Several recent news items have highlighted the need for an overall U.S. manufacturing policy.

Last week, Apple announced its decision to move production of some iMacs back to the United States from China. The announcement immediately gave rise to a buzz of excitement as well as to questions about the economics of such a move and whether it was just a cosmetic decision aimed at generating good will toward Apple from Americans and deflecting criticism or whether it was actually a harbinger of change in the overall global supply chain. Closer examination suggested that it was more than a cosmetic PR move and that, indeed, it might signal a broader shift of at least some manufacturing from Asia back to the United States.

For one thing, there is a desire on the part of Apple as well as other leading companies to protect intellectual property better by controlling the design and production of key components. There is also a desire not to become overly dependent on parts suppliers who are also competitors. Beyond that is the fact that most of the production of Apple products is capital and technology rather than labor intensive, meaning that this production can be done very competitively from a U.S. base. The more labor intensive assembly operations are less competitive in the United States, but they account for a relatively small part of overall costs and value added and by doing them in America the company gains much greater control over key aspects of production. Furthermore, even this part of the production process is rapidly becoming more automated and less labor intensive.

But in their announcement and subsequent discussions, Apple executives emphasized that in moving production back to the United States they faced the obstacle that American workers with critical skills are in short supply. They attributed this to flaws in the U.S. educational system, saying that American schools no longer teach many of the subjects that Apple workers would need to know.

In fact, there may be some truth in this, but the larger truth lies elsewhere and has been well identified by Harvard Business School professors Gary Pisano and Willy Shih in there spectacular new book, Producing Prosperity: Why America Needs a Manufacturing Renaissance. They point out that historically many of the skills necessary in various manufacturing industries were taught on the job by the industries themselves rather than by the schools. Indeed, these skills often involved knowledge and company industry specific activities that schools would not be likely to have or be able to teach. They note that one reason why companies in the same industry tend to cluster together is because the existence of these skills in a broad work force constitutes a kind of commons similar to the common pastures of medieval times.

But this commons has been to a significant extent destroyed over the past thirty years by the outsourcing and off-shoring of production to Asia. With the production lines went the teaching and development of skills as well as a significant part of the innovation generation chain. The notion that manufacturing and innovation were independent of each other has been shown to be false and that is a major reason why some manufacturing is returning to the U.S. But to foster that the commons of operations levels skills must be reconstituted as Shih and Pisano emphasize. This skill development is not something that our schools ever entirely did. Much of it was on the job training.

Thus, what is needed now is some collaboration between Apple, the school systems, and the U.S. government. The government could provide training grants to schools for development of specific skills. Apple could work with the government and the schools to identify the needed skills, to assure employment for those acquiring said skills, and to provide the part of the training that can only be done on the job.

A U.S. Department of Commerce that was truly on the job would already be moving to identify industries susceptible of reshoring their manufacturing and identifying the infrastructure, skill sets, and other needs they may have as they undertake more production from a U.S. base.

A second item in the recent press is the news of the buyout of advanced U.S. battery maker A123 Systems by China's Wanxiang America. This is another example of what happens when we operate with half baked policies. Sad to say I predicted exactly this scenario nearly four years ago. At that time, a meeting was held in Vice President Biden's office to discuss how to promote development of an advanced battery innovation and production capability in the United States. This was in response to the question posed by President Obama as to why we couldn't produce advanced batteries in America. Some at the meeting proposed providing various levels of financial grants and tax breaks as a way of stimulating U.S. based R&D and manufacturing. I urged caution, pointing out that other countries like Japan, South Korea, China, and Germany were already spending heavily in the same area. I argued that unless the United States was prepared to match the spending and subsidies of the other countries, any money it spent would go down the rat hole because it wouldn't be sufficient to allow a U.S.-based company to compete with the big boys from abroad. Unfortunately, it has turned out that I was right. A123 couldn't compete with the Chinese and others and so now will become Chinese itself. Or maybe I should say Chinese-American. I do hope that Wanxiang will be able to exploit the A123 Systems technology from an American base. But the real lesson here is, again, that a Commerce Department that was on the job would know the global situation and have a comprehensive strategy either for really competing or for not spending money that is sure to be lost.

