And Just When You Think It Couldn't Get Any Worse

[rblnr]

A part of the answer is to gear your economy to produce the stuff that not everyone else can, but that you foresee growing global demand for. Hifi for one -- big American amps

We can't compete on cheap mass merchandise such as clothing, but it's stuff in the energy industry, transportation and other large scale techs where relatively few countries have the population, engineering and design base to compete -- this is where we could and in some cases do lead. As the world changes, empires adjust to it or don't, and they fade. A good chunk of this is will and a functioning political system that is pragmatic and not dogmatic. I think we're in trouble on both counts.

 

[FrantzM]

Hi

We are too much in the middle of it to fully understand what seems to be going on. What are we (The US) to do? Return to manufacturing goods when our very way of living (capitalism/Consumerism) proves that there are better ways to acquire the same goods, even for us? Service economy, that what we re right now (that and a good amount of speculation that seems to drive everything aka The Stock Markets)? Who are we to service further? with what, with whom? Won't the others be able to do it cheaper eventually or in a rather quick fashion?

The problem is IMO more serious. The Wealth of the more developed nations and (for many quite wasteful) way of life have been based on asymmetric relationships and the asymmetry is going away. Knowledge has become the equalizer and it is immensely available and not too far from free. This changes the equation in ways we cannot fully, yet, comprehend or if we do, are not ready to commit to. Yet this country the USA has showed remarkable resilience through the years and despite his wealth has retained some characteristics of emergent nations: Youth, growing population, Entrepreneurship and one remarkable American trait, optimism. Thus, I am not seeing this a doomsday, zero-sum situation. We will adapt. I do however think it will get very much worse before it gets better. Changes, especially those strongly fought or resisted are painful. We are in this period of flux ...

 

[rblnr]

I do however think it will get very much worse before it gets better. Changes, especially those strongly fought or resisted are painful. We are in this period of flux ...

Agreed in that I think we seem have to look over the abyss (or fall into it) before we actually do anything. And the longer we wait the more painful the solutions. Willfully ignoring signs/symptoms, continuing with actions you know are unhealthy/unsustainable, gets you to the doctor later than you should which makes the hoped for cure all the more difficult.

one remarkable American trait, optimism

I think a couple of wars without obvious purpose and resolution, and the seeming loss of the 'can do' ability of the country has put this at a recent historic low.

 

[JackD201]

Work. That's the crux of the matter isn't it? What jobs do americans want? Not everybody can be a desk jockey. Construction is down and looks like it will continue to be down. The US of A is still the number one net exporter of food (ultimately why the US remains unlikely to be toppled from the No.1 spot for a long time) but machinery has taken over the bulk of those jobs. So shelter, out. Food, out. Clothing, why not? Textile mills are closing when the cotton comes from the US. It's confounding! The average US cost per kW hour is competitive. The US tax regime is competitive. The only factor where the US isn't is in labor costs. So here's the painful question. If prices of basic commodities go down. Will the US worker and the Unions that represent many of them take the pay cut in order to remain competitive?

 

[mauidan]

I had no idea. And I use them. Shows how much I'm paying attention. There is so little in the average store that is actually "made in America" anymore that I guess I've just given up the quest.

Tim

Start looking for American-made goods:

"If the government won't help, then the people must do it themselves. Let's say 300,000,000 Americans each simply reallocated 1 dollar per day, spending 1 dollar less on foreign-made goods, 1 dollar more on American-made goods. (That's $30 per month, per person, and it is not an extra $30 per month, but just where you spend it!) After a year, this would add up to $109,500,000,000. What could the real, productive American economy do with an extra $109.5 billion? How about 2,737,500 new jobs paying $40,000 per year?"

 

[garylkoh]

Start looking for American-made goods:

"If the government won't help, then the people must do it themselves. Let's say 300,000,000 Americans each simply reallocated 1 dollar per day, spending 1 dollar less on foreign-made goods, 1 dollar more on American-made goods. (That's $30 per month, per person, and it is not an extra $30 per month, but just where you spend it!) After a year, this would add up to $109,500,000,000. What could the real, productive American economy do with an extra $109.5 billion? How about 2,737,500 new jobs paying $40,000 per year?"

