1165: Wage Growth, Economic Data & Earning & Investing in a Trade War w/BBC, Forbes & Bloomberg's Jeff Ferry

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Welcome, welcome, welcome. This is episode 1165. 1165. And this is Jason Hartman. Thank you so much for joining me today. So today we are going to talk about the trade war and I think it is coming to a conclusion here fairly soon. But Charles Payne, you may know him, he is on television and the radio, he's got some really good stuff. I like his content quite a bit. Haven't followed him lately, but I used to follow him a lot years ago. Just a very bright guy, some really good ideas. So Charles Payne recently tweeted a chart which, which I retweeted at Jason Hartmanroi on Twitter and he talked about how wage gains were very significant for people with less than high school degrees soaring at the fastest rate. And wage gains for college graduates were the slowest, which I think is interesting. And this chart shows median weekly earnings change since the start of 2009. So coming out of the Great Recession, you see that below high school diploma, people that didn't even graduate from high school, they had very significant wage gains. Yet the people with higher education levels, whether it be high school diploma, bachelor's degree or higher, or just some college like yours truly, had some of the slowest wage gains. Now what does that mean? Well, I think it means something that is really long overdue because I think as a society we really need to rethink this whole college idea. You know, we've talked about this ad nauseam on the show, but it's just worth mentioning because it's such a significant part of the culture and it's Such a significant part of the debt problem, nearly one and a half trillion dollars in student loan debt now that the country has racked up. So just mind boggling. It really is. It's interesting too. I was reading an article about this new super aircraft carrier that the Navy has launched. It's called the Ford class of aircraft carriers. It's got all sorts of new technology, of course, like everything. And for some reason, Trump doesn't like this. For example, the way they catapult the planes off the aircraft carriers. Brandon, one of our clients, Brandon Cook, who's been on the show, and you've heard him before, not recently, but a while ago, he is a Navy fighter pilot. You know, the way the catapult works to push the planes off of the ship is a steam powered catapult. But the new ones on the new ship, they're electromagnetic. And for some reason, Trump doesn't like this. I don't know why he would micromanage such a thing. But I'm just saying this, you know, he has sort of this. Well, for those Trump critics listening, he has a simplistic attitude about a lot of things. I'm sure I won't get any disagreement on that, even from Trump fans. But you know, what he wants to do is really reinvigorate this kind of vocational learning, vocational education. And this is the sort of forgotten segment of the population in recent decades. And it would be nice to pay some attention to these people because as the manufacturing base comes back to the US Under Trumpism, and that is hard to argue, that's certainly happening. Those blue collar type jobs are coming back, they're getting stronger. They're seeing wage growth very significantly, per this chart that Charles Payne posted. I think there's a place for that in society. There really is. Not everybody's going to be a software programmer, not everybody's going to be a software engineer. Not everybody's going to be an industrial designer, you know, or an architect or a lawyer. God forbid we don't need more lawyers. So there's a real place for this. And folks, look, this is largely the real economy. We've talked a lot about Wall Street, Wall street versus Main Street. There's this Wall street economy, this economy, and then there's the real economy. And the financial services economy arguably doesn't really create any real value. All they do is move things around. It's like a shell game, right? And you know, things need to be financed to create products and so forth. And there's all kinds of schemes in this world. But at the end of the day, the people who make the widgets are the ones who really matter to an economy. You know, when you have a strong manufacturing base in a given real estate market, you have stability. And if you look at the markets, we tend to like those nice linear markets. They have these more stable, and I don't want to say just manufacturing, but they sort of lean toward that versus the cyclical economies, the cyclical real estate markets, they have a high emphasis on all of this smoke and mirrors economy, the Wall street type economy. They have the venture capitalists in Silicon Valley, they have the high flying finance people in LA and in Newport Beach, Fashion island, where our conference just was, in Newport center as the Wall street of the west. You know, they have the investment bankers and certainly in New York, they have all those kind of people, right? They have the, the financial services industry. And those markets are much more susceptible to extremes. They have their high flying extremes where everybody thinks they're a genius just because they really got lucky. They weren't a genius, they got lucky in speculating on real estate deals and so forth. And then they have these really ugly volatile lows. And it shows you the difference between the real economy and the, the smoke and mirrors economy, the fake economy, right? It's just a different world. And at the end of the day, you gotta make something real, a tangible thing. And look, I'm only art. Look at, I love technology, I, I love modernity. I