Wednesday, October 06, 2010

Memo to Congress: Affordable Imports from China Are A Godsend, Not Grounds for a Trade War

From Jeff Jacoby in today's Boston Globe:

"The policies of the Chinese government make it possible for Americans to acquire a vast array of products at affordable prices. For that high crime and misdemeanor, the US House of Representatives voted last week to punish China.

Affordable imports are a godsend, not grounds for a trade war. It’s distressing that so many members of Congress have trouble understanding that. Maybe a return to private life would help them figure it out."

38 Comments:

At 10/06/2010 9:51 AM, Blogger Sean said...

It's this simple: if you have a decent job, you will agree with that statement. If you don't, and think Chinese policies (as well as protectionist policies by other countries) have helped crowd out American job creation, then you will disagree.

 
At 10/06/2010 10:48 AM, Blogger Paul said...

Get ready for the price of gas to skyrocket again if these idiots pull the trigger.

 
At 10/06/2010 12:39 PM, Blogger Buddy R Pacifico said...

Jeff Jacoby writes that Chinese yuan manipulation is not illegal within the context of the WTO. This is true but China is a member of the IMF which does not have a adjudacation capability like the WTO. The IMF is based on good faith and keeping promises to insure global trade functions smoothly.

The Second Amendment to the IMF Articles of Agreement; General Obligations of Members states:

"(iii) avoid manipulating exchange rates or the international monetary system in order to prevent balance of payments adjustment or to gain an unfair advantage over other members..."

Mr. Jacoby is defending actions that harm U.S. producers and potential producers.

BTW, this from the 1977 agreement that took away the ability of IMF memmbers to externally anchor (fiat) their currency to gold.

 
At 10/06/2010 5:25 PM, Blogger James said...

In a comment to a previous article I noted that an NBC/WSJ poll shows that 53 percent of Americans now think free trade is bad for jobs and the economy. That percentage must be much higher for readers of the Boston Globe. Take a look at the negative comments.

Prediction:

The Democrats will get hammered in November. As well they should. Republicans will control enough of the government to make life miserable for President Obama but he will succeed in preventing them from doing what they want to do. With Republicans in control the economy will show a short, 6-9 months, recovery before it returns to sub par growth again. The economy will still be bad in 2012 when Republicans will blame Obama and take control. Then they will retry the policies that failed for Bush and Bush. That will again lead to a short term recovery maybe as long as a year but long term those policies will fail again. In 2014 there will be a for real throw the bums out movement that may involve a third party. Those new politicians will rediscover Alexander Hamilton’s 1789 tariff memo to George Washington and the economy with tariffs will begin to heal. Unemployment will not go below 7 percent until 2016-2018. After that we will return to the 2 percent inflation 4 percent unemployment we had under Eisenhower.

The stock market will continue to be erratic with an up bias punctuated with significant but short declines as each false recovery fizzles. After 2016 the stock market will have a serious decline as multi-national companies write down the value of their overseas assets and bear the cost of new factories here. Some will fail. Countries and multi-national companies that have staked their economic well being on exports to the United States will get slaughtered.

University of Michigan MBA graduates next June and for the following three classes will face a tough job market.

OK, I have stuck my neck out. Anybody else have the courage of their conviction to do the same? I mean with a specific forecast not this panty waist leading indicator junk.

 
At 10/07/2010 10:53 AM, Blogger juandos said...

Bloomberg video: U.S. Losing Control of Bombs to China Neodymium Monopoly

China has become the world's leading supplier of components crucial to U.S. defense systems, products once supplied by American companies such as Magnequench Inc. and Molycorp Inc.

 
At 10/07/2010 12:40 PM, Blogger Buddy R Pacifico said...

Juandos, Molycorp is back in business. That's the good news. The bad news is that the ores they mine have to be shipped to China for processing at this time. Further their mine is in the heart of Regulation Central AKA California. Sheesh and sheesh.

 
At 10/07/2010 1:07 PM, Blogger VangelV said...

If you don't, and think Chinese policies (as well as protectionist policies by other countries) have helped crowd out American job creation, then you will disagree...

It is not the case. Those that have no jobs have little income and need cheaply priced goods to survive. Their jobs were not lost because the RMB may be 20% undervalued but because they have no marketable skills or their potential employers have trouble with an intrusive government and legal system that keeps changing the rules.

 
At 10/07/2010 3:26 PM, Blogger juandos said...

Hey Buddy, I'd heard before watching the video that MolyCorp was back in business...

Now the question is, can MolyCorp stay in business with the EPA monkey on its back?

A polluted Red River and adjacent ground waters are not a good thing...

 
At 10/07/2010 7:35 PM, Blogger Sean said...

VangeIV,

Their jobs were not lost because the RMB may be 20% undervalued but because they have no marketable skills or their potential employers have trouble with an intrusive government and legal system that keeps changing the rules.

I don't have the time at the moment for a proper defense of the jobless, much less the relative contribution of the value of the yuan (it is admittedly one of the weaker components of Chinese protectionism: it's just easier to point out). But I don't think you know anyone in their 20's, anyone who owns a machine shop, or anyone with good contacts in businesses like Caterpillar, Koch, or BASF. I think you're out of your knowledge base.

 
At 10/07/2010 8:21 PM, Blogger VangelV said...

I don't have the time at the moment for a proper defense of the jobless, much less the relative contribution of the value of the yuan (it is admittedly one of the weaker components of Chinese protectionism: it's just easier to point out).

I don't think that a defense is possible, at least not with economics that would apply to the real world. I notice that the African currencies are very weak but do not see many goods being sold by Africans. If a weak currency is the key to strong exports that would not be the case.

But I don't think you know anyone in their 20's, anyone who owns a machine shop, or anyone with good contacts in businesses like Caterpillar, Koch, or BASF.

