Why Does John McCain Hate the American Worker?

He says "Drill here, drill now!" to reduce the price of gas, but every time the price of oil goes up, more jobs return from China, and first to the basic heavy industries like steel. Why does he hate the rust belt states? Or, for that matter, Mexico?

All graphs from CIBC World Markets StrategEcon May 27, 2008, pdf here

Once the mills of US Steel and Bethlehem Steel employed thousands, producing the metal that was cast into the building materials and cars that were the engine of the American economy. Then they were silent, as new technology could produce new steel from scrap at a lower cost than virgin steel from ore. Soon it became cheaper to ship that scrap to China and ship it back to the US, and the North American steel industry almost shut down, and with it, many of the towns and cities that supplied the workers for it. The most productive cities in America became known as the "Rust Belt" as the economic engine of the country moved to Arizona, building houses and big box stores to sell the stuff that filled the houses.

Then, something happened. Jeff Rubin, chief economist for CIBC World Markets, writes:

"Soaring transport costs, first on importing iron to China and then exporting finished steel overseas, have already more than eroded the wage advantage and suddenly rendered Chinese-made steel uncompetitive in the US market....China's steel exports to the US are now falling by more than 20% on a year-over year basis--the worst performance in almost a decade. While many might attribute this decline to the slowdown in the US economy, it is noteworthy that US domestic steel production has risen by almost 10% during the same period."

Rubin continues: "Shipping a standard 40-foot container from Shanghai to the US Eastern seaboard now costs $ 8,000. In 2000, when oil prices were $20 per barrel, it only cost $3,000 to ship the container. But at $ 200 per barrel, it will soon cost $ 15,000 in transport costs to ship from China to the US Eastern seaboard."

For heavy things with low labor input, like steel, the response has been immediate, American steel is again competitive and is increasing production, even in the face of a recession. Heavy or bulky manufactured goods, like furniture and industrial machinery, take a little longer, but are following.

Rubin concludes "Instead of finding cheap labor half-way around the world, the key will be to find the cheapest labor force within reasonable shipping distance to your market....It seems that American importers are starting to do the math. While the pace of shipments from China to the US is slowing- mainly among freight-intensive goods, even non-energy Mexican imports to the US are still rising at a healthy annual rate of more than 7%. And interestingly, the goods that have seen the fastest growth are the ones that, on average, are more freight intensive and directly compete with China, such as furniture, iron and steel, rubber and paper products.

In a world of triple-digit oil prices, distance costs money. And while trade liberalization and technology have flattened the world, rising transport prices will once again make it rounder."

Now if you are from Arizona, your business experience, if any, is probably in real estate, and the declining value of the suburban real estate market is directly correlated to the price of gas to get there and the cost of electricity to run the AC. You want cheap energy if you live in Arizona.

But if you make steel in Pennsylvania, furniture in North Carolina, or work in the maquiladoras across the border, you may notice that jobs are coming back, that companies like IKEA are looking for factory sites, that stuff imported from China is not as cheap as it once was.

Rationally priced gas can put America back to work, but they don't see that down where the economy was built on cheap energy and real estate development rather than making things. They just say "drill here, drill now" and screw everyone else.

Read the PDF of Rubin's report from CIBC World Markets and a tip of the hat to ::Solve Climate

More on Jeff Rubin
Jeff Rubin Predicts "Mass Exodus" From Cars in US
Gas $7 Per Gallon in Four Years
The World Is No Longer Flat

Follow Lloyd Alter on Twitter: www.twitter.com/lloydalter

Comments

[research]

McCain loves the American worker, as long as they shut up, vote for him, work cheap, and

Don't Whine.

[JonasH]

The important question, at least as concerns this article, is; What makes you believe the price of steel is considered when running for president?

When the average voter pays more money at the gas pump than they're comfortable with, politicians will either seize on that or they might as well drop out of the race.

[JackNasty]

John McCain does NOT hate the American worker. John McCain loves the American worker.

