"Closing the Border" itj Mexico--Another "Lose-Lose" Policy

I've stitched together (without cuts or corrections to any typos) Trump's tweets about "closing" the US-Mexico border.  I want to focus on one part of this (and I wish FB would let me highlight or bold  the text, but it doesn't, so I will pull that out):

“The DEMOCRATS have given us the weakest immigration laws anywhere in the World. Mexico has the strongest, & they make more than $100 Billion a year on the U.S. Therefore, CONGRESS MUST CHANGE OUR WEAK IMMIGRATION LAWS NOW, & Mexico must stop illegals from entering the U.S. through their country and our Southern Border. Mexico has for many years made a fortune off of the U.S., far greater than Border Costs. If Mexico doesn’t immediately stop ALL illegal immigration coming into the United States throug our Southern Border, I will be CLOSING the Border, or large sections of the Border, next week. This would be so easy for Mexico to do, but they just take our money and “talk.” Besides, we lose so much money with them, especially when you add in drug trafficking etc.), that the Border closing would be a good thing!”

(29 March 2019)

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"Mexico has the strongest [immigration laws--DC], & they make more than $100 Billion a year on the U.S...Mexico has for many years made a fortune off of the U.S...Mexico has for many years made a fortune off of the U.S...Besides, we lose so much money with them...that the Border closing would be a good thing!"

The only possible meaning of this has to be that the US exports a smaller value of goods and services to Mexico than we import from Mexico.  We have a "bi-lateral" trade deficit with Mexico.  And Trump is asserting that this means Mexico is making a "fortune" by trading with the US.

Let's start with the size of the balance of trade with Mexico.  (negative numbers, like -$81 billion mean a deficit--we're importing more than we're exporting, while positive numbers, like $+xx billion mean we're exporting more than we're importing).  So, what has out trade balance been with Mexico?  Here it is, annually, beginning in 2001.  (In Billions of current dollars--unadjusted for inflation.)

https://www.census.gov/foreign-trade/balance/

2001……..-$30 billion

2002………-$37

2003………-$41

2004………-$45

2005………-$50

2006………-$54

2007………-$75

2008………-$65

2009………-$48

2010………-$66

2011………-$65

2012………-$62

2013………-$55

2014………-$55

2015………-$60

2016………-$64

2017……….-$71

2018……….-$81 billion

Yep, deficits every year.  $100 billion or more in any year?  Nope.  Unless he doesn't mean *balance of trade*--he means IMPORTS.  (Which would really be crazy.)

Are persistent bilateral trade deficits a *bad* thing?  Nope.  Mexico produces things that we want, but that they can produce at a lower cost than we can.  So if we decided to import *nothing* from Mexico, we'd have to produce that for ourselves, and it would mean diverting resources from what we produce at a lower cost to producing things that would cost us more.  And that would make us worse off.  And make no mistake about it--we've been at or near full-ish employment for most of this period, so we haven't had a lot of idle workers or capital equipment sitting around.

We actually run persistent trade *surpluses* with come countries--Australia is one.

The point is that voluntary trade between people, between businesses, between countries is, generally, a good thing.  (That doesn't mean everyone always "plays fair.)  So, in general, if we stopped trading with Mexico, we'd be worth off.  If we stopped trading with Australia, we'd be worse off. 

But Trump does not see trade as a potential (and usually actual) benefit for both parties (countries, businesses...).  He sees things as zero-sum interactions--for me to "win"--for me to become better off--you have to "lose"--become worse off.  What economists think (and it's always possible we're wrong, but I doubt it) is that most trades have to be wins for both parties. 

We--the US--wins by trading with Mexico.  Australis wins by trading with us.  What Trump wants to do when he talks about closing the border--which really means closing ports of entry--has little or nothing to do with immigration.  It has to do with trade.  What Trump will do if he closes the border is shoot the US our collective foot *and* shoot Mexico in its collective foot.   Keeping the ports of entry open is not we lose, Mexico wins.  Closing the border is not we win, Mexico loses.

Closing the border is a lose-lose thing to do.  But Trump seems to be good at that.

The Current Budget and Its assumptions

The current 10-year budget plan put forward by the administration assumes that real Gross Domestic Product in the US will rise at an average annual rate of 3%.

Since 1950 (that is, excluding data covering the Great Depression, recovery from it, the WW2 and immediate post-WW2 years), the average growth rate of GDP over 4-year periods has been trending DOWN, The last 4-year period in which average annual growth in real GDP has exceeded 3% per year is the LATE 1990s.

I would suggest that the likelihood that the next 4 years--let alone the next 10 years--will achieve an average annual growth rate of 3% (or higher) is, well, slight.

Why is that?

First, population growth is slowing. In the early 1950s, population growth was abut 1.6% to 1.8% per year. It's now about 0.7% per year--and falling. It's harder for the economy to grow rapidly if the number of people available to preform the economy's work is growing slowly.

 

Second, productivity (measured as real GDP divided by the number of workers) has not been rising. Productivity growth has hardly been stable, but is has declined from about the beginning of the recession that began in 2007--and the growth in productivity has not rebounded. Since about 2014, it has been around 0.5% per year.