Finally in the recent news has been discussion of the U.S. shale gas bonanza and how to exploit it. Some are pushing for large scale exportation of liquefied shale gas to take advantage of high prices abroad. Others are arguing for limiting exports in order to keep prices low for consumers and manufacturers in the United States. A well thought out policy could probably accomplish both goals while also providing financing for upgrading U.S. infrastructure and education. For example a tax on shale gas as suggested by Washington Post columnist Steve Pearlstein could be used to fund infrastructure and education upgrades. Competitive manufacturing analysis could guide the development and execution of export regulations that would assure a continuing energy cost advantage for U.S. based manufacturing while also allowing substantial profits from the export of liquefied shale gas.

Again, a Commerce Department and an Energy Department that were on the job would already be developing proposals for these benefit optimization policies.

So the key question is what is the Secretary of Commerce doing?  

Since the re-election of President Obama, I've been fielding phone calls from friends and commentators around the world who are asking about the U.S. fiscal cliff. It turns out to be extraordinarily hard to explain.

The first problem is the notion of the cliff itself. It, of course, exists because the members of congress agreed that if they couldn't agree on policies and procedures to reduce the U.S. federal budget deficit and the long term trajectory of U.S. national debt by the end of this year, they would automatically allow a doomsday scenario to unfold. That scenario would allow President George W. Bush's tax cuts to automatically lapse and be replaced by the marginal tax rates that obtained under Bill Clinton while also automatically cutting about $600 billion of defense and other discretionary spending. It has been anticipated that the impact of this would be to a shift in U.S. GDP growth in 2013 from about plus 2.5 percent to about minus 2.5 percent growth. In other words, a rather nasty recession.

The first question from Japan was how congress could agree on something as draconian as this as an automatic solution but could not come to a discretionary agreement on milder and more balanced measures. In other words, why would congress decide to allow the house to burn down automatically at the turn of the year but not decide to remove the matches and gasoline before then? Are congresspersons mostly pyromaniacs? Isn't it their job to work out compromise budgets precisely so that the house won't burn down? Why would they deliberately choose a doomsday automatic scenario knowing there was a greater than miniscule chance that it would actually be triggered? I tried to explain that ideologues would rather be dead and right than wrong and alive, but I'm not sure my Japanese friend understood.

Another question came from Australia. "How much are we talking about," my friend asked? " I mean, is it anything that couldn't be covered by an increase of a few percentage points on high income earners?"

I explained that President Obama's idea is to increase taxes by 3-4 percentage points on the top 2 percent of income earners but that this proposal was being stubbornly and energetically resisted by the Republican party leaders in the Congress.

"What is the top tax rate right now," my friend asked. When I told him it was about 43 percent including state taxes and social security he was flabbergasted. "But we already pay much more than that in Australia," he said, and added that Australia's top all in tax rate of 46.5 percent is about the same as most other leading countries while the U.S. rate is among the lowest, being fourth from the bottom out of 34 countries. "Why," she asked, "is it so hard to ask rich Americans to pay what other rich people pay in other advanced countries?"

Another good question. I offered the explanation that many U.S. leaders are convinced that raising taxes would reduce growth and act as a drag on job creation. But my friend pointed out that Australia is booming and creating many more jobs than America despite having much higher tax rates. She continued that Germany also has much higher tax rates and is also running the world's largest trade surplus. She suggested that America should consider the possibility that its lagging growth rate and trade deficit might stem from paying too little in taxes rather than too much. Recent economic research, she emphasized, has shown that rising income inequality like that in the United States can itself be a drag on growth.

Next was an old colleague in France who asked about the expenditure side of things. Could things like defense, social security, and health care spending be substantially slashed? I explained that total annual U.S. defense spending is over $1 trillion when the costs of the CIA, State Department, Veterans health care, and other defense related activities are all included. My friend pointed out that that sum is more than equal to the defense expenditures of the rest of the world combined. "You could cut that in half and still be spending about the same as the next fifteen countries," he said.