think it's incredible what humankind has achieved with all of this stuff. But I'm just saying, look at that gets a lot of pr. That gets all the pr. It's all the funding, it gets all the venture capital, it gets all the, you know, the hot IPOs that everybody's talking about. So that gets enough. I'm not taking away from that necessarily. I'm just trying to balance it out and say, hey, pay attention to the people making the widgets, you know, doing the real work, all right? You know, that's a respectable thing. It's funny, I remember years ago I was talking with this man and can't remember where we were, what the context was, but maybe there was a small group of people talking and you know, kind of people were going around this small group we were talking in, you know, just kind of standing there socializing, you know, what do you do? What do you do? What do you do? It's, you know, hey, look, it's a reasonable question. People spend more than a third of their life engaged in their work, right? So what do you do? Is It's a big part of life, obviously, right? And so everybody was kind of talking about what they do. And I asked the guy next to me, I said, and what do you do? And he goes, I'm just a carpenter. I thought about that for a minute and I said, well, Jesus was a carpenter. You know, there's nothing insignificant about being a carpenter, okay? You know, these kinds of jobs and listen, they're not the job I do, and they're probably not the job the vast majority of you listening do, but these kind of jobs, these people that play a part in this part of the economy that deserves some real respect, you know, somebody's got to make the widgets, okay? You know, there's construction all around my home every day, right? I think about the working conditions of these construction people. It must be miserable. I mean, the job sucks, okay? I wouldn't want the job. It's just not a good job. The noise, the dust, the heat, the hours, the odd hours, the low pay. And guess who's doing all those jobs? Men. They're doing all the dirty work. The guys are doing that, right? But if you walk into any new home sales office and you walk in and there's the marble floors, the air conditioning, the coffee machine, usually an iced coffee machine, that makes those swanky coffees, right? And, you know, maybe some snacks, and everything's neat and clean and quiet, that's the information age workers. And guess who's populating that office? Mostly women, dressed nicely while the men are totally dirty, digging ditches, Right? So I'm just saying, look, it just needs to be balanced out. The discussion needs to be balanced in that side of the economy. So the thing I was talking about with Trump, though, and you know, him criticizing the new modern aircraft carriers, which is silly, okay? Trump is being an idiot when he does that, but he has this sort of respect for kind of the blue collar thing. It's interesting that we saw that so much in the last election and we've seen him really support that. And, you know, this is not a political statement. It's just an observation, right? Anyway, I just think that's kind of interesting. For whatever it's worth getting, you know, the economy has to be made up of a lot of different players, and they're all important playing their role. And the ones that don't get enough respect in the economy are the ones who are making the widgets and the ones who are doing the dirty work. And I'm just trying to bring some attention to that. That's it. That's all I'm saying here. Okay, couple of updates before we get to our guest today. Despite lower mortgage rates, pending home sales dropped 1% in February compared January. Further rate drops in March could bring more sales. So the rate scare I think has subsided for a while now. Look, the Fed does need to raise rates, there's no question about it. They're just taking a little breather right now, that's all. But ultimately, you know, rates have got to go up because they've got to reload the gun, as we've talked about before, because they're out of bullets. If another economic disaster hits, and it will eventually, it probably won't be as bad as the last one, but there will be a recession, there will be a cycle, and the Fed needs to be ready for that. And the way they get ready for it is they gotta have all their tools, all their hate to use the metaphor because some of you anti gun folks will freak out. But you know, it's a good metaphor, right? You gotta reload the gun. It's a good metaphor. Okay, so home prices, however, continued to rise in January. Nationally, prices rose 4.3% year over year, which is near the long term average pace. Now there's so much to talk about there, really. You know, if you ask most people, if you look at just the national over the course of time, they'll say 6% is about the number. But you can slice and dice that a thousand ways to Sunday, right? You can slice it and dice it by geography, by price segment, by new home, by resale home. Buy condos. Yeah, I mean, gosh, you can go on forever with that. Statistics is a complicated job, right? Okay, so global economic concerns have sent bond prices soaring this week. And this is last week we're talking about. As investors move to safety, improved bond prices have helped bring mortgage rates lower. Of course, you understand that those are opposite factors, right? When the bond prices are up, the mortgage rates are down and vice versa because that means money is moving into bonds and bonds are loans. The other side of a bond is a loan. Right? So you understand that. Okay, so fourth quarter GDP number, gross domestic product was reduced from 2.6 to 2.2%, signaling economic growth has slowed even more than was initially reported.

