OT: The free-trader's agenda

Harold & Susan Vordos says...

like
those
money
Assuming the procurement of goods and services isn't shipped to a different country, where the company can maintain the retail cost and not lower prices. That's the real scenario, the one that's happening as we speak, it's not the one you suggest. True?

I might say the same thing to you, yes?
I see it from your position, I really do. The difference, as I see it, is that by making voluntary cuts, jobs may be preserved. Isn't that, in part, what saved Harley-Davidson? That, and a concerted effort to improve quality?
Does it really matter to you if the cost of goods fall if you have no income?
It doesn't take a rocket scientist to see that many trades and services are, and have been, overpaid. I guess that's the beauty of being a member of a union, where union leaders pump up not very good thinking people, convincing them they have it tough, that they are being exploited, that the company is treating them poorly, that everyone deserves a living wage, whether they're earning the money or not.
I've worked in union shops, I've seen the attitude, and I've witnessed the lack of skill and ability in some of them (certainly not all, though). I've also witnessed the mob mentality, where striking for unearned wages and benefits and "job security" has been the prime objective. It's the "more for less" mentality that we have to lose, or lose the ranch. Some of these fools want a guarantee of employment, all the while they're doing everything they can to sink their own jobs by demanding more for less effort. Doesn't work. In order for a business to succeed, everyone, including management, should be pushing the wagon forward. Makes no sense to have constituents doing everything in their power to stop the wagon. Does it come as a surprise to anyone when management finally says "enough", and goes to a different source for goods and services?
Harold
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I can't quite figure this out - are you saying that the companies can keep their prices, and profits, high, in spite of a shrinking market and depressed wages? Maybe someplace, where wages are still high. But I would have to say no, not true. That over the long run the market for goods and services will have to shrink if the wages earned in that country go down on average.

I think the real deal with HD was an employee buyout of the management that was using the company as a cash cow. IIRC.
What about that airline (american?) where the machinists union bowed to the 'inevitable' and agreed to a wage cut. What the management did *not* make public was the fact that they were using the monies thus freed up to to give fat retention bonuses to the executives. When this came out, the CEO had to step down, it appeared so aggregious.
If you were a union machinist, and somebody from upstairs suggested a voluntary pay cut, or 'boo hoo, we're all going under' again, what would *you* do, given the history?
I think I might just say, hey, no pay cut. If the company files bankrupcy, then all the bigwigs lose their cushy jobs too. What's the phrase, Mutally Assured Destruction.'

This is a huge sweeping statement. For what workers? For what time period? I think that it's *such* a broad generalization that I'll have to side with Ed on this one, and say that it's simply not true.
Jim
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Harold & Susan Vordos says...

different
Not exactly. What I'm saying is that companies are going to other sources in an attempt to keep prices under control, because workers are placing unreasonable demands on them. I'm of the opinion that some of these companies would prefer to keep production and other services here, where they can ride herd over them, perhaps catching problems that may not be evident until it's way too late. IF workers showed some degree of cooperation, and IF corporations placed higher value in the employees, the employees that displayed some semblance of loyalty and cooperation by busting their butts to keep the ship afloat instead of pushing it to the brink through unreasonable demands, and IF these corporations considered a more reasonable price for their goods and/or services, perhaps they'd spur demand and increase sales, and perhaps even keep their jobs secure by the company not seeking a different source. Who knows. Could work.
The one thing I do know is that jobs are being lost at an alarming rate, and the status quo doesn't appear to prevent it. I attribute that in large part to the greed of all of us. Everyone thinks they are worth way too much and we're no longer competitive in the market. I am not blaming any particular individual, organization, or corp, it's the combined attitude of the lot of us. It's the American way! It sucks. .
Maybe

You don't think that prices might shrink along with wages in order to save the ship? If prices fell, wouldn't the product become more competitive? It appears to me that your position is one of "you first". How about everyone agrees to go together? That's really what I'm talking about. Everyone settling for a more realistic price, in keeping with real value.

is
part,
Yes, I agree, that was as I remember it, but that has little to do with the success of the takeover. What helped the success is people pulling together, all with the same objective of saving the company, providing a good product at what would appear to be a reasonable price (under the circumstances, anyway. I think they're way overpriced). While I can't quote their wage structure, I have a hunch that these folks went in with the idea that they were going to give it their all, perhaps even with small wages. Perhaps someone in the know could enlighten us. Bottom line is the company wasn't saved by workers buying it out and immediately demanding huge unearned wages. In my opinion, they succeeded because they improved quality and likely worked for reasonable wages, at least at first. Could be very different now that they're the bike of choice and sales are through the ceiling. Sort of leaves them in the position to ask all the traffic will bear, doesn't it? Isn't that the American way? Sort of like the pharmaceutical companies?

