NAFTA’s Impact on the U.S. Economy: What Are the Facts?

On the positive side, overall trade between the three NAFTA partners — the U.S., Canada and Mexico — has increased sharply over the pact’s history, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. Cross-border investment has also surged during those years, as the stock of U.S. foreign direct investment (FDI) in Mexico rose from $15 billion to more than $107.8 billion in 2014. As for job growth, according to the U.S. Chamber of Commerce, six million U.S. jobs depend on U.S. trade with Mexico, a flow that has been greatly facilitated by NAFTA, which has helped eliminate costly tariff and non-tariff barriers. NAFTA has also facilitated a multi-layered integration of the U.S., Mexican and Canadian supply chains.

According to the Wilson Center, twenty-five cents out of every dollar of goods that are imported from Canada to the U.S. is actually “Made in USA” content, as are 40 cents out of every dollar for goods imported into the U.S. from Mexico.

Geronimo Gutierrez, managing director of the North American Development Bank (NADB), notes that trade between the United States and Mexico reached over $500 billion in 2015, a five-fold increase since 1992, when NAFTA negotiations concluded. Thus, he explains, Mexico imports more from the U.S. these days than do all of the so-called BRIC nations combined – Brazil, Russia, India and China. (The NADB acts as a binational catalyst in helping communities along the U.S.-Mexico border develop affordable, long-term infrastructure.)  

Gutierrez adds that there are lesser-known benefits of NAFTA. By promoting the tight integration of North American industrial supply chains, “NAFTA is creating partners and not competitors among its member countries. As for Mexico’s interest in this bilateral relationship, it can be summarized in two facts: about 80% of Mexico’s exports go to the U.S., while 50% of the accumulated foreign direct investment received between 2000 and 2011 comes from the U.S.

Moreover, NAFTA has been the fundamental anchor for reforms that make Mexico a more modern economy and open society.”

A Modest Impact

For all that, most studies conclude that NAFTA has had only a modest positive impact on U.S. GDP.

For example, according to a 2014 report by the Peterson Institute for International Economics (PIIE), the United States has been $127 billion richer each year thanks to “extra” trade growth fostered by NAFTA. For the United States, with its population of 320 million at the time of that study, the pure economic payoff was thus only $400 per person, while per capita GDP was close to $50,000. And while the costs of NAFTA are highly concentrated in specific industries like auto manufacturing — where job losses may be significant for specific firms — the benefits of the trade pact (such as lower prices for imported electronics or clothing) are distributed widely across the U.S., as they are in the case of any trade pact worldwide.

Supporters of NAFTA estimate that some 14 million jobs rely on trade with Canada and Mexico combined, and the nearly 200,000 export-related jobs created annually by NAFTA pay an average salary of 15% to 20% more than the jobs that were lost, according to a PIIE study. Furthermore, the study found that only about 15,000 jobs on net are lost each year due to NAFTA. “On our reckoning, since NAFTA’s enactment, fewer than 5% of U.S. workers who have lost jobs from sizable layoffs (such as when large plants close down) can be attributed to rising imports from Mexico,” wrote its authors, PIIE senior fellow Gary Clyde Hufbauer and research analyst Cathleen Cimino-Isaacs. For the roughly 200,000 out of 4 million people who lose their jobs annually under these circumstances, the job losses can be attributed to rising imports from Mexico, they wrote, but “almost the same number of new jobs has been created annually by rising U.S. exports to Mexico.” Moreover, “For every net job lost in this definition, the gains to the U.S. economy were about $450,000, owing to enhanced productivity of the workforce, a broader range of goods and services, and lower prices at the checkout counter for households.”

Trade specialists agree that it has proven difficult to separate the deal’s direct effects on trade and investment from other factors, including rapid improvements in technology, expanded trade with other countries such as China and unrelated domestic developments in each of the countries.

Walter Kemmsies, managing director, economist and chief strategist at JLL Ports Airports and Global Infrastructure, notes that that many of the job losses that are popularly blamed on NAFTA would likely have taken place even in the absence of NAFTA, in part because of growing competition from China-based manufacturers, many of which have taken advantage of currency manipulation by the Chinese government that has rendered China-made products more price-competitive in the U.S. Likewise, Mauro Guillen, head of Wharton’s Lauder Institute, agrees that without NAFTA, many American jobs that were lost over this period would probably have gone to China or elsewhere. “Perhaps NAFTA accelerated the process, but it did not make a huge difference.”

“A lot of instant experts on NAFTA don’t really understand trade and what drives trade,” said Kemmsies. “And so they get confused between NAFTA and the globalization of the world’s economy. The fact is, with or without NAFTA, we would have done a lot more trade with Mexico anyway. I’m not sure that NAFTA has even fostered any growth of trade between the U.S. and Mexico. Look at Mexico and forget about everything else for a second: What is the single-biggest trade-flow corridor in the world? It’s East-West — Asia to Europe to North America. Mexico happens to sit right smack in the middle of the East-West trade flow…. Here is Mexico, with 120 million people, and all of these abilities to draw raw materials…. You have a cheap labor force, a global geographic advantage, a rising middle class. It’s a good place to make stuff.”