Reported.

And remember, a lot of the economy, especially for the past several decades, you could argue that maybe the end of the gold standard, 1971, you could talk about Bretton woods and all of these different factors that made the economy more smoke and mirrors, more financial economy versus real economy. Right? The Wall street economy versus the Main street economy. This is to be expected, no question about it, because a lot of the economy is just built on a house of cards. And it's not only the US economy, it's all over the world. The whole thing is just, it's amazing how many, and I don't mean this in the technical way of derivatives, right? You know, derivatives are an asset class. You know, I call it the thing about the thing. But, but it's amazing the human capacity to make a derivative of everything in life. Not just even financial derivatives, but derivatives of actions, derivatives of sayings, derivatives of meaning. I mean, there's just derivatives everywhere you look. The whole world is a bunch of derivatives. And not only financial derivatives, but lots of those. Two trillions worth, as a matter of fact, many trillions. Okay. Consumer confidence slumped in March. Missing forecast. This was the fourth decline in five months and could contribute to slowing the economy. Housing starts fell 8.7% in February, the most in eight months. Construction of single family homes dropped to more than a one and a half year low. Okay, so there you go. There's a couple of economic updates and they generally, I'd say, I'd say you'd have to agree. They look a little bearish, don't they? But hey, that's fine with me because I think the economy has been way too overheated, very difficult to operate. But remember, as I've said before, it is the tale of two markets. Not a tale of two cities, as the cliche goes, but a tale of two markets. The linear markets versus the cyclical markets. The linear markets are still booming. Inventory is scarce. The cyclical markets are the exact opposite. They are slumping, crashing, and inventory is plentiful. Next week we have a talk coming up that I actually recorded today. And we talked about identity theft, the modern peril, and we gave you some tips to overcome that. But I wanted to share one more thing. As I was walking the dog tonight, I was thinking, you know, there's one more really important aspect of that that is intriguing and scary as can be. And it is this story. It just came to my mind, for whatever reason, someone took a picture. Now you think, you know, you use your, your fingerprint or your thumbprint to unlock your computer or your phone, right? Maybe use your face. Okay. That's the latest iteration, right? You know, as for, we've been doing that for about what, two years now, year and a half maybe on our iPhones and such. I remember this story that someone took a picture of Angela Merkel's thumb. The German chancellor. Right. Took a picture of the thumb and basically used that photograph to unlock her iPhone. Yeah. Is that scary or what? A photograph, just photograph from a distance of a thumb could unlock an iPhone. So identity theft and this security is a huge issue. And do not become a victim of identity theft. I have been several times. You know, we're going to talk about this. You know, if you shopped at any one of these giant retailers last year, your identity has been compromised. Your credit card numbers are probably on these underworld black market websites being traded around, all kinds of crazy stuff going on. So in a couple episodes, I think it's maybe Tuesday coming up, we've got some, some tips for you on that. So look for that. Hey, without further ado, let's get to our guest. It's my pleasure to welcome Jeff Ferry. He is chief economist at the Coalition for a Prosperous America. He has written for the Washington Post, Forbes and Bloomberg News and produced documentaries on business for the BBC. And he's author of the British Renaissance. Jeff, welcome. How are you?

