The U.S. Debt, further down the spiral

blatantninja said:

Luxury goods are a very big part of the economy. They literally fund hundreds of thousands of jobs. Yes, nobody really needs a person yacht, but I'm sure that the workers that build those yachts are pretty happy that someone is buying them.

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OKay, maybe, but I'm rather thinking big picture.

There are only - compared to the masses - only a few luxury goods.

And you need to look at where the money flows to.

I still believe that it is more important for a countey to stabilize its inland markets than its luxury markets, so to say.

Because building Yachts affects only a relatively small number of workers - but … let's say supporting inland markets by supporting "Aunt Emma Shops" (tiny groceries) for example would create much, much more jobs, I tend to believe.

Yesterday, there was a documentation in the TV on Bavaria.

There are currently 2 thought-models by village governments :

The current problem is that all younger people tend to leave the small villages and accumulate within the towns (which become bigger - anyone remember my remarks of cristals growing ?) meanwhile the smaller vilages die out (literally : their inhabitants become older and older …) - so the vilage governments seek out ways to keep them in town, so to say …

- create business parks outside of the villages to create jobs
- not doing this, but instead invest into smaller firms to keep (and if possible increase) diversity

The result is relatively simple . Mot villages follow the first thought-model.

Their result there is that the business parks are dominated by bigger firms, with monoculture, to be exact.

There are currently only very, very, very few village governments following the second thought-model.

Their result is that people get themselves together and diversity is created.
In contrary to common belief, the smller firms managed to create as many jobs as the business parks.

In one example, after the last grocery "left" a village, people got together and founded their own grocery. It's now kind of like "the village's grocery", because so many people participated in building it up and keeping it.

The prices are of course higher than in let's say Walmart.

But, as the Bürgermeister (the mayor) was interviewed, he said : "We don't only sell food.
We alo sell talk, we also sell gossip, we also sell people being together, we also sell a general good being."

So to say.

Which means nothing but : Walmarkt might be able to have low prices and good product availability -

- but what Walmarkt absolutely lacks is the social component !

And this is hat "diversity" means (to me, at least) : The smaller the shop, the more likely the people talk to one another, have fun, share gossip etc. …

GhanBuriGhan said:

And at the same time you (or any western country) can't make manufacturing goods of any labor-intensive kind at the prices that china can (although it would be interesting to see how wages develop over there - anybody got any info?).

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That's why I say that low wages really isn't the answer - because in my opinion ( and I see it currently happening within Germany ! ) low wages erode the middle class, created the "Precariate" (a modern form of a poorer social class), which in result means they don't have enough money anymore to support the inland markets.

In my opinion, the wages of the top positions should be "dedeckelt", as we say here in Germany (which means putting the lid over a boiling pot) to some amount, and that the rest should be given to the employees.

The result would be that the top positions would have lower incomes, but the employees more - which would result in a smaller number über-rich people, stregthening the middle class, and giving the brod public more money they can spend elsewhere (e.g. on impoorts, which would in return support export-driven countries).

Because we are all connected.
Export-driven countries can succeed only as much as someone. buys their goods - and that wold be other countries' public, not the super-rich people who only buy luxury goods.
And the money the export-oriented money get should imho be given out to the employees, because THEN they are able to for example buy imports from other countries as well ...

We are all connected. If one country's public becomes poor, (export-oriented) economies which depend from them will also fall.

And if they fall, they'll have a *huge* problem if they hdn't been able to support their inland markets.

And in the end, all who will remain will be the super-rich pople to whom it just doesn't matter if their economy falls or not. They will always stay rich.

And this is how "money-nobility" is created.

Damian Mahadevan said:

ROn Paul is like the only one that can save the us form this spiral:

http://www.youtube.com/watch?v=ZSgNXehimRM

The vid is basically what he wants to do when he is president.

Only candidate that REALLY wants to get those troops out of those countries.

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Ron Paul is great in Congress. He's a thorn in the side of the people that want to continue to ruin our country. However, he would be a disaster in the White House. The majority of his ideas would severely retard, or even contract, economic growth.

Alrik Fassbauer said:

OKay, maybe, but I'm rather thinking big picture.

There are only - compared to the masses - only a few luxury goods.

And you need to look at where the money flows to.

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It depends on what you call a luxury good. Yachts? Yes only a few, though again were talking thousands of jobs. What about cell phones? Cell phones are a luxury in any country with a mature landline system. But the cell phone industry generates hundreds of thousands of jobs. Same with personal computers, etc.

I still believe that it is more important for a countey to stabilize its inland markets than its luxury markets, so to say.

