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  • #61
    Re: FIRE Economy turns turtle

    raja, we dont need or want wage equalization. read some re ricardo and comparative advantage
    http://en.wikipedia.org/wiki/David_R...tive_Advantage

    we do need some globally desirable products or services other than financial services. the answer will likely be tech or biotech. and of course food.

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    • #62
      Re: FIRE Economy turns turtle

      Originally posted by jk View Post
      raja, we dont need or want wage equalization. read some re ricardo and comparative advantage
      http://en.wikipedia.org/wiki/David_R...tive_Advantage

      we do need some globally desirable products or services other than financial services. the answer will likely be tech or biotech. and of course food.
      To reinforce the point, a little story. When I was in the Gulf a few weeks ago I spent some time with a Canadian friend that runs the MENA [Middle East and North Africa] operations for a fast growing California headquartered technology company.

      This company has not only developed a performance breakthrough technology in their niche, but more importantly has a creative and compelling value proposition for clients...one that saves their clients money and continues to allow them to extract value out of their existing investments in a competitor's product. His company is hiring, not only internationally, but also in the USA.

      This is the type of enterprise [and it'll take thousands and thousands more just like it] that is going to be an important part [but certainly not the only part] of rebuilding the American economy.

      To the degree that Washington persists in its efforts to maintain the lifestyles of Ken Lewis and Vikram Pandit, the decline will be greater and the recovery a more painful process than necessary. But it's still going to happen.

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      • #63
        Re: FIRE Economy turns turtle

        Originally posted by GRG55 View Post
        Sorry, but I don't agree with you, and you appear not to understand why. You'll be waiting a long time for equalization of wages.

        And you better hope it never occurs, for if it does it means this Administration has decided to take "the easy way out", down a path of protectionism and nationalisation. This is the path that Great Britian took in the middle of the last century after it's previously unassailable economic position had been under relentless attack from the USA for decades. And I will admit this is a real risk given the proclivities of this Administration [so far].

        But I remain very optimistic that the USA won't repeat that mistake. That we will see a rebuilding of the economy on a new model, and it will happen long before average US worker productivity [and wages] fall to the same level as Mexico, or Ukraine, or...[fill in your favourite developing economy]. Americans are an extraordinarily impatient lot. Once they decide they are going to do something, it can be quite remarkable how fast it happens. A disporportionate number of new technologies and associated commercial enterprises will continue to be spawned in the USA, from its scientists, engineers and entrepreneurs. And maybe, just maybe, while other nations are pissing away money building up their military to protect their African and Latin American interests, perhaps the USA will be able to redirect more of its funds to something productive, as it weans itself off the reasons [such as an overdependence on imported oil] that have caused it to maintain such a large military force for so long.
        I'm not suggesting that wage equalization is a good or desirable solution.

        All I'm saying is that manufacturing has moved to other parts of the world because it's cheaper to produce stuff there . . . and the main reason for that is that wages are lower.

        In a global economy, for manufacturing to return to the US, manufacturing costs have to be lower or equal to manufacturing costs in the rest of the world . . . or else why would corporations choose to manufacture in the US?

        To me this seems logical and clear, and I can't say it more simply or explain it any better.
        If you still don't see it that way, take one more shot at telling me why, if you want to, then let's just agree to disagree.
        raja
        Boycott Big Banks Vote Out Incumbents

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        • #64
          Re: FIRE Economy turns turtle

          Originally posted by jk View Post
          raja, we dont need or want wage equalization. read some re ricardo and comparative advantage
          http://en.wikipedia.org/wiki/David_R...tive_Advantage

          we do need some globally desirable products or services other than financial services. the answer will likely be tech or biotech. and of course food.
          I agree that if we were to come up with products that can't be produced elsewhere, that would justify higher wages because other countries couldn't compete. And we certainly have a high capacity for food production. But would there be enough of those products to recover a manufacturing base compared to our past? I don't know the answer, but my pessimistic side says No.

          I hope I'm wrong, because it would mean America's standard of living would go down considerably . . . as it already is.
          raja
          Boycott Big Banks Vote Out Incumbents

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          • #65
            Re: FIRE Economy turns turtle

            Originally posted by raja View Post
            I'm not suggesting that wage equalization is a good or desirable solution.

            All I'm saying is that manufacturing has moved to other parts of the world because it's cheaper to produce stuff there . . . and the main reason for that is that wages are lower.