I know many people in their 20s, people who own machine shops, and who have contacts with Boeing, Canadair, Airbus, United Technologies, etc.

I think you're out of your knowledge base.

No I am not. Boeing can get cheaper parts built to its specs from China than it can from domestic sources not just because of labour cost differences but because of lower regulatory compliance costs, overhead costs, machine tool costs, etc. One of my friends owned a paint shop. He was charging more to paint some fittings (used to make signs) than you could get the entire part, finishing included, from China. The currency had little to do with that.

 
At 10/07/2010 11:05 PM, Blogger Sean said...

VangeIV,

If a weak currency is the key to strong exports that would not be the case.
A weak currency makes it more profitable to sell abroad than to sell locally. It doesn't make a country successful at either, but it does help attract foreign investment.

I don't think that a defense is possible, at least not with economics that would apply to the real world.
A defense of the proposition that the jobless might have marketable skills and regulation is not the reason they are unemployed?
I know bright college graduates from multiple fields (not just liberal arts) that spent up to a couple years unemployed or underemployed: marketable jobs skills were not their problem (unless you accept the narrow definition that if someone didn't find employment, there was by definition no sizeable employer market in that field).


I know many people in their 20s...
Then you know bright, hardworking people out of work. You know of plants that were closed in America or Japan because China was willing to help Intel build a fab there practically for free and Israel was willing to put up hundreds of millions of dollars for theirs. You know of plants closed in America and Japan because of the land subsidies, market access, etc. You know how Boeing suffers because the European Union wants Airbus in business and how China uses that tension to get better deals and make political statements. You know how military firms like Lockheed have to perform certain percentages of their production in various countries overseas so that they can sell weapons technology to US allies. You know how China routinely raises tariffs and provides dirt cheap loans to competitors in "strategic" industries so that they can flood the market with goods at or below cost in an effort to establish themselves, or how the South Korean government subsidizes auto export sales losses for years in order to establish export markets.

But protectionism doesn't hurt US jobs?

No I am not....
Apparently not. But then why do you draw such strange conclusions?

...The currency had little to do with that.
As I had stated: the value of the yuan is one of the weaker forms of Chinese protectionism. But if you have read anything from "The China Daily" at all, you know that the Chinese obviously think it matters: any talk of letting the yuan appreciate is met with loud resistance by exporters claiming they will go out of business. And within China, Wen Jiabao has supported such talk.

 
At 10/08/2010 12:30 AM, Blogger VangelV said...

A weak currency makes it more profitable to sell abroad than to sell locally. It doesn't make a country successful at either, but it does help attract foreign investment.

But it does not make a country successful at attracting foreign investment. A weak currency is usually the sign of a dysfunctional financial system and a badly run country. Like I wrote above, Africa is not exactly attracting a lot of manufacturing activity right now.

A defense of the proposition that the jobless might have marketable skills and regulation is not the reason they are unemployed?
I know bright college graduates from multiple fields (not just liberal arts) that spent up to a couple years unemployed or underemployed: marketable jobs skills were not their problem (unless you accept the narrow definition that if someone didn't find employment, there was by definition no sizeable employer market in that field).


Buggy whip makers and Y2K code checkers had skills too but they were not exactly marketable after the market disappeared. If you have a liquidity induced bubble that creates malinvestments the job losses that follow when the bubble bursts is not caused by exchange rates.

Then you know bright, hardworking people out of work. You know of plants that were closed in America or Japan because China was willing to help Intel build a fab there practically for free and Israel was willing to put up hundreds of millions of dollars for theirs. You know of plants closed in America and Japan because of the land subsidies, market access, etc.

It seems that you have not been looking at the trends. Manufacturing jobs as a percentage of the total began to fall in the mid 1940s when China was fighting a revolution and Japan was busy rebuilding its industrial base.

http://tinyurl.com/27qjc3c

You know how Boeing suffers because the European Union wants Airbus in business and how China uses that tension to get better deals and make political statements.

But Boeing is getting a lot of money because it is part of the industrial complex that gets special treatment from the US military. It also gets lots of sweetheart deals from individual states that use subsidies to get plants and program work to relocate there. When senators trade votes for work to be relocated in their states work is moved from other locations and workers lose jobs.

You know how military firms like Lockheed have to perform certain percentages of their production in various countries overseas so that they can sell weapons technology to US allies.

It is the same within the US. Why is a job that moves from California to Michigan not as much of a problem as a job that moves from California to Seoul, Singapore or Shenyang.

 
At 10/08/2010 12:30 AM, Blogger VangelV said...

You know how China routinely raises tariffs and provides dirt cheap loans to competitors in "strategic" industries so that they can flood the market with goods at or below cost in an effort to establish themselves, or how the South Korean government subsidizes auto export sales losses for years in order to establish export markets.

Your country, sates, and municipalities play the same game. But it does not matter because those that argue for tariffs of any kind cannot justify telling consumers not to buy products that they want to buy with their own money.

But if you have read anything from "The China Daily" at all, you know that the Chinese obviously think it matters: any talk of letting the yuan appreciate is met with loud resistance by exporters claiming they will go out of business. And within China, Wen Jiabao has supported such talk.

This is true. I had the same argument with a Chongqing factory owner at lunch yesterday. He thought that it was good for his production to have a weak currency. The irony is that without American and European subsidies for the solar panels that he produces he would be out of business. But that does not change the facts that subsidies are a net benefit for consumers, not the producers. I don't see anyone arguing that slavery was good for slaves because their cheap labour allowed them to produce products that others would consume.

 
At 10/09/2010 11:49 AM, Blogger Sean said...