Getting 3% per year growth in real GDP with a more slowly growing population (and that seems unlikely to change anytime soon) and with productivity growth as anemic as it has been for several years...don't count on it.

This completely leaves out of the discussion the specifics of spending priorities in the budget.

The decline of public/mass transit in Indianapolis

I wrote this as a part of a discussion with a professional colleague about public and private transportation in urban areas.

Having grown up in Indianapolis (in the 1950s/1960s) and as I am living there again (since 2012) in my retirement, I have a perspective on the changes that have affected one bus system,

In the 1950s and early 1960s, the bus routes were fairly simple:  most traffic was from "periphery" locations and to the city center.  Employment was concentrated "downtown"; this was pre-suburban-mall days (at least for Indy), so major retail shopping was also centralized.  So the bus routes were essentially designed to channel traffic to the city center.  Indy's remarkably regular grid street system meant some of that involved transferring from one bus route (the north-south routes, typically) to another (east-west).  The population was also concentrated.  Marion County is basically square, and it's divided into 9 townships, remarkably like a tic-tac-toe grid.  By 1960, the county had about 670,000 residents--and about  50% of them lived in Center Twp.  So a bus system that concentrated on the closer-in parts of the city, and getting people to-and-from the CBD was pretty efficient.  (Also, about 20% of the households were still car-less in the late 1950s.)

Today...the county population is about 950,000.  And only 142,000 people live in Center Township.  Retail locations are now spread, and, in terms of things like "big-box" and malls, most likely to be located on the periphery, as is "office" employment. The relevant structure for a bus system is hugely more complicated, involving periphery-to-center much less and periphery-to-periphery much more.   Auto ownership is almost universal (but not so nearly universal for lower income households).   And bus patronage has declined--quite dramatically:  from 64 million passenger trips in 1950 to 25 million in 1960 to about 7 million in 2017.  Suburbanization and hollowing out of the urban core, the construction of interstate highways nearly to, and encircling, the city center, and the now almost universal access to cars--and the bus system has come close to collapse, and I see no way to salvage it.

And the principal discussion for transit is to use abandoned rail lines from the two largest ex-urban citied as the platform for light rail.  There is no bus service from those two cities--now both over 100,000 in population (and outside the central county).

The Disdain For Small, Fuel-Efficient Cars: A Characteristic of US Auto Producers

“American automakers have always hated small cars. They were barely even American. The idea of a small car seemed impossible…So when Japanese cars began to enter the market, the American makers were nonplussed. How would they respond? One way was to turn the Youngstown plant into a factory for the GM version of the small car, the Vega. But it was a low priority for the company, who never wanted to make a car like this in the first place.”[1]

I think this is largely—but only largely—true.  The Vega was not GM’s first attempt at building a small car.  That would, I think, be the Corvair,[2] [3] which debuted in 1960 and died in 1969.  As Ralph Nader famously pointed out, this was not, even for an American car of the time, a well-made, or safe, car; it was, in fact unsafe at any speed.  There were precursors, of course.  The Nash Rambler,[4] for example.  AMC (the successor to Nash) tried again with the Gremlin, which lasted from 1978 to 1978.[5]  And Ford, infamously, gave us the exploding Pinto (1970-1980).[6]

But all of these were designed and built, not because American car companies believed in them, or wanted to build them, but because the initial boom is US imports of cars were subcompacts, beginning with the WV Beetle [7] and followed by the various Japanese cars from Datsun/Nissan, Toyota, Honda, and Mazda.  Chrysler got into the game by contracting with Mitsubishi to build a subcompact—the Dodge Colt [8].  One way to judge Dodge’s commitment to the subcompact segment of the market is that it did not even design its own product (and, until at least 1976, did not require Dodge dealers to service the Colt).

It remains true to this day that Ford, GM, and the remnants of Chrysler still regard small, well-designed, fuel-efficient cars as an afterthought.

[1]http://www.lawyersgunsmoneyblog.com/2019/03/lordstown-end-industrial-era-america This entire blog post is worth a read.

[2] My first car was a 1964 Corvair—bright red. 4-on-the-floor—maybe the car I’ve owned that I liked best.

[3] Most of the discussion of the Corvair is based on the wikipedia article about it.
https://en.wikipedia.org/wiki/Chevrolet_Corvair

[4] It was produced from 1950 to 1955.
https://en.wikipedia.org/wiki/Nash_Rambler My parents bought one—used—in 1956 or 1957.  It was small, slow, uncomfortable, and (in keeping with almost all American cars of the time) not particularly fuel efficient or designed for passenger safety.

[5] https://en.wikipedia.org/wiki/AMC_Gremlin

[6] https://en.wikipedia.org/wiki/Ford_Pinto  It was also produced as the Mercury Bobcat.

[7] I bought a (1964) Beetle in 1969 and another small VW product, a 1963 Karmann Ghia in 1970 (the Beetle caught on fire).

[8] https://en.wikipedia.org/wiki/Dodge_Colt  It was on the market from 1971 to 1994.  I bought one—my first new car—in 1974.  It was followed by 2 Mazda GLCs; I finally bought something other than a subcompact in 1987, when I bought my first Honda Accord.