Welcome to another installment of Swamponomics: Liberty Nation’s dive into the week’s morass of top news stories and the stream of economic fallacies that have been accepted as conventional wisdom by swamp creatures for years.
Schumpeter’s Gale Eats Bricklayers
In 1942, Austrian economist Joseph Schumpeter coined the term “creative destruction” in his book Capitalism, Socialism, and Democracy. He wrote:
The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.
In the industrial age, creative destruction has claimed innumerable victims, including those who initially killed off an entire industry. The refrigerator killed the iceman, streaming and MP3s murdered CDs, Netflix annihilated cable, and ridesharing committed mass murder against the taxicab industry. Will robots eliminate a 6,000-year-old job, too?
An Australian-based company developed a bricklaying robot that can build a home in only a couple of days. Initially introduced in 2015, Fastbrick Robotics designed the Hadrian X, a globally patented 3D robotic bricklaying system. How does this bricklaying machine work?
The robot is mounted onto a base (crane, engine truck, boats, tracks, etc.) and is stationed in an outdoor environment. The machine takes optimized blocks that are 12 times bigger than traditional house bricks, but they are lighter and stronger. They are then fused with a special adhesive and takes roughly 45 minutes to bond.
Here is a clip of what it can do:
It only took a couple days for this robot arm to build an entire house pic.twitter.com/JzcTcauAJa
— Mashable (@mashable) June 12, 2019
It has caught the attention of construction companies all over the world. Caterpillar, for example, invested $2 million into Fastbrick Robotics, as well as another $8 million once shareholders approve. Will this commit genocide on an entire niche of professionals? Well, if there is enough demand for Hadrian X, the choice is to either adapt or transition to other in-demand employment.
When you consider this innovation and Amazon selling homes and offering free shipping, there really is no need to ever hear the words “housing shortage” again from the mouths of politicians. Next, cue the outrage about robots taking human jobs and experts calling for a new tax.
Making Cents of Currency
The Treasury Department recently concluded in a report that no countries meet the required currency manipulation criteria, though nine countries should face greater scrutiny. Despite President Donald Trump accusing China of being a currency manipulator, the official U.S. government position is that no one is partaking in this practice. But that didn’t stop the president from railing against currencies that have weakened against the U.S. dollar.
In a series of tweets, the president accused Europe of devaluing the euro, which puts “the U.S. at a big disadvantage.” He also targeted the Federal Reserve for leaving interest rates too high, exclaiming that “they don’t have a clue!” Year-to-date, the euro has fallen 1.6% against the greenback, and the yuan is facing that psychological seven threshold.
The market does anticipate the U.S. central bank to start cutting interest rates as early as July. CME Group FedWatch Tool data suggests that the Federal Open Market Committee (FOMC) could institute a rate cut of 25 basis points, reducing the target range to between 2.00% and 2.25%, and some in the market think rates could plunge back down to just 1% by the end of the year.
There are so many economic issues to address, but let’s focus on two things.
First, if the European Central Bank (ECB) is manipulating the eurozone’s currency, then can the Trump administration really complain? The Federal Reserve has not only debased the buck since its inception a century ago, but Trump is also demanding the Eccles Building manipulate the dollar by artificially slashing rates, which would print cheap money out of thin air. Ultimately, the Fed is the biggest currency manipulator on the planet.
Second, if a country is devaluing its currency, then that is a boon for the United States. Let’s concede, for argument’s sake, that the yuan is being purposely degraded by the People’s Bank of China (PBOC) at the expense of the enormous population. Wouldn’t this benefit the American consumer? A weaker yuan would make cheap imports of consumer goods even cheaper, something that would increase the dollar’s purchasing power.
May the Deficit be With You
In May, the U.S. government ran a $207.8 billion trade deficit, an increase of 41% from a year ago. The Treasury Department blamed the calendar for the spike because June 1 fell on a Saturday and benefits for June were issued in May. But even when this reason is considered, the gap would have still risen 8%, as spending jumped 6% and revenues climbed by 4%.
Medicare, Social Security, and defense led the way for much of the spending growth. Revenues ticked higher because of a boost in individual and payroll taxes thanks to higher employment and wages. Customs duties skyrocketed 62% to $5 billion because of the tariffs slapped on China.
Overall, the U.S. is inching toward a trillion-dollar budget deficit this fiscal year.
Washington is ostensibly apathetic to fiscal responsibility, continuing to post deficits every month. And the financial markets are enabling this reckless pecuniary behavior because investors are making it less costly for the federal government to finance this binge.
Hardly anybody seems to care about the budget. Republicans and Democrats consistently compromise to each have their way. Yes, welfare and war eat up a huge chunk of the budget, but it is the entitlement system that will eventually drown taxpayers in an ocean of red ink. Whenever somebody proposes a sensible approach to balancing the books, that person faces hostility from Democrats and Republicans. One side obsesses over Russia. The other worries about the border. Neither loses sleep at night over the $22 trillion national debt, $1 trillion deficit, and $200 trillion in unfunded liabilities and expenditures. Nobody notices, so long as they can hold onto or reclaim power by maintaining the status quo – and that means being jolly and wearing a big red coat all year long.
Economics is something that is missing in Washington right now. There is a lot of histrionics about robots, plenty of misrepresentation of currency data, and a whole lot of ignorance to deficit-financed spending. Are these political footballs? That could be. One side will attempt to take advantage of these issues when the opportunity arises, while folks across the aisle will try to exploit these subjects for their benefit. Freshman Democrats want to tax robots, and senior Republicans want to continue spending like drunken sailors so as not to lose votes and be portrayed as slashers. What a time to be alive.
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