            In a global economy, for manufacturing to return to the US, manufacturing costs have to be lower or equal to manufacturing costs in the rest of the world . . . or else why would corporations choose to manufacture in the US?

            To me this seems logical and clear, and I can't say it more simply or explain it any better.
            If you still don't see it that way, take one more shot at telling me why, if you want to, then let's just agree to disagree.
            I'm guessing that Raja is more right than wrong. But...borrowing from the slang of my generation, "Fat Chance." At least not in my generation. America was weaned on a protectionist mercantile system with cheap labor and we're now being consumed by one. When the nation was in trouble that's the policy it followed. Do it again. Unless...ya think we're not in trouble, we have nearly a whole continent and people to exploit, and tons of folks who are rapidly headed in the opposite direction of the poverty that many of our ancestors experienced.

            The world had better come to some 'fair' or 'decent' or 'smart' accommodation bout these cycles of protectionism, 'free trade', inequitable wealth distribution, etc. sooner or later. As for the venerated dead economist and some living-dead economist, let em rest in peace. This slavish adherence to 'the doctrine' is self-destructive...and/or insane. We'd better find something that works...or else...we're condemned to follow the same pattern over again with different folks on the stage...or worse.

            What accommodation? Not in my paygrade. But it better have something to do with health, housing, living wages, environmental protection, education, food, and some other things or we're just gonna follow our ancestor's proclivities and destroy a bunch of crap...maybe ourselves included. Does anybody here see any serious effort of the nations moving in that direction?
            Last edited by vanvaley1; 04-07-09, 04:59 PM.

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            • #66
              Re: FIRE Economy turns turtle

              Originally posted by raja View Post
              I'm not suggesting that wage equalization is a good or desirable solution.

              All I'm saying is that manufacturing has moved to other parts of the world because it's cheaper to produce stuff there . . . and the main reason for that is that wages are lower.

              In a global economy, for manufacturing to return to the US, manufacturing costs have to be lower or equal to manufacturing costs in the rest of the world . . . or else why would corporations choose to manufacture in the US?

              To me this seems logical and clear, and I can't say it more simply or explain it any better.
              If you still don't see it that way, take one more shot at telling me why, if you want to, then let's just agree to disagree.
              Labour costs and manufacturing costs are not the same thing. And not every unit of labour is the same as every other unit of labour around the world. That's a simple as I can be also. So let's just agree to disagree...

              Comment


              • #67
                Re: FIRE Economy turns turtle

                Another point about wages: one of the largest factors that drive wages involves the amount of capital being used or controlled by each employee. The more productive capital a society has, the higher its wages. That's partly because higher amounts of capital mean that products can be produced more efficiently -- so one person can do the work of many if they have the right equipment and tools.

                That's one reason why wages don't have to (and shouldn't) equalize between countries. If one country has ten times the capital investment of the other, their wages can be supported at ten times the level and still be globally competitive, all other things being equal -- which they aren't -- and that is the source of the problems....

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                • #68
                  Re: FIRE Economy turns turtle

                  Originally posted by Sharky View Post
                  Another point about wages: one of the largest factors that drive wages involves the amount of capital being used or controlled by each employee. The more productive capital a society has, the higher its wages. That's partly because higher amounts of capital mean that products can be produced more efficiently -- so one person can do the work of many if they have the right equipment and tools.

                  That's one reason why wages don't have to (and shouldn't) equalize between countries. If one country has ten times the capital investment of the other, their wages can be supported at ten times the level and still be globally competitive, all other things being equal -- which they aren't -- and that is the source of the problems....
                  The level of available productive capital, either high or low, results from many causes -- historical/political, such as Europe's self-depletion of capital as a result of waging wars; profitable manufacturing; available natural resources, etc. Where do you think the US is now regards available capital to enhance worker productivity?

                  Could you elaborate on the last point you made?
                  raja
                  Boycott Big Banks Vote Out Incumbents

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                  • #69
                    Re: FIRE Economy turns turtle

                    Originally posted by raja View Post
                    Where do you think the US is now regards available capital to enhance worker productivity?

                    Could you elaborate on the last point you made?
                    Here's my view about what happened with globalization and the de-industrialization of America over the last 20+ years:

                    1. Production costs rise in the US, as a result of increasing labor costs and increasing government regulation.

                    2. Industrial companies, more than many other businesses, require reliable long-term economic predictability. Heavy-handed government regulation made that increasingly difficult.