Then he turned to health care. He noted that at 16-17 percent of GDP, U.S. spending on health care is about double that of France and most other developed countries like Japan, Germany, Britain, and Canada. These countries all have universal coverage for their citizens and these citizens all have significantly longer life spans than U.S. citizens and fewer infant mortalities. Why couldn't America just copy and imitate some of these national policies and plans for health care delivery?

What could I say? He's right on both counts. I don't think I made any of my overseas friends understand the cliff, but I did come to realize that from abroad it makes America look feckless and incapable of dealing with its own problems let alone providing hegemonic leadership for the world.   

All my life I've been a Europhile. My dad worked for a Belgian company. I was a high school exchange student to Switzerland in 1958. My first posting as a Foreign Service officer was as vice consul to Rotterdam. I lived in Brussels for five years in the 1970s as head of Scott Paper Company's European marketing operations. I take my family to Europe frequently and maintain a wide range of work and other activities there.

Through all the vicissitudes of mid-night negotiations, I admired the dedication and vision of the negotiators who were building the European Union. I believed in the vision of a united Europe and welcomed the advent of the Euro as a major step along the way. When the recent crisis first broke three years ago, I welcomed it, thinking that surely it would be a catalyst for Europe to move to full financial integration and to greater political integration on the way toward realizing the vision of a truly united Europe.

I was wrong, and I have come to realize that my dream of a united Europe a la  the United States, is not the European dream. Indeed, with great disappointment I have at last concluded that there is no European dream because a las those whom we on the outside call Europeans are not and don't want to be Europeans.

I spent part of last weekend with a group of leading intellectuals from various European countries. The Germans were firm in their conviction that the primary cause of the EU crisis is the laziness, profligacy, free rider attitude, and mendacity of the so called Peripheral Countries ( Spain, Portugal, Ireland, Italy, Greece, and even maybe France), especially Greece, Portugal, and Spain. They emphasized that Germans believe in paying their way, in spending prudently, saving, investing, producing, and maintaining sound money and strong currencies. They attributed Germany's economic success of the past decade wholly to the dedicated pursuit of these virtues. Conversely the problems of the others were blamed largely on their failure adequately to observe the German virtues. Did they realize that Spain's government budget deficit and debt as a percent of GDP had been less than Germany's? Yes, in some cerebral way in their heads they did, but not in their gut. Did they realize that the German banks had been major lenders to and facilitators of the peripheral real estate bubbles whose collapse precipitated the crisis? Again, yes, but only in a kind of theoretical way. There was clearly no conviction that that was a primary cause of the problem or that keeping the German banks whole might have been an on-going drag on the recovery of the peripheral countries. Was there any understanding that for Germany the Euro is actually undervalued (compared to what a free standing Deutsch Mark would be valued at) and that much of Germany's export success is due to that? Absolutely not. No, Germany's success was seen as entirely due to hard work and financial virtue.

My companions saw the solution very much in terms of continued enforcement of strict austerity and achievement by the peripheral countries of fiscal and trade surpluses by dint of reducing wages, employment, and costs. None of them were interested in achieving a European banking union or any other kind of arrangement that would result in German money being used to support Europe-wide obligations.

That, of course, is the way Chancellor Angela Merkel played it over the weekend with regard to the provision of assistance for Greece in order to enable it to avoid default. The Greek situation is truly a vicious circle. Austerity has led to dramatic shrinkage of the Greek economy which means that the debt as a percent of GDP is actually climbing rapidly despite the loans and other measures that have been taken in an effort to relieve and re-generate the Greek economy. The Greek situation is getting worse, not better. Everyone at the weekend meeting which included International Monetary Fund head Christine LaGarde knew and knows that the half measures agreed upon will not be enough. Everyone knows that there will have to be debt relief for Greece somewhere along the way. But German politics don't allow Merkel to face that reality right now, and she is not the kind of leader (one thinks of Helmut Kohl) who tries to shape and guide public opinion as opposed to following it.

Nor is it only a matter of German attitudes. The UK has always run hot and cold on Europe. At the present moment, it is running perhaps colder than ever in the past. Prime Minister David Cameron and his ruling coalition only want to be part of the EU as long as it leaves the UK more or less completely autonomous without having to pay any costs or having to accept any regulations. The betting among my sources is that the UK will be out of the EU within a couple of years.

