I don’t really care if you call me a snob. I know where my bread is buttered. I have a car, computer, TV, cell phone, etc. and a Chinese person doesn’t because of the great Americans that invented those devices, and the other great Americans that founded the companies to make them.
I said 48k because it’s the median wage, and I said 60k is high income because I make similar to that, and I know how good of a life you can lead on it.
No I didn’t. I said the backbone of America is the entrepenuer, not the guy who gets A on his chemistry tests.
I suppose you could, but all it would show is that you can come up with disjointed and irrelevant responses to my points. We got two people here. Joe and Bob, who are similar in every way except for what I describe. Joe punched a clock for 35 years as a factory line worker. Bob worked 70 hours a week for 5 years to get his business off the ground. 30 years later it is an honest, well regarded manufacturer that employs 100 people and Bob is a millionaire. You tell me why I should think what Joe did is just as laudable as what Bob did.
The guy that invented the Ronco peeler created jobs for 100s, if not 1000s of those factory workers. Without him, the factory workers have nothing to make and no jobs to go to.
Of course not. I don’t think there’s anything wrong with punching a clock and going home a night. I just don’t think that’s what needs to be held up as the ideal, or lauded as the epitome of the American workforce.
For those that stick with education, they will likely fill low skill white collar jobs. Stuff like working as a rep in purchasing or HR. For those that choose to drop out of school, and never learn a trade, well, they will likely bounce from low paying job to low paying job. They will be able to afford the basics of living, but it won’t be as comfortable or luxurious as if they had learned a trade or gone to school.
Treis… in your posts I find this need to elevate one while denigrating the other and somehow inbue the one you favor with more positive attributes and the essence of goodness.
A million eager beaver inventors could invent ten million Ronco peelers but without the needed workers to produce them, their ideas are for nothing. Both are necessary and both contribute equally to their talent and skill.
Your little tale of the guy working 70 hours a week to build a busness for thirty years is heartwarming… and certainly does happen. But so what? I am just as impressed with the woman who could barely read or write who cleaned houses all day and at night worked on her hands and knees scrubbing the floors of a big office building to pay for six kids.
Neither has some claim on greater moral worth. Each is contributing to their skill and ability. Society needs both.
No, they are not equal. Ronco’s guys efforts provided jobs and increased society’s pleasure by a great deal. No Ronco guy, no Ronco peeler, no 100s of jobs, and no Ronco peeler to make us all happy. Subtracting one line worker means a barely appreciable fewer amount of Ronco peelers made. I’m not denigrating anyone here, by the way. I never said there was anything wrong with punching a clock as a line worker. However, if I look at what the Ronco peeler guy did, and what a line worker making Ronco peelers did, I have no problem saying that the Ronco peeler guy accomplished more, and should be admired for that.
Ah, but you’ve changed the scenario. We no longer have guy punching a clock from 9-5, we have some woman working her ass off day and night for her family. That’s not the scenario I put forth, so I’ll ask you again. Given the scenario I described, and tell me why what Joe did is as laudable as what Bob did.
You have zero idea what goes on inside the big 3. If you can run a 5 axis milling machine GM would love to hire you. If you can keep robots operating and assembly line machinery working ,they could use you. There is very little nut turning left. It has been automated. If you went through an auto plant you would see there is a lot of skill and training involved in most jobs. There are ongoing training programs. Many workers have served apprenticeships which is 2 years of schooling and on job training.
I’d like to give Warren Buffet the benefit of the doubt and assume he’s smart enough to focus on the more relevant measurement of 5% foreign ownership (which I bolded in his quote). The 5% increasing to 10% is more important than worrying if total wealth goes from $50 trillion to $60 trillion.
If you want examples of why this is an issue than I can provide some.
I agree there is some truth to the “efficientville vs inefficientville” analogy, but that type of macro thinking is not accurate of how USA actually operates.
Hmm… “economic development” is what I’d call an interesting euphemism. Yes, the USA foreign trade deficit results in more “foreign investment” in USA assets. This is the textbook economics definition. Now, what does the USA actually do with that investment?
Foreign investment capital allows for low interest rate loans. What do typical Americans do with home-equity credit or the credit-line increases on their Visa/Mastercard? Do typical Americans take that foreign investment and reinvest in their own education, upgrade their skills to compete better in a global economy? No, the typical American takes all that extra capital sloshing around and buys useless plastic junk that ends up in landfills or remodels his kitchen with new cabinets or buys a bigger house or new car. Spending money houses and cars would be interesting economic activity — if — the USA was a closed economy and self-sufficient.
And the federal govt’s budget deficit also results in additional foreign investment. Does the govt wisely reinvest that foreign capital? Such as investing in building new nuclear power plants, or a high-speed bullet train to connect NY to LA, or hydrogen refueling infrastructure for future cars…and make it less dependent on foreign oil? No, it seems the govt spends more money on a war in Iraq and multi-million dollar tanks that will be left behind in the desert.
