American Economics Thread

lube

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Inflation is slowing down, but people are turning more to food banks.
Obviously means for these people income growth isn't keeping pace.

Voters want prices to return to pre-covid trajectory, not rise slower. But that's a taboo for economists.
Legitimately think if Trump wins, it's off the back of people wanting deflation. Wait until Trump tariff 2.0 kicks in...
 

siegecrossbow

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Part 12:
Denny's has decided to close 150 stores...
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Speaking of closures, another major retailer has announced it will close all of its stores…
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Even churches are feeling the pain of the "booming" economy. According to a recent study conducted by Lifeway Research, giving is down from coast to coast…
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All of this news shows that most consumers don’t have a lot of disposable income to spend right now. Or as Gerald Storch put it during a recent interview with Maria Bartiromo, “consumers are running out of money”…
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Overall, the home sales industry is in its “worst year since 1995” for existing home sales…
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And it looks like this month could be even worse than last month, because the number of mortgage applications submitted is dropping dramatically…
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If you can believe it, a Manhattan office building that sold for $332 million in 2006 actually sold for $8.5 million…
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The banking industry is also headed for big trouble. In fact, the government closed another bank on Friday…
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A staggering percentage of credit cardholders in the U.S. have already maxed out at least one credit card...
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STFU haters this is the best economy since the creation of the U.S. economy in 1789.

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SlothmanAllen

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Election is tomorrow for American's. Seems to be on a knife's edge with potentially huge implications if Trump wins again. To say the least what he has said about his "economic" and "social" (aka massifs tariffs and somehow deporting tens of millions people) might not only be bad for America but wreck the global economy.

American foreign policy is already problematic to say the least, but it could become extremely dangerous under a Trump regime.

Also, Republican's have shown a total lack for respecting democratic norms. Even if Trump looses, he could attempt another fake electors plot in coordination with Republican part official's in swing states or some other sort of bogus legal challenges.

To say the outcomes look grim for American's is an understatement.
 

Overbom

Brigadier
Registered Member
I am pulling back my investments and waiting for the fog to clear. If Trump wins, gonna wait until he announced his tariffs, China/EU to retaliate and then we have a full blown economic war.
When that happens, I will jump right back in, and buy everything in the cheap. So let's hope Comrade Trump wins!

Just following what my man Warren Buffet does
 

fatzergling

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Inflation is slowing down, but people are turning more to food banks.
Obviously means for these people income growth isn't keeping pace.

Voters want prices to return to pre-covid trajectory, not rise slower. But that's a taboo for economists.
Legitimately think if Trump wins, it's off the back of people wanting deflation. Wait until Trump tariff 2.0 kicks in...
You think inflation is bad right now? Just wait until supply shocks induced by Trump tariffs cause all your financial assets to become worthless! You think 5 dollar coffee is bad right now: wait until coffee costs $20 due to asset money flooding into the commodities economy.

The FIRE people are gonna be in for a tough time if Trump wins. Hence all the Wall Street donations to Kamala, she can keep the charade going for a bit longer.
 

Sinnavuuty

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You think inflation is bad right now? Just wait until supply shocks induced by Trump tariffs cause all your financial assets to become worthless! You think 5 dollar coffee is bad right now: wait until coffee costs $20 due to asset money flooding into the commodities economy.

The FIRE people are gonna be in for a tough time if Trump wins. Hence all the Wall Street donations to Kamala, she can keep the charade going for a bit longer.
Even though I don't like Trump, much less Kamala, I don't think he's going to do what you and I are thinking, start taxing everything like crazy.

There will undoubtedly be tariff wars, but I don't think they will be as widespread as we imagine, especially in times like these of ongoing deglobalization, where economic decoupling is almost carried out by inertia due to several factors.

However, it's worth reflecting on all the ways in which that trade war seems to diverge from the historical pattern. In the end, we come to an important conclusion: that trade war was not born from a strategy, but rather from mere ideology.

It's worth mentioning a few factors for this:

1. The American economy was strong at the time

Normally, politicians adopt protectionism in times of economic recession. The completely senseless goal is to protect national companies from foreign competition, guaranteeing a market reserve for them. However, as the tragic consequences of the Smoot-Hawley tariff show us, this measure simply makes everything worse.

Nowadays, however, the situation is quite different. After a long and slow recovery since the 2008 financial crisis, the American economy had started to accelerate again. Not only were the main macroeconomic indicators – such as income and wage growth – robust, but the unemployment rate was at its lowest level since 1968.