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It would certainly be difficult for a country to sustain itself solely on luxury good production.

Because building Yachts affects only a relatively small number of workers - but … let's say supporting inland markets by supporting "Aunt Emma Shops" (tiny groceries) for example would create much, much more jobs, I tend to believe.

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True, but again, even the total amount of money spent on yachts is relatively small in the grand scheme of things. Uber-luxury goods are a large, profitable market, but compared to other markets, they are a niche.

The current problem is that all younger people tend to leave the small villages and accumulate within the towns (which become bigger - anyone remember my remarks of cristals growing ?) meanwhile the smaller vilages die out (literally : their inhabitants become older and older …) - so the vilage governments seek out ways to keep them in town, so to say …

- create business parks outside of the villages to create jobs
- not doing this, but instead invest into smaller firms to keep (and if possible increase) diversity

The result is relatively simple . Mot villages follow the first thought-model.

Their result there is that the business parks are dominated by bigger firms, with monoculture, to be exact.

There are currently only very, very, very few village governments following the second thought-model.

Their result is that people get themselves together and diversity is created.
In contrary to common belief, the smller firms managed to create as many jobs as the business parks.

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In the US, its widely none that most job creation comes from small firms. That said, economies of scale are important too. I think to have a truly stable economy, you need a good mix of both.

In one example, after the last grocery "left" a village, people got together and founded their own grocery. It's now kind of like "the village's grocery", because so many people participated in building it up and keeping it.

The prices are of course higher than in let's say Walmart.

But, as the Bürgermeister (the mayor) was interviewed, he said : "We don't only sell food.
We alo sell talk, we also sell gossip, we also sell people being together, we also sell a general good being."

So to say.

Which means nothing but : Walmarkt might be able to have low prices and good product availability -

- but what Walmarkt absolutely lacks is the social component !

And this is hat "diversity" means (to me, at least) : The smaller the shop, the more likely the people talk to one another, have fun, share gossip etc. …

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Diversity for the sake of diversity isn't necessarily a good thing. It's a 'feel good thing' for sure. The idea that large firms are necessarily bad reminds me of the mind set of manufacturing employees in places like Detroit that have seen a decades long economic contraction (and resulting job losses). Those people often think 'I need to get my job back' rather than the most productive thought of 'I need to adapt and find a different job.' Its trying to hold onto something even though it is no longer viable.

Your example of the villages is the same, and this happens, to a lesser extent, in the US as well. The village system is based primarily on agriculture. Agriculture needs lots of land, so it make sense to have little villages spread out all over the place. Those villages don't necessarily exist because of gossip, sense of community, or whatever. They exist because it was the most economical way for people to service their needs in an agrarian society. But if that society has changed, as it has in the US, (whether that is a shift away from agrarian largely or just a shift toward corporate farming), the village structure is no longer the best way to provide for the economic needs of the people there. The needs can often be met with better population consolidation.

That's not to say that everyone should just give up, and all the villages should go away, but not every village is going to be able to be saved.

Thrasher said:

And it would stop sending Amercan purchase dollars overseas. That in itself would be a great thing. We need to invest in infrastructure here, not China.

But, boo hoo. I won't be able to buy my crappy chinese products at Wall Mart anymore. At least cadmium and lead poisoning cases would go down….

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Mercantilism was found wanting as an economic policy 200 years ago, and was incidentally abandoned at the time when economic development really took off You still make tax dollars on sales made in the US even if the crap is produced elsewhere, from sales taxes to income taxes (on the salespersons and whatnot) to some corporate taxes from the US branches of the companies and their retailers. Importing and international trade is not a problem in itself.

But I doubt you want to go back to pre-Adam Smith economics, so I'll give you a modern protectionist scenario instead:

The US decides to protect jobs in the flailing widget industry. Unfortunately other countries produce widgets at a lower cost (due to lower labour costs or whatever). There is a massive "buy American"-campaign, but much of the population would rather buy cheaper foreign widgets. The government (or congress or whatever decides those things) implements a widget tariff to level the playing field.

This has the direct consequence of making widgets more expensive to ALL American consumers, either lowering widget sales or leaving people with less money to spend on other goods, while the rest of the world wont buy the more expensive American widgets (why would they?).

The tariff also triggers sanctions from other countries in the form of tariffs on thingies, which the US produce at a very competitive price and quality. This makes thingies more expensive in the rest of the world, hurts the thingie-makers, and leaves the world with less money to buy wazoos which the US also exports.

Good job, you just made the entire thingie-using world a little poorer, and hurt the poor American widget-users the most.