                    3. Artificially low interest rates in the US drove capital offshore, into places where it would receive a better return.

                    4. The sudden availability of large amounts of capital in some overseas economies, such as China, drove the industrialization of those economies.

                    5. As a result of modest industrialization, overseas labor became more productive. Production costs declined.

                    6. When faced with higher production costs, more regulation, excessive debt and less long-term predictability in the US, many companies were attracted by the decreasing production costs offshore, and made the decision to relocate production.

                    Reversing the trend requires understanding the cause. The issue won't be fixed by lower labor rates alone: there are a lot of other factors.

                    Where is the US now? Industrial companies are still buried in excessive debt. The idea of building a new factory in the US would be rejected by most large industrial companies, for the reasons described above. Capital is still flowing offshore. Even with lower wages, the US will continue to lose industrial capacity.

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                    • #70
                      Re: FIRE Economy turns turtle

                      Originally posted by Sharky View Post
                      Here's my view about what happened with globalization and the de-industrialization of America over the last 20+ years:

                      1. Production costs rise in the US, as a result of increasing labor costs and increasing government regulation.

                      2. Industrial companies, more than many other businesses, require reliable long-term economic predictability. Heavy-handed government regulation made that increasingly difficult.

                      3. Artificially low interest rates in the US drove capital offshore, into places where it would receive a better return.

                      4. The sudden availability of large amounts of capital in some overseas economies, such as China, drove the industrialization of those economies.

                      5. As a result of modest industrialization, overseas labor became more productive. Production costs declined.

                      6. When faced with higher production costs, more regulation, excessive debt and less long-term predictability in the US, many companies were attracted by the decreasing production costs offshore, and made the decision to relocate production.

                      Reversing the trend requires understanding the cause. The issue won't be fixed by lower labor rates alone: there are a lot of other factors.

                      Where is the US now? Industrial companies are still buried in excessive debt. The idea of building a new factory in the US would be rejected by most large industrial companies, for the reasons described above. Capital is still flowing offshore. Even with lower wages, the US will continue to lose industrial capacity.

                      Point 1 is the result of inflation. When Nixon took America off the gold standard, unions fought and won wage increases for their workers.

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                      • #71
                        Re: FIRE Economy turns turtle

                        Originally posted by GRG55 View Post
                        Labour costs and manufacturing costs are not the same thing. And not every unit of labour is the same as every other unit of labour around the world. That's a simple as I can be also. So let's just agree to disagree...
                        Actually there is a simpler way to describe this...

                        30 years of FIRE economy has hollowed out large parts of the US [and UK] manufacturing base. The FIRE economy is now dying. Continuing to extrapolate its effects long into the future will be proved incorrect.

                        Once the rapid economic contraction finishes wiping out the last of the jobs of non-viable manufacturing enterprises like GM and Chrysler [and I think that final flush is well underway now, and government aid is not going to materially change the outcome], the multi-decade decline of manufacturing in the USA will be over. It may take a very long time to rebuild, but it ain't gonna keep getting worse. And wages on average in the USA will still be higher than China...:cool:

                        Comment


                        • #72
                          Re: FIRE Economy turns turtle

                          Originally posted by Sharky View Post
                          Here's my view about what happened with globalization and the de-industrialization of America over the last 20+ years:

                          1. Production costs rise in the US, as a result of increasing labor costs and increasing government regulation.

                          2. Industrial companies, more than many other businesses, require reliable long-term economic predictability. Heavy-handed government regulation made that increasingly difficult.

                          3. Artificially low interest rates in the US drove capital offshore, into places where it would receive a better return.

                          4. The sudden availability of large amounts of capital in some overseas economies, such as China, drove the industrialization of those economies.

                          5. As a result of modest industrialization, overseas labor became more productive. Production costs declined.

                          6. When faced with higher production costs, more regulation, excessive debt and less long-term predictability in the US, many companies were attracted by the decreasing production costs offshore, and made the decision to relocate production.

                          Reversing the trend requires understanding the cause. The issue won't be fixed by lower labor rates alone: there are a lot of other factors.

                          Where is the US now? Industrial companies are still buried in excessive debt. The idea of building a new factory in the US would be rejected by most large industrial companies, for the reasons described above. Capital is still flowing offshore. Even with lower wages, the US will continue to lose industrial capacity.
                          Thanks for explaining the various factors that have lead to the US's loss of industrial capacity.