Devert, that is the most compelling argument for buying local. 1 dollar kept local generates up to $6 in economic value due to the circular flow. If each American (or resident because I like to include myself) spends 1 dollar more buying local, the true increase in GDP is $700billion, not only $100billion. The closer to local you purchase (vegetables from the local farmer's market instead of Mexican produce from the supermarket) the higher the multiplier.

 

[The Smokester]

Folks, We. Just may have a solution here.

 

[Phelonious Ponk]

That's awesome. I can easily get a dollar a day LOCAL, at the grocery store and farmer's market. If I start looking for American goods in other categories, I could probably find another couple of bucks a day.

Tim

 

[Phelonious Ponk]

Work. That's the crux of the matter isn't it? What jobs do americans want? Not everybody can be a desk jockey. Construction is down and looks like it will continue to be down. The US of A is still the number one net exporter of food (ultimately why the US remains unlikely to be toppled from the No.1 spot for a long time) but machinery has taken over the bulk of those jobs. So shelter, out. Food, out. Clothing, why not? Textile mills are closing when the cotton comes from the US. It's confounding! The average US cost per kW hour is competitive. The US tax regime is competitive. The only factor where the US isn't is in labor costs. So here's the painful question. If prices of basic commodities go down. Will the US worker and the Unions that represent many of them take the pay cut in order to remain competitive?

If you're talking about taking a cut to be competitive with the countries that have taken textile jobs from the US, it's not a matter of will, it's a matter of survival. You literally can't live on that money in the U.S.

Tim

 

[garylkoh]

Jack, Tim,

You are both right. But it's not a matter of taking a pay cut to be competitive with countries with lower pay. It's about how and where you spend the little that is available to go around after the fat cats have taken their cut and it's about how big of a cut that the fat cats are taking. I've lived in Singapore, the UK, Australia, the Philippines and now the US -a sort of fair sampling of economies in different stages of development and economic wealth.

I have to say that for what the US is, it is the cheapest place to live well. It may be absolutely cheaper to live in the Philippines, but then you don't have the easy access to the luxuries in the US. Well, if you are REALLY rich in Manila, you take off in your private jet to Singapore or Hong Kong every weekend. But I am talking about living well as a middle-class resident earning a reasonable income - when I'm here, I live locally on $48k a year with a family of 4. But that's because I was silly enough to move my family here and commit to funding Genesis less than 12 months before the economy imploded. Nevertheless, it's a good learning experience and my kids are certainly not growing up as spoilt rich brats.

Labor cost is pretty competitive in the US when you balance productivity against cost. What isn't competitive is the associated cost of labor - and one of the biggest of this is medical and other benefits. We cover our employees with medical, dental, and even vision (eye-glasses). With the almost 100% increase in medical insurance over the past 4 years, the cost of benefits is nearly 40% of our labor bill and we can't give our staff the salary increases that we would like to give them because of that.

The other problem is the cost of education. I've already lost one wonderful employee because she had to declare bankruptcy (at the age of 28!!) because of credit card bills incurred to get through college. She had no choice but to move home to live with mother (in another state otherwise she would have continued working with us). As a bankrupt, she couldn't get housing (no one would rent to a bankrupt) and her car just died on her.

I'm worried that will happen to another employee I currently have. I don't think that either were irresponsible and the credit card debt was due to booze and music (not that some of it isn't - but I do not hire irresponsible people). Now, we read in the news that the cost of education is going up by 20% to 40% and will go up every year. Soon, the US will be a country of illiterates. Already India and China both have more students in institutes of higher learning than the US (although both have much larger populations).

Basically it seems like in the news, it is all about sacrifice the future (education) and wellness (healthcare), the weak and the poor, to feed the fat cats. However, I see that it's impossible to get out of the vicious cycle. The politicians need to make promises to the top 1% and the large corporations to get their campaign contributions. And then when they get elected, they have to keep their promises. Sounds like Manila politics, huh Jack? What's worse here than Manila is that corporations are now "citizens" in that they can fund political campaigns.