Agreed, but do all businesses deal so unscrupulously with their employees? In the case of the airlines in question, didn't the pilots even take a cut? My opinion is the bastard should have been jailed. Stepping down was not enough. I'm against such things, from the bottom to the top. What ever happened to fair play? Is, or was it, a myth?
In spite of the fact that Iococca saved Chrysler, he could have done it at a lower cost to the corporation, perhaps with a smaller price tag on new vehicles for the consumer. That may have had even better results, encouraging the consumer to buy their products because they were better buy. . Still, in spite of these examples, that does not justify workers continuing to demand more for less. It has to stop somewhere, and it will, one way or another.

I agree, that's a tough one, but my first reaction in this scenario is I wouldn't be a union machinist, no more than I'd choose to be a communist. I do not subscribe to their concepts, and I put my money where my mouth was when I worked in a union shop. I didn't join them, even at the cost of the jeers and unpopularity I was subjected to. I was more than qualified to do the work, and I didn't need anyone to speak for me. I was employed and kept my job based on my skills, ability, and good work ethics. The "good" union employees proved my suspicion of their do nothing for something attitude when they told me to slow down when threading the final drive for crawler tractors. "We only do 8 of them a day" I was told. I was kicking out over 20 not raising a sweat. Sorry, you'd be better off to ask me something else, something where I'm not so biased.

Yep, I understand, and in some of the examples we've cited, I may even join you. However, that attitude is the problem in our country these days. It's every man for himself. What's good for me is acceptable, and if it hurts the other guy, that's his problem. It's the "me first" thing that has accelerated our problems. I think before I could provide an answer to this I'd have to know a lot more about the situation at hand. Otherwise, I'd be inclined to say yes, I'd take the pay cut. That's been my theory right along.
I realize that unions alone are not responsible for our dilemma, no more so than management is, but the combined negative attitude (the "me first" one) is certainly doing little to help us out of the dilemma we face. It's going to require cooperation on the part of everyone. Maybe Iococca will have to sell his 747! :-)
This entire mess won't be balanced on the backs of workers, but it won't get balanced at all if everyone refuses to cooperate.

are,
The answer I'd expect from someone that may have never known hard times. For the most part, almost all workers, especially those that have had union representation, have had wage increases beyond their value. I offer you auto workers. I recall the sobs when many of them lost their jobs when Japan took over the market, what, in the 70's? Here were workers that had invested in their jobs nothing more than a lunch box, and were doing work that in some cases could have been done by trained monkeys, yet they were being paid, with benefits, something like $25/hr. They should have lost their jobs. They weren't worth the money. Lest you've forgotten, it's the consumer that was paying their unreasonable salaries.
I recall looking at a Coupe de Ville Cadillac in 1959, new, on the showroom floor. Price tag? $6,000. Today? Assuming they still made the Coupe de Ville, likely well over $40,000. I paid $18,700 for my first house, slightly over 2,200 square feet. That was in '62. Today? Well over $175,000. Why? Greed. Higher and higher wages, driving prices to unreasonable levels. Where will this madness end?
Harold
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and
It's the recession we're just coming out of, for the most part. Total employment is still 'way higher than it was in the early '90s. Jobs lost to foreign competition over the last few years are not more than a million, according to most analysts. A lot have been lost to productivity gains; the number is a subject of debate. But if our economy was humming along, we'd make that up in a hurry with normal growth, even though it would be mostly in areas other than manufacturing.