So what is the real problem to be solved? Some say that employment in the industrial sector was falling, which was true, but American industrial production has never been higher, as has the income of these employees. Furthermore, employment in the industrial sector reached its last peak in 1980, and has been in a continuous decline since then. Therefore, it simply makes no sense to adopt an economic policy in 2018 to solve an apparent “problem” whose trend has been clear for 40 years. The reduction of human labor in the industrial sector is not only an inevitable phenomenon, but it is also humanly desirable.

Furthermore, the American economy was already fully adapted to globalization. No American will be able to name a single product purchased in the last 5 years that did not use some "foreign" production process in its manufacture.

In the end, the great irony of this point is that it is precisely the robust economy of the period that has made it possible for this policy of the Trump administration to have longevity. If the country were in a recession, protectionism would quickly worsen the situation for everyone, as it would bring an immediate increase in the cost of living at a time of high unemployment and falling incomes; however, if the country is in economic growth, the deleterious effects of protectionism can be significantly mitigated. Rapid economic growth and a low unemployment rate make economic nationalism possible without feeling its rapid and obvious deleterious effects.

2. There is no end to the inflammatory political rhetoric

Every statement and tweet indicated more and more escalation of the war. Trump was already threatening to impose tariffs on China totaling $550 billion. The number is so colorful that it’s almost funny: given that total imports from China were only $500 billion in 2017, it seems that Trump simply took that figure and added another $50 billion.

And get this: Trump’s top trade adviser said in an
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with Fox News (minute 3:20) that “I don’t think any country in the world is going to retaliate…”.

Guess what? He was completely wrong. But still, there was no sign of backing down. So what’s the real goal here? If there’s no goal, there’s no real victory.

3. Tariffs hit inputs and capital goods, not consumer goods

This is the most curious and strange point of all. According to a study by the Centre for Economic Policy Research, protectionism was practically all aimed at machinery, inputs and other production goods, and not at consumer goods.

The overwhelming majority of cases of protectionism were aimed at consumer goods. Trump's tariff war was not. An incredible 95% of the tariffs applied were on capital goods and intermediate goods. These are the materials that American companies and industries used to manufacture products. They began to pay more, which led to an artificial increase in their production costs (which is why small and medium-sized companies were being negatively affected, as demonstrated by the news listed at the end of item 1).

This first graph shows the incidence of all tariffs.
1.png
This second graph shows only the tariffs for China.
2.png
These are remarkable numbers. The question, again, is: was there a strategy in all of this? It’s really hard to see any. There’s no indication that the tariffs were created to pressure China into accepting the demands of the US government, since no one can figure out exactly what Trump wanted from China.

The only plausible explanation is that Trump wanted everything to be manufactured in the US. He’s trying to inspire a retooling and reorganization of the entire industrial base of the US economy, making it look like it did in the 1970s, with heavy industries using human labor to do boring, exhausting, and health-damaging jobs.

This kind of nostalgia hides a profound lack of knowledge: in today’s world, economies based on heavy industrial labor are backward; developed economies are those that focus on technology and services. Heavy industrial jobs have always been unhealthy and, therefore, undesirable. Anyone who’s been there knows well: working in manufacturing is totally punishing from a health perspective. It’s a dull and monotonous environment. The industrial worker spends eight hours a day doing repetitive and exhausting work. He is the perfect caricature of the robotic man. A rich country is one that has already passed this phase and has already outsourced it to poorer countries, which, precisely because they do not yet have the same level of wealth, still submit to this.

Imposing import tariffs to regress the economy to this arrangement is not a form of negotiation. It is simply an atrocious form of industrial planning based on the autarchy model -- an impossible delusion that, if realized, would lead to a profound decline in the standard of living of Americans (currently the highest in the world).

4. The excuses were many

One way to tell the difference between an excuse and a rational justification is in the litany.

You ask someone, "Why can't you go to the party?" And they respond, "Oh, I have to write my thesis, my dog is sick, I'm waiting for my mom to call, my car is broken down, and it looks like it's going to rain."

If you start hearing these kinds of excuses, you know for sure that there's something more behind it all.

The same thing happened with Trump's trade policies. The excuses never end, and they were always changing: trade deficit, disrespect for intellectual property, national security threats, excessive subsidies given by other countries to their industries, currency manipulation by China, or any combination of all of these.

Just like the excuse for not going to the party, there comes a point where none of these are really believable. And then there’s the fact that Trump has been advocating economic nationalism since the 1980s, so it’s implausible that these actions are actually a response to current economic events. Rather, they are a product of ideology.

