The Consequences Of Post Housing Bubble Policy
Readers added to my topic suggestion on policy. “There is a housing bubble question regarding the government and central bank that needs to be addressed at this point in time. What are the consequences of post housing bubble policy?”
“It is well known that Japan had twin manias in both stocks and real estate in the 80’s. Their policy makers chose to hide losses off-shore and to prop up many corporations. Then the country went into a recession that never really ended. But why? What did the post-bubble policy have to do with the recession and what might have been different?”
“A market economy relies on a survival of the fittest contest to weed out inefficient organizations and reward those that make better choices. In the long run, taking this discipline away didn’t save the Japanese economy, but rather made it weaker. Never having cleansed the economy of these non-functioning structures, they sit mired in recession.”
“So here the US stands a similar juncture; we’ve had twin bubbles, and our government/central bank appear to be taking the Japanese route. We hear a lot about the Fed chief and the Great Depression. But IMO, the GD is ancient history. What about the much more relevant Japanese experience with financial manias?”
“And lastly, considering all this, what course do we as individuals take in our finances and careers?”
A reply. “Regarding Japan versus USA: I think the scenarios are quite different and will remain so, with the USA in a much more favorable position to get out of its current mess than Japan ever was. Why? Social, business and cultural mores and norms. Japan is highly patrician/patriarchal and heeds the traditions of its elders. The United States is not.”
“Our problem in the USA is a lack of ethics and individual responsibility/consequence. We now are largely a country of thieves and backstabbers, at all levels. Government, business, individual. Few people want to pay for anything, work for anything. If it feels good, do it. Why? Because you DESERVE it. Because everyone else is doing it.”
“Maybe it’s time to get back to literally lopping off the hands of thieves. Crude? Yes. Effective? Quite possibly. Rather than see Madoff go from court date to court date via limosine, perhaps everyone should witness Madoff’s hands get amputed on live television.”
Another said, “We not only have inefficient organizations but also have massive debts, public, financial, corporate and personal. That makes this different from Japan — and the Great Depression. That is what is bringing on a recession without end — people can only spend what they earn, only earn what other people spend, with the interest on the debt as an ever-expanding wedge between the two. Get rid of the debts, or continue to be poorer.”
“What seems to be happening is a nationalization of the debts, to limit the losses to older generations (who control most wealth), combined with promises to cut down on government benefits for younger generations, with future taxes just going to pay the debts off.”
One said, “Japan spent nearly $125T Yen in a decade of which half went to public work programs, mostly in construction. The government and corporations were corrupt and spent money producing things that nobody wanted and didn’t meet consumer demand. (I have no idea what demand that would have been, and apparently neither did Japan or her people).”
“Additionally, Japan nationalized their banks - we can see how that worked out for them. They admit to propping up the stock market. Again, how did that work out for them? The government invested in RE and values fell 80% in the ‘90s. Ahem, sound familiar?”
“Oh, and they introduced corporate and personal tax cuts. Broken record anyone? They managed to spend over 100% of the GDP. The U.S government and her citizens must realize that a laissez-faire approach will sort out market inefficiencies. Only then can we progress toward a more rapid recovery.
Lifted from mises.org.”
Another had this, “It seems pretty clear to me that right now the folks running The System (and by this I mean the global economy,) are attempting to salvage the system itself rather than its individual components. And we’ve not even BEGUN mop-up operations, let alone repairs.”
“I am envisioning this all as an ill-conceived but long-running chem experiment with say, formic acid bubbling away in a gooseneck to some end, various compounds being added from time to time with no apparent effect, when suddenly, the technician, lacking proper restraints and common knowledge of basic material science, makes one small adjustment, and the mess in the flask takes on a life of its own, self-generating until it begins to breach the containment vessel. Now it is threatening to blow up the lab and contaminate the whole campus. But you can’t just turn it off, you have to let the reagents coalesce on their own. Cracks appear in the beaker. HOLY MOLEY it’s boiling over, it’s running out the sides, it’s gonna BLOOOOWWWWW! (And glagh, the deadly stink!) Lights flash! Buzzers sound! People run screaming from the building!”
“So we’re frantically wrapping tape around and around the exterior container as quickly and gingerly as possible, trying to stem the flow of caustic liquid and keep the glass from cracking clear through–not to save the contents so much as to let enough out slowly to save at least a portion of what’s left to study ‘for next time’ and keep the toxic spew from eating through to the foundation. After the managed outflow, THEN we can figure out whether to attempt hugely expensive repairs to the equipment or design a new vessel and start completey over again with new, uncontaminated materials. Or something like that.”