For a long time, because of a lack of investment, Mexico’s infrastructure was well below par, including its ports, which were made to process raw materials, rather than handle industrial goods. In that respect, NAFTA has had a positive impact on Mexico’s economic development, and it has encouraged foreign investors to trust that Mexico, whose governments were long protectionist and populist, would follow the rule of international law. International trade specialists M. Angeles Villarreal and Ian F. Fergusson of the Congressional Research Service wrote in a recent report: “While Mexico’s unilateral trade and investment liberalization measures in the 1980s and early 1990s contributed to the increase of U.S. Foreign Direct Investment (FDI) in Mexico, NAFTA provisions on foreign investment may have helped to lock in Mexico’s reforms and increase investor confidence [in Mexico.]” Nearly half of total FDI investment in Mexico is in its booming manufacturing sector.

Job Losses and Lower Wages

Some critics argue that NAFTA is to blame for job losses and wage stagnation in the U.S., because competition from Mexican firms has forced many U.S. firms to relocate to Mexico.

Between 1993 and 2014, the U.S.-Mexico trade balance swung from a $1.7 billion U.S. surplus to a $54 billion deficit. Economists such as Dean Baker of the Center for Economic and Policy Research and Robert Scott, chief economist at the Economic Policy Institute, argue that the consequent surge of imports from Mexico into the U.S. coincided with the loss of up to 600,000 U.S. jobs over two decades, although they admit that some of that import growth would likely have happened even without NAFTA.

While conceding that many U.S. high-wage manufacturing jobs were relocated to Mexico, China and other foreign locations as a result of NAFTA, Morris Cohen, Wharton professor of operations and information management, argues that NAFTA has, on balance, been a good thing for the U.S. economy and U.S. corporations. “The sucking sound that Ross Perot predicted did not occur; many jobs were created in Canada and Mexico, and [the resulting] economic activity created a somewhat seamless supply chain — a North American supply chain that allowed North American auto companies to be more profitable and more competitive.”

Moreover, in their 2015 study published by Congressional Research Service, Villarreal and Fergusson noted, “The overall economic impact of NAFTA is difficult to measure since trade and investment trends are influenced by numerous other economic variables, such as economic growth, inflation, and currency fluctuations. The agreement may have accelerated the trade liberalization that was already taking place, but many of these changes may have taken place with or without an agreement.”

Some of its harshest critics concede that NAFTA should not be held entirely responsible for the recent loss of U.S. industrial jobs. According to Scott of the Economic Policy Institute, “Over the past two decades, currency manipulation by about 20 countries, led by China, has inflated U.S. trade deficits, which [in combination with the lingering effects of the Great Recession] is largely responsible for the loss of more than five million U.S. manufacturing jobs.” Scott argues that while NAFTA and other trade deals such as the Trans-Pacific Partnership are bad for American workers, the fundamental problem is not that they are “free trade” pacts, but that they “are designed to create a separate, global set of rules to protect foreign investors and encourage the outsourcing of production from the United States to other countries.”

Unlike the earliest generation of “free-trade agreements” – which focused on reducing or eliminating tariffs and duties that stifled trade — these newer pacts are more comprehensive.

As Scott explains, they “contain 30 or more chapters providing special protections for foreign investors; extending patents and copyrights; privatizing markets for public services such as education, health, and public utilities; and ‘harmonizing’ regulations in ways that limit or prevent governments from protecting the public health or environment.” When critics of the TPP conflate their criticism of that pact with their criticism of “free trade,” they miss an essential element of the TPP that has disaffected many otherwise loyal supporters of earlier-generation agreements that truly focus on deregulation of “trade” per se, he notes.

The Role of China

Two decades ago, when NAFTA was born, China had only a faint presence in the global economy, and was not yet even a member of the World Trade Organization. However, the share of U.S. spending on Chinese goods rose nearly eight-fold between 1991 and 2007. By 2015, U.S. trade in goods and services with China totaled $659 billion— with the U.S. importing $336 billion more than it exported. China has become the U.S.’s top trading partner for goods — a development never anticipated at the signing of NAFTA. And yet, NAFTA continues to attract the lion’s share of the blame among U.S. critics of globalization, despite the fact that the U.S. and China have yet to sign any bilateral free-trade treaty.

How is that possible? In a recent study that de-emphasized the impact of NAFTA on the U.S. economy, economists David Autor (MIT), David Dorn (University of Zurich) and Gordon Hanson (University of California, San Diego) stress the role of China’s emergence on job growth and wages in the U.S. In the study, published by the National Bureau of Economic Research, they write: “China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences…. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists.”

As Robert Blecker, an economist at American University, notes, “Contrary to the promises of the leaders who promoted it, NAFTA did not make Mexico converge to the United States in per capita income, nor did it solve Mexico’s employment problems or stem the flow of migration.”

However, “NAFTA did foster greater U.S.-Mexican integration and helped transform Mexico into a major exporter of manufactured goods.”