VangeIV,

Like I wrote above, Africa is not exactly attracting a lot of manufacturing activity right now.
Again, I'm not arguing protectionism always works. Certainly it can't overcome the lack of a rule of law!

Buggy whip makers and Y2K code checkers had skills too but they were not exactly marketable after the market disappeared.
It's a sad day when college graduates are lumped with buggy whip makers. How is a young person starting out supposed to show "marketable skills" if that is the case?

If you have a liquidity induced bubble that creates malinvestments the job losses that follow when the bubble bursts is not caused by exchange rates.
True, but nor does the blame fall with regulation. You've wandered a bit from your earlier premise, unless I'm mistaken?

Manufacturing jobs as a percentage of the total began to fall in the mid 1940s when China was fighting a revolution and Japan was busy rebuilding its industrial base.
In the US, globally, or both? But even if services are where most of the jobs are, increasingly CEOs such as Andy Grove are calling out the fact that manufacturing is very much underestimated by America in the 21st century as a means of creating the tradeable wealth that service jobs in sectors such as retail distribute.

When senators trade votes for work to be relocated in their states work is moved from other locations and workers lose jobs.
The fact that this goes on at a more local level does not negate my point in any way.


But that does not change the facts that subsidies are a net benefit for consumers, not the producers.
I agree, but I think the social good of abundant opportunities to be a producer does matter.

I don't see anyone arguing that slavery was good for slaves because their cheap labour allowed them to produce products that others would consume.
A lot of people did argue that slavery was good for slaves, actually. I wouldn't, but I'd certainly argue that employment is good for the employed. Even if they're underpaid, they have options they otherwise would not.

 
At 10/09/2010 12:25 PM, Blogger VangelV said...

Again, I'm not arguing protectionism always works. Certainly it can't overcome the lack of a rule of law!

There are countries in Africa where the rule of law is not all that different from China, Indonesia, or Vietnam but get no foreign investment for manufacturing ventures.

It's a sad day when college graduates are lumped with buggy whip makers. How is a young person starting out supposed to show "marketable skills" if that is the case?

The same way we did. By working in entry level jobs as soon as s/he were able to. I don't know about you but I got my first job when I was eleven years old. I worked through high school and actually had good offers from established employers before I finished university. Many current graduates have never really worked much during their lives and have no idea what it takes to prosper in the real world. I see many young people who had good education and full time jobs quit because they could not handle criticism or the pressures of their jobs. Those people need to stop whining and grow up.

True, but nor does the blame fall with regulation. You've wandered a bit from your earlier premise, unless I'm mistaken?

Yes, money printing and regulations that prevent the free markets from working did create a problem. This has nothing to do with the Chinese currency.

In the US, globally, or both?


In the US certainly. In countries like China, Vietnam, India, the trend is the other way. Manufacturing is becoming more important and a creator of wealth.

But even if services are where most of the jobs are, increasingly CEOs such as Andy Grove are calling out the fact that manufacturing is very much underestimated by America in the 21st century as a means of creating the tradeable wealth that service jobs in sectors such as retail distribute.

As I have written a number of times, capital accumulation is a source of wealth. If you have factories that are capable of producing real goods that can be sold in the markets at a profit you will be a creator of wealth. In the US the regulatory environment has forced companies to shed labour and add automation but even with those steps having been taken the regulatory burdens are too high and make it difficult to compete. That is why US companies have gone abroad. Again, the regulatory burdens come from Congress, not China.

 
At 10/09/2010 12:25 PM, Blogger VangelV said...

Again, I'm not arguing protectionism always works. Certainly it can't overcome the lack of a rule of law!

There are countries in Africa where the rule of law is not all that different from China, Indonesia, or Vietnam but get no foreign investment for manufacturing ventures.

It's a sad day when college graduates are lumped with buggy whip makers. How is a young person starting out supposed to show "marketable skills" if that is the case?

The same way we did. By working in entry level jobs as soon as s/he were able to. I don't know about you but I got my first job when I was eleven years old. I worked through high school and actually had good offers from established employers before I finished university. Many current graduates have never really worked much during their lives and have no idea what it takes to prosper in the real world. I see many young people who had good education and full time jobs quit because they could not handle criticism or the pressures of their jobs. Those people need to stop whining and grow up.

True, but nor does the blame fall with regulation. You've wandered a bit from your earlier premise, unless I'm mistaken?

Yes, money printing and regulations that prevent the free markets from working did create a problem. This has nothing to do with the Chinese currency.

In the US, globally, or both?


In the US certainly. In countries like China, Vietnam, India, the trend is the other way. Manufacturing is becoming more important and a creator of wealth.

But even if services are where most of the jobs are, increasingly CEOs such as Andy Grove are calling out the fact that manufacturing is very much underestimated by America in the 21st century as a means of creating the tradeable wealth that service jobs in sectors such as retail distribute.

As I have written a number of times, capital accumulation is a source of wealth. If you have factories that are capable of producing real goods that can be sold in the markets at a profit you will be a creator of wealth. In the US the regulatory environment has forced companies to shed labour and add automation but even with those steps having been taken the regulatory burdens are too high and make it difficult to compete. That is why US companies have gone abroad. Again, the regulatory burdens come from Congress, not China.

 
At 10/09/2010 12:25 PM, Blogger VangelV said...

The fact that this goes on at a more local level does not negate my point in any way.

But it does. States are always trying to bribe companies to set up shop locally. It makes very little difference for Detroit Dan whether he loses his job to China Chan or Tennessee Tom. Your argument is that the job somehow belongs to Detroit Dan and nobody else should be allowed to compete with him.

I agree, but I think the social good of abundant opportunities to be a producer does matter.

There is no such thing as a social good. We are a society of cooperating individuals, each of which pursue their own goals and objectives. We cannot justify the specific loss of individual liberty by talking about a general concept like social good.