Look you people, John McCain knows that money cannot buy happiness. JohnMCCain has accumulated hundreds of millions of dollars by marring an heiress but he is no happeier now than he was before his wedding.

John McCain wants to spare American workers the false hope of wealth and happiness. John McCain knows that if American workers earn less money, they will be happier. Yes, only a vote for John McCain will spare the American worker the unbearable burden that having money brings.

[lletaa]

J Mcain.hates workers thru the trickle down economy. The biggest threat to the corporations is competion from little guys. thats why the are constantly trying to use government to make it difficult for small bus to operate. small bus is the backbone of our country and the biggest employer. I ran two restaurants as owner/operater and was under seige by the big guys who prosper most under repub trickle down econ. they can afford to bribe (lobbyists) our government to get polices that make a small business impossible to operate. believe it or not universal health for all would be the best stimulas for the economy, customers would flood all small strip malls with this worry off their backs. trickle up.

[fishsandwichesr2good]

As long as unions insist on overpaying for what amounts to grunt labor, the situation won't change. If you want to dig ditches, don't expect a big paycheck. If you want to dig ditches and get a big paycheck, expect an illegal alien to take your place or expect your job to go overseas.

[poppaculture]

I resent overpaying grunt management (short-term thinkers creating long-term losses). Perhaps the board of directors should be outsourced.

[fishsandwichesr2good]

Overpaying workers, managers, or suppliers results in a costlier product. Free markets address those problems eventually.

[iambusto]

Lets just accept for argument's sake all the claims by you that investors are greedy and we need to pay more attention to the needs of employees.

How it stands is that investors are the owners of a corporation and thus their demands and needs come first. But how to change that?

Well you are going to have to start with first shutting off capital markets (equity and debt markets). Since i get the general notion that most liberals hate these anyway, shouldnt be a problem.

How about you guys first start voting politicians in congress who would have a majority opinion that

1) eliminate stock markets
2) The corporations are already public, the govt. allows a buyout of the investors at a small premium of current prices and take them over private. so in essence they beocme govt. entities (since we all know corporations are evil and govt can run it better).

that seems to be the only way to go about it. so go ahead and start a grassroots movement.

[duchessdorleans]

It is the function and the duty of the corporations to maximise the profits of the investors. That means keeping wages as high as possible and prices as high as the market will bare, ruining the environment as much as they can get away with, and using predatory practices to eliminate the competion.

It is the funtion and the duty of the goverment as the representative of the people to protect the pubic interest by strictly regulation the activities and policies of these corporations.

The corporations put the needs of the investors first. The government must put the needs of the people first. if the government is protecting the investors, who is protecting the people?

[BilCon]

You have the first statement correct. the sole purpose of a corporation's management and administration is to maximize Stockholder profit. This does not mean, however, keeping wages low, prices high, ruining the environment, or using predatory practices.
A corporation who wants to sell products in today's diverse economic and sociocultural environment needs to sell its products at the equilibrium price or offer such benefits as to encourage the consumer to buy at a higher price (recycled paper, for example, the benefit being less new timber cut in order to produce the product, improved environmental sensitivity, etc.) There are times, due to the nature of demand, that increasing prices to the maximum will reduce profit, and there are others that will have the opposite effect. What I mean by this is that not all corporations operate in the manner you state. In fact, most operate well within the realms of legality, ethics, and the golden rule. There are a few who operate outside common courtesy, but I firmly believe that the market will weed them out.(If we can stop bailing them out when they would otherwise fail)
Regarding Government, I would just say that the biggest help they could be to the people is to concentrate on infrastructure and common defense and leave business to businessmen and businesswomen.