At the same time the US widget-makers find that labour-intensive widget-making isnt feasible with American wages. Since employees wont take a 90% pay cut the solution is to automatise production as much as possible and lay off workers at the widget plants. So much for saving jobs.

Unskilled labour outside sectors that are local by necessity (you cant go to a barber in Ulan Bataar even if he is cheaper than the one down the street) is a lost cause, and no great loss at that.

Please tell me if there is anything off with my scenario

blatantninja said:

In the US, its widely none that most job creation comes from small firms. That said, economies of scale are important too. I think to have a truly stable economy, you need a good mix of both.

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This pretty much goes for any economy. Growing firms (which tend to be smaller) that have found a new niche or are expanding into a new markets are the ones who create new employment. IIRC economists use three or four phases to describe firm development and a healthy economy needs a mix.

Mature companies/industries who are in the last phase tend to have a lot of employees, but the number of employed is stagnant or or even going down as they streamline their business to remain competitive. A lot of traditional manufacturing is in this phase.

Protectionism to protect the later group is a dead end as it at best postpones the decline. Even if the US managed to make Intel and AMD move their factories to America it wouldnt create all that many jobs, but it would make consumer electronics more expensive for everyone.

I think it is much sounder policy to focus on the general business climate with taxes, regulations and whatnot rather than focusing on some particular industry. It is in a way odd but not unprecedented to see self-proclaimed free marketeer dte advocate economic interventionism.

Pretty much nailed it.

Specialization leads to overall greater economic gain for everyone involved, but you have to have structure in place to make sure everyone is playing fairly.

blatantninja said:

Specialization leads to overall greater economic gain for everyone involved, but you have to have structure in place to make sure everyone is playing fairly.

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Yeah, without an (international) structure such as WTO to determine "fair" you might see "fairness" as an argument for petty protectionism. Regulating beyond easily quantifiable aspects such as substance content, emissions and whatnot of the trade goods is a slippery slope.

Trade doesnt have much to do with the US debt though. The current bind is largely political.

Your public debt should be very much fixable if there was political will and leadership to deal with it. Tax increases and cuts combined with a return to normal growth would see the debt shrink relative to GDP. Even if you raised taxes to cover current spending levels (which of course is politically impossible) you'd still have among the lower tax burdens in the developed world. Lower unemployment would also increase GDP and tax revenue while reducing spending.

Unfortunately the polarised political climate with populist demagoguery on both sides makes constructive discussions harder than they should be. At the same time your decentralised political system requires stronger leadership than Obama provides to deal with this divide. Thus everyone hold their breath and postpone spending decisions, be that consumption, business investments, or hiring.

The European mess doesnt inspire risk taking either, making the timing for this leadership crisis even worse.

At the same time the real US economy isnt all that messed up.

On the whole I think you guys are making the journey we made in the 90s (starting with a devastating financial crisis and restructuring of the banking sector). We got out of the mess stronger, but it took almost a decade for employment to get going again. Our solutions arent directly applicable to a decentralised country that is 30 times bigger either...

I won't speak to Thrasher's plans, but I don't know that I'm asking for protectionist policy so much as a reevaluation of the make/buy factors. Right now, intangibles are disregarded, which skews the results of the analysis. Things like cost of quality are hard to put actual dollar values on, so purchasing ignores it—their performance bonuses are based on dollars saved with no regard for the downstream impact.

Response time for engineering changes is another big one. If you outsource a part to India and decide to make a change to the drawing, it's 2 months before you get production parts to the new configuration. A pipeline of parts between Ghandi and Detroit is literally 2 months long. Millions of parts. When you're sitting there in the make/buy meeting, what value do you put on the ability to react to problems? Who is going to stand up in the meeting and say, "Well, this design sucks, so you'd better make it easy for us to redesign the POS on a moment's notice." There's value to being able to "run down the street" and work thru a change with your supplier (and he's in roughly the same time zone and speaks English!), and only have a week's worth of parts in the pipeline between you, but what is that value? Right now, it gets ignored and that skews the make/buy against us.

I'm certainly no fan of the UAW (although I blame management equally for not being the check-n-balance they're supposed to be) and I understand that we've got to be smart about what we produce, but right now the beancounters are costing us work and costing us jobs. They have no understanding of manufacturing and no real incentive to learn.

Zaleukos said:

http://en.wikipedia.org/wiki/MercantilismPlease tell me if there is anything off with my scenario

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Well, presupposing a tariff approach and war, for one.

I just spent the last month gutting and remodeling my kitchen, so I'm way far behind...

Sounds much more constructive and meaningful. Congrats!

I'm filled with a boiling, white-hot hatred for mortar and grout...

Sorry...please, continue.