The benefits for the Mexican economy were attenuated, however, by heavy dependence on imported intermediate inputs in export production, as well as by Chinese competition in the U.S. market and domestically. The long-run increase in manufacturing employment in Mexico (about 400,000 jobs) was small and disappointing, while U.S. manufacturing plummeted by 5 million — but more because of Chinese imports than imports from Mexico. In both Mexico and the United States, real wages have stagnated while productivity has continued to increase, leading to higher profit shares and a tendency toward greater inequality.”

Blaming NAFTA for all of these disturbing problems may make some NAFTA critics feel good, but as trade researchers have learned in recent years, the growing complexity of today’s economic challenges defies any simplistic explanations.

The tide of globalisation is turning

Trade liberalisation has stalled and one can see a steady rise in protectionist measures
Has the tide of globalisation turned? This is a vitally important question. The answer is closely connected to the state of the world economy and the west’s politics.
Migration raises quite specific issues. The era of globalisation was not accompanied by a general commitment to liberalising flows of people. So I will focus here on trade and capital flows. The evidence in these areas seems quite clear. Globalisation has reached a plateau and, in some areas, is in reverse.
An analysis from the Peterson Institute for International Economics argues that ratios of world trade to output have been flat since 2008, making this the longest period of such stagnation since the second world war. According to Global Trade Alert, even the volume of world trade stagnated between January 2015 and March 2016, though the world economy continued to grow. The stock of cross-border financial assets peaked at 57 per cent of global output in 2007, falling to 36 per cent by 2015. Finally, inflows of foreign direct investment have remained well below the 3.3 per cent of world output attained in 2007, though the stock continues to rise, albeit slowly, relative to output. 
Thus, the impetus towards further economic integration has stalled and in some respects gone into reverse. Globalisation is no longer driving world growth. If this process is indeed coming to an end, or even going into reverse, it would not be the first time since the industrial revolution, in the early 19th century. Another period of globalisation, in an era of empires, occurred in the late 19th century. The first world war ended this and the Great Depression destroyed it. A principal focus of US economic and foreign policy after 1945 was to recreate the global economy, but this time among sovereign states and guided by international economic institutions. If Donald Trump, who has embraced protectionism and denigrated global institutions, were to be elected president in November, it would be a repudiation of a central thrust of postwar US policy.

Given the historical record and the current politics of trade, notably in the US, it is natural to ask whether the same could happen to the more recent era of globalisation. That requires us to understand the drivers.

Part of the reason for the slowdown is that many opportunities are, if not exhausted, radically diminished. When, for example, the production of essentially all labour-intensive manufactures has moved out of the rich countries, the growth of trade in such products must fall. Similarly, when the biggest investment boom in the history of the world, that in China, slows, so too must the demand for many commodities. That will affect both their prices and their quantities.

Again, the end of once-in-a-lifetime global credit boom is sure to lead to a decline in the cross-border holdings of financial assets. Finally, after decades of FDI, a host of companies with something to gain from it will have taken their opportunity and succeeded or, in important cases, failed.

Yet this is not all there is to this story. Trade liberalisation has stalled and one can see a steady rise in protectionist measures. The financial crisis brought with it regulatory measures, many of which are bound to slow cross-border financial flows. The rise of xenophobic sentiment and the slowdown in trade are both likely to reduce the growth of FDI. In brief, policy is less supportive.

The politics are becoming even less so. Again, the US is the central part of the story. Mr Trump is much the most protectionist candidate for US president since the 1930s. But, revealingly, Hillary Clinton, an architect of the US “pivot to Asia” has turned against the Trans-Pacific Partnership of which she was once a keen supporter. The Transatlantic Trade and Investment Partnership, being negotiated between the US and the EU, is now in deep trouble. The Doha round of multilateral trade negotiations is moribund. Above all, important segments of the western public no longer believes increased trade benefits them. Evidence on relative real incomes and adjustment to rising imports provides some support for such scepticism.
Globalisation has at best stalled. Could it even go into reverse? Yes. It requires peace among the great powers. Some would also argue it requires a hegemonic power: the UK before 1914 and the US after 1945. At a time of poor economic performance in leading high-income countries, rising inequality and big shifts in the balance of global power, another collapse must be a possibility. Consider the impact of any fighting between the US and China over the South China Sea, though such a calamity would be terrifying for far more than its narrow economic effects.

Does globalisation’s stalling matter? Yes. The era of globalisation has seen the first fall in global inequality of household incomes since the early 19th century. Between 1980 and 2015, average global real income rose by 120 per cent. The opportunities afforded by globalisation are vital. Our future cannot lie in closing ourselves off from one another.

The failure — a profound one — lies in not ensuring that gains were more equally shared, notably within high-income economies. Equally dismal was the failure to cushion those adversely affected.

But we cannot stop economic change. Moreover, the impact on jobs and wages of rising productivity and new technologies has far exceeded that of rising imports. Globalisation must not be made a scapegoat for all our ills.
Yet it has now stalled, as have the policies driving it. It might reverse. Yet even a stalling would slow economic progress and reduce opportunities for the world’s poor. Pushing globalisation forward requires different domestic and external policies from those of the past. Globalisation’s future depends on better management. Will that happen? Alas, I am not optimistic.