                          Do you have any idea to what degree lower labor rates played a role, compared to the other factors? A ballpark percentage?

                          I'm trying to get some idea of how much poorer Americans will have to become now that the fantasy economy has popped . . . .
                          raja
                          Boycott Big Banks Vote Out Incumbents

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                          • #73
                            Re: FIRE Economy turns turtle

                            Originally posted by raja View Post
                            Thanks for explaining the various factors that have lead to the US's loss of industrial capacity.

                            Do you have any idea to what degree lower labor rates played a role, compared to the other factors? A ballpark percentage?

                            I'm trying to get some idea of how much poorer Americans will have to become now that the fantasy economy has popped . . . .
                            As GRG55 has said, it's not labor rate alone. A better number would be something like the ratio of productive capital to wages, with some mystery factor for regulation and other forms of government intervention. Relative competitiveness with another country would be the ratio of those ratios. With constant wages, as productive capital goes up in one country, they become more cost-competitive. Likewise, with constant capital investment, if their wages go up, they become less competitive.

                            The problem is that both wages and capital are in constant flux. I suppose in a very broad (and therefore not very useful) sense, one could guess that capital equipment per employee might have declined by 50% over the last two decades, with wages staying flat. So either wages need to come down by an equivalent amount, or capital investment needs to double, or capital investment in competing companies needs to come down by 50%, or their wages need to double. BTW, I'm using "wages" in the broad sense, which includes benefits, legal and administrative costs, regulatory compliance, etc -- all of the costs of doing business.

                            BTW, this ties back in the cause of the Great Depression. Artificially low interest rates in the US caused capital to flow to the UK and elsewhere overseas, and with it, American industrial wealth.

                            How do you reverse it in a country that is already up to their ears in debt? Debt deflation. Deleveraging. Unemployment. Restructuring. Dollar devaluation. Etc, etc.

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                            • #74
                              Re: FIRE Economy turns turtle

                              Originally posted by Sharky View Post
                              As GRG55 has said, it's not labor rate alone. A better number would be something like the ratio of productive capital to wages, with some mystery factor for regulation and other forms of government intervention.
                              Allow me to elaborate on this, to the point of actually disagreeing rather substantially.

                              That mystery factor might be the high order bit these days ... and not just government intervention, but also Bankster intervention.

                              For the last several centuries, and especially in the last few decades, human civilization has been able to increase its average standard of living, thanks to enormous advances in science, technology and whatnot. As might be expected, this does not always result in a "fair and balanced" distribution of increased wealth. Some people get vastly more wealth for the same or less work, while some are oppressed by ingenious new forms of enslavement (see another quite recent iTulip thread on Dubai.)

                              Most of my middle class American neighbors live vastly wealthier lives than most anyone lived a century ago, for (hard to compare) similar labor. Americans are consuming more than they produce. Many Chinese workers have recently become much more productive, for a quite more modest improvement in living standard. They now produce more than they consume.

                              We have ethics of personal and economic conduct in the healthier long standing cultures and markets, some dating back millenia. But such a code is quite lacking in the global economy. Such a code of conduct will take generations to develop and instill into the teaching of our young and into the constitutions of our institutions. The world of high finance and global economics is far too recent to have such a well developed code. The world economy is and will remain for sometime deeply corrupt, especially in the centers of power and wealth.

                              The presumption you make that there is some "regression to the mean" for labor rates, based on productivity and related factors, is simply not applicable to the world economy at this time.

                              The story of how global human civilization learned to act justly and constitute just institutions will take several chapters in its history book that are yet to be written.

                              Until then, the study of economics will often be as much a tool of the confusion and corruption as it will provide the insight needed for a proper ethics in a world economy.
                              Most folks are good; a few aren't.

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                              • #75
                                Re: FIRE Economy turns turtle

                                Originally posted by raja View Post
                                I agree that if we were to come up with products that can't be produced elsewhere, that would justify higher wages because other countries couldn't compete.
                                This is a good point. How long do you think it is that we can come up with products that can't be produced elsewhere?

                                As information dissemination continues to accelerate through enhanced computer software and hardware, and laws continue generally to fail at preventing this, I do not think that there is much a foreign entrepreneur/government could not figure out how to do on their own.

                                Value then grows from accessibility to capital and will to execute. Anyone with internet access and a reasonable education (ability to process available information) can now be Samuel Slater.

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