Thanks for your comments, Kevin. It makes the work worthwhile. It sure as hell isn't the money they pay me.
As for what actions to take, better thinkers than I have wrestled with that question without much in the way of an answer. I have a theory I'd like to investigate, though, if I had a couple of research assistants (hah!) and about a year to study it. It's complex to explain, but it's directed NOT at restricting trade with protectionism, but rather with expanding the idea of "offsets," which other countries apply to our commercial aircraft and military hardware manufacturers to balance their trade. I'm sure most economists would shoot that idea all to hell, and our government is opposed to offsets, but they're beginning to look pretty good to me.
You know, I've spent most of my waking hours for the past year studying this subject, and I can't think of a single factual, quantitative reason why you would draw that conclusion.
Barring your philosophical ideas about it, Carl, what makes you think this should lead to a decline in the socio-economic stature of our middle class, in economic terms? With numbers, please. As I said to Gary, no fuzzball philosophy will do.
There's a good article about this in yesterday's New York Times Magazine (available for free online, if you're so disposed). They say it's all about Earl Butz's change in the corn subsidies.
I'm thinking about it, and an idea that's beginning to look attractive is the one that every country in the world (including those of western Europe) apply to our aerospace and military hardware manufacturers: 100% offsets. Do you see any problem with it? I'm floating the idea around.
It's household, or family incomes that determine what cars can be bought, Gary. That's why I used per-capita rather than per-worker figures. That weeds out the changing patterns in the number of workers per family, etc.
If you check car sales per capita, you'll see that it more accurately is reflected in per-capita incomes.
Some of them have tried, but they get the early-20th-century American corporate response: machine guns in the face.
Korea is headed that way, and China probably will some day. But they have
25% unemployment right now, and another 25% extreme underemployment, so economists are predicting that it will be 20 - 30 years before China's wages approach ours. Which brings to mind John Meynard Keynes' comment about how, in the long run, we're all dead.
I've interviewed a number of US manufacturing executives upon their return from China, and they tend to be shaken up by what they've seen. One that I quoted in my first article on the subject had just visited a mold shop in China that he said was running at virtually the same productivity level as his shop in the US...and he runs one of the best mold shops in the US. He had visited three others that he said were slightly below his productivity levels, but not by an awful lot.
It's a mixed bag. Most of China's manufacturing runs at very low efficiencies. But the export manufacturers -- particularly those that have a US or European partner that supplies the technology and the training -- are quite close, in terms of productivity, to that of the best Western shops and plants.
It costs Honda nearly $2,000 more to build an Accord in China as to build it in Japan. The reason is that many of the parts in an Accord have to be imported from Japan. And the prices for those parts are exorbitant, because that's how Honda gets profits out of China: they overcharge the Chinese division for parts costs, and take the extra margin out as corporate profits. Many foreign manufacturers in China do the same thing.
When you actually run the numbers, you'll see that it's partly productivity and partly excessive imports. The figures for job losses due to imports range from 500,000 to 1,200,000, going from the conservative economists to the more liberal ones. Mainstream economists are now saying it's something under 800,000.
Where did you get that idea, Gary? Zero-balance trade is the whole basis for the theory of Comparative Advantage, which, supposedly, is the theory under which we justify trade with low-wage countries. Our policy makers just left out the zero-balance part.
The history of free-trade theories is based upon barter systems, which inherently result in zero-balance trade. If you try to do Ricardo's arithmetic that demonstrates why it's mutually beneficial for low-wage, low-efficiency countries to trade with high-wage, high-efficiency countries, and if you don't assume a zero trade balance, it falls apart. Yet, our policy makers talk about "comparative advantage" all the time, as if it actually was working according to the theory.
Granted, a surprising number of them don't know what they're talking about, as I learned when I researched my China article. They talk about "comparative advantage," which has a specific meaning in economics, when they really mean "absolute advantage," which is another thing altogether.
The US government frowns on offsets but they turn the other way, because, as they've said, no US manufacturer of aircraft or military hardware could sell anything anywhere in the world if they didn't accept offsets. But the consequences of offsets haven't really been studied very well, as far as I can determine. The idea that they're a bad thing seems to spring from an ideological concept as an article of faith, not from empirical evidence.