I'm great. Thanks for having me on your show.

Where are you located?

I'm based in Alexandria, Virginia, just outside Washington, D.C. fantastic.

The belly of the beast. Washington, D.C. so, you know, there's a lot of talk about trade in the news. Obviously, it's a very, very important thing. Kind of where do you stand and give us some insights into all this talk? You know, we hear things, mostly it's anti Trump. I think there's a media bias there, but that doesn't mean the media is wrong either, necessarily. What are your thoughts?

I think trade's a very important issue and I think often the media is wrong, unfortunately. I mean, we, the Coalition for Prosperous America, we're by partisan. We support President Trump's trade policies. We support many Democrats who agree with him, although most of them keep a low profile. But the key issue here for me as an economist is we've had half a century of trade deficits, bad trade policy, industrial decline, and we can turn that around. And we need to turn that around.

So, you know, my listeners hear me say this a lot, and I don't know if it comes down to this, maybe it's a false dichotomy, but, you know, in the very broad scheme, it seems like you can either have really cheap consumer products or you can have jobs. Is that the trade or not?

You know, that's not a bad way to caricature the situation. And our view is you can definitely want to have jobs, not cheap consumer products. Because if you go down that road. And you know, you see plenty of people in the newspapers and on Twitter saying, well, what really matters is consumer prices. But that's probably because they've got a very secure job, maybe in the public sector or somewhere where they know they're not under threat. But if you think about it, if you just focus on getting cheaper and cheaper consumer goods and asking other people to make all the things you want to buy, eventually we run out of jobs in this country and eventually people stop lending us money to buy their goods and then we're nowhere. This country got strong. You know, between 1776 and 1900, we rose to become the most powerful industrial power in the world. And we did that by producing everything from railroads to steel to textiles to cars. And then, you know, you bring history forward. And we produced many other things. The period of decline is when we began asking other nations to produce things and let us buy them because we like the cheap prices.

Yeah, well, I just have to tell you, I couldn't agree with you more. It does look good on the surface. You know, everything has become, well, not everything, certainly college education, healthcare, etc. But consumer products are great and they're cheap. I mean, it's really amazing. Like I just remember what it was like even in the 90s. And you know, we can just have so much stuff now. But what good is a house full of stuff if you don't have a job? And it's just hollowing out these well paying middle class jobs that have just been offshored. Offshored, Offshored relative relentlessly. And you know, when it comes to a national security perspective too, a country that doesn't manufacture, if you ever have to go to war again, is going to be in serious trouble. You've got to have a manufacturing base, don't you?

Absolutely right. I mean, the US is the most powerful country in the world and we've been a role model for many other countries. But make no mistake, that's because they look at our vast productive power. I mean, people remember or they read about the second World War when we went into the war and we tipped the balance very quickly. And not because we had the most brilliant generals, we had some great generals, but really because in Detroit and Pittsburgh and places like that, we weren't able to turn out airplanes, tanks, jeeps, guns, machine guns at a rate that people in the rest of the world just could not believe. And those who say, could we do that again today? I doubt it, are absolutely right. I doubt whether we could do that again if we had to.

Well, you don't want your soldiers boots to be made in China. That country could end up being your enemy. Who knows?

Yeah, and I'm not advocating that. We need to make everything at home. I mean, I believe in trade, I believe in allies and I believe in working with them. It's just in our case, it's gone too far. There's been too much de industrialization. And then a related issue is, what you're referring to is you don't want to rely for crucial imports on a country like China, which is at best a rival and at worst an enemy.

So where do we fall on this? I mean, there is a happy medium. You know, trade is, is good. And it, I think trade ultimately creates a more peaceful world. People tend to not want to destroy their own customers. Right. So that's a good thing. But where do we fall on it? Like, how do we fix it? You know, take us through maybe a little bit of kind of the Trump side of the equation and maybe the opposing viewpoint.