A lot of people did argue that slavery was good for slaves, actually. I wouldn't, but I'd certainly argue that employment is good for the employed. Even if they're underpaid, they have options they otherwise would not.

You are missing the point. When you work at job A it is because your preferred it and concluded that it your best option. Had you determined that job B is better you would have taken it. We all have options and we make choices on the basis of subjective preference. That kid who chose not to pay much attention in math class, who chose not to work 12 hours a day to improve his standing with his employer or to take the extra step to increase his value has nobody to blame when he loses his job and finds that he is not good enough to find another one or when he sees a coworker who did what it took to gain those skills get promoted over him.

We are sentient beings who have had options previously unavailable to most of humanity. If we chose to ignore those options it has nothing to do with the value of the Chinese currency.

 
At 10/09/2010 2:35 PM, Blogger Sean said...

VangeIV,

There are countries in Africa where the rule of law is not all that different from China, Indonesia, or Vietnam but get no foreign investment for manufacturing ventures.
My point is that I'm not arguing a weak currency will solve all or even most problems. But cheap labor, export-friendly laws, and a stable environment will attract investment. A weak currency only adds to the "cheap" factor.

I don't know about you but I got my first job when I was eleven years old.
Is that even legal anymore outside of a family business? (It should be, of course). I started working at 16 or 17: as soon as law and stable transportation allowed. But I don't think most unemployed or underemployed college graduates are in that situation because they were unwilling to take entry-level jobs. Plus, most such jobs don't require or provide many skills: they just show a willingness to work.

...Those people need to stop whining and grow up.
Agreed, but those aren't the people I'm talking about. My brother didn't whine when it took him a year and a half to find an internship despite good grades and good references. My sister didn't whine about being stuck for years in $9 and hour jobs despite a college education. But they ended up living with my parents well into their 20s because of such things, and that's becoming common. It used to be socially unacceptable because nearly anyone willing to work could afford an apartment. What changed?

In countries like China, Vietnam, India, the trend is the other way. Manufacturing is becoming more important and a creator of wealth.
My point is that part of this dichotomy is driven by protectionism, and not the free market.

That is why US companies have gone abroad. Again, the regulatory burdens come from Congress, not China.
I won't deny that's a strong factor, but it's not the only factor. My dad is intimately aware in his business of why development goes to one location rather than another. Regulation is a significant factor, but the governmental "support" in places like China is at least as strong a factor, as far as I can gather from my discussions with him. Unwillingness to make timely decisions to invest are even more important.

Your argument is that the job somehow belongs to Detroit Dan and nobody else should be allowed to compete with him.
No! My point is that if the guy competing with Detroit Dan is working in a free factory provided by government entity X, that's a distortion of the market worth countering. Foreign tariffs and foreign subsidies (and currency manipulation can fall in that category) are also worth opposing.

There is no such thing as a social good.
I find that perspective remarkably short-sighted. The concept of a public good is well defined and applicable. There are certainly things that all humans need. It doesn't take much effort to derive and agree on a number of "social goods".

If we chose to ignore those options it has nothing to do with the value of the Chinese currency.
If you turn down a job within your capability, too bad for you. But if no such job exists, your real freedom is limited. 10% of the nation is unemployed and looking, and more underemployed. Are all of these people in your "too lazy to work" category?

 
At 10/09/2010 4:38 PM, Blogger VangelV said...

My point is that I'm not arguing a weak currency will solve all or even most problems. But cheap labor, export-friendly laws, and a stable environment will attract investment. A weak currency only adds to the "cheap" factor.

Well, if many of your regulations were eliminated it would be much easier for the US to lower its labour costs even if wages stayed at the same level. If Congress stopped meddling in the economy you could have a stable environment that would attract investment. Trying to force other countries to devalue your currency so that goods for domestic consumers would be priced higher is not even necessary.

Is that even legal anymore outside of a family business? (It should be, of course).

That is my point. Most governments made it very difficult for kids to get jobs and to pick up habits and experience that would show employers that they are reliable. Or to learn skills that make them more marketable than their peers.

I started working at 16 or 17: as soon as law and stable transportation allowed. But I don't think most unemployed or underemployed college graduates are in that situation because they were unwilling to take entry-level jobs.

But I would say that they are. Most young people with degrees that I know do not want to work at Wal-Mart or some similar company because they see it as being beneath them. This is even though Wal-Mart allows them to advance very quickly and pick up some highly marketable skills even as it offers them specialized training that could make them very valuable to the company or some other outfit in a relatively short period of time.

 
At 10/09/2010 4:56 PM, Blogger VangelV said...

Plus, most such jobs don't require or provide many skills: they just show a willingness to work.

Perhaps but we have to start somewhere. If you show a willingness to work at a very young age you are usually given the opportunity to take on more responsibility. Once you have proven your usefulness most companies will ensure that they give you as much responsibility as you can handle and will compensate you while you learn. Those skills are usually transferable to other employers.

One of my friends has a young son who managed to get certified as a welder, electrician, and pipe fitter even as he was getting a degree on-line and running his own tour business in Turkey. He is now doing contract work for deep sea drillers and takes on just enough work to keep everything current. In one of his courses he managed to turn a mineral analysis into an investment that yielded him a royalty that is worth several million Euros plus some cash that he turned into real estate investments in Morocco that have already paid for themselves. The kid wound up with a university degree, a number of marketable skill sets, business experience, and a considerable amount of wealth during a period of time that was not exactly one with a booming economy. A number of his siblings are following a similar track. Learn at home at your own pace. Keep busy, work as soon as you are able, enjoy life while you are learning, and look for opportunities that let you accumulate capital even as you are having a great time going out, listening to music, and chasing girls. Even if they are not exactly 'successful' the kids will accumulate enough money to buy a house outright at a time when most of their peers will be graduating from university with massive debts and nothing in the way of experience.