As for the French, along with the Germans the main historical drivers of the EU, they now seem bent on doing everything possible to turn France into a true Peripheral country.  The new President, Francois Hollande, spent the weekend telling Arcelor-Mittal Steel  Company CEO, Lakshmi Mittal that if he didn't renege on plans to close two old, inefficient blast furnaces that are part of a steel complex in Florange and thereby lay off 600 French workers, the French government would nationalize the whole complex and attempt to sell it to someone else. Somehow, this didn't seem at all in the spirit of the recent French government sponsored advertising program to attract investment to France with a lyric that runs: "say yes to France."

I guess that Lakshmi Mittal is going to say "no" to France.

But what I really regret is the fact that the giants who built the EU are now gone, and the pygmies who have taken their places are all saying "No" to Europe.     

How many times have you heard U.S. business leaders complain about too much government? How many times have you heard them say the best thing government can do is just get out of the way? Indeed, one of the two or three biggest lobbyists in Washington is the U.S. Chamber of Commerce. In the just completed U.S. Presidential election campaign it spent tens of millions of dollars in support of Republican Party candidates who all promised to cut back government spending and to get rid of big government.

Well, don't believe a word of it. They don't mean it.  At dinner last night, I learned that the American Chamber of Commerce in Shanghai regularly organizes what it calls "Government Appreciation" dinners at which the China based executives of U.S. and other non-Chinese corporations have the opportunity to meet with and express their appreciation for the multitude of Chinese government leaders of all stripes with whom they must do business.

No, I'm not kidding. The really call them "Government Appreciation" dinners. Try to imagine that in the United States. Can't you just see U.S. Chamber President Tom Donahue thanking the U.S. trade representative and the secretaries of Commerce and Energy along with the head of the Environmental Protection Agency and the senators on the U.S. Senate Banking Committee and many others for all they do and for their passion and commitment to their jobs? Can't you just see him and his Board of Directors of CEOs meeting with governors and mayors from around the country and blessing them for all the local regulations they have to follow and for all the documents they have to complete and permission slips they have to obtain?

Think about it this way. A friend of mine from New Zealand just arrived in Shanghai a few days ago. He changed some money at the airport upon arrival, but that was not enough to fund his wife's shopping tour several days later. So to get cash for her he went back to the bank. He's a bit of an eccentric and always fights to get the best exchange rate. The first bank he visited offered him a rate of RMB 6.015 per U.S. dollar. The second bank offered RMB 6.0175, and the third bank offered 6.200. I think he finally managed to get 6.205. But that's not the point. The important thing to know is that all these banks had different affiliations. They weren't all branches of the same bank. Yet each bank knew where he had been and what he had done in terms of currency transactions before he visited that particular bank.

Obviously his movements and transactions were being reported centrally and made known across the banking network. As another friend explained, the PSB (Public Security Bureau) is the all seeing eye of China. He emphasized the importance of Government Appreciation Day by noting that the pervasive extent of the role of government in the Chinese economy and in Chinese society more broadly cannot be over-emphasized. Nothing , he said, happens in China without the government touching it in some way.

Since global business CEOs often speak of how wonderful it is to do business in China, I began to wonder if government in the United States should imitate the pervasiveness of that of China as a way of gaining greater appreciation. 

A vastly under-reported drama in Australia this past week both sounded a new departure in the old U.S.-Australian alliance and highlighted the central contradiction of the U.S. policy of "pivoting to Asia."

At the annual Australia-U.S. Ministerial meeting in Perth, Secretary of State Hillary Clinton, Defense Secretary Leon Panetta, and their Australian counterparts launched discussions on granting the United States further access to air bases in Northern Australia and to several naval ports, including one on the Indian Ocean just south of Perth. They also announced that the Pentagon would establish a powerful radar and space telescope in Australia to monitor Asian airspace.