Sure. Okay. So, I mean, there are a number of problems in the trade arena. The most prominent one at the moment, I would say, is China. China has abused the trading system since 2001. They practice gross IP theft, intellectual property theft. They force companies to go into joint ventures inside China. And they're running a huge trade surplus with us, which recently emerged as an all time high. For 2018, it was 419 billion, if I remember the number correctly. Now that problem has to be fixed. And I think President Trump is doing the right thing and saying, look, for 20 years they've said, let us have talks. And the talks have ground on and on. And the Chinese masters at delaying and promising to set up study commissions, and meanwhile, they now dominate industries like steel, chemicals, concrete, aluminum. The list goes on and on. So we need to aggressively say to China, look, look, we're not going to transfer to you all of our technology for free. We're not going to let you steal it from us through cyber hacking and other illegal means. And we're going to insist that we close up that trade deficit. Now, will President Trump be successful in that negotiation? I couldn't tell you. Right now there's a lot of infighting in the White House. So there's people saying he should just settle for whatever is a quick compromise because the farm community is complaining. I certainly hope he hangs on for a tough deal because the Chinese economy is hurting because we have restricted their ability to export to us. But that's just one part of the problem. There's more aspects to the problem than that, I mean, we have to make our economy more competitive against the entire rest of the world. And I would say the most important single thing we could do there would be to reduce the value of the dollar. Because the dollar is too high right now. We need a lower exchange value to make all of our goods competitive.

So reduce the value of the dollar intentionally. But won't that cause inflation?

I think there's a misconception about how inflation would be impacted by policies like making the dollar more competitive. We recently ran our economic model of the US managing it to deliver a 27% devaluation of the dollar, which is the amount we think is required to balance trade over six years. And what we found was that inflation went up by roughly 1, from about. I think the numbers were from 1 1/3% to 2 and 3/4%. And that's a small price to pay because the benefits of the devaluation created what were huge. It was an extra trillion dollars on GDP, up to 6 million additional jobs, created a boom in manufacturing, positive impact on agricultural prices and wages moving up. So when you consider all those benefits, dealing with 1% more on inflation is a trivial price to pay for such an improvement.

Well, and you didn't even mention employment. What would have happened to employment? But you know what, can you just drill down on that a little bit for our listeners and for me as well? Because it seems like, look, this is what many have accused, including Trump, have accused China of, of doing right, artificially suppressing the price of their currency so that it makes their exports cheap. So this would bring more export business to America because our exports would look cheaper. But when we have to buy things outside our borders, our currency would be worth 27% less. So wouldn't we just have to pay 27% more for everything made everywhere else, or no?

Yes. So. Well, so you're asking two separate questions.

I know it's a big question, right.

And wrong, to devalue in that sort of, what are the rules of the road here? And secondly, how does it actually affect our economy? And so the first one is the rules that we have, such as we have and many countries don't obey. These rules are designed to get countries to value their currencies at a level which keeps their trade roughly balanced. That's been the goal since the Bretton woods Agreement in 1944, which first set us on this path of a combination of floating and flexible exchange rates. And the idea is, if you're a surplus country, you should let your currency rise so you tend towards balanced trade. And if you're a deficit country, you should move your currency down. So you also tend towards balanced trade. Now currency manipulation is specifically holding your currency at a level that is too low so that your surplus either stays the same or rises. And at various times, countries like China, Japan, Sing, Singapore, South Korea and Taiwan have pursued that practice. Because the US has been in deficit for 43 years, we could never be seen as a currency manipulator. Our problem is that the markets are holding our currency far higher than it ought to be to allow us to get to balance trade. So it's those currency markets that are causing the deindustrialization. Now the second question you asked me is a slightly different one. Wouldn't foreign goods be more expensive if we devalue the dollar? And this is a variation of your original question of, you know, what's more important, cheap consumer prices or jobs? And you know, I think you're right. And if we devalue the dollar, yes, foreign imports do become somewhat more expensive. But the point is by devaluing the dollar, we give a huge stimulus to our industrial sector, to our manufacturers who manufacture more goods, hire more people, invest in more factories, and we become a more productive country. And for people with jobs, which will be a growing percentage of the population, the fact that foreign imports are somewhat more expensive is less of an issue.