Note that people who have the discipline to set sound goals and work hard enough to try to meet them tend not to be in positions that make them vulnerable to job market shocks. By the time they are off on their own they have already accumulated enough skills and the habits necessary to allow them to survive any bout of uncertainty or bad luck that comes their way.

Now you could argue that some kids get bad breaks and have bad role models. While I have some sympathy for that argument there are so many opportunities today compared to before that it is difficult for me to put much stock into it. Most kids know right from wrong and have seen what it takes to become a success; if they had the willpower then they would be able to elevate themselves above the station that they were born to.

 
At 10/09/2010 5:05 PM, Blogger VangelV said...

My brother didn't whine when it took him a year and a half to find an internship despite good grades and good references.

There were many places that he could have worked had he been willing to do something that he considered below his capabilities. The fact that he chose not to tells you that he did not try hard enough.

My sister didn't whine about being stuck for years in $9 and hour jobs despite a college education.

Here the alarm bells start ringing. Why would anyone with a job, a college education, and marketable skills not be able to get a better job for years?

But they ended up living with my parents well into their 20s because of such things, and that's becoming common. It used to be socially unacceptable because nearly anyone willing to work could afford an apartment. What changed?

I have no idea. I lived in a private apartment in my parent's basement for a very long time even when I was working and making a fair wage. Instead of choosing to waste my money on a rental apartment that I would only sleep in for a few hours per week I chose to take what I had and to buy a rental property that was mortgage free in six years. That property supplied me with the money I could use to rent a nice two bedroom condo close to where I worked. I retired at 41 because I saved a lot and let my money work for me. I never made a huge amount in salary but was smart enough to minimize my taxes by taking advantage of every program the government offered. That meant that I could live much better than someone who made a great deal more cash than I did. I also chose to reject better paying jobs because the after tax returns did not justify making the moves or because there were other opportunities that allowed me to obtain non-taxable benefits that allowed me to do far better. Instead of taking a higher level management job I stayed where I was and got to live for two years in China. While the pay was not substantially different I was able to live without paying rent or property taxes, insurance, maintenance and depreciation on a vehicle and substantially lower my food, clothing, and travel bills even as I was able to travel the world. To any outsider looking in I would be seen as an idiot who gave up money and prestige for the opportunity to travel. But to any accountant who would be able to factor in the effect on savings, investment opportunities, etc., the advantages would be obvious.

What I did has been done many times before by quite a few people who have discovered the advantages of living well without having to spend a great deal and to accumulate savings that could be used to generate returns that are taxed at much lower rates than incomes. A lot of what I accumulated was done when I was just a kid working jobs that paid little more than minimum wage. Your smart siblings should have been able to do something similar yet they chose not to.

 
At 10/09/2010 5:14 PM, Blogger VangelV said...

My point is that part of this dichotomy is driven by protectionism, and not the free market.

Protectionism hurts consumers and is a net loss for a country that depends on it.

Regulation is a significant factor, but the governmental "support" in places like China is at least as strong a factor, as far as I can gather from my discussions with him. Unwillingness to make timely decisions to invest are even more important.

I worked in China and did not see as much 'government support' as is being claimed. Businesses located there because they were treated better and had simpler compliance requirements that were easier to look after. No business in China would be attacked by a class action suit because it did not hire enough minorities or women.

No! My point is that if the guy competing with Detroit Dan is working in a free factory provided by government entity X, that's a distortion of the market worth countering. Foreign tariffs and foreign subsidies (and currency manipulation can fall in that category) are also worth opposing.

But that is not true. The Chinese government is not building factories and giving free land to Western companies. It plays the game in a similar way as your states do.

I find that perspective remarkably short-sighted. The concept of a public good is well defined and applicable. There are certainly things that all humans need. It doesn't take much effort to derive and agree on a number of "social goods".

I disagree. You can't justify hurting specific individuals for some vague concept that hides the fact that there are specific beneficiaries of those actions.

And please feel free to list these 'social goods' and tell us how they are paid for.

If you turn down a job within your capability, too bad for you.

Sweeping floors is within your capability. If you reject it hoping that you will do better than that is a choice that you make and has nothing to do with the value of the RMB.

But if no such job exists, your real freedom is limited.

No such job? The jobs that exist are all you can choose from unless you choose to create one of your own.


10% of the nation is unemployed and looking, and more underemployed. Are all of these people in your "too lazy to work" category?

Some are. But it is not China that is hurting those people but the massive regulatory environment and the tax uncertainty that prevents the creation of new jobs. You are barking up the wrong tree.

 
At 10/10/2010 8:50 AM, Blogger Sean said...

VangeIV,

Well, if many of your regulations were eliminated it would be much easier for the US to lower its labour costs even if wages stayed at the same level.
My regulations?

Or to learn skills that make them more marketable than their peers.
I know competition in life is necessary, but I tend to dislike the "I win, you lose" mentality.

Most young people with degrees that I know do not want to work at Wal-Mart or some similar company because they see it as being beneath them.
I know a few people like that, but not many.

Note that people who have the discipline to set sound goals and work hard enough to try to meet them tend not to be in positions that make them vulnerable to job market shocks.
If you're smart, energetic, disciplined, healthy and forward-thinking, the world tends to treat you well. With a little more luck, you can do very well. If not, you end up struggling a bit.


The fact that he chose not to tells you that he did not try hard enough.
My brother was getting his MBA. The illustration was that there was not much in his field. He's not a good example of failing to find *any* job: he got one at Wells Fargo and got some interesting experience, if not a lot of money. He's currently getting a PHD in business.

