99 Weeks

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The trade deficit and the deficit are linked totally. It's also the reason why foreigners buy more debt because they need to do something with those dollars they get for exports. As long as there is a trade deficit, there must be a deficit. I repeat, as long as there is a trade deficit there bust be a deficit, otherwise the private sector will be squeezed dry.

http://www.theglobeandmail.com/report-o ... le1577934/

An upbeat article about the unemployment situation in America. Even the Canadians are walking on eggshells when it comes to the elephant in the room. Without a massive reduction in pay, it is hard to imagine how many of the currently unemployed Americans will ever work again. And that is the crux of the issue – compensation in the United States must come down for the country to regain competitiveness. The left wing demagogues never stop calling for protectionist measures as a way to artificially defend what they regard as the working man’s right to the good life. But America is too reliant on imports to ever raise trade barriers against the goods which it must buy from foreigners. Where else would all those iPhone 4G come from?

Damned if you do and screwed if you don’t.

99 weeks, they finally drew the line at 99 weeks. Even Nancy Pelosi has said that a Tier V addition to unemployment benefits, which would have extended benefits beyond 99 weeks, is out of the question. The bulk of the unemployed were laid off in 2008 and most have not found jobs. Regardless of whether or not Congress eventually extends benefits will have no impact on those who have maxed out their 99 weeks of free money. They ain’t getting any. What will they do?

Well, we really don't need all of these people to work, anyway. Manufacturing is gone. President Obama is rebuilding roads. But, if the jobs aren't needed, they aren't needed.

Perhaps the government ought to face this reality and deal with it.

They could try to undercut someone else who does have a job. But, that would just be a transfer from one person to another. Unemployment would be the same. Just the total amount of money being paid would be lower.

Did we really need both Circuit City and Best Buy? Of course not.

Do we really need all of those manufacturing jobs that have disappeared? Of course not.

Do we really need Wallstreet Executives that appropriate millions of dollars to themselves? Hell no.

Are you a Zero Sum person?

ruveyn

Until the industrial revolution, nearly everyone was involved in agriculture. Now, only about 2% of the USA is involved in agriculture. Are we eating any less as a result? Not if you observe our obesity rates.

In our post-industrial society, we really don't need everyone to work in order to produce everything that we need to maintain our lives and happiness.

We have no need for such superfluity or redundancy.

So, the unemployment rate is 10 percent. So what? It isn't as if you can no longer go out and buy what you want.

Everyone who wants a job in America would have one if it were not for the price. In many parts of the country, people are simply paid too much. Upstate New York is one of the most economically distressed parts of the nation. Poor soils and erratic weather make it unsuitable for large scale agriculture and remoteness from urban centers means that the people living there are just sort of left dangling in the middle of nowhere. I could ensure that everyone in Upstate New York would have a job if they wanted one but with one important proviso: they need to accept a pay cut and be willing to earn a salary that is below the minimum wage.

Price competitiveness is perhaps the best way to protect American jobs. If people were willing to work for $2-3 an hour and if such a wage were legal, would American corporations still shift jobs to India and China? Some of you would decry it as slave wages, and what I am proposing is actually less than the average amount paid out in unemployment benefits, but even workers have to be cognizant of their customers and competition. Otherwise you end up losing on all fronts.

What is the long-term impact of unemployment or underemployment? The wealth of a nation is directly correlated to the work that its people do. If these trends persist, then America will almost certainly become a lot poorer. Paying people not to work has the effect of doubling the negative outcomes. Money is borrowed by the state to pay for the benefits and people still end up doing nothing.

The situation is worst for the younger generation of Americans. People who are unemployed or underemployed in their early 20s will face tremendous difficulties throughout their lives. I am a fan of Ross Kemp and his series on gangs. One of the themes which he notes repeatedly throughout his show is the correlation between gangs and youth unemployment. Even if the American economy were to miraculously recover, the gang problem is set to explode.

Last edited by Zeno on 20 Jun 2010, 9:22 pm, edited 1 time in total.

Zeno, the problem is that everything in America is just so damned EXPENSIVE, from health care (a surgery that would cost $10,000 in Singapore, where you live, might cost 300+ times that much here) to food to rent (try looking at the rents in Sacramento sometime-and Sacra is just a crappy town full of government workers, not San Francisco!) to everything else. We have some of the world's most expensive cities, including New York and SF, we have expensive cars and expensive everything. Fuel is cheap, subsidized, but everything else is expensive.

This is largely because America, unlike many other nations, endorses the butt raping of its citizens for as much as can be squeezed out of them. Welfare is not enough to pay rent, especially in places like California, and food stamps don't cover the cost of food. Americans make huge salaries but must spend more than they earn just to stay afloat. Taxes are continually ratcheted up by the politicians, who themselves are exempt from taxes due to their positions. In addition, high rates of inflation are endorsed so as to rob us further. If deflation looms, money is printed. None of the elites want the gravy train to end-when it was all ready to collapse in 2008, they increased the money supply by 1100% overnight and gave it all to the bankers who caused the disaster.

