Sunday, September 18, 2016
Ford moving all production of small cars from U.S. to Mexico
This announcement has produced a lot of criticism so I thought I might mention the reason for it. The reason is that small car production is extremely competitive -- and becoming more so as China enters the market. So Ford needs a cost saving to compete with the Asian manufacturers. Otherwise sales of small Fords could nosedive, which would throw American workers out of work anyway. And the benefit to the consumer of the move is a reduced price for their small car buy.
I agree that there can be social reasons why moving production may be undesirable but in this case no American workers will lose work so I can't see any reasonable objection to the Ford move. If Trump does put a tariff on imports from Mexico he will simply be giving the entire small car market to Asian producers, notably China. Does he really want that? Ford's profits will mainly go to America. China's profits will go to China
Ford Motor said Wednesday it is shifting all of its U.S. small car production to Mexico, a development that drew fresh criticism from Republican presidential nominee Donald Trump.
Ford's declaration came as CEO Mark Fields sought to appeal to investors.
"Over the next two to three years, we will have migrated all of our small car production to Mexico and out of the United States," Fields told a meeting in Dearborn, Mich., where the company is based.
But the new development played perfectly for Trump, who was campaigning in Michigan, the traditional home to the nation's auto industry. As recently as April, he blasted Ford's plans to move production to Mexico as an "absolute disgrace." And on Wednesday, he picked up the beat again as he visited Flint, which has been hard hit by the loss of auto worker jobs.
"We shouldn’t allow it to happen. They’ll make their cars, they’ll employ thousands of people, not from this country, and they’ll sell their car across the border," Trump said. "When we send our jobs out of Michigan, we’re also sending our tax base."
In Michigan, Ford's announcement didn't come as a great surprise. Ford has said it continues to invest heavily in its U.S. plants and isn't cutting jobs here. Last fall, the automaker made a commitment to invest $9 billion in U.S. plants, with about half going to 11 facilities in Michigan. The deal created or retained more than 8,500 jobs as part of a new four-year contract with the United Auto Workers union, a net increase in the U.S.
Still, UAW President Dennis Williams has repeatedly blasted Ford and other automakers for investing so much money in Mexico.
"There is no reason, mathematically, to go ahead and run to countries like Mexico, Thailand and Taiwan," Williams said earlier this year. "We all recognize there is a huge problem in Mexico. So we have to address it as a nation. The UAW cannot do it alone. We are not naive."
Explaining Donald Trump's Penny Plan for Non-Defense Spending
Much of the attention in Thursday's remarks by Republican presidential candidate Donald Trump has focused on his revised tax plan, but another new policy could have significant effects on the budget: applying the "Penny Plan" to certain domestic spending. This plan would gradually reduce the caps on non-defense discretionary (NDD) spending by shrinking them 1 percent per year (as opposed to allowing them to grow roughly with inflation) and doing the same to certain other mandatory non-defense spending. By our estimates, applying the Penny Plan to the NDD caps alone would save roughly $630 billion but would shrink the NDD budget by roughly one-quarter within a decade.
The Penny Plan has been proposed before, including by Representative Connie Mack (R-FL) and Senate Budget Committee Chair Mike Enzi (R-WY) in Congress and by former presidential candidates Ben Carson and Senator Rand Paul (R-KY) during the Republican presidential primary. The basic idea behind the Penny Plan is straightforward: it would reduce spending by 1 percent per year in nominal dollars, so that, for example, $100 billion of spending would decline to $99 billion the next year, then $98.01 billion the following year, and so on. Over time, a 1 percent reduction would represent a significant reduction in spending relative to current law, where average spending is projected to grow by over 4 percent per year. Indeed, the traditional version of the Penny Plan would lead to potentially drastic cuts since it would be working against rising health costs and an aging population.
Unlike the traditional version, Trump's Penny Plan would only apply cuts to a subset of the budget, most of which is already capped and not growing particularly rapidly. Specifically, he would apply the Penny Plan to the NDD caps and select non-defense, non-entitlement, and non-safety net spending. The campaign claims this could save $1 trillion over ten years – a bit higher than our estimates, but not dramatically so.
This year, NDD budget authority (the amount of new obligations federal agencies can make) was capped at $518 billion, and under current law, this cap is scheduled to remain roughly flat for the next two years then increase roughly with inflation each year after that, reaching $627 billion in 2026. Under Trump's plan, spending would instead decline one percent each year to $469 billion by 2026 for total ten-year BA savings of nearly $740 billion. Since the plan affects growth rates, the cuts would grow larger over time so that by 2026, non-defense discretionary spending would be cut by one-quarter relative to current law. It would be cut by somewhat more than one-quarter compared to current spending adjusted for inflation.
As a result of these cuts, the caps would be about $740 billion lower over the next decade than under current law, which would translate into $630 billion of outlay savings over a decade. Scheduling these savings to occur would be relatively easy: it would simply require lowering and extending the existing NDD caps. Meeting those caps, however, would require lawmakers to make tough choices and identify significant cuts to many areas of government spending each year.
