I read what the people on the ground in China say, and I try to make sense of it, but it isn't easy. China appears to be several different economies that are connected by wires, and the government is in control of the wires. The overall effect is very frustrating to classical free-market economics because there are some big "gottcha" factors involved, such as the pool of unemployed and underemployed that simultaneously keep wages low and that support a second-tier economy that runs at a low cost, making it possible to pay even lower wages to the "illegal aliens" in the cities. Illegal aliens are Chinese from the peasantry who moved to the cities without permission. Their role is something like that of illegal Mexicans here.
And then there are the peasants who stay in the country, who seem to be living on a different economic planet.
Maybe Hamei can give us a sense of how this all works.
Well, I've had two op-eds in The New York Times, but fortunately they weren't over my byline. If they were, I would have been paid nothing. Ghostwriting them, I charged a little over a couple of thousand each. I also did another one pro bono, but those days are long over.
Maybe not. Maybe the answer is to be unemployed and then move somewhere they pay decent wages. If you buy the free-market economic program, that's supposed to be the answer, isn't it?
Or maybe that model isn't realistic?
No, you haven't even scratched the surface. For example, you might want to check the per-person costs for running Medicare, versus the industry average for running comparable private insurance.
Or, if you're anti-government, maybe you should avoid it.
I don't know, Greg, but it's a good question. The thing that threw me was hearing there were so many "Made in China" labels on Walmart products, which wouldn't be affected by US-made products with less than half Chinese content.
I don't know what the 12 million figure refers to, but the range of estimates for US manufacturing jobs lost to low-wage countries (almost all China for now) by professional economists lies between 500,000 and 1.2 million. Most say that it's between 500,000 and 800,000.
As for supply and demand for labor, that has only a marginal effect on China's labor rates. Mostly it's historical and structural -- particularly that it's a command-and-control economy in which almost everything is manipulated with a heavy hand, one way or another, which also makes it political.
Concerning their cost of living, the World Bank ratio for purchasing-power-parity (PPP) is 4.7. That means each $1.00 of income in China will buy what $4.70 will buy in the US. Regard this figure with skepticism, because there's no realistic way to equate China's standard of living with that of the US. Hamei can flesh this out for you. It's not simple.
Now, about how many dollars they earn: the average is $950/year, so their PPP income is around $4,500. There are few countries in the world, however, in which averages mean less in terms of characterizing the "average" life in China. Again, Hamei can give you details.
But slice it any way you want to, there is no way that there is a market equality, or anything remotely like it, in the earning power of a typical Chinese manufacturing worker versus his US counterpart. On any scale of comparability, except maybe satisfaction or contentment, a Chinese worker makes far less. There is no market reason, in other words, for such low wages in China. It's political, historical, and structural.
Wage pressure is another thing that's surprising. There's very little of it, because there is a line of people waiting for every good job. Unemployment is approximately 25%.
Yes of course - the shrinkage in the market will tend to drive down prices. It won't really make that product more competitive because all the other similar products in that area will experience the same market forces.
What will happen is a generalized, overall depression of wages and prices. I think the two have to be linked. The ship isn't sinking, it's just sailing along on a wavy sea. Nothing has to be saved, this is just the market reacting to the influence of jobs and wages in countries overseas being linked strongly to the US economy.
I don't really understand the reason for this linkage to be happening now, and happening so strongly. But that's what's going on, and the US economy is only beginning to respond to it.
I think that an old school economist will tell you, these things
*will* happen pretty much in lock step, there's no need for the participants to do anything to achieve this. Free market and all.
Jim
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Well, you're right that I misunderstood the meaning of comparative advantage. Thanks for pointing that out.
I found a lucid explanation at . I wonder if anyone has worked out more complex arrangements than the simple examples there; say three countries and four products?
Note that there is a disconnect between the definitions of comparative advantage and absolute advantage: the definition of absolute advantage talks about the cost of making something (dollars of labor), the definition of comparative advantage talks about the amount of resource used (hours of labor).
Comparative advantage can be hard to grasp. Here is a story from . The famous economist, Paul Samuelson's eventual response to a challenge from a mathemetician to "name me one proposition in all of the social sciences which is both true and non-trivial." was comparative advantage, "That it is logically true need not be argued before a mathemetician; that is is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them."
Ed, I think that describes you :-)
Ed, if I understand the arguments that you've been making about international trade recently they go like this. Countries like India and the PRC have drastically lower wages than those of countries like the U.S. That causes the price of almost everything used to build something in India or the PRC to be lower. That means that the price of things made in India or the PRC is lower than the price of the same things in the U.S. There is no meaningful difference in the means of production because advanced technology is effectively equally available everywhere.
That gives India and the PRC an absolute advantage in manufacturing virtually everything. Therefore, there is no justification for higher wages in the U.S. and that hurts a lot of folks. So, to avoid that pain, the U.S. needs to come up with a different trade policy than "free trade".
Please correct me if I got your argument wrong.
The free trade side uses the theory of "comparative advantage" to justify free trade. The theory says that even if other entities are more efficient at producing everything than we are, we can both make a better living by doing what we do best (or least badly) and trading with each other. This comes about by either using more total resources or by using them more efficiently.