Trading Notes

By: Captain Hook

So it appears my concerns about the larger equity complex here in the Fall may be unfounded - no matter rapidly deteriorating fundamentals, technicals, or political backdrop. Yup - apparently Hillary could drop dead tomorrow and it wouldn't amount to a 'hill of beans'; the European Union fail; the euro disintegrate. Why? Answer: SDR's. Apparently the 'New World Order' (NWO) has planned for all this long ago, and the switch into International Monetary Fund (IMF) SDR's is supposed to create so much liquidity there's no problem that's too big to handle. The double money printing technique is just what the doctor ordered in this time of need.

Yup - the USDollar($) is no longer the world's reserve currency, and the Chinese yuan is emerging as a regional reserve currency in its own right; but hey, what could possibly go wrong as long as these characters can still print money for themselves. (i.e. because printing money for the people would unleash inflation globally and be a problem.) Frankly I have my doubts as to how this all turns out, but we won't have to wait long to find out because it goes live October 1.

That's when China becomes an official IMF 'global player' and regional / global hegemony superpower.

The last time the NWO did something like this was the introduction of the euro, and we know what happened after that. They inflated the crap out of everything going into the year 2000, and this looks like we could have a repeat here going into whenever. (i.e. next year, a year ending in '7'?) Of course years later, it's failing miserably, with eurozone economies imploding from within, and this latest 'monetary experiment' will undoubtedly turn out the same. This time however, it won't be deflation we need worry about, but hyperinflation. That's the message we are getting in precious metals these days, with silver in the lead again.

Yes, we have silver back at $20 again, further carving out the 'inverse head and shoulders pattern' its working on, preparing to vault higher once again sometime next year by the look of things. (i.e. it might take that long to get rid of idiot hedge fund managers long Comex silver.)

So, don't be fooled by this strength in the metals post Friday's Jobs Report (along with all the other bullish news). While silver, and the rest of the precious metals complex, might have further gains to digest going into options expiry next week, with the white metal possibly vexing $21 again, it's important not to get your expectations too high right now.

Because again, more weakness is likely in store as silver continues to carve out the right shoulder on the aforementioned pattern, likely taking it down into the $18 area one more time, at a minimum.

Thing is, it's not just silver signaling this probability in isolation either, but the most important predictive ratios in the sector as well, with the Dow / XAU Ratio chief among them. As you can see on the attached daily chart, it's counting higher in 5's, and carving out its own inverse head and shoulders pattern, where yesterday's strength should come close to capping the impulse if this is true.

Again, if this is the case, while prices could grind slightly higher in coming days, the next move of consequence should be back down again for the precious metals sector as it continues to digest the gains witnessed in the first half of the year. And while nothing is conclusive regarding this hypothesis as of yet, again, with the above mentioned (and very important) technical conditions to digest, at a minimum, one should at least be somewhat cautious moving forward, where with any luck we see the Dow / XAU Ratio work its way higher towards the correction target of 250 in coming weeks as precious metal shares, and the sector, become aligned / recharged for another lasting impulse higher.

That said, the 200 HUI target is still in play believe it or not, so again, be vigilant. The put / call ratios are all falling as prices are squeezed higher with the exception of NUGT, which is being used for hedging speculation. So while precious metal shares could chop around in this vicinity until options expiry next Friday, after that, gravity could take over. They are not going to hand the best opportunities to the impatient. It would take two consecutive closes over the large round number at 250 HUI to call this possibility into serious question, so we should know something more concrete by week's end.

The big risk right now is with Hillary's health deteriorating so fast, one morning you wake up and all of a sudden she's a 'no show'. Again, as I have been saying for some time, if that happens, all the 'status quo trade' will want out at the same time, which could create enough volatility to drag precious metal shares down with the broads. Don't forget about the positive correlation between the two. This will matter at some point, likely causing hedge funds to cough up their positions, just like Hillary can't stop her coughing now.

Make no mistake, Hillary is really sick and might not make it to election time. Thing is, the powers that be will not be able to replace her in time. Once this is realized, the status quo trade is going to want out all at the same time.

Anybody buying stocks in front of this, even precious metal shares given what we know about liquidity related correlations (see Figure 3), is taking an uneducated and dangerous risk.

Those are the facts.

Europe’s Bond Market: Even Further Through the Looking Glass

Companies are borrowing for free thanks to the ECB. But where is investment?

By Richard Barley

The negative-rate experiment grows stranger by the day.

Tuesday brought the sight of not one but two European companies—French drugmaker Sanofi SNY 0.38 % and German consumer-goods company Henkel—selling bonds with negative yields. But it also brought eurozone gross domestic product figures that showed investment didn’t contribute to growth at all in the second quarter.

The bond sales themselves are a strange mix of the absurd and the logical. In absolute terms, it makes no sense at all to pay a company for the privilege of lending it money given the risks involved. But in a world where it costs investors money to hold cash and the European Central Bank is competing with fund managers to buy corporate bonds, Tuesday’s deals are just a sign of the times.

