November 23, 2008

Learning from the New Deal

Here's an excerpt from my new VDARE.com column:

The real issue posed by Obama’s massive public works proposal: will he follow the precedent set by the New Deal’s Works Progress Administration (WPA) in limiting employment on his public works projects to United States citizens?

The WPA started in 1935, a period when there was little immigration because of the 1921-5 cut-off and the Depression. When the economy turned down again in 1937, the Democrat-dominated Congress restricted it to American citizens (n.b. citizens, not even legal residents):

"In 1937 Congress, following a trend already established by the states, declared that all programs of the Works Progress Administration (WPA) would be closed to aliens. The "citizens-only" policy of the WPA extended even to companies that fulfilled government contracts; corporations such as General Motors fired those whom they perceived as foreigners to keep from losing lucrative government business."

Otherwise, Obama’s public works spending will merely draw in millions of foreigners, just as the late Housing Bubble did. ...

Moreover, during the Housing Bubble, blue-collar Americans in dying cities like Detroit and Cleveland largely missed out on the chance to move to places like Las Vegas for construction jobs—the illegal aliens would work for less.

During the Bubble, huge sums of money flowed out of the United States as remittances. The Washington Post reported in 2006 at the peak of the Bubble:

"A report released yesterday by the Inter-American Development Bank estimates that immigrants living in the United States will send $45 billion to family members this year ..."

Remittances to Latin America shot up during the Housing Bubble, both because so many immigrants were employed in construction, and because so many took out dubious mortgages that they have since defaulted upon.

Remittances finally started falling early this year. The Dallas News reported:

"Other Mexican officials said the decline is a reflection of the worsening U.S. economy, particularly in the area of construction. The U.S. construction industry accounts for about 20 percent of jobs for Mexicans living in the country, according to the [Mexican] central bank."

These remittances deprived the American economy of the celebrated Keynesian "multiplier effect" on construction spending that you will hear so much about from the Obama administration this week as they rationalize their spending plan. ...

What you likely won’t hear from Obama, however, is that if you pay an American to fill potholes, he’ll spend the money in America, where other Americans will then spend it some more. If you pay a Mexican, however, he’ll send a lot of the money back to Mexico.

Mexico, with its population of 110 million (just counting those still resident within its borders), is unquestionably going to go in the tank economically in 2009 because it depends upon remittances, oil, and American tourists. So if Obama fails to close his infrastructure jobs to non-citizens, there will be another rush to America by unemployed Mexicans.

Obviously, the highest priority way to reduce unemployment in the United States is to encourage non-citizens to go home, as America did during the Great Depression. (There was actually net emigration in the 1930s.)

[More]

I'd like to thank commenter StephenT, among others, for the idea.

My published articles are archived at iSteve.com -- Steve Sailer

21 comments:

Anonymous said...

His Honor will be very pleased indeed with Delano Hussein Obama:

http://www.politico.com/blogs/thecrypt/1108/Schumer_stimulus_package_500700_billion.html

Schumer: $500 billion to $700 billion stimulus

Sen. Charles Schumer, D-N.Y., said Sunday that he thinks the economic stimulus package should be between $500 billion and $700 billion.

In an interview with ABC's "This Week," Schumer said, "I believe we need a pretty big package here." He added that Congress is working on getting the economic package to President-elect Barack Obama by Inauguration Day. "I think it has to be deep. In my view, it has to be between $500 and $700 billion, and that's because our economy is in serious, serious trouble."

"It's a little like having a new New Deal, but you have to do it before the Depression. Not after," Schumer added.

RKU said...

Here's another problem...

A big fraction of the "Americans" who'll be losing their jobs are real estate agents, mortgage brokers, and financial engineers. As of a few years ago, that portion of the "service sector" surpassed manufacturing to become our largest.

Many of those people have no real marketable (and productive) skills, and anyway would never be willing to fix potholes in the hot sun all day.

By contrast, all the Mexican construction workers who've lost their jobs can easily transfer their skills to repairing freeways or building other things, and do a pretty good job.

But what can you do with our vast surplus of newly unemployed MBAs with backgrounds in mortgage-derivative trading? I suppose you can hire them to "supervise" the Mexicans fixing the roads, ten "supervisors" per actual worker...

testing99 said...

That's what I said Steve.

Obama cannot and will not pull an FDR -- restrict his spending to US citizens only. So, the money if spent will go nowhere, even pushing aside the legalisms that will make anything construction wise be around 20 years. Before a single spade of dirt is turned, due to lawsuits and EIRs and what have you.

Obama is a disaster, he's promising to be David Dinkins plus Deval Patrick and Richard Nixon combined. With about the level of understanding of each regarding the economy.

He's gonna be in for a hard fall. Sure, it will be "racism" to criticize the Teleprompter Messiah, but most people wont' care. They'll just be angry.

Jim Bowery said...

What percent of the remittances were loans taken out against home equity and never repaid?