Captain Buzzkill said:

I'm filled with a boiling, white-hot hatred for mortar and grout…

Sorry…please, continue.

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I spent the last week doing remodeling in our condo. I feel your pain. If I never have to use a hammer drill again, it will be too soon.

http://dailycaller.com/2011/08/12/d...enate-indian-affairs-committee-field-hearing/

I know Thrasher won't like the source, but this is a perfect example of why I won't agree to a tax hike.

Senate Democrats are charging taxpayers for a trip to Hawaii, The Daily Caller has learned. The entire press staff of the Senate Indian Affairs Committee is in Maui, even though a field hearing there won’t happen until next Wednesday.

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A committee staffer told TheDC that the reason the hearing will be in Maui is “mostly because it’s his [committee chairman Sen. Daniel Akaka’s] home state.” It’s unclear if the field hearing will focus on any issues relating at all to Hawaii, or if the reasoning for scheduling the trip there is only because Akaka will already be in Hawaii during the congressional recess.

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dteowner said:

They have no understanding of manufacturing and no real incentive to learn.

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What you posted is true as far as it goes. I work for a global IT corporation. We have outsourced the production of most of our branded equipment and a large portion of our engineering as well. We have more employees out of country then in.

Yes, the engineering and manufacturing pipelines are challenging, especially this year with the natural disasters in Japan. Yes, logistics costs are a major factor, and yes, managing engineering resources in several locations, in several languages, over several time zones is incredibly inefficient.

However, with all of that, it is still significantly cheaper to do it that way rather than to have all of it done here in the US. From a financial point of view, manufacturing is a black box. We put money into it, and we get our machines out. It's the same machine, with the same quality, regardless of where we have it built. The only variable is the entire cost of the black box process, across the entire process of designing, building, and delivering the machinery.

Wow just Wow it amazes me how people can defend the economic model in place right now. Its because of the Corporations/Market analyst's and wall street workers/investors we are in the mess were in.

There polices and inability to forecast the changes are the problem. A few analyst's predicted this very collapse and were ostracized by everybody. Well guess what they were correct the bubble has burst as will inflation in the coming years.


These few people have predicted a very grim future with more happening by 2015. Don't believe the reports you hear about everything getting better. Just ask the 30-50 million people without jobs are government claims dont exist because they cant file anymore.

Those who failed to predict and missed the crisis, include government leaders, award-winning scientists, market analysts and investors. Was the crisis predictable or was it an unpredictable event? Are government policy makers competent enough to manage the nation's financial freedom and security? Are economists and their policies helping or hurting our economic growth? Do we need to re-define the education of economic science and the role that economists play in our financial markets, government policies and business regulations? These are the questions we need to answer.

Were in for a huge wake up call and its about time since are current policy's brought us to this point.

Is it true - as I read in the newspaper, that Millionaire Warren Buffed wrote in the New York Times that he finds it "unfair" to be "protected" so that he doesn't need to pay so much tax - less than the average citizen does ?

Me, I must say that I'm always puzzled that - no matter into which country you look in this world - the richest are those that are - compared to their wealth - pay the smallest taxes - in percent …

And here's his article :

http://www.nytimes.com/2011/08/15/o...r-rich.html?scp=1&sq=buffett and taxes&st=cse

Reactions : http://www.nytimes.com/2011/08/16/b...axes-on-the-rich.html?_r=1&ref=warrenebuffett

Representative Kevin Brady, a member of the Ways and Means Committee and a Texas Republican, flatly rejected Mr. Buffett’s ideas.

“This is not a serious solution for deficit control or getting this dismal economy on its feet,” Mr. Brady said. “Economic growth does not follow a tax increase. So as much as I respect Mr. Buffett, his proposal fails on virtually every level.”

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Call me surprised. He basically says that Mr. Buffett doesn't know what he's talking about when it's about money and economy ?

Any of those measures would face intense lobbying and a battle in Congress. Indeed, Democrats were unable to roll back the carried interest tax break or the Bush tax cuts on the wealthy even when they controlled both houses of Congress.

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So, at leaat SOMEONE has an urgent interest in taxing the richest people as low as possible ?

Who could be this, then ? Politicians themselves, maybe ?

They are usually members in the tax groups that they are protecting. Corrupt self-interests.

Alrik Fassbauer said:

Call me surprised. He basically says that Mr. Buffett doesn't know what he's talking about when it's about money and economy ?

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If you took 100% of the wealth from the top 100 Americans, it pays the interest on our national debt for something like 2 weeks. Buffett's a smart cookie, no doubt, but his proposal really doesn't solve the problem no matter how "nice" a gesture it appears to be.