Global Economic Crisis

[headhonchoII]

Let's all second things we already agree with shall we, make us all feel better about ourselves!

This whole thing about adjusting taxes and social spending is mainly a bogey? Why? Taxes have probably never been so low in US history. If anything taxes are too low on the high income earners who have a large share of the wealth. Will somebody move out of the US if they are earning a big pay packet and their tax is increased slightly, no way in hell, it's small change to them. Will they go and live overseas if they are a business owner...maybe, but then again their money would probably be sitting in a foreign bank account even if they were resident in the US. In addition the US has a rather youthful and growing population which could easily support older workers as long as it continues to create jobs.

Jobs aren't being created because companies are not investing in America. Why are they not investing in America, because it makes no sense to invest in America when you can make it outside and sell it in America with no added cost/penalty. Just simple..a failure of free trade as it actually results in Americans standard of living being brought down but standard of living increasing for executives of multionationals and financial companies. Then we hear people with their theories as to how free trade benefits all and expands the pie...BS, the evidence is right in front of everybody's faces for years! How can anybody argue moving almost most of your manufacturing industry overseas (from low to high end), cutting pay of average workers, massive lay-offs is a success for the general population. It results in less income in the local economy, less income taxes ,less business tax, more social welfare dependency, a weaker and less confident country that needs to borrow to cover balance of payments and the creation of strong competitors such as China/Korea/Taiwan etc on the world stage who will compete strongly for overseas business and business at home. Yes it makes your multinationals stronger but it doesn't make your country stronger or your local resident earning power stronger.

As to why don't Americans buy local or companies run by Americans invest locally in preference, that is just the human condition, a tragedy of the commons as everybody acts out of self interest (individuals/companies), the government's role should be to prevent this occuring.

[GuyInTaiwan]

HH: People like what Ibksig posts not so much because they agree with him (he tends to write in a fairly dry, unimpassioned manner, after all), but because what he writes makes sense.

What you keep proposing is a form of mercantilism, which has been tried before and failed miserably. The whole problem for the developed West right now is that the world has changed/is changing back to its natural equilibrium. Asia is a massive landmass with a massive population, and for all but the past couple of hundred years of history, has been both wealthier and more productive than the West. For the past couple of centuries, however, there were fewer than one billion people in developed countries (mostly in the West) and everyone else in highly undeveloped countries that only ever produced raw materials and weren't really part of the world market (either as consumers or producers) of finished products. This was because Asia was essentially beaten down under colonialism, and then beat itself down further under ridiculous forms of government or economic models. Now, the pool of people who have the ability to produce and consume finished products has dramatically increased, to perhaps twice what it was, as China, India and others have started to come on line and give up their ridiculous economic and/or political systems. Of course doubling the pool of people able to manufacture (as opposed to merely grow stuff) will exert downward pressure on both manufacturing costs and wages, especially since the new additions to the pool are so far behind.

So let's say the U.S. government takes your line though, and basically changes this economic relationship with Asia. Who does it export to? Itself? That's like a dog chasing its tail. Europe? Why would Europe buy from the U.S. though when it can buy more cheaply from Asia? Then another interesting question is what is Europe doing to prevent losing its market share to Asia? I'm sure Europe is losing some manufacturing to Asia, and I'm sure they also have certain tarriffs and so on in place, but I'm sure many European nations have already realised they can't prevent the rise of China and India (and rightly so -- doesn't it seem insanely naive to think that one third of the planet's population, especially since they live in two ancient cultures that were once far more advanced than the West, would remain useless forever?), so instead, they've been working on their education systems so they can work at the high end where China and India can't compete with them yet (and by the time China and India get to the point where Finland, for example, is now, Finland will be on the new cutting edge). The problem is that America is obviously not working at this high end enough or the loss of low end manufacturing jobs wouldn't be such an issue for Americans. America needs to get smarter about this and compete with other developed nations for high end jobs, not developing nations for low end jobs as though everyone is caught in a time warp and this is still the 1950s.

I mean, come on, is this rocket science?