Average Americans now have no credit, but still must pay the huge prices, and the bankers love it. If somebody becomes poor, loses their job, they are deprived of their possessions, thrown out on the street, then arrested over and over and over for the "crime" of being poor and living on the street, aka "illegal camping". Thus, they rack up huge debts to the govt and huge arrest records, preventing them from ever rejoining society as productive citizens, and are just cycled from street to jail to street so they can be abused by the cops, and eventually put to death by the death squads that roam our cities. When you read people filled with fear that their benefits are about to end, that's what they're afraid of, becoming chew toys for the cops, who are above the law.

Americans exist to be playthings for an inherited elite who are above reproach. If you try to escape via suicide, you are placed in the system to be chewed up, AND drugged with mountains of psychotropic drugs. If anything in America is going to change, it has to start with the elite. The Chinese elite make money off prosperity, the American elite make money off decay and poverty and collapse, so that's what we get. They don't want to switch from oil since they are loving the idea of making money off the end of civilization. In fact, they want to be feudal lords forever, ruling medieval style over serfs. It's insane.

Not necessarily. Kuwait, Brunei, and the United Arab Emirates have more wealth than they know what to do with.

The above solutions would be consistent with Singaporean and Chinese culture. They wouldn't work for America.

The idea of free trade isn't that we should impoverish each other by cutting wages as low as possible. Who would be in favour of such an arrangement?

The idea is that we ALL benefit, by having a larger quantity of goods available to purchase, at lower prices. Countries that have advantages in certain areas can benefit by selling their goods in a wider market. Countries that have trouble producing certain things no longer have to go to the trouble of producing them.

In many parts of the world, even people of very modest means typically hire domestic servants. In the USA, we don't--people take responsibility for their own housework.

In Rio de Janeiro, they still pay a guy to wear a uniform and sit in an elevator all day, pushing buttons for people. In the USA, we push our own elevator buttons.

In the USA, we are gradually even getting rid of cashiers in grocery stores. People run their own purchases through the scanner, and pay the machine.

I'm old enough to remember a time when gasoline stations were actually "service stations", where employees would not only fill your tank, but wash your windows, check your oil, and fill your tires, all without expecting a tip.

Now, we have a very wide variety of goods available, at low prices, thanks to international trade. So, why should people knock themselves out, working so hard all their lives?

A part of the idea of the North American Free Trade Agreement (NAFTA) was that a lot of manufacturing work could be done in Mexico, so we wouldn't have to work so hard in the USA. But, even Mexican workers can't compete against Chinese.

There is such a thing as Diminishing Marginal Utility. Once 90 percent of the people are employed, there really isn't anything for the remaining 10%. Nobody is going to pay them anything to push buttons on an elevator. Not even 50 cents per hour.

We really can produce all that we need, probably with only one-half of the people employed.

One’s cost of living depends on how one chooses to live. It is here that America has put itself in an impossible position by choosing unwisely. Let us look at an example where full employment is obtained where the market minimum wage is $3 an hour. In a 40 hour week, a worker would earn $120. Please note that there is a difference between the market minimum wage and the statutory minimum wage. The market minimum wage is set by the market and it represents the least amount that the most marginal workers are willing to accept whereas the statutory minimum wage is set by the government and it represents the minimum income levels that certain interest groups insist on. All Americans are subject to the statutory minimum wage whereas illegal immigrants operate using the market minimum wage. $3 an hour is the amount that a valued illegal immigrant can expect to earn.

For Americans, commuting 25 miles to work even for blue collar workers is the norm. To and fro, that is $5 everyday for gas alone. So of that $120 weekly wage, the American employee would have to pay $25 just to get to work and back, leaving him with $95 a week. After subtracting lunch and snacks, the frugal American might have $75 left. Assuming that he bought a cheap but serviceable second hand car, less the cost of interest and principal repayments, insurance plus maintenance, and he is left with $50 a week to live on. That is probably just enough for the most basic utilities and an ascetic diet. Rent would be impossible.

Illegal immigrants who earn $3 an hour do not commute to work. They generally live in cramped conditions near their place of work. Lunch, if not provided by the employer, is foregone or else prepared as a group effort in the morning and it probably costs no more than $1 per person. So at this point the illegal immigrant is at $120. In the less desirable parts of town, 5 guys could share a one bedroom apartment that rents for $100 a week. The individual’s share is thus $20 a week. After rent, he is down to $100. After utilities and groceries, he probably has $50 every week saved up. Within a year he would have put aside enough to repay his family for the sum they spent sending him over the United States.

The point is that people can and do live on wages below the statutory minimum wage. Many in fact are able to save substantial sums while living a very functional life. It all depends on how you choose to live.

Why are Americans not able to do this? Why is being an American so expensive? The great American tragedy arises from allowing hubris to price the country out of all markets. With some exceptions like agriculture, aerospace, armaments and financial services, American goods and services are simply too expensive for the rest of the world to afford. The root cause of the growing disconnect is American insistence on higher wages and a better life even when it is clear that the country can no longer afford to mortgage its future to provide its citizens with a standard of living that is well above what their level of productivity can create.