In a speech in Adelaide following the meeting, Hillary called Australia an "indispensable ally" and said: "these past three days have reinforced for me the indispensability of the U.S.-Australian partnership. We are cooperating everywhere together -- in business, in shipbuilding, from the mountains of Afghanistan, to the atolls of the Pacific, to the thriving cities of Asia." This, of course, follows the agreement last year to deploy U.S. troops to Australia for the first time since the end of the Second World War. The plan is eventually to have 2500 marines at bases in Darwin. However, so far, only 250 have arrived there.

The announcements and the secretary's speech coincided with two major statements by Australians on the future of Australia. A white paper by a government appointed commission emphasized the centrality of China and Southeast Asia to Australia's future and called for a dramatic shift of Australian economic, educational, commercial, diplomatic, and strategic policies away from their traditional U.S. orientation and toward Asia. In particular, it called for a closer relationship with Indonesia and for Australian membership in the Association of Southeast Asian Nations (ASEAN). A speech by former Prime Minister Paul Keating not only called for closer alignment with Indonesia and ASEAN, but also called for a degree of separation from the United States, saying that Asia sees Australia as a toady of America and too ready to do its bidding. Other commentators raised the issue of whether Australia is unnecessarily and unwisely (in view of Australia's growing economic dependence on China) abetting the United States in a policy of containment of and opposition to the rise of China.

Indeed, in his own press statements, Australian Foreign Minister Bob Carr was at pains to explain that there was nothing about containment of China in any of the Australian-U.S. communiqués and insisted that Australia has not surrendered its foreign policy to the United States.

In her own response in Adelaide, Secretary Clinton said "the Pacific is big enough for all of us" and claimed that those who argue that Australia needs to choose between America and China are presenting a false choice. "That kind of zero sum thinking only leads to negative results," she explained.

On Saturday, however, The Weekend Australian foreign editor Greg Sheridan pointed to important hidden realities. The agreement from last year was supposed to bring 2500 U.S. marines for an annual rotation through Australia and was also to provide for expanded use of military air bases in northern Australia and of naval bases in Western Australia. Yet, so far the only thing that has happened is the rotation not of 2,500, but of only 250, U.S. marines. Sheridan says this is because the Australian government has gotten cold feet in the wake of Chinese warnings that Australia should not partner with America in suppressing China's rise.

What's going on here? Well for starters, it clearly is all about containing China. The United States has been the major power in the Asia-Pacific region for the 67 years since World War II. The Seventh Fleet has been there and U.S. troops have been stationed in Korea and Japan for all that time. Contrary to the popular meme that America was somehow neglecting Asia, it never left. But it also never felt the need to do a "pivot" and to establish further bases and troop rotations in Australia, or to station 60 percent of its naval ships in the western Pacific, or to become involved with the claims of various Asian nations over uninhabited rocks in the sea until China began to emerge as the second major power in the world.

Australia, like all of America's other allies, quasi-allies, and friends in the Asia-Pacific region is benefiting enormously from doing business with China and understandably wants to continue doing that business and even expand it. At the same time, however, it doesn't want to be pulled into too close an orbit by the Chinese tractor beam, nor does it want to have to defend itself against terrorist threats and those lusting for its vast mineral resources all by itself. So it turns to the United States to be the balancer and co-defender.

This, of course, is a way for Australia to have its cake and eat it as well. It is a brilliant strategy if it can be made to work. But there is a vulnerability highlighted by Bob Carr's urgent interjection that there is nothing about containing China in any of the U.S.-Australia agreements and by Hillary Clinton's comment that "the Pacific is big enough for all of us."

The vulnerability is that neither Australia nor any of the other Asia-Pacific nations want to risk offending China. Indeed, the Carr/Clinton comments as well as the slow implementation of the U.S.-Aussie agreements concluded last year are in consequence of complaints China has already made about these deals constituting nothing more than a policy to contain China.

Australia and the rest are increasingly ambivalent. They want Uncle Sam to be readily available in times of danger. At the same time, they don't want to admit too close an association. In short, they don't want to be asked to choose between China and America. One may wonder why the Americans would want friends who are afraid to acknowledge them, but so far, at least, Washington has taken the position that there is no need to choose. That, however, is not the position that China has taken. It interprets the ties of Asia-Pacific nations with America as aimed at containment of itself. It complains and threatens and in response everyone starts talking double talk.

