Well, one of the important checks on that in the United States is that starving people tend to vote in much higher proportions.
That is…if the safety net truly doesn’t exist and too many people fall through they’re going to kick the current rascals out and put in place rascals who will RESTORE that safety net.
Television changed the economy. Now we have TV brainwashed consumerism. Keynes said he wondered what people would do with their time.
The internet is going to alter the info people get and can find easily. This will alter economic behavior. No one can predict what will happen.
Haven’t heard the economists saying accounting should be mandatory in high school yet. If we had done that in 1945, what state would the economy be in today?
Dal Timgar
Second attempt at a response - last two were eaten.
I’m primarily thinking along the lines of macroeconomic policies. I’m sure your aware of the stagflation of the 1970’s, the devaluation of Keynesian macroeconomic theory/policy in certain economic circles, and the rise of neo-liberal/monetarist approaches to macroeconomic theory/policy.
If the US economy is undergoing some sort of structural change (and I freely admit that it’s too early to say), then wouldn’t this require economists to change certain assumptions in their theories/crafting macroeconomic policies (maybe tweak/modify existing models)? Or would it necessitate a “paradigm shift” in macroeconomic theory/policy recommendations? Chaos and complexity theory in economics, perhaps? 
Addendum:
Found this little tidbit by way of Atrios at Eschaton:
The Bear’s Lair: Charlie Brown economics.
Make of it what you will. pantom, take note of the reference to Japan purchasing over 100 billion in US T-bills.
Its becoming more and more dubious to try and predict the future based on past economic trends. The technology of the 90s has put us in an entirely new social and economic paradigm. It’ll take more than statistics to try and predict the future.
Economics alone is not enough to understand what is going on–it never is. To understand requires also sociological and political perspectives.
A certain strain of economist offers a “faith-based” approach, viz., “Sure, jobs are leaving in the short term, but that frees people up here to do other, more valued-added jobs.” They are unable to provide detailed descriptions, however, of these great new jobs that are coming. But come they will, since this is the US, and in the US things always turn out A-O-K.
Politics and sociology: the politicians feed you a line, the media refracts that to a degree and passes it along. The prototypical “economist” (whatever-the-frick that is, dismal science, etc.) has spoken.
But to the point: Productivity has “increased,” but rather than work a 4-day week and have more people work, we’ve said, “You’re fired, but find another job and build this economy even higher.” And that has worked to a degree.
But it’s not working any more. Wage arbitrage (not comparative advantage! www.prudentbear.com Sorry–site down, can’t cite link; look in Guest Commentary archive for a wealth of interesting articles) is “freeing up” Americans to do other work. But the act of “freeing” does not have attached to it a job for the “free-ee.”
The upshot is that an “American” company can outsource until it is nothing but a brand name–take Nike for instance. Sociology again: who does this benefit: the execs, mainly.
You can say it benefits the shareholders, of whom more and more are average Americans, or pension funds serving average Americans. Very well. Any profit arising from Nike-like businesses is nothing more than brand and magagement rent. The US is on its way to becoming a rentier economy: we have the brands and capital, the 3rd world does the dirty work and sends us our cheap goods.
Sociology again: this can be played out in the rentier economy in a “nice” way or a “mean” way. America is taking the mean path: namely, the masters of rent, or the execs, take all and leave the rest of us crumbs. In Euro and Japan, they tend to spread the wealth more evenly.
I am not sanguine about the prospects for the US economy. The only way in which the economy is actually growing at this point, is through the extension of economic power across the globe to gain rent. Instead of doing it the old-fashioned way, by simply enslaving others, we are giving them the priviledge of becoming indentured servants.
There is no question that our infusions of capital help raise living standards. However, at the end of the day, they will look over the ocean at us and think, “The only difference between us and them is that they are in control and we are not. They were the investors, and we were not. We have to labor while they live off their investments.”
In essence, America will be like the French nobility–they owned the land and took a cut of what the peasants produced.
Such is the bleak economic future of the world. Enjoy!
(originally posted in wrong thread…re-posted out of sheer stubborness…)
Allow me to grossly oversimplify. America is loyal to capitalism, but capitalism is not loyal to America. It has no such capacity, of course, being an abstract economic system.
It has reached its zenith in the multi-national corporation, an entity like a biological organism, subject to all the tiresome laws of Darwinism. Its individual components may feel some passing sentiments, some vestigal sense of “belonging” to a nation, but this is of no consequence in the final analysis. If General Widgets can steal a march on Amalgamated Stuff by moving its home office offshore, its loyally Republican CEO might feel a passing twinge when he thinks about America’s soldiers having to do without GW’s tax revenues…but he’ll do it.
