need to be rashly done without vetting, especially when others need to be aware of and can plan for them. The rash decision by the President to impose tariffs is a good example because it caught the White House staff, members of Congress, our trading partners, investors and business leaders off guard.

This should not be how important decisions are made. We should rationally talk through them and look at their ramifications. We should invite input as complex issues need to be vetted. They need buy-in. This one was not. Tariffs may sound good, but they usually have devastating results. As one global economist said “this is how recessions start.”

 

 

A little bit of this and that

It is a rainy Sunday, so it is a great day to drink coffee and read. Since I am struggling for a longer post subject, here is a little bit of this and that for your reflection and thoughts. In no particular order:

There are many people who will tell you what is wrong with the Middle East, but I don’t believe it is a solvable problem. There are too many passionate religious and tribal differences that cross borders. Unless like minded people had control over their situation, did not need to rely on others and could respect the rights of others, peace is simply not achievable. In my simple view, the best anyone can achieve is to place lids on simmering pots on a stove.

The global economy is expected to grow by 3.9% each of the next two years, up from slightly lower results in 2016 and 2017. Yet, Christine LaGarde, the head of the International Monetary Fund, cautioned at Davos last week over concerns of socio-economic inequity and the rising debt in the US. Not everyone is benefitting from the growth which will cause greater uncertainty and unrest.

In a very interesting and not unexpected development, Canada and other nations completed the TPP, which is the Asia-Pacific trade agreement the US exited, When the US tried to negotiate a bilateral agreement with Japan, the Japanese trade leaders suggested the US reconsider the TPP instead. The US finds itself on the outside looking in. I find it interesting that the US President said in an interview which will air tonight that he would reconsider the pullout from Paris. It is hard to have a relationship when you are not in the room with others.

On a related subject, if Brexit follows through with the commitment to leave the EU, other cities will continue to benefit from EU headquarters migration from London. Paris, Dublin and Frankfurt are each benefitting from conpanies moving EU headquarters. A softer Brexit will help reduce the migration, but it will continue.

I guess if there is a theme to all of these subjects it is working together across country borders and regions within is more productive than going it alone. Yet, one thing remains true – collaboration is hard work. It requires give and take. If one party gets everything it wants, then the others will not, so detente is harder. So, when I hear someone who likes to win say an agreement is a disaster, I don’t put as much credence in those comments. Lifting all boats makes more money for everyone. A man won a Nobel prize for this concept. So, let’s work hard together for peace and prosperity for all. It beats the hell out of the alternatives.