Take Sanofi’s bond sale. The company issued €1 billion ($1.13 billion) of bonds maturing in January 2020 that will pay no interest and yielded minus 0.05%. German government bonds with a similar maturity yield minus 0.68%; even Spanish bonds due early 2020 carry a negative yield. Investors are actually getting paid a bit more versus German bonds for buying this security than for buying a six-year bond that Sanofi also sold Tuesday. That is unusual, since longer-dated debt is riskier from a credit perspective than debt that will be repaid relatively quickly. Were bond yields to rise, the relatively short maturity means that this bond may offer some protection, too. Framed like that, ignoring the outright yield, an argument can be constructed that the bond is relatively attractive.

And it is hardly as if there are masses of easy, attractive options elsewhere. Fund managers who are limited by their mandates to buying mostly investment-grade bonds face low yields across the board: There are €143.7 billion of corporate bonds carrying a negative yield and €1.25 trillion yielding less than 1%, according to Société Générale. SCGLY 0.27 % Startlingly, the high-yield market isn’t far behind. Short-dated debt from companies like HeidelbergCement HDELY 1.17 % and French car maker Peugeot PUGOY 1.54 % yields 0.2% or less, according to Bank of America Merrill Lynch.

The ECB has, in effect, made borrowing free—at least for large companies with access to bond markets and with decent credit ratings. But investment is still the missing ingredient in eurozone growth, which is being driven mainly by consumer spending. It showed signs of picking up last year: Investment in the fourth quarter of 2015 was 3.7% higher than a year earlier, the highest rate of expansion recorded since the global financial crisis, according to Eurostat data. But it has since slowed again, and overall has remained sluggish compared with precrisis levels even as borrowing costs for companies have sunk to unprecedented levels.

Central bankers are producing remarkably easy financing conditions—and hence extraordinary outcomes in financial markets. The economic outcome so far, unfortunately, is proving much more mundane.

jueves, septiembre 15, 2016



Brazil’s Way Out

Otaviano Canuto

Newsart for Brazil’s Way Out

WASHINGTON, DC – Now that impeached Brazilian President Dilma Rousseff is out of office, it is up to the newly empowered administration of President Michel Temer to clean up Brazil’s macroeconomic mess. Can Temer’s government save Brazil’s crumbling economy?
The situation is certainly dire. In fact, Brazil has lately been experiencing the most powerful economic contraction in its recent history. Its per capita GDP will be more than 10% smaller this year than it was in 2013. And unemployment has soared to more than 11%, up four percentage points from January 2015.
Brazil has no easy route to recovery for a simple reason: the current rout derives from the intensification in recent years of long-standing economic vulnerabilities – in particular, fiscal profligacy and anemic productivity growth.
Consider Brazil’s fiscal position, which has deteriorated rapidly since 2011, with a 3.1%-of-GDP primary surplus giving way to a deficit of more than 2.7% of GDP, leading to an overall budget deficit of close to 10% of GDP. In fact, the groundwork for that deterioration was laid a long time ago.
Brazil’s primary government expenditures as a proportion of GDP rose from 22% in 1991 to 36% in 2014. Much of that spending can be explained by a commitment to tackling endemic poverty – an effort that included the world’s largest conditional cash-transfer program, among other things – without reducing the privileges enjoyed by Brazil’s better-off citizens.
For some time, Brazil’s government was able to fund higher expenditure with tax revenues, which also rose as a result of levies on rising consumption and labor-market formalization. And high global commodity prices helped sustain GDP growth of around 4.5% per year from 2003 to 2010, which also bolstered government revenues.
But, of course, the formal labor force cannot expand forever, and commodity prices always fall eventually. Unfortunately, Brazil failed to take advantage of the good times to reap productivity growth. Indeed, only 10% of Brazil’s GDP growth in 2002-2014 can be attributed to total factor productivity gains, while two-thirds was the result of an increase in slightly better-educated workers entering the labor force. So when Brazil’s tax-revenue boosters finally collapsed, legally mandated increases in public spending drove Brazil rapidly toward a fiscal cliff.
Today, counter-cyclical policies are not an option; there simply isn’t enough fiscal or monetary space. This leaves Brazil’s government with only one real option for restoring business confidence and reviving economic growth: tackling Brazil’s structural weaknesses.
The good news is that Temer’s government seems to recognize this imperative. Already, it has proposed to Brazil’s Congress a constitutional amendment forbidding for the next 20 years nominal annual increases in public expenditures, including at the subnational level, that exceed the previous year’s inflation rate.
Provided that inflation stabilizes at some lower level, such a cap would cause public expenditure as a share of GDP to decline as soon as the economy began to grow again. If increases in tax revenues accompany GDP growth, fiscal imbalances and the accumulation of public debt would automatically be addressed. At a time when Brazil has little flexibility in its budget, such a rule could turn out to be a fiscal game changer.
Of course, a cap on expenditure growth would not by itself eliminate the need to address existing budget rigidities. Temer’s government has declared its intention to present to Congress a pension reform plan for precisely this reason.
As for productivity, the government is focused on reducing waste caused by insufficient infrastructure construction in recent decades. Scaling up infrastructure investment also promises to spur private investment in other sectors. The key will be to fine-tune the division of responsibilities between the private and public sectors – including independent regulatory agencies – in the various segments of infrastructure services.
Temer’s government also hopes to tap investment in human capital as a source of productivity growth. As it stands, private companies in Brazil invest less in personnel training than those in other countries with similar per capita incomes, owing largely to disincentives embedded in tax and labor laws – incentives that Temer’s government has proposed to change.
To maximize the impact of these efforts, Temer’s government should also focus on reducing waste in the private sector caused by other problems with the business environment. The more efficient use of human and material resources would make firms more competitive and boost Brazil’s total-factor productivity, especially if Brazil’s human capital were enhanced. Add to that efforts to facilitate foreign trade, and Brazil’s “animal spirits” of entrepreneurship could be unleashed, enabling Brazil to escape the current crisis and move toward a more prosperous future.
The views expressed here are the author’s own and do not necessarily reflect those of the World Bank or any of the governments he represents.