Foreign capital for economic development would be beneficial if that’s what was really happening. But “consumer spending” on junk is not “economic development”!
I want to emphasize that this type of statement can be true (theoretically) but it is not reality in the USA.
Ok, so the USA has outsourced the making of widgets to 1 billion people in China. Now, with all that extra free time, what does America do more efficiently that’s of high value in place of manufacturing widgets? Many economists conclude that Americans haven’t really gotten more efficient at anything except shopping for useless crap.
You can only label the transfer of labor from USA to China as more “efficient” if the USA actually substitutes in economic activity more productive to the world than consumer spending. Otherwise, it’s a self-delusional description that makes Americans feel better off than they actually are.
Yes, America leads in several high-value areas. It has Intel, Microsoft, Google, Accenture, banking (Goldman Sachs, Citi), Hollywood studios, and military equipment. However, the international marketplace does not buy enough of their products to pay for all the imports America wants to have.
Simplistic. The fact is China did not build a better mousetrap. They just offered cheap labor, no environmental regulation or business regulation. Our manufacturers went there to make higher short term profits. They moved lock ,stock and intellectual property. They gave then all the technology and patents we spent generations developing. Great profits were made for the owners. The nation has paid the price. Unemployment, continually dropping wages and an inability to compete in future technology will keep us sinking. It is not a pretty future.
Manufacturing has many important additions to the country. A vibrant middle class is one. It is where the new technology is invented. It is where engineers, computer experts and endless peripheral inventions are made. Tossing that all aside is stupid,short thinking and dangerous to the future of the country.
No, no, the point is that the raw # is what is important. Two scenarios: #1 we clamp down on foreign trade and investment, and our networth grows from 45 to 50 trillion in 10 years with no foreign ownership. #2, We allow foreign trade and our net worth grows from 45 to 60 trillion, with 10% foreign ownership. It scenario 1, we own 50 trillion worth of stuff, and in scenario two we own 54 trillion. We are better off in scenario #1 than #2. That’s the key point Buffet misses. % ownership of networth doesn’t matter, it’s the raw number.
Sure it is. Some factors of American economy, such as manufacturing, have declined. That decline, however, is trumped by the increase in other areas of the American economy. We’ve taken resources from manufacturing, inefficientville, and reallocated them to efficientville, i.e. areas like IT, design, and other skilled areas. Everyday unprofitable, or in other words, inefficient businesses fail, and everyday those workers find employment at profitable, i.e. efficient, businesses.
We create new businesses and expand old ones. $1 billion that goes into the U.S. from China goes to companies like Google, and they use it to grow. It’s better for everyone, because Google will use that money to provide more economic benefit than Huangzho software development test corp.
Hold on, we need to separate stupid decisions from availability of foreign capital. Foreign capital isn’t what is causing idiots to run up credit card debt or our moron politicians to run up huge deficits. If we completely cut off foreign trade and capital, we would still have idiots with credit card debt and stupid politicians with budget deficits. We still wouldn’t invest in trains and we still wouldn’t build nukes.
What would happen if foreign capital is reduced is simply that the amount of capital available to the American economy would drop. Yes, some of that capital goes into credit card loans, and some goes to financing the government debt. However, you can’t simply say that the foreign capital is going to fund debt, whereas the American capital is going to fund start up companies.
There’s two separate issues here. One, Americans are living beyond their means (bad), and two, foreign ownership of some American assets (good).
We have moved into more efficient areas. Workers today are better educated and more skilled than they were 30 years ago. There are more people working on designing a better mousetrap in America today than there were 30 years ago. The proof is in the pudding. What country leads the world in innovation and expertise? It’s the U.S. in almost every category.
Say we restore manufacturing back to the employment level it was 30 years ago. Where are we going to find those 10s of millions of workers? They are the people working at Google, IBM, Microsoft, Oracle, and at thousands of other lesser known companies where their value is expertise.
To give you a real world example. When I worked in China, the engineers there were telling me about a big test rig they were buying. In order to buy it, they flew to Minnesota to place the order. The company in Minn., who’s name I can’t remember off the top of my head, manufactured their rigs in China. So the Chinese company flew to Minnesota to buy an American designed rig that would be built in China. Why is this seemingly convoluted system in place. Well, no Chinese firm has the expertise and experience to design the rig, and no American company could manufacture it as cheaply as the one in China. Both countries did what they were best at, and let me tell you, it’s a lot more profitable and better to be on the design end than the manufacture one.
The point of what I was saying is that a service economy requires a manufacturing base to service. When you are thinking of ‘service’, you’re not just talking about McDonald’s workers and plumbers. You are speaking of the white collar workers who deal with the factory in China. When the factory in China gets its act together and decides to cut out the middle-man, that means layoffs of white collar workers.