I'm just an outsider and resident here for just over 6 years, but that's how I see things. I would love to be corrected if I'm wrong because there are many things wonderful about this place I've called "home" for the past 5 years already.

 

[JackD201]

Yup. Patronage politics to a T Gary. It's a system I'm glad to be out of. I must admit trying to impeach the Chief Justice on grounds of corruption as a 31 year old upstart was a harrowing but memorable part of my life.

I've had discussions with many American friends about your economy. What I always tell them is to stay optimistic. Believe it or not, the collective "mood" is more important than the fundamentals. The cash is there. We're in a developing country with a growth rate that goes between 5% and 7%. Our long term interest rates are 2 to 3 times more than yours. Being tropical, starvation is not a big problem but poverty definitely is. Our economy is extremely sensitive to global economic conditions because hot money plays a big part of our financial system, at least it DID. Our banks went ultra-conservative after the Asian crisis in 1997. We came away pretty unaffected this time around. Yet because of the prevailing "mood", people are borrowing and drawing on capital/savings to start new businesses. Baby steps. Unemployment is improving, poverty incidence is improving, still a long way to go on education and corruption but again baby steps. We gotta keep on going. We can't wait until everything has been sorted out before moving.

I've said it before, I'll say it again. The US IS the worlds biggest economy and no.2 is a far no.2. The U.S. government is caught between a rock and a hard place. The citizens want the cheap goods but the cheap goods won't be cheap if the trade relationships were truly brought to a fair balance. I'm not talking about countries like ours that are meant to broaden the global market. I'm talking about countries that price gouge with the aid of subsidies or worse, wages close to slave labor.

This brings me to just one more thing, savings. If that housing bubble looks bad, that credit card bubble looks to be a lot worse. My dad always taught me to save up for things I want to buy. His way of sticking it to the man I teach my kids the same thing. Save up, buy in cash, enjoy the power of being able to get the best price possible. Best of all, you enjoy the thing because you don't see it in the monthly statement and it doesn't feel like a friggin' boat anchor. This is a cultural adjustment that has to be made globally really quickly. Credit card debt is a growing problem here as well.

Funny how when things go south, the solutions are always found by just going back to basics. Making us go back to basic, simple, common sense financial decisions.

 

[FrantzM]

Hi

The buy local sounds great and arithmetically it is wonderful and very easy to grasp... Economics is a little more complex I fear and just buying only what your region producrs brings things very quickly to an halt. Unless your region is in a different galaxy it can't have everything you need or want ... That the economy is now global is not something one can even debate. it is a normal and logical evolution of capitalism. You will buy things based on your needs and wants not provenance. We are slowly adjusting to this new world order... Event in Malaysia o affects people in Montana or In Bolivia... People in Bolivia will not get richer from buying their own copper .. The needs of China and India makes them richer not buying local.. The laws of economics are the same for the USA or Europe or China or ...

 

[JackD201]

True Frantz. Trade is an absolute necessity. The trick is being able to keep trade balanced. We've seen countries like Japan try to export their way out of the doldrums but in the past two decades they've shown that that doesn't quite work as well as it did before. I think what we're seeing is a saturation of consumer goods on one hand and cartel behavior for the raw materials and energy resources that go into them. Talk about complicated! Lets go back and take a simplified look at the other world economic power also in recession, Japan. They are almost polar opposites. The citizenry has got savings up the wazoo and the government is moving heaven and earth to get them to spend. They are an example of buying TOO local. Coming from a developing country, it's kind of hard for me to grasp this. That is until you enter a typical Japanese home and see that although not large or lavish, they've got every conceivable gadget down to tweezers with built in magnifying glasses and flashlights. If one were to make a checklist of what a typical 20 something working man or woman would like to have in his home, they've got it. Flatscreen, cable, broadband, game console, cell phone. Check,check,check,check. Car? Who needs one? The railways are probably the most efficient on the planet. It kind of begs the question. What exactly is there left to spend on? I participated in the opening ceremonies of the main Japanese travel and tourism show 3 years ago. I didn't know cracking open a Sake barrel with a hammer could be so much fun In one of the talks the Minister for Tourism said one of the goals of the government at that time was to get 10,000,000 Japanese citizens to travel OUTBOUND. Okay, another thing that was hard for me to grasp since I was there to help promote Philippine INBOUND travelers and the foreign exchange reserve increases that come with them. He explained that Japan has an insular culture and that to be competitive, the Japanese have to see the world with their own eyes. See for themselves what their global markets are on a personal and interpersonal level. Wow.