The Anti-Cinderella Man: Part II

By: The Burning Platform

In Part One of this article I made a fact based case that most Americans are experiencing an economic depression on par with the Great Depression of the 1930's. In Part Two I will compare and contrast two very different men who raised the spirits of the common man during difficult economic times. As we approach the perilous portion of this Fourth Turning, it will take more than hope to get us through to the other side.
Food Lines and War

Cinderella Man

Likening Braddock to Trump might seem far-fetched, until you think about parallels between the economic conditions during the 1930's and today, along with the deepening mood of crisis, despair and anger at the establishment. Braddock's career coincided with the last Fourth Turning. James J. Braddock was born in 1905, to Irish immigrant parents Joseph Braddock and Elizabeth O'Toole Braddock in a tiny apartment on West 48th Street in New York City. His life personified that of a GI Generation hero. One of seven children, Jimmy enjoyed playing marbles, baseball and hanging around the old swimming hole on the edge of the Hudson River as a youngster. He discovered his passion for boxing as a teenager.

Braddock refined his skills as an amateur fighter and in 1926 entered the professional boxing circuit in the light heavyweight division. Braddock overwhelmed the competition, knocking out multiple opponents in the early rounds of most fights. As a top light heavyweight, he stood over six feet two inches, but seldom weighed over 180 pounds. But his powerful right hand was no match for opponents that weighed close to 220 pounds. His star was ascending. He earned a shot at the title in 1929. On the evening of July 18th 1929, Braddock entered the ring at Yankee Stadium to face Tommy Loughran for the coveted light heavyweight championship. Loghran avoided Braddock's deadly right hand for 15 rounds and won by decision. Less than two months later the stock market crashed and the country plunged into the Great Depression.

As thousands of banks failed and unemployment swept over the land like a plague, Braddock, like so many other millions of Americans lost everything. He labored to win fights so he could put food on the table for his wife and three young children. His career hit the skids as he lost sixteen of twenty-two fights and shattered his right hand landing a punch. As his boxing career spiraled downward, like the economy, he ended up working on the docks as a longshoreman. When even that job couldn't feed his family, Jim swallowed his pride, hung up his boxing gloves and filed for government relief to help support his family. The strength, spirit and tenacity that had made him a contender were drained from his demeanor. He became just another down on his luck palooka struggling to survive during the Great Depression.

Thanks to a last-minute cancellation by another boxer, Braddock's longtime manager and friend, Joe Gould, offered him a chance to fill in for just one night and earn cash. The fight was against the number-two contender in the world, Corn Griffin, on the undercard of the heavyweight championship fight between Max Baer and Primo Carnera. Braddock stunned the boxing experts and fans with a third-round knockout of his formidable opponent. He believed that while his right hand was broken, he became more proficient with his left hand, improving his boxing ability. Over the next nine months he upset John Henry Lewis and Art Lasky to become an unlikely contender for the heavyweight title of the world.

Braddock remembered the humiliation of having to accept government relief money and paid it all back with the prize money he earned from his fights. He also made frequent donations to various Catholic Worker Houses, including feeding homeless guests with his family. He never forgot where he came from. He was one of the common men. When his rags to riches story got out, renowned sportswriter Damon Runyon dubbed him "The Cinderella Man", and before long Braddock came to represent the hopes and aspirations of the American public struggling during the Great Depression. The year was 1935, with the majority of Americans still facing a bleak daily existence.

Max Baer, the heavyweight champion, had a reputation as a destructive puncher and possibly the hardest hitter of all time. He had killed a man in the ring in 1930. On the evening of June 13th 1935 at Madison Square Garden Braddock, an 8 to 1 underdog, entered the ring to face Baer. Jim knew he could beat Baer if he stayed away from his hammering right hand, and that's just what he did. In an amazing feat of courage and determination, Braddock won the 15 round decision to become the new heavyweight champion of the world. It was considered one of the greatest upsets in boxing history. The "Cinderella Man" had fulfilled the dreams and hopes of the common people, giving them a reason to battle on through those tough times.