Trump's Penny Plan would also apply to some mandatory spending, though it's not exactly clear to which programs. He specifically mentions that he would exempt Social Security, Medicare, Medicaid, and veterans' programs but otherwise states he would exempt "entitlement" and/or "safety net" programs. The majority of the remaining spending comes from federal retirement programs, but it is not clear whether those would count as entitlement programs or not. Either way, it does not seem likely that applying the Penny Plan to the mandatory spending that Trump does not exempt would yield enough savings to bring the total savings to $1 trillion. Savings of $700 billion to $800 billion over a decade are more likely.
Trump's Penny Plan is a welcome proposal to offset a portion the cost of his tax plan and other proposals. It appears that the savings would fall slightly short of the $1 trillion the campaign claims but would still generate substantial budget savings. Still, implementing the proposal would be quite difficult without eliminating or dramatically scaling back several government functions, and we would encourage the Trump campaign to identify where at least some of these cuts would come from.
In addition, this Penny plan would only pay for a fraction of Trump's tax plan, so significant additional savings – particularly from the fastest growing parts of the budget – will ultimately be necessary.
Washington’s Wake-Up Call
When I testified on Capitol Hill last week on the subject of the national debt, I found myself in the odd position of hoping our elected representatives would find my testimony of little value because it would strike them as so obvious.
As I told them, they know, or should know, that our federal deficits have been running at historically unprecedented levels, so much so that another half-trillion dollars this year was met with a yawn. They know, or should know, that our national debt has reached a peacetime record, and is heading for territory where other nations have spiraled into default, or into the loss of sovereignty as creditors use their leverage to dictate terms.
They know, or should know, that public debt this large weighs heavily on economic growth, crowding out private investment and discouraging it through uncertainty. And that much faster growth than today’s is the sine qua non of the greater revenues necessary to meet federal obligations, let alone reduce our debt burdens.
They know, or should know, that the unchecked explosion of so-called entitlement spending, coupled with debt service, is squeezing every other federal activity—from the FBI to basic scientific research to our national parks to the defense on which the physical survival of the country depends.
They know, or should know, that the problem is getting worse, and fast. Even if reform began today, past overpromising and demographic realities mean that the entitlement monster is going to devour accelerating amounts of additional dollars, all of which are scheduled to be borrowed rather than funded honestly.
They know, or should know, that official projections of growing indebtedness—even the appalling estimates I just referred to—are built on a foundation of wishful thinking: productivity assumptions are too high, interest rate assumptions too low; growth too high, spending too low. As each of these is proven unduly rosy, more zeros will be added to the bill we hand to the young people of this country. So let me offer an appeal on behalf of those young people and the new Americans not yet with us. The appeal is for a shift in national policy to the growth of the private, productive economy as our all-out, primary priority. And for decisive action soon that begins the gradual moderation of unkeepable promises and unpayable debts that will otherwise be dumped on coming generations.
A national government that, year after year, borrows enormous sums and spends them not on genuine investment in the future but on current consumption, passing the bill down to others, pretending that the problem is smaller than it really is, lacks not only good judgment but integrity. It is not hyperbole to label such behavior immoral. For a long time, people have gone to Congress decrying the intergenerational injustice of this policy, yet things keep getting worse.
A near-decade of anemic growth and the weakest postrecession recovery on record has eroded Americans’ economic optimism. A 2015 Rasmussen survey found that nearly half (48%) of likely voters “think America’s best days are in the past.” As this new pessimism has deepened, it has turned into an ugliness, a meanness, a new cynicism in our national life, with a search for scapegoats on the left and the right.
For nearly two and a half centuries, Americans have shared a resilient determination to be self-governing, to guard against tyranny at home and, on occasion, to resist by force its spread elsewhere. But lately there are alarming signals of a different outlook.
According to the World Values Survey, as reported by Roberto Stefan Foa and Yascha Mounk in the July edition of the Journal of Democracy, in 2011 a record one in four American citizens said that democracy is a “bad way” to run the country, and an even larger number would prefer an authoritarian leader who didn’t have to deal with the nuisance of elections.
When today’s young Americans learn the extent of the debt burden we have left them, they will legitimately question the premises of self-government. When tomorrow’s older Americans finally understand how they have been misled about the nature and the reliability of our fundamental social welfare programs, it may be the last straw breaking the public confidence on which democracy itself depends.
In fairness, a few members in each political party have tried to address the coming crisis. To them, all thanks and credit. To those still in denial, or even advocating steps that would make our debts even higher, please reconsider. Your careers may end happily before the reckoning. Your re-elections may not be threatened by your inaction. But your consciences—and what Lincoln called “government of the people, by the people, for the people”—will be.
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Posted by JR at 12:33 AM