competitive
It's
We have the highest level of exports of any country in the world. We're not doing badly in foreign markets. The problem is that we're importing too much, not that we're uncompetitive in export markets.
Aren't all those numbers kind of deflating, when you really want to vent or rant? That's the way I feel about them. <g> It's been valuable to me to track them down over the years; I know now not to trust a single economic analysis I read or hear in the general media, and NEVER to take seriously anything that a Congressman says about the economy. They're always playing to the local audience and they're always shooting for effect. Also, having talked to a fair number of them over the past year, I can say without hesitation that most of them are as ignorant as fenceposts about the national economy.

showroom
Coupe
If people are making more money, why wouldn't you expect higher prices? Inflation was built into our economy after WWII, once policymakers discovered that it was necessary to encourage both investment and consumption.
That's why living on a fixed income can be very frustrating.
--
Ed Huntress
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On Fri, 21 Nov 2003 11:36:59 GMT, the renowned "Ed Huntress"

Specifically, a small amount of inflation (maybe 1-3% p.a.) punishes hoarding of cash, and thus encouraging people to put the money into more productive use. If it's too high, of course, it can cause people to buy gold or flee to more stable foreign currencies. There's a double whammy because 100% safe interest "income" is taxed in most developed countries (HK is an exception), despite the fact there is no real income, just a partial replacement of the value lost to inflation.

If you live long enough to feel the pinch.
Best regards, Spehro Pefhany
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Part of the problem - we make so much of our stuff overseas and import it back - only sending money overseas to do it again.
I suspect some companies might be over charging themselves to ship money off shore for other reasons.
Martin
--
Martin Eastburn, Barbara Eastburn
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On Sat, 22 Nov 2003 05:15:57 GMT, the renowned Eastburn

Straightforward excessive transfer pricing is illegal and you can get into real trouble (like jail) for it. However, there are clever ways of using different tax jurisdictions to (in some cases) legally defer indefinitely any taxation of profits on transactions that occur and are fulfilled elsewhere. You won't find this stuff directly in annual reports, but it's legal and actually benefits the shareholders.
Best regards, Spehro Pefhany
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Truth is, that old loyalty (both directions) has gone. The companies can the older, higher paid workers at the drop of a hat to replace em with entry level lower paid & the employees will jump ship for an extra quarter an hour. Hard to tell which came first. Greg Sefton
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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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seems
We've been interacting with other countries for a long time; our biggest trading partners have living standards and wages similar to ours; it's been working well. China and India are the anomalies, which fall 'way outside of the normal market structure on which our trade policies are based. You can chase them into poverty, or do something else. I think we should do something else.

anything.
That's a moral judgment, not an economic one. The economic theory for this says those people just get jobs in another industry. What we need, they say, is overall growth that will produce those jobs.

like
those
We get it from each other. The market has set the relationships, although there are plenty of displacements *within* our economy. But not without. Even where a country intentionally keeps the value of its currency low (virtually all of Asia, for example), the distortion that causes only results in lower prices for our imports from them, coupled with greater difficulty in selling to them. Until the China explosion, the net effect came out about even.
World currency markets tell us that our overall economy is valued at a particular relationship with others, and that's the system that rules. There is no better way to set relative currency values as far as we know. The wages within an economy are based on what we're actually worth, on the average, in the world market. China is not in the world currency market. India is nominally, but the truth is that their central bank manipulates their exchange rate to a high degree of undervaluation. It keeps their bankers happy but it pays workers much less than they're worth in a free world market, if such a thing existed. That's what you're competing with -- underpaid workers, in China, in India, and in the rest of Asia. Competition with Europe is fairly balanced and stable by comparison.

are,
Not much. Their deficits with low-wage countries aren't out of line, although there is growing concern in some segments of Europe's economy. There are reasons for it that we can't go into here but be assured that it's not because the Europeans are more efficient or that their real costs of production are any lower. For the most part, they're higher than ours. Their labor- and total-factor productivity also are lower than ours, in every case.

is
not
I don't agree.

having
This is a controversial point. No one can claim to have all the answers on trade. Top economists are at loggerheads over many trade issues.
But I haven't heard a legitimate economist claim that chasing low wages is the answer to anything. That's the race to the bottom, and most economists scoff at the phrase, because they think it can only happen if the world goes into an economic depression. They don't have a clear and consistent theory that can deal with $460 billion trade deficits, however. The meaning and consequences of that are up for grabs.