Cinderella Man Victory

Damon Runyan described the event in newspapers across the country the next morning:
Coming into the ring on the short end of the unheard-of price of 8 to 1 with even money he does not come out for the tenth round, and with his chances so little regarded that the crowd does not half fill the "graveyard of champions," Braddock fights from the opening bell with the desperation of a man leading a forlorn hope. 
Brought back from Hasbeenville by the magic wave of the wand of sheer chance, after being such a down-and-outer that he had to go on relief in his home State of New Jersey at $24 per month to provide food for his wife and three children, James J. Braddock at 29 years of age suddenly finds himself occupying the pinnacle of the pugilistic heap, with an utterly new life before him. 
At the close of the fight, while the fighters are awaiting the announcement of the decision, the crowd begins filing out, knowing beforehand what the verdict will be, and so ends the fistic fairy tale, as all fairy tales should end, with the poor abused hero finding his pumpkins of failure turned into prancing white steeds of glittering success and his feet incased in the glass slippers of happiness, if you can follow all this twisted metaphor. 
Anyway, so ends the strange story of James J. Braddock "the Cinderella Man" of Fistiana. And you cannot match his story anywhere in the realm of the most fantastic fiction.

Braddock lost his heavyweight title two years later in an 8 round KO to "The Brown Bomber", Joe Louis. He retired after a final win over Tommy Farr in 1938. The beacon of hope for millions had done his part to revive the spirits of a country in crisis. And in true GI Generation fashion, at the age of 37, Jim and his manager both enlisted in the U.S. Army in 1942 where they became 1st Lieutenants. Upon his return, he helped construct the Verrazano Bridge, raising his family, and living out his life as a business owner, happily married to his wife Mae until the day he died in 1974. He was the epitome of everything noble, good, honorable and proud about this country.

Trump - The Anti-Cinderella Man

It may seem like a reach to equate Donald Trump to James J. Braddock, but it really isn't about the specific person. It's about the mood of the country during tragically grim economic times and how average middle class (or former middle class) working Americans respond to the message and actions of celebrities they choose to follow or emulate. Their life stories couldn't be more divergent.

Braddock was born into poverty, had to work like a dog to gain a higher stature in life, always maintained a soft spoken humble nature, evoked sympathy and admiration for his rags to riches story, and ultimately inspired generations of Americans to experience a sense of redemption during the Great Depression through his boxing feats. Braddock was a man for his times.

Donald Trump was born into wealth. He was born on third base, thinking he hit a triple. His is a story of riches to greater riches. His real estate developer father left him $100 million and the family business. To his credit, he turned the $100 million into billions. He's been a deal maker and risk taker his entire life. He's had spectacular successes and miserable failures. He has an ego the size of the Empire State Building. There isn't a humble bone in his body. He's brash, boisterous and prone to making outrageous declarations. His personality is more on par with Muhammed Ali's among boxing legends. His is not a Cinderella story like Braddock's. He is the anti-Cinderella man. Over the last year he has become the great last hope of the downtrodden middle class, as they struggle through their very own Greater Depression.

This unlikely billionaire champion of the silent majority has defied all odds to become the Republican nominee for president, despite the scorn and ridicule of the GOP establishment, neo-cons, political pundits and both the right and left wing corporate media. He defeated more than a dozen GOP establishment lackeys who spent far more on their campaigns than he, with the largest primary vote tally in GOP history. Just as Braddock was considered washed up and a has been after losing sixteen of twenty two fights, Trump was considered a washed up reality TV parody of himself until he announced his intention to run for president. I, among millions of others, scoffed at him and thought it was nothing more than a publicity stunt to generate some new TV program.

The press scoffed at the comeback of Braddock after he was given a new lease on life. Every time he prepared to fight a supposedly more talented opponent the odds makers and "experts" in the media expected him to get knocked out. But no one ever knocked him out and he defied the odds to earn a shot at the heavyweight championship of the world. The GOP establishment had crowned Jeb Bush the champion of their party, but Trump KO'd him in the 2nd round. He methodically knocked out the rest of his opponents on the way to the coming heavyweight championship fight in November against the hand-picked heavyweight contender of the political establishment, Wall Street, the fallacious corporate media, the military industrial complex, and the rest of the Deep State apparatus.

Max Baer was a monster of a man and a killer in the ring. He looked down upon his opponent as out of his league. His smug know it all demeanor was evident to all. He was not loved by the common man. He was respected for his pugilistic talents, but he didn't inspire the crowds to root for him. He brimmed with over-confidence and took his opponent lightly. He underestimated the amount of fight still left in Braddock. The "experts" all but guaranteed an overwhelming victory for Baer, likely a knockout in the 1st or 2nd round.

Hillary Clinton is the ultimate Washington establishment insider, with a reputation as a killer.

She's been hand-picked to continue the policies put in place by the establishment to benefit the establishment. She is loved by no one. She inspires adoration from no one. She can barely fill an auditorium without paying people to attend. She never mingles with the peasants. She collects hundreds of millions from her Hollywood elite friends, Wall Street titans, Soros, Buffett, the House of Saud and the rest of the billionaire oligarch class. She stays above the fray, letting her handlers set the agenda and telling her what to do and say. She sees blacks, Hispanics, and the working poor as voting blocs – not as real human beings deserving of respect.

Her thirst for power and control is sociopathic as she will stop at nothing to quench that thirst by being elevated to the throne of the presidency. And she'll hit below the belt to achieve that victory.