Reg Cæsar said...

Steve's new order of magnitude has the whiff of Araby about it, as in,

A hajillion Mahometans circled the Ka'aba before sunset.

(Or is it an hajillion?)

Is this a clue to the source of funding?

miss marple said...

Obviously, those who believed that FDR should've vastly increased spending to end the Depression are the ones in charge. Works programs in the works even before unemployment hits 10% which is the norm in some countries. Amazing.

Of course, I can't help but think we will be permanently mated to Mexico because of our beliefs about the downturn. The promises of peace and prosperity if we pool our resources will be too tempting for the chicken littles to resist.

And what about this Larry Summers' IQ - Keynesian multiplier effects without batting an eye. Why do academic types prefer socialism? Is it because they are essentially government employees who abhor the thought of entrepreneurial risk taking? You know, the kind of risks that would entail eschewing the orthodox Keynesian theories and possibly make the jobs of many academics, IRS employees and administrators obsolete.

You'd think we were a nation of refugees from war and famine the way we cling to security at any cost: Guaranteed jobs! Guaranteed healthcare! Guaranteed pensions! Unfortunately, the stampede has already started. I guess the fear of a reduced standard of living equates to starvation in the minds of most Americans.

I'd also suggest that if works programs aren't accompanied by immigration restriction, we were never in any danger of a second Great Depression. Because of course we wouldn't want the burden of having to create jobs or provide services for people who technically don't even have to be here. Promises of foreign aid should disappear too, but I'm not holding my breath.

Anonymous said...

RKU world is really funny!

Illiterate Mexican high school dropouts have "skills".

College educated whites -- who can do little things like read and write and use computers -- have "no marketable skills".

headache said...

Steve,
Thanks for your incredibly voluminous and quality stream of commentary!

Public works programs in 2008 are so out of date.

Modern armies don't require endless recruits with basic rifles to act as cannon fodder because modern warfare turns on a small number of quality professionals with very expensive weapons.

Similarly modern construction does not require an endless stream of untrained jobless with spades because modern construction machinery run by fairly well trained people can do the same amount of work at higher quality than was completed by a column of destitute.

Post-colonial African governments run into the same problem because they always hope they can employ their jobless by building roads or dams. However roads and dams are nowadays built by a handful of people. That's what cranes, trucks, excavators, asphalt-layers and precast concrete is all about. The construction industry is probably the most low tech of all engineering disciplines but they have been mercilessly clobbering away at the labour content of work packages in order to become more competitive.

So to use construction for the jobless or as a fiscal stimulus is just so out of date and stupid. I cannot reconcile the media hype of this Obama dude being cool and his hopelessly out of date policies, for which the NYT would have roasted any Republican.

Xenophon Hendrix said...

Serious question: how did taking out dubious mortgages increase remittances to Mexico? Do you mean remortgaging for money to send home?

Lawful Neutral said...

College educated whites -- who can do little things like read and write and use computers -- have "no marketable skills".

I don't have any numbers or anything, but this has certainly been the case in my experience. It's not hard to graduate from college without learning a damned thing; in fact, it's the norm. All I got from my college education was a fancy piece of paper and a sense of entitlement, and there are millions and millions just like me.

Jimbo said...

"if you pay an American to fill potholes, he’ll spend the money in America, where other Americans will then spend it some more. If you pay a Mexican, however, he’ll send a lot of the money back to Mexico."

Good for us! If we pay Mexicans to build roads, etc. and they send the money home instead of spending it on real resources here, we get the benefit of their labor without any offsetting costs. As long as the government understands that there are no financial limits to it's spending and it can always spend enough to maintain full demand in it's own currency, we can maintain full employment, and any trade deficits or remittances are subsidies from the rest of the world to us.

Maybe you should start with this, if you want to understand how the world really works:

http://www.columbia.edu/dlc/wp/econ/vickrey.html

Bill N said...

Arnold Kling from GMU,
http://econlog.econlib.org/archives/2008/11/depression_mani.html

gets the issue with illegals.
"Actually, the employment benefit of infrastructure projects is more likely to go to the illegal immigrants who were laid off from housing construction and who otherwise would be headed back home."

Anonymous said...

"Modern armies don't require endless recruits with basic rifles to act as cannon fodder because modern warfare turns on a small number of quality professionals with very expensive weapons."

Actually, they do. Go ask your local Army recruiter. The U.S. Army, for instance, is almost at its breaking point because of a lack of enlisted soldiers.

"Similarly modern construction does not require an endless stream of untrained jobless with spades because modern construction machinery run by fairly well trained people can do the same amount of work at higher quality than was completed by a column of destitute."

Yes, it does. Regardless of the type of construction (roads, houses, etc.), machinery has mostly cut the amount of time it takes to construct, not the amount of people needed on a job. Since 2006, about 663,000 construction workers have lost their jobs. That's not a small sector by any means.