Your plumber does a good job, but if we have nothing that external economies value, then we can’t buy the goods we need to supply plumbers with pipe fittings. There has to be something that can be traded. For a long time the ‘service’ we provided was superior management services, but other countries are starting to build up a business class. You know all those MBAs people like to make fun of? Well they are a very important part of what the west has provided to the world economy. It requires a real pedagogic tradition to pass on the business class environment. If other countries develop the pedagogic tradition, like China has been working to do, they don’t need to hire managers from western Universities anymore. Why should China and Malaysia go through an American middle-man when they can deal with each other directly at a decreased cost?
I disagree. The % ownership has negative ramifications of foreign control and USA autonomy. The raw total # is numerical trivia – a sideshow – especially when inflation is factored in. The %ownership is a better gauge of the health and financial discipline of the country. If you think about it, you’ll see why.
That’s the key issue. It has not been trumped by other areas of the economy. At least not yet — maybe not ever. Most of the economy today is driven by “consumer spending”. It is “consumer spending” that has trumped the loss of manufacturing instead of something productive. Google and Microsoft are certainly successful companies, but their contribution has not trumped the decline in manufacturing.
I’m not advocating a return to manufacturing. What I’m saying is that all those “new-economy” companies you mention do not sell enough product on the world market to pay for all the toys that Americans want to have. If manufacturing is to be avoided (because others are more “efficient” at it) then fine… but then Americans have to cut back on all the imports and luxuries to a level that can be supported by the Googles and Microsofts. I haven’t crunched the numbers but I don’t think that’s mathematically possible given the current configuration of the USA.
Again, another you make another true statement — if looked at in isolation. However, the big picture reality is that most of the foreign investments do not go into high-value productive things like Google research… it actually goes to garbage landfills (with a temporary detour through the idiot consumers’ wallet).
The motivations and psychology of a typical American consumer is a complicated issue but there are some observers that think that foreign capital does indeed contribute to idiot mistakes. For example, all the extra foreign capital chasing high yields shows up as cheap & exotic loans that bid up the price of everyone’s houses. People are self-deluded into thinking this phony wealth is making them richer. “My house was appraised for 100k more so I must be 100k wealthier!” Foreign investments distorts the mindset of Americans into thinking they are prosperous. It’s an illusion! For example, a person gets a credit card promotion in the mail for a Visa card with $5000 limit. A big reason why that $5000 magically appears is because of foreign investment dollars looking for a place to go. With that new Visa card, the average American thinks he’s “richer”. Yes, I know it’s stupid. You know it’s debt. I know it’s debt. But typical Americans don’t think of it as debt — they think of it as wealth! It’s a crazy psychological puzzle that’s hard to rationalize. Anyways, that American will not use the $5000 to buy parts and build in his garage the next great invention for the world market will buy. No, he’ll take that $5000 and blow it all on useless crap. Another $5000 credit-card offer will come in the mail and he’ll repeat the cycle. Multiply that scenario times millions of consumers.
I’m not saying foreign investment is bad. It is a good. But the original financial mismanagement driving the causes of this foreign investment is bad. And to add insult to injury, the Americans don’t even bother to put this foreign investment to truly good use.
Foreign capital is a symptom of the problem not the cause. However, I also think it’s possible for American homegrown capital to work its way through the economy differently. If it’s Grandma’s nest egg (savings) that’s the big component of capital, then she and her caretakers have more stake in how that money is “invested” – maybe not lead to stupid exotic ARM loans which artificially inflates the price of housing beyond what people realistically earn in wages. However, if the capital comes from Dubai, then nobody has any skin in the game and they create financial instruments that nobody understands. I will admit this is not a proven thesis but I’m just throwing that out there for consideration.
Foreign ownership of some American assets are “good” if the ownership is temporary (the loan will be repaid back) and the capital that came from that temporary ownership was actually put to good use instead of ending up in a landfill.
A service economy is fine, provided you can sell some services abraod (to pay for your imports of manufactured goods). The problem we (in the USA) face, is that we cannot sell abroad, and our services now are being “outsorced” (think call centers in india, hospitals in Brazil,) etc. At the end of the day, no nation can have a purpetually negative balance of trade.
Service economies are not good for young people-who wants to be a waietr or chambemaid all your life? True, we can still make a lot of stuff that the world will buy 9movies, TV shows, software0 but that stuff provides very few jobs. personally, I don’t want to live in one big las Vegas.