[INTJ]

While I agree it is astonishing to even have to argue whether high oil prices are, overall, very bad for the U.S. economy, you guys need to quit trying to argue economics with the left. You cannot hold a rational discussion with someone whose basic idea of "fairness" is that some incomes is taxed at different RATES than others (one assumes God is unfair asking everyone for 10%) and that one "union" of people should be allowed to tell a free adult citizen he can't work somewhere because he doesn't belong to their club (notwithstanding freedom of association), think that 5.7 percent unemployment in 2008 is worse than 25% during the Depression, and that the wage someone should earn bears no relation whatsoever to the demand for their skills. They've already drunk the Kool-Aid, so don't waste your time.

For you classists out there preparing to attack me as an rich Republican boogeyman, I am an Independent voter, I was raised in a mobile home on the wrong side of town, went to public school (graduating at the top of my class), my parents and I all worked to put me through a state college (consistently among the best, according to U.S. News), and I have worked my about halfway up the corporate ladder. I agree with McCain 60% of the time (Hilary 40%), but that beats the 5% with his opponent, none of which is in and economic arena that is simply not his strength.

[truthynesslover]

hey free man.try joining the doctor or lawyer club without the bonifieds.Talk about drinking koolaid! I inherited 1.5 million from my dad and made 160 thousand last year for doing nothing,how fair is that?

[gevan]

Ask not why John S. McCain III hates the American worker. Ask why John S. McCain III hates America. Not one military operation was launched to free our prisoners in North Viet Nam in all the time he was held there. Even President Carter attempted to free the hostages in the embasy in Tehran in 1980. LBJ and Nixon just let the pilots who were shot down sit there until the could negotiate their release. Hmmm. . . Negotiating with the enemies of America . . . interesting concept, that.

[DXM]

Sen. McCain, along with all Republicans, operate under the mistaken belief that what is good for business (especially big business) is good for the workers. Bigger business profits translates into increases in workers' pay and benefits. Unfortunately, the nationwide (actually, worldwide) economic experiment that the Republicans have been running for the past 7 1/2 years has shown this to be patently false for American workers, at least. What is good for business is good for business... any benefit that trickles down to the workers (e.g. American workers) does so by happenstance. In the case of increased energy prices making it more profitable for business to operate closer to its markets (overwhelming located in the US), it is just an accident that it benefits American workers. What we need are deliberate government policy that make it more profitable for business to keep jobs in the US and Republicans are NOT interested in that... hopefully Democrats would be capable of actually pulling it off.

[swift goat pet for truth]

Business has cut costs so much, it cannot improve its bottom line (profits) without improving its top line (sales).

No wage increases for the middle class, no increase in sales.

[KillTheMessenger]

Any business which uses 5.6l V12 trucks with 380hp engines has not even come close to cutting costs. In other parts of the world the same work is performed with 1.8l V4s with 75hp. There are plenty of contractors in my neck of the woods who ride just that kind of vehicle.

Want to try again?

[DuganS1]

The downward trend in wage appreciation for unskilled and semi-skilled workers has been ongoing for a few decades, not just in the last seven years. And this has little to do with the policies of George W Bush, as a decline in wages for such workers has been ongoing in Europe, Japan, and elsewhere throughout the same period. For skilled workers, however, wage appreciation has been significant, especially relative to the increase in prices for consumer goods (the deflator, not the cpi where the bulk of it is housing related).

[bellavida369]

Attention getting headline here, but I think McCain actually seems to be the only candidate willing to tell the truth, that jobs in the 'rust belt' for example are not coming back. Why would anyone having to put up with high taxes and / or entrenched union labor unions destroying competitiveness in the region return there? It may be that some industry will return here in the U.S., but in a better area. If you feel that you can stay in business without being able to generate a profit and wish to do that, go ahead. The industries who depend on these materials however, need to source them from the most reasonable source possible, otherwise, ALL in the chain go out of business.
Which party in our leadership wanted these prices to escalate in the first place to create the 'demand destruction' that they wanted, and would benefit the unions and environmentalists who contribute to this party as well? While we are trying to find ways to expand ways to explore other energy sources, this practice is hurting the transportation industries, and indirectly all of us in the process.