As a construction manager turned Army officer, I find both of your assertions quite funny because you clearly don't know what you're talking about. Check out the Bureau of Labor Statistics before you jump to conclusions about an entire industry.

Wade Nichols said...

Economist Arnold Kling (PhD, MIT), via Tyler Cowen's page:

"When I see Obama's proposals for a big investment in infrastructure, I get this picture in my head of former mortgage brokers and bond salesmen on highway construction projects wearing hard hats and driving bulldozers. Actually, the employment benefit of infrastructure projects is more likely to go to the illegal immigrants who were laid off from housing construction and who otherwise would be headed back home."

http://econlog.econlib.org/archives
/2008/11/depression_mani.html

David Davenport said...

By contrast, all the Mexican construction workers who've lost their jobs can easily transfer their skills to repairing freeways or building other things,...

Such as a big wall all along the USA/Mex. border.

Jeff Spicoli said...

RKU said:

"By contrast, all the Mexican construction workers...do a pretty good job."

WTF? Has RKU seen a typical tract house or condo built here in So. Calif. in the last 15 years or so? Doors out of plumb, leaky shower pans, crappy paint jobs...the list goes on and on. These construction workers come from a culture where "good enough" is just that: good enough.

Cheap labor ain't cheap.

headache said...

"As a construction manager turned Army officer, I find both of your assertions quite funny because you clearly don't know what you're talking about. Check out the Bureau of Labor Statistics before you jump to conclusions about an entire industry."

I work in a large German construction company as a civil engineer. I guess being German and thus evil I am per definition clueless. But actually we have been cutting the numbers of workers over the years. Especially on higher-tech sites such as tunneling. When I visit my folks in South Africa I notice the average site there teems with black labour. In Germany a similar site would feature perhaps 20% of the personnel. The difference is due to better training and the copious use of equipment. Workers in Germany are unionized and earn a lot more so there is an incentive to go for equipment. In addition the police regularly raid sites to catch illegal foreign labour and companies hiring them get hammered. This also stimulates the large construction equipment market.

As for the army bit, I took that from my experience as a National Serviceman in the old South African army. We were always outnumbered so that was part of the training. I remember reading a Marine Corps study of the warfare of the old South African army and its mention that, unlike the US army, being in the minority was the norm. I guess my views are more a reflection of coming from a different background rather than not "..know[ing] what [I'm] talking about".

In any case, a public works program here in Germany would make an unnoticeable dent in the employment numbers since the construction companies that have survived the past 10 year recession in that industry are efficient and can handle a large amount of turnover with little personnel.

headache said...

To: Anon US Army Officer,

In Germany the number of workers in the construction industry have been reduced to a third of what they were 15 years ago. This was s direct result of the post-reunification building bust which lasted for 10 years from the mid-90's. Currently the industry is having a little boom again, but there is little resurgence in numbers. The reason is rationalization through better training and equipment. I did not check the US labour numbers but the impression I get is that the industry there has been banking on cheap labour from the outset, so they will always be labour-hungry. In Germany construction unions basically reduce cheap labour dumping even though companies keep trying. And most companies are used to lean construction so they don't fret about a few Euros/hour this or that way. Most of the risk is in contractual issues, quality issues, programming and raw material prices anyway.

David Davenport said...

Soemthing European iSteveniks may not realize about construction work in the US: almost all resdiential contruction is non-unionized, and so is a large percentage of commerical, heavy construction work.

headache said...

David Davenport said...

"almost all resdiential contruction is non-unionized, and so is a large percentage of commerical, heavy construction work."

Thanks for that info. That explains a lot about the issue. In Germany all construction work is unionized and construction sites are controlled by the police. So construction workers have a minimum wage and protection from foreign competition. Even the conservative party supports this. I also think its fair. Construction work remains harsh even with all the machinery so these guys should get a living wage. But obviously this fact and the high training standards demanded of workers makes that industry less attractive as a public works solution to a recession.

Truth said...

"It's not hard to graduate from college without learning a damned thing; in fact, it's the norm. All I got from my college education was a fancy piece of paper and a sense of entitlement,"

I see your frustration and I will raise you one piece of worthless paper.

I can honestly say, that in my case not only was college useless, but also harmful. I truly believe that I was smarter at 16 than at 35 when I received my MBA. I wonder how many other people concur with this. The apex of my American education occurred right about junior year in high school, the rest was all a veritable waste.

Of course I had a 'soft' major in college (journalism) and was unchallenged. My brother on the other got an electrical engineering degree from an excellent school. I remember asking him after he graduated if he always liked math and science as he is atypical for an engineer, extremely outgoing and gregarious, he replied; "nope, hated every minute of it, I just knew it would get me a better job than majoring in marketing."

Long story short he got a job with a company where his duty was to supervise plants that made baby diapers and a year later told them he wanted to move to marketing so they paid for his MBA; now he holds focus groups for those same diapers. He insists that if he had majored in marketing, this same company would have thrown his resume in the trash.