If you want to see what a high-level Commerce official said about offsets a few years ago, you could take a look at the sidebar in my September article on defense procurement.
Oh, one more thing: what evidence there is suggests that offsets *stimulate* total trade, rather than restricting it. So it's silly to call it protectionism.
The US dollar and the Canadian dollar *are* allowed to float. That's why the Canadian dollar is only worth 68 cents. That's not a government pegged number, it is what the free market determines is the relative purchasing power of the Canadian dollar against the US dollar.
Their standard of living *is* lower than ours because their government's socialist policies (socialized medicine, nationalized broadcasting, nationalized power systems, tax policies, etc) penalize success more than our government does. Their theory is that the government should take care of everyone, whether they have earned the expense of their care or not. To do so, the productive have to be penalized to pay for it.
Because the only way you can achieve zero sum trade in the short term is if the government artificially interferes with commerce and restricts imports so that they exactly match exports in dollar value. That is protectionism.
The net effect is that higher price domestic producers have less competition in the domestic market, and can gouge domestic consumers to their heart's content. That's always the result of protectionism.
OTOH, free trade allows the consumer to seek out the best value, wherever it may be, and maximize the value received for dollars spent. That rewards efficient producers and penalizes inefficient ones.
In the long term, this also results in balanced trade, because in a free trade situation goods and value seek their own levels. But it does so naturally via the net movement of value from the less efficient nations to the more efficient ones.
Economics is the study of allocation of resources. Trading systems are judged good if they maximize value, bad to the degree that they impede maximization of value. Thus protectionism is bad, free trade is good, because it allocates resources in the most efficient manner.
Of course there is another thing, called political economy, which tries to devise systems which allocate resources for political purposes, ie narrow national advantage, rather than for economic efficiency. This is warfare by another name. Protectionism (and dumping) are its chief weapons.
When you start talking about protectionist policies, you're talking about warfare systems instead of purely economic systems. Such warfare is also called economic imperialism. That's a generally discredited policy, known to lead eventually to warfare of the actual shooting kind.
And you'd like to extend that indefinitely by practicing economic imperialism. OTOH, the more business we and the rest of the world can throw their way, the more quickly they'll reach full employment, and become happy consumers (and slothful laborers) like us.
It boils down to this, do you want 1.5 billion resentful serfs whose best option is to join the People's Army, or would you prefer 1.5 billion fat lazy overpaid and underworked middle class Chinese watching their widescreen TVs and sipping beer? Which would you prefer as a global neighbor?
But at least in part those products are priced so high because of the excessive wage demands of the union workers. It is a vicious circle.
*Someone* has to be making enough money to buy those products. If you follow Jim Rozen's theory that all US citizens will be working at Walmart, they won't be making enough to buy those products.
There has to be a mass market large enough to absorb Chinese production. And that market has to be rich enough to pay for that production. If all the jobs are going to China, who is going to buy what they build if it isn't the Chinese? And how will the Chinese buy them if their wages don't rise? And what does that do to the comparative advantage of Chinese factories over US ones?
Indeed, there was a time when jingoism overrode good sense. But the purpose of a corporation is to earn value for its shareholders. Eventually it has to do that, or it will cease to exist, its shareholders will have lost their investments, its workers will be unemployed, and who benefits from that?
Here's the rub in this whole thing. Yes, you should be able to seek out an efficient producer that can give you the best value for the dollar. However, when a society imposes policies upon business that effectively cause inefficiencies relative to a government that doesn't, the whole process is thrown out of whack. Reducing the dumping of contaminants down the storm drain is a good thing...and that's why we have laws to restrict the dumping. China does not have such laws (or they are ignored/bribed off). Are they then truly the "most efficient" or is that an advantage in the marketplace?
Is a social security system where the employer contributes an "inefficiency" or a societal choice? When we make such choices, are we not giving those who don't an advantage?
I personally believe we should remove the advantage for such items via real duties (not fake protectionist duties, lobbied for by certain industries). Although it won't correct the whole problem, it would be a step toward comparing "apples to apples".