Why would anyone with a job, a college education, and marketable skills not be able to get a better job for years?
My sister is a good person, a hard worker, and a disciplined saver. She's also fairly average scholastically, and not terribly ambitious. A degree in psychology didn't give her what she wanted, she did ok as a massage therapist until she got a repetitive stress injury, but she spent years in mediocre jobs trying to pay her way through training. Now she's working at a bank and making a pretty average middle-class living with her husband. But that took a while. Nothing wrong with that, but even hard-working people go through periods where things aren't roses.


To any outsider looking in I would be seen as an idiot who gave up money and prestige for the opportunity to travel.
And why would that make you an idiot in anyone's eyes, if you got to do what you want?

Your smart siblings should have been able to do something similar yet they chose not to.
I suppose there's some truth tho that. It's amazing as a young person how hard it is to even chose which goals are appropriate to shoot for.
My own career worked out pretty much according to plan: get a degree in Electrical Engineering, get a job designing microprocessors. Get a house, avoid debt, put some money aside, etc. I wasn't sure what to do, so I just followed one of the standard models.

 
At 10/10/2010 9:07 AM, Blogger Sean said...

VangeIV,

Protectionism hurts consumers and is a net loss for a country that depends on it.
Generally. It also hurts producers that compete with you.

I worked in China and did not see as much 'government support' as is being claimed.... It plays the game in a similar way as your states do.
I'm having some cognitive dissonance here. I know for a fact a certain amount exists, although I admit not being able to quantify it very well.


And please feel free to list these 'social goods' and tell us how they are paid for.
Clean air is one of the easy ones. No one owns the air, but if it isn't clean, you get instances of sickness and asthma. Odious environmental regulation is not the only way to address the maintenance of that good, but it is one. I'm not sure a country wins out in the long term by having no anti-pollution regulation whatsoever. You can justify making individuals that damage that good pay for it.

The jobs that exist are all you can choose from unless you choose to create one of your own.
Some exist, but get moved where you can't follow. You know, there are people that want to move to India to get a software or BPO job, and they're more discouraged than Indians wanting to come to the states.

You are barking up the wrong tree.
Perhaps. But I don't buy the notion that China, Korea, and Japan have done no harm to the US in their protectionism, and I don't see anything wrong with calling them out on it.

 
At 10/10/2010 11:17 AM, Blogger James said...

Protectionism hurts consumers and is a net loss for a country that depends on it.

One of our most articulate presidents was Abraham Lincoln. He was most likely the president most committed to trade protection. Here is what he said in rebuttal to the above:

"If we purchase a ton of steel rails from England for twenty dollars, then we have the rails and England the money. But if we buy a ton of steel rails from America for twenty-five dollars, then America has the rails and the money both."

 
At 10/10/2010 5:55 PM, Blogger Ron H. said...

"If we purchase a ton of steel rails from England for twenty dollars, then we have the rails and England the money. But if we buy a ton of steel rails from America for twenty-five dollars, then America has the rails and the money both."

You understand you are quoting a politician, right? No matter how much we revere Lincoln, it should be kept in mind that he spoke as a politician, not an economist. In fact, as you probably know, in his early career as a lawyer he was a lobbyist for the railroads, so the rail story is an appropriate one.

The above quote gives the false impression that the money traded to England for steel rails would for some reason stay there to the benefit of the English, and the detriment of US citizens. We know that isn't possible: Those dollars would have to return to the US eventually, even if it was through a third or fourth party, to purchase US goods and services.

In other words those USD were just vouchers given to English steel rail makers that gave them a claim to some amount of goods made in the US.

 
At 10/10/2010 8:13 PM, Blogger James said...

I believe that at the time the payment would have been made in gold.

 
At 10/10/2010 9:37 PM, Blogger VangelV said...

My regulations?

American regulations are too cumbersome and lower productivity for businesses. That is why they are moving abroad.

I know competition in life is necessary, but I tend to dislike the "I win, you lose" mentality.

It is important to remember that the economy is not a zero sum game. Growth by China or another state does not mean that there is left over for others because new wealth is being created and the pie is growing.

I know a few people like that, but not many.

I do not believe this to be the case. We have many unemployed but few willing to take jobs that are currently going to immigrants that do them. Just look at the agricultural industry and you will see that few domestic workers want the hard and dirty jobs like picking fruit.

If you're smart, energetic, disciplined, healthy and forward-thinking, the world tends to treat you well. With a little more luck, you can do very well. If not, you end up struggling a bit.

Life is a struggle because little is given to people who do not earn it. Luck is variable and is easily accounted for by persistence, good judgment, and hard work.

My brother was getting his MBA. The illustration was that there was not much in his field. He's not a good example of failing to find *any* job: he got one at Wells Fargo and got some interesting experience, if not a lot of money. He's currently getting a PHD in business.

What you are describing is not a problem but a person choosing an option that he feels is best for him.

My sister is a good person, a hard worker, and a disciplined saver. She's also fairly average scholastically, and not terribly ambitious. A degree in psychology didn't give her what she wanted, she did ok as a massage therapist until she got a repetitive stress injury, but she spent years in mediocre jobs trying to pay her way through training. Now she's working at a bank and making a pretty average middle-class living with her husband. But that took a while. Nothing wrong with that, but even hard-working people go through periods where things aren't roses.

But there is the problem. Your sister chose a degree in psychology when other training would have provided her with a better job. If a decent job was her goal she sure did not have good judgment when choosing her degree. I have a friend who has a degree in history and is all upset that his brother, who took a course in machining has a much better job and is making far more money than he can dream of. I keep telling him that his brother gets what he deserves because he offers value to his employer. His degree does not allow him to provide much value to any employer at this point and he needs to look to obtain skills that could give him a better job and more pay.

