CPA Gone Mad Issue 8: January 23, 2017
“We Will Bring Back Our Jobs…We Will Not Fail. Our Country Will Thrive and Prosper Again.”
These are words from President Trump’s inauguration speech. I didn’t want to write about the whole “bringing back manufacturing jobs” topic again. I didn’t even plan to watch the inauguration speech. But I did, so I have to…
The majority of the WSJ.com headlines and articles I read this week and last were about auto manufacturers being pressured to produce cars in the US. Even Walmart said they were going to create more US jobs. Trump was tweeting all week how great this was, that he got it done, and there’s more to come.
Then on Friday night I turned on the TV and a replay of President Trump’s inauguration speech was on, and I got sucked in. I even got excited about how much he was saying the power is going back to the people and he’s kicking out the establishment. Then reality set in…
“We will bring back our jobs. We will bring back our borders. We will bring back our wealth, and we will bring back our dreams. We will build new roads and highways and bridges and airports and tunnels and railways all across our wonderful nation. We will get our people off of welfare and back to work rebuilding our country with American hands and American labor. We will follow two simple rules – buy American and hire American.”
I heard President Trump say that, and that’s when reality set in. He’s not kicking out the establishment, he’s doing exactly what the establishment wants. The only thing he’s doing differently is not catering to just Republicans or just Democrats – he’s catering to a little of both.
This is going to be a better economy; this is going to be higher prices and higher deficits. More of the same. Well, until the bubble pops, and then it’s going to be chaos.
It’s Not the Role of Government to Decide Where Cars Are Manufactured. Jobs Leaving Is Not the Problem. And “Forcing” Them Back Is Not the Solution.
I’m taking a bit of a risk this week. I’m going to talk briefly about how this impacts the economy and stock market, but I’ve already done that, so hopefully you already understand it. This week may sound a little political, and at the risk of losing some subscribers who may not agree with me, I feel it’s necessary to explain the real problem.
I’m not bashing Republicans or Democrats, so please don’t feel offended if you’re one of them. I’m bashing all government and all politicians, and saying that it’s up to us as individuals to create the life we desire. Not some central ruling group who doesn’t understand the life we desire.
Before I get going, let me say that I’m a libertarian. I believe government should serve the small role of protecting its citizens from direct threats to the US, not perceived threats outside our borders. This includes protecting US citizens by enforcing personal property laws and maintaining an environment that allows equal opportunity. Without going into much detail, I also support local government collecting small taxes in order to provide quality education to our children. But the education system in place today that focuses more on unions and not children is not what I support.
Outside of that, each and every one of us is an individual. Yes, we may have certain beliefs, hobbies, and personal goals that are similar to others’ because of our proximity to one another. But ultimately, only each individual knows what is truly best for himself or herself. No central ruling group has any idea what is best for each of us individually.
That’s what makes life so great and interesting – the fact we are all different and have different beliefs and goals. When those intertwine freely, it creates amazing opportunities and experiences.
I believe we should be left alone by government and take the personal responsibility to observe our surroundings and take the necessary steps in each of our own lives to achieve the outcomes we desire. Let our surroundings operate as they may, as long as they’re not infringing on anyone else, but give us the freedom, as long as we’re not infringing on anyone else, to do what we need to do to accomplish the goals each of us individually believes is worthy.
Jobs Leaving This Country Created the “Wealth” We Have.
With that out of the way, hopefully you will understand my perspective and my goal, which is observing what’s being said and attempting to explain how it impacts you and your finances. I’m not saying that certain policies are right or wrong, because, personally, I think most policies should not exist.
From the inauguration speech: “Politicians prospered, but the jobs left. And the factories closed…One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind.”
Now, I agree politicians prospered, and that they did so without a thought about the American workers left behind may be true. But is that anyone’s fault but our own?
Since 1971, when the US dollar came off the gold standard, we have been able to effectively “print” money without having to work for it. Once the US dollar was not pegged to gold, as the US increased its money supply, it was essentially borrowing money.