She openly despises and denigrates her opponent. She believes she is intellectually and morally superior to Trump and believed the political pundit "experts" who declared she would win in a landslide. Overconfidence, hubris and believing the press clippings from an overwhelmingly liberal media are coming home to roost with two months to go until the election.

In the Baer - Braddock fight of the century, Baer came out firing looking for the knockout punch in the early rounds. But Braddock took his best shots and kept plugging away. Hillary and her corner men have spent over $120 million on negatives ads to Trump's $20 million in the early rounds. Her 10% post-convention lead has dwindled to zero as Trump has taken her best punches and is still standing. As the bout entered the middle rounds Braddock took control and Baer began to tire.

Braddock dominated the late stages of the fight and won in a unanimous decision as the crowd went wild and average Americans around country glued to their radios reveled in jubilation as one of their own became champion.

As Hillary's lies, deleted emails, selling influence through her crooked Clinton Foundation, smashing blackberries with hammers, and brain damage weigh her down, Trump keeps firing punches. Her stamina is in question. Other than CNN (Clinton News Network) and the rest of the Hillary cheerleading press, a large swath of the American people are questioning her honesty, competency, and health. The demoralized and subjugated silent majority are hopeful Trump can deliver them from a political establishment that threw them under the bus thirty years ago. We've entered the late rounds and Trump shows no signs of tiring or allowing Hillary to land any knockout blows.

The odds maker "experts" like Nate Silver (who was 90% sure Trump wouldn't win the GOP nomination) still have Hillary winning in a landslide. The candidate of the ruling class, who pledges to maintain the status quo, is not the change agent of the masses. A victory by Hillary would be a victory for Wall Street, billionaire oligarchs, neo-con warmongers, propaganda media outlets, and corporate cronyism. A Trump victory would boost the morale of a middle class that has been abused, denigrated, belittled, ignored, and taken advantage of by the ruling class for decades. The hopes and dreams of millions are riding on a victory by the anti-Cinderella man. His popularity rides on a sea of rightful resentment, anger, and fury at how the average American has been screwed by the ruling class (both parties) for decades.

I have no illusions Donald Trump can single handedly reverse decades of bad policies, bad choices, bad government, bad politicians, and shamefully horrendous Federal Reserve monetary policies designed to impoverish millions through man made inflation and debt issuance. His election would be the upset of the century and spit in the eye of the establishment.

It would lift the spirits of disillusioned, angry Americans experiencing depressionary economic conditions who want to take this country back from the vested interests. James J. Braddock lifted the morale of a nation in the midst of a Great Depression, but he lost the championship two years later as the Great Depression eventually led to the bloodiest conflict in word history.

If Trump can win an upset victory in November, the initial surge of confidence and anticipation of game changing policy changes will shortly be replaced by the left hook of reality. Trump will likely be thwarted at every turn by the corrupt members of both parties. Debt will continue to pile up at a $1 trillion per year rate. Trump's volatile nature will inflame passions both domestically and abroad.

His election would not change the nature of politics in Washington, but could be the push which brings this teetering welfare/warfare empire of debt crashing down. The destruction of the existing social order is the only chance for real change and Donald Trump is the only person who could trigger that change. His pugilistic demeanor may come in handy as our country confronts the final bloody stages of this Fourth Turning.

The climax year of the American Revolution happened in 1781. Almost like clockwork, the Civil War climax year of 1863 followed 82 years later. The Great Depression/World War II climax year of 1944 followed 81 years later. This would put the climax year of our current Fourth Turning around 2025, at the end of an eight year presidency of Clinton or Trump (both Prophet Generation leaders).

The years leading toward the climax of a Fourth Turning have always been chaotic, dangerous and bloody. The core elements of debt, civic decay, and global disorder will accelerate the chain of events leading to the climax, whatever it may be.

No matter who is elected in November, the next eight years will try men's souls and the outcome for our country could be glory or destruction. The technology exists to extinguish all life on the planet and human nature does not change. All it would take would be human malevolence, disastrous decision making by flawed leaders, and some bad luck to destroy the world. Who do you trust to lead during the most dangerous period of this Fourth Turning? Our choices do matter.
"Imagine some national (and probably global) volcanic eruption, initially flowing along channels of distress that were created during the Unraveling era and further widened by the catalyst. Trying to foresee where the eruption will go once it bursts free of the channels is like trying to predict the exact fault line of an earthquake. All you know in advance is something about the molten ingredients of the climax, which could include the following:
  • Economic distress, with public debt in default, entitlement trust funds in bankruptcy, mounting poverty and unemployment, trade wars, collapsing financial markets, and hyperinflation (or deflation) 
  • Social distress, with violence fueled by class, race, nativism, or religion and abetted by armed gangs, underground militias, and mercenaries hired by walled communities 
  • Political distress, with institutional collapse, open tax revolts, one-party hegemony, major constitutional change, secessionism, authoritarianism, and altered national borders 
  • Military distress, with war against terrorists or foreign regimes equipped with weapons of mass destruction"
The Fourth Turning-- Strauss & Howe
Volcanic Eruption