Again, the pain is self inflicted and has nothing to do with China's currency. It isn't as if the Chinese are exporting history majors or psychologists to take our jobs away. We simply provide too many degrees which offer too little value to employers.

 
At 10/10/2010 9:58 PM, Blogger VangelV said...

And why would that make you an idiot in anyone's eyes, if you got to do what you want?

It is an issue of career. Many people who choose the path I did fall behind others. I took two years away from my usual job knowing that when I got back the management of the company would not look too kindly on my choice. That made me an idiot in the eyes of many but was the best thing that I ever did. It gave me the opportunity to save a lot of money. It allowed me to pay off a mortgage in six years. It got me the opportunity to travel. And it got me a wonderful wife. The irony was that when my company closed those that thought that I chose badly found themselves scrambling to find new jobs and reestablish careers while I discovered that retirement at 41 was very possible.

I suppose there's some truth tho that. It's amazing as a young person how hard it is to even chose which goals are appropriate to shoot for.

My kids keep asking what they should be when they grow up and what courses to take when they go to high school. I keep telling them that they have to be curious about many subjects and that as long as they are good at the fundamentals like math, science, and English they will have many options open to them.

My eleven-year old is now into music and math and is getting interested in natural law arguments and the history of money. My ten-year old is busy buying and selling things as he navigates his way through school and has already had two jobs that earned him a few bucks which he used to buy a few silver coins. They are both trying to figure out a way to earn enough so that they can live off the interest without touching the principal, something that they learned from watching speeches by Doug Casey and Kevin O'Leary.

Kids are capable of understanding many complicated concepts that we often think beyond them. A geologist friend of mine was rolling in the isle when my son asked his boss how hyperinflation would impact his JV strategy. He said that he heard him make a presentation but could not figure out how the company was predicted from the scenario, something that a gold producer should be prepared for given its business. It was funny watching the CEO and CFO struggle to answer a simple question from a kid who saw a very real weakness in a strategy that they thought was bulletproof.

When I look around I see more than a few kids who have what it takes and set goals that they work to meet. It certainly is possible, particularly when they have parents, teachers or role models that are helping guide them a bit here and there.

My own career worked out pretty much according to plan: get a degree in Electrical Engineering, get a job designing microprocessors. Get a house, avoid debt, put some money aside, etc. I wasn't sure what to do, so I just followed one of the standard models.

But that is my point. You set goals and worked hard. That allowed you to make a decent living and protect yourself somewhat from economic volatility. What you have done is also possible for most others who should be able to set goals that they can meet and establish a lifestyle that they can maintain. The big problem is that many of us live too far above our means for too long and get ourselves into a hole from which it is hard to get out. None of this is the fault of foreigners selling us cheap goods. It is a problem of judgment and habits.

 
At 10/10/2010 10:15 PM, Blogger VangelV said...

I'm having some cognitive dissonance here. I know for a fact a certain amount exists, although I admit not being able to quantify it very well.

Automobile parts manufacturers were enticed to move to some states because they offered cheap land, low property taxes, special breaks, etc. That is exactly what China is being accused of even though there is not all that much evidence that China plays the game any differently than those states.

Clean air is one of the easy ones. No one owns the air, but if it isn't clean, you get instances of sickness and asthma. Odious environmental regulation is not the only way to address the maintenance of that good, but it is one. I'm not sure a country wins out in the long term by having no anti-pollution regulation whatsoever. You can justify making individuals that damage that good pay for it.

First, if you look at air pollution you find that it was going down long before there was a Clean Air Act and the federal government got into the regulations business. Second, if damage is established then those that cause it should pay those that are harmed, not the government. Third, the government does not tax everyone as it does when it tries to finance a war on drugs, education subsidies, or welfare transfer programs that are being sold as a social benefit. I don't see how that can be justified morally or ethically.

Some exist, but get moved where you can't follow. You know, there are people that want to move to India to get a software or BPO job, and they're more discouraged than Indians wanting to come to the states.

But we are not entitled to any particular job. Jobs are created by investors and they are filled by individuals as part of a negotiation process where both sides agree to the terms. An investor should be able to move any particular job that s/he creates to a different, city, state, or country if that is what s/he wishes because that job is not the property of anyone else.

At the same time, a consumer should be free to purchase goods and services from whichever producer s/he wishes to without external interference from government bureaucrats. Countries don't trade; companies and individuals do.

Perhaps. But I don't buy the notion that China, Korea, and Japan have done no harm to the US in their protectionism, and I don't see anything wrong with calling them out on it.

When you force a person on fixed income to spend more for a pair of socks made in China there is something wrong. When you piss off your creditors and ask that they allow your currency to fall so that people in your country can't afford to have the same standard of living there is something wrong. You are doing harm to specific individuals in the name of some general good that is cover for the protection of special interest groups.

 
At 10/10/2010 10:23 PM, Blogger VangelV said...

One of our most articulate presidents was Abraham Lincoln. He was most likely the president most committed to trade protection. Here is what he said in rebuttal to the above:

"If we purchase a ton of steel rails from England for twenty dollars, then we have the rails and England the money. But if we buy a ton of steel rails from America for twenty-five dollars, then America has the rails and the money both."


He was probably the worst President in American History and the follower of discredited mercantilism.

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At 10/10/2010 10:26 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 10/10/2010 10:30 PM, Blogger VangelV said...

In other words those USD were just vouchers given to English steel rail makers that gave them a claim to some amount of goods made in the US.

Careful. The USD was not paper but a given weight of gold. So gold that went to England did not have to go back to the US.

