Pete Murphy

Recession Solution: Balancing Trade

Our trade deficit actually has little to do with competitiveness, productivity, currency valuations or low wages in foreign countries. The U.S. is the most competitive, productive nation on earth. And our per capita trade deficit in manufactured goods is worst with some rather wealthy nations, including Japan, Germany, Korea, Denmark, Switzerland, Ireland and Israel, among others, debunking the "low wages" myth. A much more dominant factor is the disparity in population density between the U.S. and badly overpopulated nations, like most of those mentioned above and others as well, like China. Attempting to trade freely with nations with low per capita consumption and a huge glut of labor is a sure-fire loser. In such instances, measures must be taken to assure a balance of trade in such situations, whether it's done with trade certificates, through barter, or with tariffs.

Pete Murphy
Author, "Five Short Blasts"

What if the Credit Crunch Is Just a Symptom?

Marc, first of all, regarding your last sentence - "Re-linking wages and salaries to productivity growth is not simply a function of fairness, but an issue of economic necessity." - there has never been a link between productivity and wages. An analysis of BLS (Bureau of Labor Statistics) data bears this out. It is true that wages and productivity rose in lockstep at one time, but it was always demand for labor that drove wages higher, not productivity growth. If anything, increases in productivity tend to drive wages down as workers are freed up and returned to the pool of available labor. But wages rose because there was sufficient demand to re-absorb them back into productive roles. That is what is now broken - the demand for labor is declining as the American labor force is cast into an enormously bloated global labor force.

I agree that the credit crisis is a mere symptom. You have come very close to the root cause of our economic collapse when you identify "consumption" as the problem. The question then becomes, why is consumption declining? As population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.

These effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

Please visit my web site at PeteMurphy.wordpress.c... to learn more about this important new theory.

Pete Murphy
Author, "Five Short Blasts"

A Fed Rate Hike Won't Solve the Current Crisis

Your identification of the trade deficit as the root cause of our ills is right on. But you are wrong to believe that the falling dollar will have any significant impact. Yes, "exports" are up, due to the soaring price of grain but also due to the soaring price of oil, driving up the value of U.S. oil exports. (Yes, the U.S. does export some oil.) Our trade deficit in manufactured goods is as bad as ever. The demise of U.S. manufacturing has actually accelerated as the dollar has declined.

Rather, the trade deficit is due to granting free access to our healthy market to grossly overpopulated nations who are unable to offer access to equivalent markets in return. Their markets are emaciated by over-crowding and low per capita consumption.

A falling dollar won't help. Foreign exporters won't stand idly by and watch their share of the U.S. market evaporate just because their profits are down. They'll aggressively cut costs (and "dump" if they have to) to sustain and even grow their market share.

Pete Murphy
Author, "Five Short Blasts"

Trade: Realities and Fallout

Andy, the falling dollar has had no impact on reducing the trade deficit (contrary to predictions by economists) because currency valuations have nothing to do with the deficit. The trade deficit is rooted in granting free access to the U.S. market to grossly overpopulated nations who have no equivalent market to offer in return. Without a return to tariffs in such situations, the trade deficit is automatic and irreversible, tantamount to economic suicide.

In interested in learning more about an important new economic theory, please visit either of my web sites at OpenWindowPublishingCo... or petemurphy.wordpress.c....

Pete Murphy
Author, Five Short Blasts

What If What Economists Taught Us Is Wrong?

This question - "What if economists are wrong?" - is the very crux of my book, "Five Short Blasts." Indeed they are wrong because economists are unwilling to consider one key parameter of economics. For more info, please visit either of my web sites - OpenWindowPublishingCo... or petemurphy.wordpress.c....