Yeah, I think that's true. And you know, I've done this completely oversimplified analysis. I mean, it is insanely oversimplified. But just look at it this way, like kind of common sense. If you have a job or a higher paying job like we used to have in the, in the 80s, I guess I'd say, especially where you've got these good paying American jobs, right, you're hopefully not going to spend every penny you make on expenses. Hopefully you'll save 15% of your money because you'll have a job that pays enough to allow you to save. And you're not going to be a spendthrift, right? Well, if you're paying more for products, even if there really is inflation, even if you're paying 27% more for gadgets made in China, so what? Because you're not, hopefully not spending all your money. So you have, you're building wealth. Because the, the keystone of wealth creation is accumulating capital. You've got to have capital formation for a person or a society to create wealth. If you, if you spend it all, you're not going to have any capital formation. So a very Important, you know, very basic concept. I mean, Americans, until just recently, under, you know, kind of the auspices of the Trump administration, they haven't had an increase in pay since 1977. I mean, it's in real dollars. Wages have just been flat, except for, you know, a few segments of the market. Obviously. Obviously the super high level CEOs, their wages have increased dramatically, but the mainstream American, their wages have been stagnant in real dollars.

That's absolutely right. The average production worker is earning the same amount he was in the 1970s, which violates the entire history of America and the American dream. And you know, what people believe about America, it's not a tenable situation. You're absolutely right that capital accumulation and savings are key pieces of the puzzle to create a growing economy. And what makes it possible for individuals to save is if they're working for successful companies that can pay them a good wage and bump that wage up 1, 2, 3 or 4% each year. And to do that, you've got to have growth industries. The problem with the trade deficit and with the overvalued dollar is it hollows out our growth industries. So we have fewer and fewer growth industries, you know, and those that we have, like the software industry, are hiring people in the top 5% of the income distribution and nobody else. So we've got a real problem. We've got to broaden the potential of our economy to succeed. And to do that, you know, President Trump is doing some of the right things, you know, negotiate. Renegotiating trade agreements with China and other countries is an important step. More needs to be done. As I said, we need to address the value of the dollar. We need to focus on rebuilding domestic manufacturing industries too, because manufacturing is the key to getting on that growth cycle that I spoke about. I mean, you know, there's nothing wrong with a service job. And, you know, we certainly need health care workers because, you know, we all want to be healthy. But nothing offers the opportunity to grow and get more productive and therefore pay people more the way that manufacturing does.

You know, it's, it's such an interesting thing. And I know we've got to wrap it up, Jeff, but I have noticed for the past few decades how everybody is just looking to get money from each other. In other words, you know, we can't all be each other's chiropractor and realtor. Someone actually has to make some widgets and we just can't outsource all the manufacturing of the widgets. If you want good, solid, stable, high paying, middle class jobs and you want to have a three thriving middle class, you've got to have a manufacturing base. I wholeheartedly agree, and I think Trump is finally going to bring some of those jobs back. And listen, I'm not loving everything Trump does, okay? I disagree with a lot of stuff he does, but this trade stuff, he's got it right. Jeff, thank you for joining us today. Wrap it up with a closing thought and your website please.

Sure. We are the Coalition for Prosperous America. We agree with exactly what you said, that manufacturing is key to our economy. Agriculture in the family farm is also key to our economy. And improving our trade balance there will also trigger the sort of positive cumulative effects that you'd see once we rebalance manufacturing. So check us out@ prosperousamerica.org you can read my articles under the Research tab. You can see all the activities we're doing. We're constantly talking in Washington to the public powers that be in the executive branch and the Congress about measures to improve the US Trade balance and the US Economy generally.

Excellent. Jeff Ferry, thanks for joining us.

Thank you very much for the opportunity.

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