One of the predictions of theory of comparative advantage is that an industry in country U will go out of business even though it is more efficient than the same industry in country I; if the industry in country U is relatively less profitable (compared to other industries in country U) than the industry is in country I (compared to other industries in country I)!
That prediction of the theory seems to be confirmed by actual experience!
For a job seeker in the U.S. the question becomes: what does the U.S. have a comparative advantage in? Does anyone have an opinion? It's always easier to notice the rock under your sleeping bag when you're camping than it is to notice all of the places that are comfortable :-)
Actually, when I hear the term displacement, I think of a train hitting an auto sitting on the tracks :-).
I disagree here. Emotionally, I'd like to agree but I really try to be rational because being rational usually seems to work better for me.
It may not be inevitable but based on the best theories available, it's optimal in the sense of the greatest good for the greatest number. Aren't the dismal situation in the old USSR and the old PRC an example of what other choices can do? Is there a third set of choices that's better than both the current U.S. choices and the old USSR choices? I haven't heard one ... yet.
It seems to me the best we can do is to follow our best understanding of the situation while monitoring the results to improve our understanding.
When I was studying upper division physics in college a professor asked the class, "does anyone here believe in the conservation of energy?". At that point in my life the failure of the Roadrunner cartoons to obey conservation of energy bothered me. So, of course I raised my hand. He had me stand up in the front of the class and held up a two pound weight to my nose. The weight was the bob of a pendulum that must have been 25 feet long. He let it go and I watched it swing away and back. The bob came within about a quarter of inch of my nose on its return trip. It was really difficult to stand still instead of ducking to save my nose but I was able to overcome my emotions with knowledge.
If my nose had gotten broken, I would have changed my mind about conservation of energy. :-)
I'm sorry for the long post but once I got started, I couldn't stop.
Thanks, Gary. This post, along with those of others, including Ed's, cumulatively, are finally helping me see some of these concepts in a fashion that makes sense. More than ever, I realize how complex the issues are.
On Fri, 21 Nov 2003 16:16:28 GMT, "Ed Huntress" brought forth from the murky depths:
My BIL just tossed away part of his retirement for an early bail out of a similar system. He was a contracts specialist for the Navy for awhile, then to "VA Hell" until he decided to quit rather than die from the ulcers, etc. it caused.
Between listening to my father (USAF lifer), friends (ex-military and current gov't employees), and BIL (ex-civil servant), and the news, I have received more than an earful of insight for far too many years.
I'm a recovering Republican. I'll avoid it (and the 2 corrupt parties which make it up), thanks. ;)
-------------------------------------- PESSIMIST: An optimist with experience --------------------------------------------
On Thu, 20 Nov 2003 20:40:23 GMT, "Ed Huntress" brought forth from the murky depths:
Cool.
That one's left over from October 31st, right, Ed? ;) I can hear the photog saying "Ok, Ed, look real serious; no, canny; no, industrious; no, businesslike; no, evil; no...
-------------------------------------- PESSIMIST: An optimist with experience --------------------------------------------
FWIW, Medicare is one of those examples in which a government-run program outperforms anything comparable from private industry, in terms of costs for services rendered. There's a huge economy of scale in Medicare's favor, to be sure, but it's still an efficient program.
That isn't the whole story, of course, because Medicare is subject to political coercion (via Congress) by the healthcare industry in ways that private companies can theoretically resist. But the actual practice of it still supports Medicare as an efficient deliverer of services.
That was my editor who shot the picture, in a fit of efficiency one day when we were all in the office for a meeting. I was dragged out from having been sick with bronchitis and he used that cruel device that conspires against the middle-aged: an on-camera flash.
Then my art director got it into Photoshop and he noticed that one of my eyelashes has turned white, while the other one is black. Actually, he
*didn't* notice it, but he knew that something was weird. So he chased the strange appearance around the block with Photoshop tools, doing the equivalent of plastic surgery without knowing quite what was wrong. The result looks like an overworked cosmetic-surgery dummy, sort of a white-boy version of Michael Jackson.
Gee, I don't think I can afford you Ed :o), but I've published a couple hundred articles myself and made a living as a feelancer for a while, so I guess I'll just have to write em myself. The rags seem to be paying about the same now as they were 20 years ago. But, as you say, the "wages" haven't gone down :o) Greg Sefton
Freelancing for trade magazines is a good way to go broke. Write publicity. It pays three times as much for the same article. If you're freelance and you ever see your byline in print, it means you were just screwed.
Ed Huntress
"No man but a blockhead ever wrote, except for money." -- Samuel Johnson, ca. 1750
================================================== please reply to: JRR(zero) at yktvmv (dot) vnet (dot) ibm (dot) com ==================================================
Ed, Considering I will be eligible to enroll in Medicare in six months, is it your opinion I should? I'm inclined to think it is in my best interest, but I don't understand things of that nature very well. I certainly haven't made a study of such things as you appear to have done.
Any information you'd be willing to provide would be appreciated. Could be helpful to many of us older dudes.
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