Because that is his first, and primary, loyalty. And, of course, the widows and orphans who’s life savings are invested in his stock. It is for them he shoulders the massive burdens of his office, and slogs his weary way to his mahogony office. For thier sakes, he sacrifices even his patriotism. Let us take a moment to weep for him. OK, that’s enough.
Jobs and labor is “outsourced” because it works. There isn’t the slightest chance of reversing this trend. In an oddly ironic way, Marx has been proven right: capitalism evolves. It has done so.
The first and most important casualty will be our beloved work ethic, for the simple reason that there is not enough work to go around, or, at least, not enough productive and useful work, certainly not enough white collar work. The computer spreadsheet has rendered thousands of Bartleby Scriveners redundant.
Remember how we used to marvel at our future, how much drudgery would be relieved by our machines? But we forgot that so many of our fellow humans make thier livings by drudgery. Are we now to scold them for thier laziness, how foolishly they neglected to obtain MBA’s? Or retrain all of our truck drivers to be computer programmers or Starbucks entreprenuers?
It won’t work. We won’t work. We will have to radically redefine economic justice and our “work ethic”. There is not enough drudgery to go around.
So what will you have? A much more simple America, with more limitations, less room for the driving ambitions of entreprenuers? Or an America of privileged apparatchiks in gated communities and listless lumpenproles eager for the opportunity to paw through thier garbage?
I think we’ll see an America where the majority of economc activity occurs “off the books” in the black market, in fact, we may become like Nigeria where 74 percent of all economic activity is black market stuff.
It’s already started with pot, meth and other drugs that can easily be produced by individuals. Porn is also much more of a “mom and pop” biz with couple producing their own tapes. This is just a hint of what will happen if we can’t find a way to restore job growth.
Big corporations that control the mass distribution channels will find themselves increasingly competing with all the unemployed Americans who can’t get a job any more, who will be striking out on their own with home businesses. The big corps’ lock on the political process will allow them to pass laws that will make it harder and harder for the small players to compete. Look for a lot of economic activities to become illegal or so heavily regulated that the ony way to participate will be “off the books.” This will further criminalize the U.S. population.
If things go south far enough, look for a return to 30s style gang activity, as the unemployed get comfy about not living a legal lifestyle. Kidnapping the wealthy and their families may well become a growth industry here as in Mexico. This will lead for more lawnorder talk from the employed and the wealthy. Prisons will continue to be a growth industry.
My hope is that the formerly wealthy middle class types who find themselves out of a job get together and develop the political clout to rebuild the safety net and maybe even pass laws making it possible for home biz to prosper. But it’s a tiny hope. If people had even a lick of sense they would never have voted Republican in 2000. Of course, most of us didn’t, but enough of us did to lead us to our current situation.
You and I seem to be on the same wavelength here, Elucidator.
True, but I think the term “capitalism” is a misnomer. The economic system of the US is what it is; it has elements of captalism, socialism, and even feudalism.
[quote]
Jobs and labor is “outsourced” because it works. There isn’t the slightest chance of reversing this trend.
[/quotes]
Yes, it “works,” in the same way that castling “works” in chess. It works because we allow it to, through the laws and rules and customs we put in place. Dumping chemical sludge in the river also “works” until a controling authority comes along and makes sure that it doesn’t work any more.
Yes, this the 800 kilo ape in the foyer that countries all over the world are trying to ignore. In Euro they have high “unemployment,” but in reality they are simply paying people not to work. In Japan, where I myself “work,” people pretend to work all day long. The deadwood ratio in most large companies is, IMV, over 50%. In the US we have a social safety net: it’s called “Starbucks.” You can work there and get a discount on coffee.
Oh, the irony! I got an MBA in 2000 at a top-25 school and have yet to get a single offer from a US company (I’ve worked in Japan ever since). In 1999 there was 95% placement at graduation time, and in 2000 it was not much worse. In recent years, however, it’s been as low as 25% or so!
Nail hit headwise. Go back to school, “retrain.” So often I read this or hear this, but the articles never give specifics as to WHAT people should “retrain” for these days. MBA–hmm, did that, sure glad I knew Japanese. Computers, maybe? Should we become programmers? You also have PhDs sweeping floors out there. Whether you’re educated or not, these days you’re f*ct.
This is a really big problem, owing to our primate nature. People want caste, and, dammit, they’re going to get it. Those with the jobs will “deserve” them, and those without will be losers who don’t.
I doubt that Huxley was too far off the mark with Brave New World; the problem is not so much one of economics but of sociology. People crave a mission in life, purpose, but most of the missions available to people these days are pretty sorry. I don’t see an improvement in the offing.
eponymous: I’ve searched high and low and can’t find a free online source, but rest assured the Japanese have generously promised to finance our entire current account deficit for the rest of the year, out of the kindness of their hearts. Coincidentally, it also allows them to report a surging current account surplus, too.