5. In the end, it was the Americans themselves who were paying

The US government said that these tariffs were imposed on foreign countries. False. As powerful as the US is, its government cannot make China, Canada, Europe or Mexico pay for anything.

Import tariffs are an extra fee that the customs of the country where the goods arrive add to the final value of the product already purchased. In other words, tariffs are paid by producers and consumers of the importing country. It is a tax. Pure and simple.

In the end, all five of these characteristics of that trade war point to what is perhaps the most frightening dimension of this entire fiasco: it is ideology that was fueling all of this. Trump is a believer in national economic planning, which means autarchy. This allows him to be the CEO of the country, to manage every company, to punish his enemies and reward his friends, and to have many of his admirers hail him as a great leader.

Ironically, this is the classic tactic of the "great man" who follows the old Hegelian presumption that he is guiding history in the right direction.

The result could not be different:
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Sinnavuuty

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Even though I don't like Trump, much less Kamala, I don't think he's going to do what you and I are thinking, start taxing everything like crazy.
Just for historical context:
Just for some historical context: In March 2002, then-President George W. Bush
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a 30 percent tariff on Chinese steel. The goal, of course, was to protect steel jobs.

But there was a problem: There are far more workers who use steel as a raw material than who produce steel. There were approximately 200,000 workers in the steel, aluminum, and iron industries, and there are a whopping 6.5 million workers employed in industries that use steel and aluminum as raw materials for their products—companies that make everything from trucks, automobiles, and heavy machinery to beer cans and chicken wire. As a result, the results of this tariff were chaotic, although entirely predictable by economic theory. According to extensive research conducted by a consumer goods conglomerate, tariffs against China increased steel prices (obviously) and, as a result, eliminated 200,000 jobs in those sectors that buy steel for use in their production processes. At the time, these 200,000 jobs eliminated from the economy were more than the total number of people who worked in steel mills, and represented US$4 billion in lost wages.

Here are the study’s findings:
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200,000 Americans lost their jobs as a result of the 2002 steel price hike. These lost jobs accounted for approximately $4 billion ($5.5 billion in unadjusted dollars) in lost wages from February through November 2002.

One in four (50,000) of these jobs were in the metal manufacturing, machinery, equipment, and transportation industries, as well as in the parts and service industries.

The number of jobs lost grew steadily throughout 2002, peaking at 202,000 jobs in November.

More Americans lost their jobs in 2002 due to higher steel prices than the total number of jobs in the steel industry itself (187,500 Americans were employed in the US steel industry in December 2002).

Customers who had been buying products made with American steel switched to foreign products, as American steel, protected from competition, made those products less reliable and more expensive. Some companies, unable to raise their prices because of the higher cost of steel, had to absorb the entire increase in production costs themselves, which left them in a precarious financial situation.

In December 2003, Bush had a flash of good sense and abolished the tariff, which only caused damage to the economy. Not coincidentally, the economy recovered in 20004.

Another case study:

Enter Obama, who apparently had learned nothing from his predecessor. In 2009, he
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a 35 percent tariff on Chinese tires. The reason was the same as always: American manufacturers were complaining about “unfair competition” from the Chinese.

In January 2012, Obama himself boasted that “over 1,000 Americans have a job today because we stopped this Chinese tire surge.” An estimated 1,200 jobs in the American tire industry were protected by this tariff.

But as always in economics, there is what you see and what you don’t. According to this comprehensive and in-depth
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by the Peterson Institute for International Economics (recognized even by left-leaning sources), these tariffs have forced Americans to pay $1.1 billion more for American tires.

In other words, although 1,200 jobs were saved in the American tire industry, the cost per job saved was a staggering $900,000 that year.

What’s more, according to the Bureau of Labor Statistics, the average annual wage for people working in the tire industry was $40,070.

And it gets worse: because American consumers had to pay $1.1 billion more for tires, they couldn’t use that money to buy goods and services in other industries. The result? Approximately 4,000 Americans (3,731, to be exact) lost their jobs in these industries.

In other words: 1,200 jobs saved at an astronomical cost of $900,000 per job versus 3,731 jobs destroyed by the tariff.

And here’s an aside: Most of the $1.1 billion Americans paid for higher tire prices didn’t translate into wage increases for tire workers. According to the Peterson Institute study, only 5 percent of that went to employees. The remaining 95 percent went to corporate bonuses.

Like Bush, Obama eventually had a flash of common sense, and his administration abolished the tariff in 2012.
 
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