Where did this borrowed money go (and hence come from)? Countries such as China, Mexico, Vietnam, South Korea, and India. Americans had money that was “borrowed,” and we wanted to spend it. These other countries wanted those US dollars badly enough that they were willing to work for much, much less than Americans, who had become accustomed to high-paying manufacturing jobs.
These other countries were also willing to work harder, longer, and in poorer conditions than Americans were. You can argue that it’s inhumane to work in those conditions, but that’s only because you don’t have to in America. Those conditions may be no different than those our ancestors were willing to work in during the early days of the US. And the workers in other countries choose to work in those conditions. Who are we to tell them they shouldn’t have a job they are willing to do? Especially when we love buying the cheap products they produce.
Corporations are about making profits for shareholders. If they can reduce costs by moving jobs overseas, why should they not choose to do so? Especially if we will continue to buy the products and be thrilled that the price may be even lower, which is what drove the rise of Walmart. Walmart would not exist as a low-cost provider of goods if those goods were produced in the US.
As corporations made piles of money from Americans who were using borrowed money to buy cheap products from overseas, they invested in technology. I don’t see many people volunteering to give up their technology. But without corporate profits, there would not have been the investment that made today’s technology possible.
Remember, I’m not saying any of this is right or wrong. I’m simply explaining it.
You Can’t Borrow Money Forever Without Repaying It.
Politicians from both sides, discovering they could stay in power through this use of borrowed money, began choosing platforms that pandered to what they believed the majority preferred.
Democrats took the stance of supporting entitlements, clean energy, and free education. Republicans took the stance of supporting lower taxes, military spending, and big corporations. Both are doing the same thing – taking borrowed money and trying to convince over 50% of the population that their agenda is better.
Don’t forget, in this election Donald Trump won the electoral vote but Hillary Clinton won the popular vote. The vote shows that the US population is split pretty evenly between which agenda it believes is better.
But ultimately, it’s all the same – borrow money and use it to cater to whichever 50% you can get to show up to vote.
The problem is that at some point, the amount of borrowed money gets so large you cannot borrow more. Or even if you can, the law of diminishing returns means that you have to borrow more than you did before to achieve the same effects.
I believe that point was reached in 2008. It’s why President Obama and his administration had to add more to the national debt than anyone before him. We just covered up the problem in 2008. It was never fixed, and that is how Trump got elected.
President George W. Bush got elected by using the promise of borrowed money on war and making the military industry a ton of money. President Obama got elected by using the promise of growing entitlements for the poor and then ultimately for using borrowed money to bail out Wall Street and making the 1% a ton of money.
Over the past 16 year, we’ve added over $13 trillion to the national deficit, but a large group of people received no benefit from this borrowed money. Who?
Middle-class workers. Manufacturers, factory workers, infrastructure workers. Even though President Obama supported the unions, he didn’t do anything to grow union jobs.
Trump understood this. He realized that middle-class workers created a 50% that crossed the Republican and Democrat lines. He was confident he could get that group of people out to vote. And to his credit, he did.
Now what he’s planning to do is spend more money to “force” these jobs back into the US. But with the law of diminishing returns already in effect on the national debt, it will take even more debt than that incurred by either President Obama or President Bush, or possibly by both combined.
Does President Trump care? Nope, he loves using debt. But if you never pay back your debt, won’t you eventually run out of people able to lend you the money you want to spend?
Not only that, President Trump is threatening to move jobs away from the countries that have been lending us the money. If China, Mexico, Vietnam, etc., are not producing the goods to sell to us, they will not have the money to lend us (i.e. create demand for US dollars).
You can’t just never pay back the money you borrowed and at the same time destroy the cash flow of the people who were lending you the money.
What Does All This Mean for the Economy?
As jobs move back into the US, they will not be low-paying jobs. American workers and unions will demand that these jobs pay much, much more than they do in China or Mexico. Who is going to pay these higher wages?