Americans are almost the opposite. Almost pseudo-nomadic. Americans leave home at 18 and will go where the work is best. There's an entire industries built around this. Self Storage and U-Haul type of operations. So we see two very good approaches to hitting it big. Both have pitfalls when taken too far. Too much debt and lack of self patronage which is the root of, way too much outsourcing in the name of the mighty bottom line, on one hand and too much savings and a disconnect with consumers on the other. To me somewhere in between lies the range of balance required for sustained growth. In the end I think that quality HAS taken a backseat to quantity, sadly even for those that can afford the former. If the American consumer were to become more demanding, how many of these cheap goods would actually sell?

 

[jazdoc]

Jack,

A key underlying subtext is that while Japan may have an abundance of consumer goods; it lacks people. Japan is experiencing a demographic implosion unknown in civilized experience beyond the Black Plague. It's a relatively closed society with no significant immigration and it has the oldest population in the history. At the same time, the overall Japanese population has been shrinking, a trend that will continue to accelerate. So you've created a society with an inverted population pyramid, top heavy with non-productive pensioners supported by a decreasing productive population. Japan is the poster child for the current implosion of the last 100+ years' social welfare experiment. In no small measure, the current economic distress in the Western world is the manifestation of the unraveling social welfare construct. As with all Ponzi schemes, I'm afraid it is destined to end badly.

 

[JackD201]

Oh so true Doc! Scandinavia seems to be in the same boat or at least a very similar one. I remember my first trip to Japan, I asked my guide where all the children were. It was a Saturday. My most recent trip I saw a lot of baby strollers even down town. Maybe there's hope and at least an hourglass comes up instead of an inverted pyramid. Last trip to Sweden and Denmark, I also saw a lot of toddlers too. Not very scientific I know but it seemed a good sign as well. The best part was seeing the looks on parent's faces. These parents were doting, very doting. In my mind when I see this behavior I'm thinking these kids aren't considered boat anchors or baggage. It sounds harsh but I've seen that kind of behavior everywhere across cultures, economic standing and religion.

One thing for sure is despite everything, in comparison to practically any country on this planet, the US has got it good. Maybe Canada and Australia have got it better right now but China for all its roaring, raging growth, seriously does not from the man in the trench's view. Have you guys been keeping track of the number of labor protests actually going on there on a yearly basis? Try six figures. Cost equilibrium may not be too far away.

 

[Phelonious Ponk]

It's true that the population mix of much of the developed world is trending older. It's beyond true; it's obvious. What's not obvious is that phenomenon's contribution to the "implosion" of the "social welfare experiment." That is a much more complex subject requiring a depth of knowledge and nuance in both the exploration of cause and the speculation of cure. Here in the US, though, we don't seem to care much for nuance when it comes to politics. We prefer lining up on either side of falsely constructed divisions and throwing lazy rhetoric across the line at one another.

Tim

 

[rblnr]

What's worse here than Manila is that corporations are now "citizens" in that they can fund political campaigns.

This ruling was beyond depressing and made a bad situation far worse. On the topic of money flowing through campaigns and congress and as an aside, those against the 'public option' in the health care debate argued both a) that the government is too inefficient to compete, and b) that its size would make it a predatory competitor. Hmph.

There's no question that given global competition, it's very hard for the US to sustain its wage, or as was pointed out, its benefit structure for middle class workers.

What's odd though is how they've been targeted as the problem while the divide between rich and poor grows at an increasingly rapid rate. Last I read, the top 1% has enjoyed 90% of the wealth gain in the last 20 years. This truly pulls apart the fabric of society over time. Here in sunny Jersey, the new Governor's first target was the teacher's union. Now they're not always the most reasonable bunch, but education as your first cut? Hard to figure how unions get demonized with the corporate profits we're seeing in many cases.