Anyways, this is a complicated case to make, and I’ve debated all day whether to try, but what the hey, I’ve got nothing to lose but time, and all you need to forget time is a couple of glasses of wine, and I’m halfway through the second one.
Here we go:
The biggest factor in all this is the mess that has been made of the international trading system. After WWII, the world settled on Bretton Woods. This agreement was scuttled by Nixon, who broke the link between the dollar and gold on Aug 15, 1971. On cue, inflation took off along with unemployment. Looking at the above-cited NBER data, between November 1973 and November 1982 the US economy spent 38 out of a possible 108 months in recession, or 35% of the time. The galloping inflation/unemployment situation was brought to a halt only by draconian measures instigated by Paul Volcker at the Fed, who forced interest rates into the double digits and kept them there until inflation was effectively squelched. That policy is still paying dividends today.
The last three recoveries we’ve had took place under the same fiscal conditions: massive deficits. Looking at employment in the three recoveries prior to 1982, and then the three recoveries that have taken place from 1982 to today, these are the results:
1 - Recession that ended in November 1970: first year employment growth: 1,647,000 jobs.
2 - Recession that ended in March 1975: first year employment growth: 2,798,000 jobs.
3 - Recession that ended in July 1980: first year employment growth: 1,897,000 jobs.
I once heard from some economist or other that the idea that employment was a lagging indicator was simply wrong. The above I think proves his thesis. Indeed, moving on to the next three recoveries, all of which occurred under conditions of large fiscal deficits, the results are as follows:
1 - Recession that ended in November, 1982: first year employment growth: 3,617,000 jobs. Not a misprint.
2 - Recession that ended in March 1991: first year employment growth: 492,000 jobs. A record low among this sample. So far. Look below. Or, maybe, look out below.
3 - Recession that ended in November 2001: first year employment loss: 566,000 jobs.
Source: Economagic Payrolls Data
So, first of all, the idea that employment is a lagging indicator is flat out wrong. In every normal recovery, that is, all four of the ones preceding the last two, employment grew quite nicely in the first year of recovery. That’s a coincident indicator, not a lagging indicator.
So then the question becomes: what’s different about these last two?
The answer lies in the current account deficit.
As this chart illustrates, prior to 1982, the CAD was more or less in balance. It’s been in deficit since then, with the exception of a short flirtation with balance during the brief recession of 1990-1991.
Basically, the plumbing’s sprung a leak. What this chart shows is the increasing leakage of money out of the US. This hole is plugged by foreign investment in the US of one form or another. But it causes major friction when attempting to create jobs, as the above employment stats I hope illustrate. As the friction has increased, the pace of employment growth has slowed.
The reason for this is structural: given a de facto dollar standard, the dollar is chronically overvalued, because the international demand for dollars exceeds what is needed to finance US trade at all times. Everyone, from drug dealers to insolvent Latin governments, use the dollar as a kind of currency franca with which to do business. Today’s Financial Times, in an article I unfortunately can’t cite to, pointed out that the reserves of the IMF are dwarfed by the dollar reserves of the Asian central banks, meaning that the IMF is powerless to rescue any of the Asian nations from a future currency crisis because it simply doesn’t have the resources. Dollar reserves in Asia are so huge that the IMF could never raise the kind of funds it would need to stabilize any of the major economies of Asia. What the article was describing is an international trading system that has completely broken down under the pressure of trying to maintain a standard international currency that is also merely a national currency, issued by a government. Under that condition, the government in question - the US in this case - is given carte blanche to spend as much as it feels like, because the rest of the world is obliged to pick up the tab. As the Financial Times put it in a headline earlier this year, it’s the US’s currency, but the world’s problem.
I’d point out the solution, but somebody would accuse me of being a crank, so I’ll leave it as an exercise to the reader.
Fearless predictions:
1 - Once this recovery really gets under way, it’ll produce a boom like no other. The last one will look downright tame next to the one that’s coming, and if it follows the pattern of the last two expansions, it’ll last a very long time. Those lumpenproles might even manage to find a job. Really. I’m willing to bet that in four years, those that are still alive (in the long run we’re all dead anyway, remember?) will have real jobs. No health insurance, of course, but jobs. This is because the US economy is very highly leveraged because of its low savings rate, and the rest of the world is expanding the global money supply at a tremendous rate by sopping up the excess dollars thrown off by the US at ever lower US interest rates. Those lower rates, by putting downward pressure on the dollar, have already forced Canada’s rates lower, and will do the same very soon to Euro interest rates.
2 - The bust that follows will be a doozy, and it too will last a very long time. The bigger they are, the harder they fall.
In the meantime, enjoy it while you can. Some of us who are older might even manage to drop dead before the Piper has to be paid. Where’s that wine, anyway?
Many good points!