Ultimately the question must boil down to what are the Americans getting out of this. The business the United States does with China makes it large and a chronic international debtor, and maintaining fleets, troops, and bases in the Asia-Pacific region only adds to its federal budget woes. Will it eventually conclude that the double talk is not worth the candle?

"Fiscal cliff" has become such a catch phrase that it now shows up regularly in non-U.S. media around the world. Avoiding going over it is certainly President Obama's number one concern between now and the end of the year.

Or is it? Well, if it is, it's not stopping him from leaving Washington and flying half way around the world to Cambodia next week to attend the East Asia Summit meeting of top Asian leaders. So "take that" John Boehner. You may be the Speaker of the U.S. House of Representatives, but you're no Xi Jinping or whomever the Chinese pick as their new leader. This is the first time an American president has attended the summit, and it is a measure of the importance of China/Asia to the United States that Obama is taking part despite the fiscal pressures he, America, and the world are facing.

This is not the first move Obama has made that reflects his concern with China and Asia. The so-called "pivot to Asia" that he adopted earlier in the year as the main focus of American foreign policy in the post-Iraq, post-Afghanistan war world has already resulted in an ongoing shift of U.S. troops, ships, and military presence to the Asia-Pacific region. It has also been manifested by the attempt to negotiate a free trade agreement under the rubric of the Trans Pacific Partnership and by the reaffirmation of U.S. ties with, and support of, Asian countries such as Vietnam, the Philippines, and Japan in some of their contested issues with China.

That Obama's concern is justified is evident on the basis of many factors. There is a constant din of triumphal commentary in Asia and much of the rest of the world about China displacing the United States as the world's largest economy. Put aside for the moment the fact that the U.S. economy is not the world's largest economy -- and hasn't been since being displaced by the EU a number of years ago -- and put aside the fact that China will not soon displace the EU, and may well not surpass the United States if its growth rate continues its broad slow down. The fact is that there is a widespread anticipation and even fervent hope that America will fall behind in terms of the size of its GDP. Many around the world see this as a kind of liberation from American hegemony. As one Chinese analyst said to me recently, "America must at last face facts. It's power is ebbing rapidly and it will no longer be able to get what it wants as easily as in the past."

Good advice. Face the facts. My concern with Obama is not that he's going to Asia in the middle of the fiscal negotiations with Boehner, but that he's not properly facing the facts.

The main fact is that while it's true that U.S. power is ebbing, it's not ebbing for lack of military presence or capability. It's ebbing because the U.S. trade deficit appears to be irreducible and U.S. industry continues to offshore not only production but also R&D and innovation while some of America's greatest educational institutions slash their budgets, even as those of China and most of the rest of Asia expand geometrically. In short, the U.S. is seen in Asia as a declining power because it can't compete, not because it can't fight.

Increasing the American military presence in the Asia-Pacific region will only cost more money and goad the Chinese to redouble their own military efforts. It won't produce a single new semiconductor or new company or higher American wages. In his post election speeches, the President has frequently talked about doing nation building at home and about rebuilding America. He's right. An economically stronger America wouldn't have to deploy 2,500 marines in the northern reaches of Australia or put 60 percent of its naval ships in the western Pacific.  So how do we rebuild America?

For starters, we pivot not to Asia, but to America. Look, the Aussies are reducing their own forces. Why are we sending more troops to Australia? China has an economy growing at 7.5 percent while we struggle to hit the 2 percent mark. Why do we want to challenge China to an arms race that is likely to be more costly to us than to them? Remember that U.S. oil does not come across the Pacific. There has been a lot of concern about the off-shoring of U.S. jobs and technology. Yet, the U.S. military presence in Asia promotes a degree of stability that makes the Asian supply chain safe. In effect the Pentagon guarantees corporations who offshore their operations that they have nothing to fear in terms of disruption by doing so. This is like a subsidy for off-shoring. Why is America paying this subsidy?

Halting its payment would be a good way to avoid going over the fiscal cliff.