 

[garylkoh]

Hi

The buy local sounds great and arithmetically it is wonderful and very easy to grasp... Economics is a little more complex I fear and just buying only what your region producrs brings things very quickly to an halt. Unless your region is in a different galaxy it can't have everything you need or want ... That the economy is now global is not something one can even debate. it is a normal and logical evolution of capitalism. You will buy things based on your needs and wants not provenance. We are slowly adjusting to this new world order... Event in Malaysia o affects people in Montana or In Bolivia... People in Bolivia will not get richer from buying their own copper .. The needs of China and India makes them richer not buying local.. The laws of economics are the same for the USA or Europe or China or ...

No, I am not advocating buying ONLY local. If you took this to extremes, you wouldn't buy gas and keep riding a horse and buggy if your state doesn't produce oil. As Jack pointed out, Japan is a total opposite to the US - extreme savings, an export economy, but also in a long, drawn-out recession - and they got that way from buying TOO local. The Japanese won't buy anything that's not Made in Japan, and although they are an "open" economy, there is huge trade protectionism implemented in the form of process and procedures (as an example, fresh tomatoes can be imported with no tariffs, but they have to be held at -4deg C to "kill pests").

 

[jazdoc]

From Open Secrets.org (http://www.opensecrets.org/orgs/list.php) a listing of the largest campaign cumulative campaign donors from 1989-2010. Note the preponderance of unions which essentially give all of their campaign contributions (i.e. members garnished dues) to a single party. The few corporate donors are more evenly split.

Heavy Hitters
Top All-Time Donors, 1989-2010

Rank Organization Total '89-'10 Dem % Repub % Tilt

1 ActBlue $52,443,515 99% 0%
2 American Fedn of State, County & Municipal Employees $45,237,853 94% 1%
3 AT&T Inc $41,197,490 45% 54%
4 National Assn of Realtors $39,707,910 47% 49%
5 National Education Assn $36,310,095 81% 5%
6 Service Employees International Union $35,873,039 78% 2%
7 American Assn for Justice $33,980,771 89% 8%
8 Intl Brotherhood of Electrical Workers $33,475,254 97% 2%
9 Laborers Union $31,331,267 89% 7%
10 American Federation of Teachers $31,021,128 90% 0%
11 Teamsters Union $30,632,309 89% 6%
12 Carpenters & Joiners Union $30,572,687 86% 9%
13 Communications Workers of America $29,445,653 95% 0%
14 American Medical Assn $27,405,040 39% 59%
15 United Auto Workers $27,106,207 98% 0%
16 United Food & Commercial Workers Union $26,788,209 93% 0%
17 National Auto Dealers Assn $26,625,992 32% 67%
18 Machinists & Aerospace Workers Union $26,349,874 98% 0%
19 United Parcel Service $24,450,717 37% 62%
20 American Bankers Assn $24,105,244 39% 60%
21 National Assn of Home Builders $23,347,414 36% 63%
22 National Beer Wholesalers Assn $23,338,032 34% 65%
23 Altria Group $22,943,650 26% 73%
24 National Assn of Letter Carriers $22,034,893 85% 10%
25 Goldman Sachs $20,355,360 60% 39%

 

[rblnr]

I'm a little confused by the website and the above numbers. For example, on the site, I see this:

http://www.opensecrets.org/news/2010/08/post-2.html

which includes the quote:

The oil industry spent nearly $75 million between January and June -- equivalent to the government budget of a mid-sized American city -- lobbying the federal government.

So that 75 mil over a six month period dwarfs the $45 mil ActBlue spent over the 30 year timeframe measured. So does the above list include campaign contributions only, not the rest of the lobbying palette including ads, junkets and so forth?

Here again, spending by the heathcare industry:

http://www.opensecrets.org/news/2009/06/diagnosis-reform.html

the $166mil plus spent in '08 alone exceeds the sum of the top three spenders over the thirty year period. Seems there's obviously a whole lot more to the story than that 30 year chart.

As lobbying has ramped up exponentially over the last ten or so years, I'm not sure how relevant a thirty year time period is for the present. Here is the last three years, note 2010 is incomplete. We're looking at roughly $3.4 billion/yr. Wow.