[headhonchoII]

But the US is not competing for the great median of medium end jobs now and that is where the high-end jobs come from, because you need an industrial base to work off, high end jobs don't just appear from nowhere. 'High-end' Industries where this effect is already apparent are solar cell manufacture/electrical car & battery manufacture/consumer electronics and many more (I have given examples of the development of the modern flat panel TV to describe how a low end product has now become high end and extremely lucractive, a 27 billion USD annual market in the US alone but because the US gave up on TV manufacture to the Japanese decades ago there is almost no domestic manufacture of these expensive and high end items). Not only that, but now there will be no touch screen industry, no glass panel industry, no packaging and assembling, no motherboards. Now of course some of these items would be imported from outside but for instance Corning makes the glass for most flat panel TVs worldwide, just not in the US!

What you are describing is a 'smart economy' setup , but that is actually something that is very difficult to achieve, even it is it leaves large sections of the population outside the system. It is effectively writing off 30-50% of the population, the part that is uneducated. I don't see the need to do that. One can maintain a high end and middle and low end at the same time and they all integrate and feed into each other to create a strong industrial base.

Also nothing is black and white, the US should play the game other countries play which is protect a large base of it's own industries...China/India/Korea/Taiwan etc all do the same through various methods including currency controls, financial regulations, laws favouring local suppliers through certification etc. The current situation helps American multinationals but doesn't benefit a lot of average folks in the states. In fact it could be argued that America could institute a tariff regime to favour local production and leave it open to companies worldwide, just as China does in a backhand manner with it's setup. It doesn't matter who creates the jobs opportunities, just that they are created in the US (or whatever developed country).


Also the US is still the world's no.1 one market, something that seems to rarely be mentioned. The attraction of the US market is extremely powerful, most countries/companies would not complain too much as long as they still got quite good access. This is America's no.1 weapon (it's large internal market) and killing it's own golden goose will be it's downfall. American companies main market was always the domestic market for goods produced in America, it's multinationals produce goods for worldwide trade mostly from foreign territories, not the US i.e. Apple/HP/IBM/Ford/Nike..their worldwide traded products are usually produced in Asia. American multinationals hijacked the agenda to a large degree. It CRAZY that China or Asian countries can undervalue their currencies but the US cannot institute a 10-20% tariff in return. CRAZY and dumb and only suits multinational companies ultimately with the currency arbitrage. Many products are only viable to manufacture and ship overseas because of this arbitrage, the labour cost component is less important for many products overall cost. The better the economy the more the US can use it's advantage as a consumer nation (just like China now, companies complain but nobody steps out of line out of fear of being locked out of a big market, but still a minnow compared to US overall). It's not about preventing any country's rise, just the current situation needlessly threw away American's superior standard of living., moving it's factories to NAFTA nations was an especially dumb move. Europe has done a better job overall with maintaining citizens standards of living through a variety of means, some by social constructs, the promotion of internal trade and movement and higher education in the EU.

[GuyInTaiwan]

Aren't there two ways of looking at it then? One is to put tarriffs on China et al. Another is somehow trying to make them honestly embrace free trade by stopping them from manipulating currency or applying protectionist policies themselves. I'd rather try the latter before resorting to the former. It just seems that America won't really come out and call China a currency manipulator.

Also, we get back to the same old point where American consumers could choose to support products produced in America, but don't. They buy from China or multinationals producing their products in China, but complain about China and these multinationals at the same time. There's such cognitive dissonance.

[Jack Burton]

If we're talking about market manipulation, aren't we overlooking certain subsidies such as US farm subsidies (or EU) that are also problematic? or at least sucking away taxpayer dollars for arguably no societal benefit (except to the few))

[dan2006]

All of the industrial base in the west is gone and there is no returning. The USA is, and Canada is slowly becoming have-not countries, and it's sad to see.

The US cant really call China a currency manipulator as China holds a lot of US debt. Even China is afraid of the US not repaying its debt load.

Even Taiwan is having hard time competing with China. I have a friend who works at an exporting company (they export specific parts for autos) but companies in China can develop and ship it at a fraction of the cost of this company. They are actively trying to solicit new business, but bottom line is the price. The clients dont care about higher quality, or even customer service, but the bottom line.
That is what is contributing to the west's (and to a lesser extent Taiwan's ) race to the bottom. Cheap products, even if they don't last. And customers consume them like mad, to their own detriment.