[jurr]

Great idea, let's just abandon state, while we are at it we could do the same for Michigan, Ohio, PA, etc, etc. Then we could sell those empty states to the Chinese to pay the interest on our national debt.

Get real dude. Increase taxes in imported goods so American goods can compete with basically Chinese slave labor and their 'fixed' economy. Quit giving tax break for people who sell out American jobs (WAL-MART). Quit allowing US companies to go to India, harvest & train cheap labor and them bring them back here to work for HALF what US workers take home.

Companies have the money so they make the laws that benefit THEIR bottom line while selling out America. Captialism at it's best, eh?

[ConcernedAboutRFuture]

Great points! I see the whole India thing happen at my international electronics mfg. company. They are getting ready to lay off a couple of hundred more folks from mfg. The "boss" keeps on insisting jobs can be consolidated.....his shop supervisor say "fine, but eventually quality will suffer and then what?" He doesn't care...it's the bottom line. We have huge plants in China and India...that produce so much more efficiently, that we cannot compete with that market in the least bit.

Companies should be prevented or punished for these practices.

WalMart IS a sellout...I am currently boycotting them not only for this reason, but because they are trying to force their workforce to vote Republican with fear tactics.

[swift goat pet for truth]

McCain : Yes we can't.

As for unions destroying competitiveness, consider that the US is the world's number THREE exporter. Number two is China. NUMBER ONE exporter is GERMANY.

Socialist, high wage, five week vacation a year, union heavy, high tax, socialist, single payer medical system, socialist, guaranteed education for everyone, socialist Germany.

And you say they cannot be competitive?
Why do you hate America?

[KillTheMessenger]

Oh, come on, aren't we the world's number one IMPORTER? And did we not refine the art of printing money at any occasion?

:-)

[DuganS1]

Economic growth in Germany has also lagged the US significantly over the last 20 years. And there is a lack of consumer goods and services in German relative to the US, plus Germans tend to live in smaller houses.

[ordinaryguy]

to answer your question, the GOP. they wanted the low interest rates at all costs to fund their big business, but it is rasing inflation (= higher cost of goods). further more the unfettered capitalism is resulting in lower wages and living standards for the bottom 90% of the country , who can not afford the higher prices. What a Grand Old Party!

[DuganS1]

The increase in the cost of consumer goods has been absolutely minimal for the past two decades. While inflation has creeped up in the past year, most of it is in energy and food prices. Inflation from 2000-2006, in contrast, was mostly housing related (40% of the cpi). The disinflation or even outright deflation in a large chunk of consumer goods over the last two decades has been a boon for lower income Americans. And Walmart has been the greatest anti-poverty program the United States has ever had.

[olephart]

John McCain doesn't hate American workers. John McCain wouldn't recognize an American worker if one fell on him. His so called experience is being shot down, tortured, living off the Government for 40 years and marrying an heiress. His experience is hob knobbing with Washington elites and the moneyed few. At no point has he ever been associated with people that work for a living. He doesn't hate them; he doesn't know them and has made no effort to understand anything outside his own narrow world. Thinking anything less than 5 million is chump change should give someone a clue. Apparently 44% of the voting public are clueless and 1% have more than 5 million bucks.

[DuganS1]

People in the military "work for a living" and McCain was in the military for a long time.

[vipersdad]

George W. Bush was also in the Military....

In the Military they have an acronym ROAD

Means "Retired on Active Duty"

They don't have that acronym because EVERYONE in the military "works for a living"

[olephart]

I remarked that he lived off the Government for 40 years and as the sergeant in Stripes said "I ain't no officer, I work for a living."

[ordinaryguy]

and then he became a senator. oh, ouch!

[Phoenixredux]

I used to think that he was wantonly lying in all his town hall gatherings when he kept saying Obama "will raise your taxes!" Then it occurred to me he probably doesn't know anyone who makes less than $250,000.