The argument is different. It makes no sense to ask investors to waste money by purchasing more expensive steel when that extra money could have been invested in other capital that would create wealth. If making railroads spend $5 extra was so good wouldn't asking them to pay $50 extra be even better? After all, according to the logic the steel and the money would still be in American hands.

That argument is silly of course because the money that is spent on capital has to be earned and saved. But that does not happen when people are asked to pay more than something is worth. We get lower savings and the lower savings means lower capital accumulation and less wealth creation. Everyone is poorer except for the inefficient producers who is protected from the government and gets to stay in business for a while longer.

 
At 10/11/2010 11:14 AM, Blogger James said...

VangeIV,


It is important to remember that the economy is not a zero sum game. Growth by China or another state does not mean that there is left over for others because new wealth is being created and the pie is growing.

Like most free traders you are confusing free trade theory with real world experience.

In both Adam Smith’s Theory of Absolute Advantage and David Ricardo’s Theory of Comparative advantage the pie grows. That is not the case with our trade with China and much of the world. In those theories production goes to where the least resources are consumed. In the real world of modern free trade production goes to where the labor resources are the cheapest. That is a night and day difference. When a factory in Ohio is shut down and the machinery is shipped to China the production is cheaper but there is no increase in output. More resources are often required. Transportation resources are almost always increased, for example. Total production does not increase. The pie does not grow. Instead, we have 15 million people unemployed. Free trade is a zero sum game and we are losing.

He [Lincoln] was probably the worst President in American History and the follower of discredited mercantilism.

The high tariffs that Lincoln put in place lasted past the end of the century. During that time the economy grew with tariffs. According to free trade theory, that should not have happened in a trade protected economy. It did.

 
At 10/11/2010 7:57 PM, Blogger VangelV said...

In both Adam Smith’s Theory of Absolute Advantage and David Ricardo’s Theory of Comparative advantage the pie grows. That is not the case with our trade with China and much of the world.

Really? Thanks to trade with China, Korea, Germany, and other countries the median weekly earnings of the typical full-time worker can buy a 46" flat screen TV with a home theater system, a reliable washer/dryer set, a very powerful laptop, or a round trip ticket from New York to Europe. When prices of manufactured goods collapse the standard of living goes up.

In those theories production goes to where the least resources are consumed. In the real world of modern free trade production goes to where the labor resources are the cheapest.

Goods are cheaper from some countries because labour and resources are used more effectively. That is why Germany and Japan, which have higher per hour compensation costs still make so many products cheaper than American producers.

That is a night and day difference. When a factory in Ohio is shut down and the machinery is shipped to China the production is cheaper but there is no increase in output.

You have a growing world economy so output is clearly going up. If a factory makes the same things in China cheaper than it could in the US, it is able to sell more products because the lower costs will attract more customers. And as I pointed out, the costs are not simply due to labour costs; they are determined by all inputs, including the substantial regulatory compliance costs in the US.

More resources are often required. Transportation resources are almost always increased, for example. Total production does not increase. The pie does not grow. Instead, we have 15 million people unemployed. Free trade is a zero sum game and we are losing.

I suggest that you at reality rather than making crap up. Total global production has certainly gone up as trade increased. For that matter so has total American production even though the number of manufacturing workers has been declining since the 1940s. The big killer of manufacturing jobs has been automation and regulation, not free trade.

 
At 10/11/2010 8:15 PM, Blogger VangelV said...

The high tariffs that Lincoln put in place lasted past the end of the century. During that time the economy grew with tariffs. According to free trade theory, that should not have happened in a trade protected economy. It did.

The economy had to grow because Lincoln had a big part in destroying it in a senseless war so there was no way but up. Clearly it would have grown even faster without the tariffs.

 
At 10/11/2010 10:00 PM, Blogger Sean said...

VangeIV,

I know a few people like that, but not many.
I do not believe this to be the case.
I'm speaking in an anecdotal sense only: in the personal cases I'm ware of, only a few people I know that spent time unemployed turned their noses up at entry-level jobs. Of course, that may be why I don't know too many people that spent more than a year unemployed. My friend in telecoms did spend a year unemployed because unemployment paid better than the jobs available: when that changed, he got a job. But I guess that supports your point, not mine. :)

An investor should be able to move any particular job that s/he creates to a different, city, state, or country if that is what s/he wishes because that job is not the property of anyone else.
I don't have a better system, but my view of the role of most investors is not so noble. In my view, the entrepreneur that actually pulls together resources out of his own talent and gets the right people on a perhaps unidentified problem is more valuable.

We simply provide too many degrees which offer too little value to employers.
This is true. It bothers me how few people understand that.
But the truth is my sister had specific plans for how she wanted to use her psychology degree: what she didn't plan on was her realization that she didn't actually like psychology as it was, she liked what she though it would be. And so she couldn't bear to follow through with a Master's degree, and didn't have the grades anyway. You're right, I've run off on a tangent from complaining about protectionism to general complaints about the information cost of career choices when you have a need to make them.

First, if you look at air pollution you find that it was going down long before there was a Clean Air Act and the federal government got into the regulations business. Second, if damage is established then those that cause it should pay those that are harmed, not the government.
Ok, a lot of ideas conflated here:
1. The market actually tends to respond to government regulation before it becomes law in an attempt to lighten regulation
2. It would be better if you could sue someone for environmental damage, but can you really see that being prosecuted effectively in our court system? Then...
Third, the government does not tax everyone as it does when it tries to finance a war on drugs...
I'm not sure what you're trying to say here. You seem to be attacking the ethical basis for enforcement, but I don't see a solid argument.

When you force a person on fixed income to spend more for a pair of socks made in China there is something wrong.
Then you admit what China is doing is wrong, even if it's doing less of it than people generally say.

 
At 10/12/2010 3:45 AM, Blogger Ron H. said...

This comment has been removed by the author.

 

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