You and I. Yes, people may happily go back to work, but the prices of the goods they make and services they perform will begin steadily rising. Corporations will not allow the higher costs to decrease earnings. They will increase prices to offset increased wages. For a period this will seem fine because lower taxes may offset some of the higher wages, but it will not last and lower taxes will mean more government deficits.
Soon, prices will get so high that workers who were at first happy simply to be working won’t be able to afford anything they are making. This will ultimately cause jobs to be lost again – not because the jobs move overseas but because demand for the goods they produce no longer exists, because most people cannot afford them.
And that’s not all. Technology will also displace these jobs. Companies will feverishly begin replacing jobs with technology in order to try to keep costs down.
You might temporarily have a $45/hour job making a Ford truck, but when that truck begins selling for a base price of $120,000, most people will not be able to afford it, so you’ll lose that job. Or to try to at least keep the price of that truck at $100,000, Ford will automate your job.
Either way, the jobs will not stay. And on top of that, with inflation running rampant, the economy will move into a depression. We will be unable to get out of the debt we’ve created. And if we’ve destroyed all the foreign economies by taking their jobs in order to bring them back to the US, there will be nobody to lend us money (i.e. create demand for more US dollars). We won’t be able to borrow our way out again like we did in 2008.
We Have Nobody to Blame But Ourselves.
Look, I want to blame the politicians as much as anyone. But from 1971 until 2008, we became fat and happy. We were loving the cheap goods and free money that allowed us to live a great life without working very hard to get ahead. Yes, the politicians put the system in place, but we loved it and didn’t complain or vote them out.
As a population, instead of being fat and happy, we should have been retooling. Re-skilling ourselves. Not wanting a manufacturing job to come back but figuring out how to get the skills we needed to find a job in a changing environment.
That’s ultimately the only way out. We need to realize the old jobs are gone. We have to be willing to accept no job and poverty, do a job we perceive as being “beneath” us, or re-skill ourselves to do a job that will exist in the years to come.
There will always be others willing to do jobs for less pay than we are. We have to understand this, and if we don’t want to accept that lower pay, take the initiative to learn the skills needed to do the higher-paying job of the future.
And don’t think debt is the solution. Debt is not the alternative to taking the initiative to learn the skills needed to do the next job. All debt does is cover up the issue and push it out for the next generation to deal with.
I hope you don’t unsubscribe after reading this. I hope you understand that I’m only trying to explain what’s going on – that nobody is going to make the economy better by promising things from either side of the political lines.
One central group of people cannot decide what is best and that it’s the only way things will get better. Because it will always only be appealing to a slight majority and not be based on real productivity. Individuals must make the decision and take the personal responsibility (without infringing on others) to learn and figure out how to improve their own situations to achieve the standards they desire. Using government to force jobs back to the US will not solve anything. It will cause inflation to spike higher and faster, creating a recession or depression.
Government’s limited role should only be to create and protect the environment in which this can occur. And that environment certainly does not exist today.
I may sound like a broken record as I say repeatedly that I don’t know when this crash will come, I just want you to understand why it’s inevitable. Because I do believe initially the market will rise to some level of euphoria. But since you have a long-term horizon, you can take the steps today that are needed to protect yourself and prosper through the inevitable crash. Then, as I explained last week, you can ignore the noise of the ups and downs that will occur until we get there.
If there’s one thing I can promise you, it’s this: it is going to be hard to believe I’m correct when I say a major crash is coming, because the exact opposite will be predicted by mainstream financial outlets. It’s going to appear I’m 100% wrong, up until the moment I’m correct.
I don’t want you to get caught up in the noise and be on the wrong side when the inevitable crisis occurs. But the only way I know to help you feel comfortable is by explaining the situation as it is, even though I risk losing subscribers by doing so.
But that’s okay, because those who unsubscribe were never going to take action to protect and prosper anyway. So hopefully what I’m doing will have enough impact on those who remain that they’ll take the action needed to protect and prosper.
To your health, wealth, and personal freedom.
Chad A. Walker, CPA, MBA
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