[DuganS1]

There will be large tax increases on folks in the top TWO tax brackets on the income tax and payroll tax, plus a much larger number of people will be effected by the tax increase on dividends and capital gains. The worse thing about the tax increase is that none of it will go toward balancing the budget. It will all go, rather, toward increasing the entitlement programs.

[Mike169]

One reason he might hate the rustbelt is because they have just denied the Phoenix area access to Great Lakes water. They don't seem to realize that they live in a desert - yet.

[S1975]

John loves the American worker, and he will be our greatest president ever!

[vipersdad]

WAKE UP!!! You're having a bad dream!

[ashabot]

Yeowie! What are you drinking?

[swift goat pet for truth]

Our greatest president ever.

Taking the title away from W, no doubt.

[rock2casbah]

His kind of "love" we don't need.

He loves v-e-t-s too, to hear him tell it, and has consistantly voted against any help for v-e-t-s . All the while happy to send all our young men and women to war - and has never heard a
foreign policy problem yet that he didn't think could be solved by our military - but doesn't
care a bit for them once they return.

McCain's kind of "love" he can keep.

[ConcernedAboutRFuture]

Good post!

[swift goat pet for truth]

By asking for a living wage, the American worker takes away from Corporate Profits.

[DuganS1]

The reason for the drop-off in imports of Chinese steels isn't because of a drop in competitiveness at all. It's because of a worldwide shortage of steel, which has caused Chinese steel to stay at home instead of being shipped here. The strongest period of worldwide economic since the early 1970s, caused by the rise of China this decade, has caused worldwide steel demand to outpace supply. This is why steel prices have gone up dramatically this year and is in constrast to the huge drop in steel prices earlier this decade when supply exceded demand and George W iniated tariffs to protect the US domestic steel industry.

[DuganS1]

Let me correct myself on the above post. China has been widely thought to be a "high" cost producer relative to US producers, at least according to US Steel CEO John Surma. It seems that making little money or no money at all hasn't deterred China from exporting steel to the US n the past, but the Chinese government dropping steel subsidies last year, in addition to the increase in the value of the yuan vs the dollar, would certainly be key reasons to contain the amount of exports to the US. The tremendous global growth in steel demand, particularly from China, and the lack of global supply to meet it, certainly curtails Chinese exports to the US as well.

[southbay]

Oh ... did I miss a change in economics? I thought the yuan was pegged to the dollar?

[KillTheMessenger]

Thanks for clarifying. My first impression of this "article" was that of a random conglomerate of facts was being used to prop up a hypothesis that has nothing to do with reality and that is as much a spin device as anything else. I am not blaming Mr. Alter for that, but I think he is a little drunk of Mr. Rubin's "Spinmeister" cocktail.

Having said that, less international shipping would be good. But I do not see labor intense steel manufacturing returning to the US in a big way and it would be a poor idea to implant into people's minds that it will create large numbers of employment opportunities. The kinds of steel mills we are talking about here are largely automated and are being run by a comparatively small number of people.

The real solution, to both labor and energy issues, of course, is conservation and energy efficiency. This, indeed, will create millions of jobs. And this, indeed, is not what McCains stay addicted longer policies will do. But if we want to argue that, please let's stick to the facts. We can leave the spinning to the GOP. They are so much better at that.

[Rule Of Law]

Well, for once, KTM, I agree. I feel industry still has a role and a place here, but the future will be decided by how smart we work, not how hard.

[Rule Of Law]

Actually it is the cost of shipping that has caused the price of steel to rise---ooops!

[WIpatriot]

Just that simple, Rule.

[DuganS1]

The cost of iron ore (a key ingredient of steel) and metallurgical coal has about doubled in the past year contributing much more to the increase in the price of steel than the increase in shipping costs.

[DuganS1]

The doubling in iron ore prices and tripling in metallurgical coal prices has caused the price of steel to go up much more than increased shipping costs.