January – February 2016 Commentary

U.S. trade illustration
Illustration by James Yang

Automotive – Market Gains

The mass production of automobiles was forged in Detroit more than a century ago, but there was no guarantee the good times would last. By building plants in other parts of the world, automotive companies were able to lower their costs and take advantage of shipping efficiencies and cheaper wages.

By The Numbers Jan/Feb 2016

Now, as additional small-car production moves to Mexico as part of the recently completed contracts between the Big Three automakers and the United Auto Workers, presidential candidates, editorial boards, and nationalists have decried the loss of jobs as a threat to the nation’s future economic vitality. Donald Trump, if elected president, has even threatened to move automotive factories back from Mexico to the U.S.

While most Americans agree the loss of manufacturing jobs — or any job — to a foreign market negatively impacts U.S. consumer spending, the more impactful economic activity to consider is the wage scale of employees in the U.S. compared to overseas markets. A company that pays its workers a lower wage based on skill level or other metrics may be beneficial for propping up overall employment numbers, but there’s very little added value. 

The real prize of any economy is an abundance of highly skilled workers who hold an associate, bachelor’s, or graduate degree. A regional or national economy powered by talented, well-educated employees will generate many more financial gains than one dominated by workers with a high school education — a fact confirmed by numerous studies from Harvard University, Business Leaders for Michigan, and Michigan Future Inc., to name a few. 

A regional or national economy that educates and retains highly skilled workers will generate much more spending in housing, retail, insurance, health care, and electronic devices. What’s more, a mature marketplace that encourages businesses and residents to procure products and services from local sources creates additional economic activity.

In the case of the automotive industry, Ford Motor Co. and the UAW, for example, have agreed to move the production of less-expensive vehicles like the Focus and C-Max from the Michigan Assembly Plant in Wayne to Mexico in 2018. In exchange, as part of $9 billion Ford plans to invest in its U.S. production facilities, the plant is projected to build the more costly Ranger pickup and the expected launch of the Bronco SUV.

The story of Detroit’s bankruptcy was simple enough: Allow capitalism to grow the city, campaign against income inequality, tax the job creators until they flee, increase government spending in order to boost employment, promise generous pension plans to keep people voting for failure. Rinse, wash, repeat.

– Ben Shapiro, Author

While the move is a blow to President Obama, who wanted to stoke production of smaller, more fuel-efficient vehicles in the United States by offering attractive government loans for retooling factories, the reality is the president’s favored plan had little chance of succeeding. In order for the automakers to make a profit on small-vehicle production, more and more work is shifting to Mexico and beyond, including Vietnam, Thailand, China, and Argentina.

The other factor driving sales of mid-sized and luxury vehicles at the expense of small cars are low gasoline prices. With the fracking revolution in the U.S., and a glut of oil in the global marketplace, consumers are driving off of dealer lots in sedans, pickups, and SUVs like never before. The sales trend means Michigan and the nation will reap the benefits for years to come. 

Government – At the Trough

Wayne County, which has been fiscally mismanaged for years, recently saw elected commissioners approve a plan to lower payroll and benefits for municipal workers in a bid to save $230 million by 2020. It’s part of a strategy designed to eliminate $1.3 billion in long-term health care liability for active and retired employees.

While Wayne County Executive Warren Evans has done an admirable job of identifying cost savings to stave off a possible bankruptcy, the Wayne County Commission acts as if the good times never end. A few weeks after approving drastic cuts for rank-and-file workers, the commission voted to keep their rich lifetime health care benefits, as well as those of their appointees. Only Commissioner Richard LeBlanc of Westland dissented.

Evans, who has been adamant about living within the county’s means, objected when the commission moved to include his staff in the deal. Despite his opposition, the commissioners approved the enrichment scheme. What’s more, the lifetime benefits kick in after the covered workers put in eight years in office or on the job. 

The plan would be easier to swallow if the commission worked full time. As it stands, commissioners receive an annual salary of nearly $70,000 and are free to work on special assignments for additional pay. For their salary, the commissioners are required to meet as a full body twice a month. Given a complete lack of shared fiscal hardship with rank-and-file workers, Wayne County voters should move to elect future commissioners who will live within the county’s means.

Immigration – Charm Offensive

President Obama says Americans should rely on his administration to properly vet and run security checks on some 10,000 Syrian refugees who will be arriving in the United States in 2016. This is the same president who rushed to remove military forces from Iraq so he could keep a campaign promise. As it turns out, the lack of security that followed allowed ISIS to rapidly fill the vacuum.

From there, the president referred to ISIS as the junior varsity team, although soon after, the terrorist group stretched its reach through a large swath of Iraq and Syria. In early November, the president said ISIS had largely been contained. Later the same day, a group of terrorists attacked several targets in Paris, and killed and injured hundreds of people. In turn, a husband-and-wife terrorist team killed 14 people in San Bernardino, Calif. in early December.

More than 25 governors have expressed real concerns about the Obama administration’s ability to run security checks on the refugees. New Jersey Gov. Chris Christie said: “I do not trust this administration to effectively vet the people who are proposed to be coming in.” Gov. Rick Snyder expressed similar reservations, while the U.S. Congress moved to slow down the refugee process.

Unfortunately, the Obama administration’s track record leaves a lot to be desired. Obama has presided over numerous scandals since 2008, including attacks on conservative groups by the Internal Revenue Service in the lead-up to the 2012 presidential campaign, an illegal war in Libya, abuses within the Veterans Administration, the failed red line in Syria, the invasion of Ukraine by Russia, Chinese security hacks, and numerous other transgressions.