Similarly, the negotiation of the Trans Pacific Partnership (TPP) and other free trade agreements should be halted and re-defined. These deals are not about creating American jobs. No serious analysis is being done about how many jobs they might actually create or destroy. It is likely that the TPP would result in an increase in the chronic U.S. trade deficit and a net loss of jobs, but the negotiators are not thinking about that. Obama should. His negotiators get points for doing deals whether or not they create jobs, but Obama doesn't. He should put the talks on hold until an analysis has been done that shows in concrete terms how such a deal might contribute to rebuilding America.

Of course, these steps are only a beginning. They are measures to remove distractions while we concentrate on the main thing by adopting a whole new set of domestic policies. I'll tell you what they should be in the next installment.

Do you remember the last time the unemployment and job numbers were published? Do you remember that former GE CEO Jack Welch blasted the Bureau of Labor Statistics (BLS) for political bias because the numbers showed a sudden and significant drop in unemployment to 7.8 percent or two tenths of a percent below the critical 8 percent threshold?

Do you remember that Jack said the movements then reflected in the numbers were impossible and that the way the numbers were collected and calculated was illogical and basically said the political fix was in?

Well the numbers came out again Friday morning. They show an increase of 175,000 jobs but also an increase in the unemployment rate from 7.8 to 7.9 percent. Now at first glance that seems a little odd. Jobs are increasing and the unemployment rate is rising?

More important though is the fact that the figures show the unemployment rate rising just four days before the election. You wouldn't expect a BLS that was politically biased in favor of Obama to be publishing an increase in the unemployment rate at this moment.

So Jack, why aren't we hearing from you now about how crazy these numbers are and how nutty the collection and calculation methods are?

It's because things aren't going your way isn't it?

As China prepares for a momentous change of leadership at the top, a question increasingly being posed is how the new leaders will guide a country that will soon be the world's largest economy. That the Chinese economy will reach the top rung sometime between now (some economists believe it already is the biggest economy) and the early 2020s is assumed as part of the conventional wisdom, having been confidently predicted by such influential voices as the International Monetary Fund, the Economist magazine, and virtually all of the leading pundits both in the West and in Asia.

So it was fascinating last week for me to meet with one of Beijing's top economists who says "it's never going to happen." Because this analyst requested anonymity, I cannot reveal who it is which I believe is itself a commentary on some of the reasons why it may not happen. Nevertheless, the substance and logic of the analysts argument is compelling and important.

The first point is that the Chinese economy today is not, as is commonly stated, half that of the U.S. economy. Rather it is only about a third the size of the U.S. GDP. This is because a lot of the growth of the past was accomplished by building stuff that will never be used sufficiently to justify its cost and should thus represent negative growth if it were correctly counted.

This should show up as non performing loans whose liquidation should have been subtracted from GDP. But since they were not officially recognized they were not subtracted and will thus eventually show up as negative growth in the future as resources are used to service them.

This does not include environmental degradation which one Chinese economist estimates should have reduced China's reported GDP by 10-20 percent but was not reported to have done so. However, it will show up in the future as rivers and farmland produce less and as health care costs and sick workers eat up more and more of the nation's wealth

Most orthodox observers think that China has four times the U.S. population and about half its GDP. China's productivity is about an eighth that of the United States. So if China doubles its productivity, it would equal the U.S. GDP while still having only half the productivity of the United States. That appears to be a mathematical certainty for China, and thus the conventional analysts hold to the conventional prediction of China soon becoming the world's top economy.

However, there is a weakness in this analysis. It focuses on the wrong demographics. It's not population size that counts with regard to GDP. Rather it's the size of the working population. China now has five times as many workers as the United States, but that will drop to only three times by 2050. That means that Chinese workers must increase their productivity from one tenth of U.S. productivity to one third. In other words, instead of doubling productivity they would have to triple it. Indeed, if you believe that the size of the Chinese GDP is over-stated, then current productivity is also overstated. So, maybe Chinese workers would have to quadruple their productivity in order for the Chinese GDP to equal the U.S. GDP.

That is a much higher hurdle that my economist friend in China doesn't think the Chinese workers will ever be able to clear.