The idea is that they are just getting rid of manufacturing jobs is not true. Any job that can be done cheaper abroad will go. Xrays are being read in India. Do you think because we can not read them? Nope, it is because it is cheaper. College educated jobs are not safe. Nothing is safe when the only consideration is money. India is competing to do operations. They do them cheaper. The medical profession is losing jobs. Programmers and computer techs are cheaper abroad. An education will not make you secure. Only an enlightened trade system will. But, we do not have a system in place to make it more difficult to move work abroad. Our system is after short term profits and they will cut our countries throat long term and not care much.
Shit, I have a Master’s, several years experience, and I make 46k. And talking to my similarly-educated peers, I’m reasonably happy to be getting it.
Sorry, man, but blue-collar workers don’t “deserve” an above-median income just because they’re good people. My dad and mom (dad also had a Master’s degree), combined made less than a single UAW worker; and yet, other than the horrible trauma of wearing Sears Toughskins jeans, we did just fine.
I have thought about it, and it’s really pretty obvious to me. I’d rather own a piece of a 54 trillion dollar pie instead of a 50 trillion dollar one. I really don’t care that foreigners happen to own a % of the pie as long as our slice is bigger than it would be without those foreigners. I have no idea how you can call the raw number a side show. If our networth dropped from 50 trillion to 1 trillion, you sure as hell would notice that.
The only reason consumer spending, as you call it, drives the economy is that we have gotten so rich that basic necessities make a fraction of what we produce. The decline in manufacturing has been trumped. The inflation adjusted GDP of the U.S. on a per capita and raw basis has been increasing steadily. It’s a simple fact. We are richer now (well, at least until a few months ago) than we ever has been as a country.
I don’t see why anything has to change in the near future. Even if it does, it will be a gradual currency based process. Once people stop sending their dollars back to the U.S. through investment, the value of the dollar relative to other currencies will decline until the point that our exports become attractive enough to balance the trade deficit.
And I will repeat myself again. You can’t divide out foreign capital from domestic capital. It’s all one big pool of capital. If you take away foreign capital, you don’t suddenly get rid of credit card debt. You will reduce it because it will be more expensive to borrow. However, you will also reduce the amount of money going to the Googles of the world because it will cost them more to borrow as well.
Same problem as above. You can’t simply blame all of this extravagance on foreign credit. This stupid borrowing is done because people are stupid. If there were no foreign capital, there would still be dumbasses.
Uh, no one really wants to be a waiter or chambermaid or work in a call center. That’s why we outsource those types of jobs. That frees people up to work and make a higher wage as skilled workers.
The problem with a “service economy” which I don’t think has been touched on, is that IMHO, it creates an entire economy of “bullshit”. We pay millions of lawyers, bankers, accountants and consultants to shift numbers around a spreadsheet or make new rules for shifting those numbers around. What we are experiencing now in the economy is largely due to a series of massive accounting errors.
That is not to say that there isn’t a need for these services or that they don’t have a value. But it seems to me (as an MBA with an Engineering undergrad) that you can’t base a successful economy on a bunch of people coming up with creative ways to make it look like they have more money than they did last week.
As people have pointed out, manufacturing creates a lot of jobs for people who aren’t particularly educated or smart that pay reasonably well. The loss of those jobs creates a gap where people either have to get a college degree so they can become programmers or accountants or they slide down to lower level service McJobs.
Ruminator - Foreign capital generally does not go to credit cards. It goes to businesses that create jobs and sell products. Is it bad to have a Toyota plant in Kentucky?
Well Mssmith - It worked like gangbusters for 20 years. I guess all good things must come to an end eventually however. Maybe we just need more creative people with more creative financial instruments.
I didn’t mean to oversimplify and say Dubai writes a check directly to BankUSA for 100 million dollars to be doled out as credit cards.
There are many stories of how foreign capital indirectly contribute to the total credit available. They allowed Alan Greespan to lower interest rates to reckless levels. They also buy up various bank securities and help foster environment of loose credit. When Toyota buys the land for constructing the factory, the landowner deposits that money in a bank and it becomes the basis (fractional reserve) of more credit for other consumers unrelated to the Toyota transaction. I’m sure others can come up with dozens of other ways that the 2+ trillion dollars that foreigners hold makes credit more freely available to the average person.
Foreign capital in-and-of-itself is not evil… but people have to pause and analyze why the USA got itself into a situation that it needs so much of it. It then has to analyze if that particular “why” is sustainable and healthy.
And the reason has absolutely nothing to do with transitioning from manufacturing to services. The reason has to do with living beyond your means. It does not matter what your job is; if you spend more than you earn you will end up in deep trouble.
I’d like to respond to the rest of your comments but for now I’m most curious about this aspect.
Do you believe Gross Domestic Product (GDP) is the best indicator of true wealth and sustainability of that wealth? If not, what are its flaws? If GDP has no flaws but maybe should be combined with other indicators, what would those other indicators be?
I will withhold my opinion because I don’t want to taint your thoughts on this.