to
discussion
I
is
Maybe it will help to point out that the US economy has grown very nicely for a very long time, with only normal business cycles interfering with it for the last half-century, although with an occassional bout of troublesome inflation.
The problem we're facing in manufacturing is not a decline in the US economy. It's a forced, artificial, potentially destructive re-structuring of our economy, the consequences of which give me reason for concern. Others are getting concerned about it as well.
--
Ed Huntress
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Who says they're under-paid? By American (union) standards, maybe but in their economies they may be very well paid. They may have a comparatively high standard of living in their countries and be quite happy with it. Saying it (or publishing it) don't make it so :o). Greg Sefton
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Competition
their
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No, if you followed what I was saying there (and it wasn't easy even for me to do so <g>), the "underpaying" I was talking about is the result of government policies directed at keeping their currency undervalued.
Most countries do some of it; most of Asia lives on it. The result is underpaying labor and a near impossibility of using overseas profits for domestic investment. That's part of what hurt Japan. If you start building your capital base, your currency value goes up, and you have to buy that much more foreign currency to keep your own currency down.
It's a difficult cycle, and it's one reason, among some other benefits, that Japanese businesses do so much overseas investing.
Ed Huntress
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I don't think there's a "blame" for the job losses (12 million I heard quoted yesterday). Simply economic reality and supply & demand for labor. I'm not sure those people are in poverty as you say. They have much lower cost of living. They might live quite comfortably with some luxuries, at what we would consider poverty as far as income goes. There may be some upward pressure on wages in those countries but not as much as we would like to see. Greg Sefton
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our
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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%.
--
Ed Huntress
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Yep, I mis-wrote there. it should have been 12 thousand steel jobs & 3 million total mfg jobs lost to overseas labor mkts.. Greg Sefton
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says...

Sure he has. That number is defined to be "less than my retirement check amounts to!"

Nor would they be able to pay into the SS trust fund. Which is the present source of his benefits.
Jim
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fact,
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The last is a good question, made good by the fact that there is an enormous and accelerating volume of it today. The volume and the velocity are unprecedented. My non-professional but data-loaded study of it suggests to me that there is no way our economy can grow fast enough to take up the slack. A number of highly regarded economists are beginning to say the same thing.
Your suggestion that there isn't enough evidence about the effect of trade on wages simply isn't borne out by history. Trade usually has resulted in increased economic activity and an increase in wages at both ends.
Ed Huntress
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wrote:

Things will even out in time as Mr/Mrs average Indian/Chinee consumer earns more and consumes more. This pushes up the size of the world market and pushes up the hourly rate of those manufacturing the goods. The American and European markets _cannot_ consume enough on their own to use all the potential manufacturing resources of themselves and India/China. This will result in displacement of work and pressure on prices until those consumers come on line. My guess is another 50 years.
I'm not an economist, That's just the way I see it.
Do you want rice with that, sir :-(
Mark Rand RTFM
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Intel seems to think much sooner. The CEO of Intel said at Comdex that already today 70% of their product is sold in Asia, with only 30% being sold in the USA. He said that the US computer market is "mature", with a growth rate of under 6% a year and slowing, and the US telcom market is struggling because it is saturated. But the growth rate for computers and telcom in Asia is in excess of 30% per year. So Intel is going to concentrate on sales to the growing market by increasing their presence there, ie by moving plants there.
AMD also announced that they are abandoning a partnership with IBM to build chips in New Jersey, and are instead going to open a new plant overseas to implement their 70 nm technology. Qualcom is already doing more business outside the US than they are doing in the US. Etc.
What we're seeing is an economic snowball rolling down hill. At first it doesn't seem to be such a big deal, but as it gains size and momentum, it goes faster and faster until it quickly becomes an avalanche. The explosive growth that started in the US after WWII has finally reached a much larger segment of the world, and the explosion promises to be even larger in magnitude, and much quicker, this time.
The point is, we have to realize that it isn't just lower cost of production that is driving companies overseas. They are also following the market demand. Here in the US, we're not increasing our demand for goods and services nearly as quickly as are other nations (we're already past that part of the S curve). The growth markets for goods and services are increasingly rapidly moving overseas too.
Gary
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snip----

production
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.
Harold
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