Hey, Ed....any idea of what percent of net goods (production) cost in the USA can be attributed to things like federal compliance and paperwork that is not required in China or other foreign countries? You have often said that 90% of the cost difference is labor (my guess at a number, not your words)....what percent is from the other things they can "get away" with that we can't in the USA?
That's true, not all of this is my opinion, nor do I endorse everything I've written. Some of it is distilled from business owners _and_ union workers I know.
I'm not endorsing any extreme answer. I am asking some hard questions and getting soft answers. If the labor rate in China really is 80 cents an hour, then it's game over, the Chinese are the winners, and the rest of us better get comfortable with being farmers because we will be the new peasants.
Well, I won't give you any credit for having any ability to do much but parrot the conservative bullshit you eat daily, but you're certainly true to form. I very dearly hope, one of my fondest wishes, that YOU end up filing for disability at some time, tomorrow wouldn't be too soon, and then have to wonder what you're going to do for medical care while the first automatic denial makes it's way through the system. Better yet, I hope it's an industrial accident that is because of an OSHA violation, then you better not even bitch about OSHA to your wife, if you've been able to keep one. You keep trying to put everything in it's little category, and people aren't that easy to do it with, you will always be 100% wrong in your efforts. However, to say that your mentality and thought process follow "he who shall never be mentioned", would be deadly accurate, every conservative tactic is spelled out to the letter in a book called "Mein Kampf". Have a nice day.
Yeah, Ed. I see a lot off problems with offsets. Maybe later- you can't dance away from my previous post with a handwave.
As for closing the border to imports, look at what happened to the US auto product when there was no external competition: the Plymouth Volare, Ford Granada, Chevy Nova. 'Economy' cars that got 14 mpg when they ran, which wasn't often.
Again-
Why not? Much of assembly line work is broken down into tasks simple enough for a well trained monkey. You don't need a Phi Beta Kappa key (or indoor plumbing) to hang wheels on a car.
True story: A US car plant was having terrible door/hood/trunk fit problems despite the fact that an inspection machine was used to detect misalignment. The problem was traced to the fact that the workers assigned to adjust the doors/hoods/trunks couldn't read and therefore couldn't understand the computer screen on the inspection machine and didin't adjust anything. They stood around 8 hours a day doing nothing and getting paid quite well for it.
How can you say these guys are any better at building cars (or any production line job) than Chinese peasants would be?
Hell, the Chinese peasants probably work with a lot more gusto than the US workers, secure in the knowledge if they screw up, they'll be back plowing the fields. No one wants to step in ox shit.
How are the US workers worth $25.63 when they can't read? Or when they stand around 8 hours a day and do nothing?
And what would you do, Ed? Close the borders to imports? Yeah, that'll work. See how well local content laws worked in Brazil or East Germany.
Ed, every time a US industry is threatened, they blame the aggressor. When the Japanese started building high-quality economy cars, the US car companies all cried they couldn't compete because the Japs will work for a bowl of rice. When Korea started building ships, cars, and computers, it was more rice bowls. When factories went up in Mexico, it was tacos. Now it's China and rice again. Do you see a pattern here? The US industry gets fat, dumb, and happy and then cries foul at the first inkling of foriegn competition. It never thinks of ways to compete.
The official minimum wage in China is 31 cents/hour. In the interior, footwear and textile workers often are paid 17 cents/hour. In the coastal cities, the "illegal immigrants" (those are the rural peasants who moved to the cities without permission; the number is well up in the millions) also make less than 31 cents/hour.
The 80 cents/hour figure comes from a report of what moldmakers are paid in coastal cities. Engineers often make $1/hr or more, sometimes more than $2. An engineering director in a substantial manufacturing company may make $10,000/year. Roughly half of the people in China are rural peasants, and they make almost nothing per hour. They live in a classical peasant culture, which is to say, it is nothing like living in true poverty in the US. Chinese peasants have a life.
No, the game isn't over, unless you think you have to sacrifice yourself on the pyre of "free" trade ideology. It pays to remember what Mickey Kantor, a former US Trade Representative (that's the head of our Trade Office, Dept. of Commerce) said about free trade. He said there is no such thing.
Don't forget it. And then analyze our policies with a critical and non-ideological eye, questioning every presumption. That's the only way we'll figure a way to deal with it.
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