Diggin’ deep here. You can pay people not to work, as in Euro, or, hell, you can just chuck them in prison for doing harmless activities. This serves several different sociological/control functions.
Absolutely. “Prisoner” is one of our more important castes. However, even better than making production illegal is to flood the country with ultra-cheap goods from abroad. We save prison for those activities that might actually turn a profit despite the flood (e.g., ganja, coke, and ass).
Kerry’s about as good as we can do this year, but he’s gotta be better than the evil bitch in office now.
Here’s that Prudent Bear article about how faux “compartive advantage” is destroying US jobs:
http://prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=30888
Check out some of the other great articles, too.
Pantom:
While I agree with most of what you’ve said, the one piece of good news in there is that one of the reasons for the current account deficit is that the U.S. productivity rate is higher than just about anywhere in the world, and therefore foreign investment is pouring into the country.
The data don’t support that, Sam, sorry. The table for foreign direct investment into the US is at http://www.bea.doc.gov/bea/di/fdi21web.htm. Latest data available is for third quarter of last year. Data for 2003 is:
1st quarter: 31,731,000
2nd quarter: 22,740,000
3rd quarter: 6,267,000
Not surprising, really, as this kind of investment tends to peak with the economy, as foreign companies open branches/factories, etc., to take advantage of good economic conditions over here. Don’t know how to find it, but I’m reasonably certain that China’s been attracting most international FDI lately.
pantom,
Just one more offtopic question.
Allthough you seem to take a very dim about professions future prorspect in the rich part of the world, given that someone actually has emabraked on a career in programming, what skill set dp you think will give the best prospcts?
My guess is that good allround skills coupled whith more indepth skills in c/c++/java is best.
IIRC, the average Bengali programmer pulls down a princely $800 US. Have you considered accordion repair?
per month, of course.
Outsourcing jobs in the USA would not be a problem - IF more jobs of equal or better QUALITY were being created here. The problem is, that isn’t occurring. White collar jobs are being replace with service level jobs, such as delivering packages, serving burger’s (although the Bush administration is trying to classify burger making as a manufacturing job), cleaning carpets, etc. It is widely recognized that government statistics are massaged and manipulated (“adjusted”) to support whatever message the government wants to communicate. GDP, inflation and job statistics are some of the most highly manipulated statistics. And government job statistics DO NOT take into consideration the quality of any jobs being created.
What will happen to our economy when we have no more jobs to export? What happens when China, India, etc. start developing, creating , marketing and selling their own products, based on technology and learning they’ve gotten from the USA? Then they won’t need our corporations or us for anything other than to buy their natively developed and manufactured products. And if too many people here don’t have jobs, then few will have any money to buy anything OR PAY TAXES. We know that 70% of GDP is consumer buying. But people can’t buy if they don’t have a job.
Furthermore, no one has been able to clearly elaborate on what happens when so many jobs get exported to other places. The standard pat answer is always “something will happen, it always has” as they go on to talk about the railroad industry of the 1800’s or the beginning s of the industrial revolution. But are these examples valid in today’s world?
They say we will become “innovators”. But where does innovation come from? Innovation isn’t a subject that you take a semester or two course on in college! It is something that can’t be taught in school. Instead, innovation comes from years of experience in your industry. But if the basic jobs are exported, people will not be able to get the experience to learn what is needed in their industry. So how then will “innovation” occur?
Finally, could we are at the end of the economic chain and maybe “something” won’t happen? What then? Our corporations and government need to start looking at the "big picture, at the potential long-term effects of what we do to the whole economy, to the lives of people, to the future of the government instead of simply focusing on the next one or two quarters. If corporations want to reside here, then they need to develop a social conscience! I know this may sound like a bit of a socialist statement, but if the only reason for a company to exist is to make more money for its shareholders and management, then maybe they shouldn’t be in business…
True, but I think the term “capitalism” is a misnomer. The economic system of the US is what it is; it has elements of captalism, socialism, and even feudalism.
[quote]
Aeschines,
Would you care to elaborate on what facets of the American system/economy warrants comparison to feudalism?
Having read trough the whole thread i generally agree with those who can be labled freetraders. Indeed if things can be produced cheaper overseas it should.
This, as spelled out in economic theory, has something to do with division of labour and comparitive advantages.
However economic theory makes a few assumptions about the world which is not necessarily correct. It assumes that the input that went into the products that where once produced domestically will be redeployed to other uses.
This is the case in a totally flexible economy, but not the modern economy with less than free market deterimined levels of wages and prices.
Furthermore it is important to remember that allthough freetrade and outscourcing is beneficially to the average person over time, it does not mean that it is beneficial to all. It can adversly affect highincome and lowincome occupations. I think there is a very good case for actively assisting people, at least those leat able to tackle structural change, to retrain.