[headhonchoII]

Dan, I have heard the same thing before, people are too focused on the price rather than value. But many companies learn their lesson the hardway. The other problem a company from Taiwan has is that if it doesn't have any brand in it's industry it is easily lumped in with other Asian suppliers...playing a 'race to the bottom' with China you can only lose as they not only have the benefit of low labour cost/lack of environmental protection/cheap loans but also the low currency setting.

@GIT- It's not that I believe instituting tariffs is the only way to go, it is simply a weapon that should be in the negotiators arsenal to get a good deal for his side. When a negotiator goes into exchange rate negotiation and tells the other side that due to ideological reasons he won't use his most powerful weapon (tariffs) that puts him at a serious disadvantage. If he has no weapon to threaten the other side they won't change anything. You can see the situation going on for many years now, when will other countries finally face up to reality?

[dan2006]

And therein seems to lie the problem.. A lot of those exporters and manufacturers in Taiwan are essentially "no name" companies, so I assume they wont last long.

It is interesting that a few years ago, the Canadian government made a stupid move of shutting all the coal fired plants when the other generating options werent available yet which caused a crazy spike in electricity costs, all in the name of pollution. I'm all for shutting those plants, but we needed a viable option first.
Meanwhile, China just announced that they are building a ton of new coal fired electrical plants, the pollution of which spreads around the globe anyway. Damn the environment, we want cheap electricity is their motto.

And unfortunately, no one has the guts to confront China over it, because as you know, you dont want to make them mad.

[GuyInTaiwan]

HH: Then I'd be in agreement with you. The West does need to play harder ball, though that's extremely difficult with debt hanging over its head. If I were running a country, I'd be running it the same way I run my life, which is to say that I have an extreme aversion to debt. I realise that sometimes it's good and necessary, but I'm not sure that's the case right now. The trouble is that I am able to live, and indeed relish living, frugally. It's an old virtue that has almost been forgotten and I think I come off as being weird and/or old-fashioned when I tell people I'd rather spend less than earn more.

I think ultimately this will come down to whether people/countries want to stand up for themselves. They're largely buying the rope to hang themselves with.

[sulavaca]

Aren't there two ways of looking at it then? One is to put tarriffs on China et al. Another is somehow trying to make them honestly embrace free trade by stopping them from manipulating currency or applying protectionist policies themselves. I'd rather try the latter before resorting to the former. It just seems that America won't really come out and call China a currency manipulator.

Also, we get back to the same old point where American consumers could choose to support products produced in America, but don't. They buy from China or multinationals producing their products in China, but complain about China and these multinationals at the same time. There's such cognitive dissonance.

China manipulates its currency as much as the U.S. does, as much as the U.K. does, as much as the Euro zone does and the list goes on...
Calling China a currency manipulator is beside the point and is only distracting from the main issue and fault the U.S. has to deal with. People don't wish to invest in a country which is financially doomed to fail. It has a runaway currency which can't be prevented from failing due to the ridiculous expansion measures brought about by the Fed. The U.S. is suffering from hyperinflation (a hyper increase in its money supply). The only reason the U.S. is continuing at this point is because of countries like China who keep supporting the U.S. debt. China is reducing its support for the U.S. now however by beginning to sell of its U.S. bond holdings and use its U.S.D. [stealthily] to exchange for other commodities (including U.S. land).

The West can play all the harder ball it wants GuyInTaiwan. It isn't going to save it from filing for bankruptcy though. This failing of western capitalism is a natural cycle which China is taking advantage of. China isn't the reason for it though. The reason is the fractionalised banking franchise which is headed by the Bank of England and which has incorporated Fiat currencies as a tool in which to make greater gains over a shorter time. Unfortunately the end game is always hyperinflation, and always results in a currency either resetting or having to be reinvented. This is nothing new, and if its anybody's fault, then I could argue that its either the people's fault for allowing such schemes, or the bank's for taking advantage of stupid people. Its likely both. Personally I think its not necessarily a bad thing to be happening right now. Its allowing poorer and developing countries to find a slight advantage over the oligarchs in the west. If they play their cards right, such as China so far, then they can look forward to a better future where they are finally rewarded better for their harder work.