Who Needs to Raise the Minimum Wage When You Have Trump

Nice article today in Bloomberg on how challenging it will be to find enough legal workers to build the wall between the U.S. and Mexico.  It turns out a significant number of construction trade workers are illegal, which Trump (at least now that he is President) will not allow. 

https://www.bloomberg.com/news/articles/2017-01-26/trump-wants-to-build-a-wall-finding-workers-won-t-be-easy

So the question becomes, where will we get the workers?  Obvious answer, pay higher wages and train people to get them out of their parent's basement and into the work force.  Which is good for workers, but which drives up inflation, drives up the price of other construction, e.g. homes, and cuts into the profits of construction companies.  Wish I had seen this coming.  Wait a second, I think I did.  In a post just over a month ago I noted the following on the participation rate:

People who would just as soon stay home in their parent's basement or live off welfare.  Getting these folks to take any new factory jobs or infrastructure jobs is going to take some pretty high wages.  But rest assured, factory wages (and service sector wages) will have to go up as we are shipping a few million illegal immigrants out of the country and building a wall to keep them out, so companies that are already dealing with a 4.9% unemployment rate will be desperate to get workers and have to pay significantly more.  Trump may be wholly against raising the minimum wage but his economic plans will do plenty to raise wages, and prices, and inflation.

To the extent companies cannot raise prices to offset the increased wages because foreign companies have a massive exchange rate advantage, there goes those tax incentives out the door (assuming companies do not simply spend the saved tax dollars on dividends and buybacks like they did with money borrowed under the Feds low rates).  Prices will also have to go up, increasing inflation, increasing interest rates, increasing dollars needing to service debt and decreasing profits.  Yep, sounds like a good plan.

Don't get me wrong, I am all for getting people jobs and increasing the participation rate, but it will have consequences that I think are being ignored.

Autotrociously Wrong Focus

Trump seems to have an almost unwavering focus on bringing automobile manufacturing back to the U.S. 

http://www.reuters.com/article/us-usa-trump-autos-idUSKBN1581CA

And he seems to be having some success.  Many auto manufacturers are committing to keeping  jobs in the U.S. and foreign auto manufacturers as well are committing to investing more in U.S. manufacturing facilities.  Problem being that at least in the short term sales in the U.S. are not looking so good and may have peaked for this cycle given all the cheap credit, 72 month loans and fog-the-mirror loan standards.

http://www.zerohedge.com/news/2016-11-08/

But it is not the end of this cycle that bothers me.  What Trump may not be focused on or perhaps not even aware of is that automobiles and how they are bought and used is in the process of changing.  We are in 2017 and autonomous vehicles are becoming a reality.  It will take a while and I am happy to debate how long it will take but it will happen.  One of the dynamics of this happening is that people will no longer need cars at all, or at least most will not.  Predictions are for a rather abrupt fall in vehicle sales as folks will be able to go into their app and have an autonomous car show up in 5-10 minutes to take them wherever they need to go.  No need for car payments, no need for car insurance, no need for car maintenance or to deal with the hassle of same.  The garage becomes a bonus/storage room.  Clearly this already exists with the likes of Uber, but when Uber no longer needs to pay a driver, and when the auto manufacturers themselves get into this game for survival (Ford is focusing on this area) then the cost of a ride will drop and make the math a bit of a no brainer.

When this happens, far fewer cars will need to be manufactured.  I have seen estimates of over 40% fewer in just the next decade or so.  This is based upon the fact that currently most cars sitting idle most of the time.  If you have an autonomous vehicle picking up and dropping off people virtually all the time, the number of cars needed is far fewer.  Yes, they will need to be replaced more often as they rack up the miles, but a lot of car replacement is simply due to age of the car, not mileage, so there will still be far fewer cars needing to be manufactured.  And if accidents go down drastically as expected, the need to replace cars for that reason also goes down.

So in my view Trump is focusing in the wrong area as the jobs in the area of his focus will in ten or so years be reduced significantly just by modern science.  And the reduction will start much sooner.

Of course there are similar issues with most manufacturing jobs.  They are being automated.  Just this week listening to Fox on the radio they were citing a study showing that 49% of the jobs that exist today could largely be eliminated with automation with presently available technology.  Many of these are service sector jobs but the initial focus has been and will continue to be on the higher paying factory jobs where Trump is focused.  These jobs are going away and not to other countries.  Trump is pushing on a string.  Certainly he will have some short term success as there are still plenty of these jobs around, but he needs to have a longer term focus.  Then again, he may not really care about anything at the moment beyond the next four years.  We will see.