Ricardian notions of efficiency through free trade have been a powerful motive force in the last 200 years. The first and second world wars can be thought of as epic battles where the ranks of the free confronted the armies of the mercantilist colonial oppressors. Perhaps more than any other ideas, the liberal dogma of win-win has underpinned the peace of the last 65 years. Why fight for something when you can simply trade for it?

The basis of Ricardo’s prevailing thesis is comparative advantage. If Country X is better at making Widget A and Country Y is better at manufacturing Widget B, then it makes more sense for Country X to concentrate on making Widget A and Country Y on producing Widget B. If Country X were to trade with Country Y for Widget B using Widget A, then both X and Y will be better off. This outcome, which is taught in undergraduate economics classes, is called pareto efficiency.

But what if County Y became good at making Widget A? Or perhaps due to careless disregard, Country X gradually became very inefficient at making Widget A and other goods. Would a trade here still be win-win? The point that I am raising here, which is NOT taught in undergraduate economic classes, is what happens if comparative advantage between nations shifts?

The decline and loss of manufacturing in America means that the country no longer has anything with which it can use to trade. Tourism is the most important service which America could provide to foreigners, but it is practically impossible for tourists from China and India to visit the United States. The American government actively discourages tourist arrivals from third world countries because they are afraid of illegal immigration. At the people to people level, there is actually nothing that the average person in China or India can buy which is of American origin. Without anything to offer in exchange, why should America’s trade partners continue trading with America?

It is not just the unemployed who are imperiled.

Is it true that “debt does not matter when it’s denominated in currency issued by the debtor”? Only if all other credit worthy debtors decides to be equally profligate can America rest its worries on such spurious foundations. The American Financial Crisis was transmitted across to Europe mostly through the holding of American securities by European financial institutions but also the spread of American devised securitization techniques. When American banks fell, European financial institutions tottered in tandem. In 2008 and 2009, the Europeans were shocked by the magnitude of their own bank bailouts and for a time played along with the American agenda to print Euros as America printed Dollars. Japan had long been printing Yen to counter domestic deflationary pressures. Hence, the 3 large reserve currencies all maintained equilibrium with one another and American profligacy mattered little.

With the change of government in Britain and Japan and looming defeat for the incumbent in Germany, European nations and Japan abruptly changed their policies. The decline of the Euro following Greece’s technical default means that fiscal expansion in Germany is now likely to lead to serious inflation. Even though Germany has the capacity to borrow more, Chancellor Angela Merkel has wisely decided to serve the German people and put her country’s fiscal house in order while at the same time heading off the ugly head of the inflation demon. Britain, like most other European states, must cut its budget or else face a destabilizing Greek crisis. The situation is a little more confusing in Japan, but Prime Minister Kan has made it clear that government borrowing must be checked.

In a blink of an eye, the faithful equilibrium has changed. Greece must indeed be the cradle of Western Civilization. One riot in Greece and the world order is irrevocably altered. If you were a Chinese or Arabic central banker tasked with investing your country’s reserves, you would move your reserve holdings out of Dollars and into Euro and Yen because the responsible policies of these countries would best preserve the value of your holdings. In other words, the dollar is in peril.

In the last few weeks, America’s manipulative demagogues have been in a state of hyperactivity as famed speculators and Nobel Laureates descend upon Germany to lecture the Germans on the need to keep the faith. George Soros even warned of xenophobia, social collapse and the destruction of the Euro if the Germans refuse to keep spending. He might have been talking about America and the Dollar.

Debt matters when it is denominated in the currency of the debtor because it can endanger the debtor’s currency. For those who do not know it, from the national perspective, money is debt and debt is money. A dollar bill is called a bill because it is an obligation issued by the U.S. Treasury Department. In other words, it is short-term debt. When money is printed to satisfy maturing long-term debt, the country basically issues more short-term debt to refinance its long-term obligations. As the amount of currency in circulation increases, its value erodes. Each dollar bill will be worth less and less and the result is inflation. And if other major currencies do not follow suit and print money just as furiously as America plans to do, then the dollar must decline vis-à-vis other benchmark currencies.

If things continue as they do, the horror to come will make the difficulties of the recent past seem like a pleasant prelude.

I remember the inflation of the 1970s and 1980s. Compared to that time period, we have no inflation at all.

The thing is people in the United States don't want to live like poor people in a developing country or illegal immigrants at home. The whole reason humanity is developing these technologies and advancing the state of science is so that we can live better lives. I'd rather see everyone live a comfortable, meaningful life than live like slaves.

I was talking about deindustrializing or hollowing out the manufacturing base - I was talking about shifting the nature of manufacturing towards Greener technology that China has yet to capitalize on.

Furthermore, economist Dean Baker (he predicted the reccession) has argued that a major reason for America's trade deficit is the high dollar (which he compared to a giant tarrif on everything domestically produced and a giant subsidy on everything imported). Lowering the dollar will moderate the balance of trade.

Well, that's pretty much what I'm arguing. Once you fix the trade deficit, the structural deficit will moderate. Don't focus on cutting short-term spending so much as improving the balance of trade.

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