“Sorry for the extended metaphor…it’s just that what’s happening in our financial world right now reminds me of the time I nearly blew up the Keck lab.”
One noted. “I was looking at the comment about rebuilding a manufacturing base. Rebuilding the base might be doable, but is it profitable? The industrial base eroded because the products were too expensive compared to foreign competitors. It pains me to say this, but until wages in the western world are more in line with the rest of the world, I don’t see this changing (allowing for productivity differences and transportation costs of course). That is unless we reject capitalism.”
A reply, “I see it another way: corporations wanted to increase their profit margins. By exploiting slave labor overseas, they could bring down their costs significantly, but only dropped their prices a little bit. The consumers of these goods were predominantly Americans. As our wages stagnated/declined, we continued to pay high prices by going deeper and deeper into debt.”
‘Free trade is good when we’re talking about buying a product that is better or more easily made in another country, and we export something that we’re better able to make (or have more readily available resources to make those goods). Free trade is not exploiting the workers of the world in an attempt to drive the living standards of **productive people** down while enriching the capitalist class (corporations, investors, and bankers, etc.).”
“We need to move to fair trade, and harshly punish companies that try to skirt their responsibilities to their employees.”
And another, “The whole problem with ‘rebuilding the manufacturing base’ is that it won’t bring back anywhere near the amount of manufacturing jobs that were sent offshore. For the last several years no country on this planet has had a net increase in the number of manufacturing jobs, not even China. This is because of increased automation. Bringing manufacturing back is probably a good idea regardless of the number of jobs generated, but bringing back manufacturing will only increase the demand for automation. In other words it isn’t going to help out much with the job picture at all. For instance, Japan has a lot of domestic manufacturing, but it is the most automated manufacturing by far in the world. That is what the US would be looking at with manufacturing back in the country.”
“Like I said, this doesn’t mean we shouldn’t bring manufacturing back, but we have to realize that manufacturing will never be a large scale job generator ever again.”
To which was posted, “It still needs to happen because it will help the balance of trade. Wages are a small part of the manufacturing cost when automation is used heavily. US manufacturers need to focus on high-margin products where the profit margin offsets the increased cost of labor in the US. I worked for a manufacturer like that… their products were in the mid-high end of their industry due to the heavy emphasis on engineering value and were priced accordingly.”
“Also consider the supply chain. A manufacturer will increase employment along the supply chain, and if time/distance is a factor, which it often is, that means jobs in the same area/region/country.”
“Manufacturers that don’t compete on price alone can do very well in the US. Of course, nationalized healthcare would go a long way towards making us even more competitive, as many other countries already have this, putting US companies that offer health care coverage at an immediate cost disadvantage.”
One asked, “I would love a discussion on the impact going forward of retiring baby boomer’s on housing, the markets and the overall economy…I really think understanding the coming changes due to this would be helpful and profitable…”
One has this, “Modern politicians in America know that most Americans are like spoiled children and don’t know how to save money, so the free market fix is not an alternative (no stimulus but just let the inefficient businesses and individuals go broke). So without the free market fix, we have the junkie’s delight of another stimulus to last another short term before we suffer severely for a decade or so.”
“With that, if one must be in stocks, they should be dividend paying stocks and stocks of emerging economies where the middle class is emerging (India, China). House prices in great locations (clean air, great schools, great climate, great jobs, great transportation) have yet to fall, and they will fall. Probably stay flat for 15 years after 2012. Gen-x and Gen-y would be better off saving in dividend stocks for their retirement than to consider a house as an investment.”
And finally, “I would humbly recommend reading the Federalist. Publius’ words aren’t necessarily the ‘truth’ ; however, like most documents of this sort, they are thoughts on a subject. That notwithstanding, the Federalist is an excellent source - especially the facets dealing with monetary issues - that actually debates the issue of money, who should have it, who should create it, how it should be regulated, and how it dovetails into the tax issue (used to be such a thing as a direct/apportioned tax but not anymore).”
“It is actually a debate with a pro and con, not just varying degrees of the same idea. We must also realize that the proposed monetary system was compatible with a system of governance based on the concept of establishing justice and securing the blessings of liberty for them and their posterity - us.”
“The cornerstone of all our symptoms today was debated then. We don’t have that system anymore, and are reaping the pernicious effects of a system they feared.”
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Only the bad policies, rooted in morally bankrupt thinking, have the chance to get passed and implemented. Americans demand solutions and invariably they get the bad ones. Do-Nothing, except for enforcing laws in effect when contracts were signed, is not acceptable to most Americans. No faith in no govt intervention in the economy. Ye of so little faith!
Policy makers and central bankers fail to do what was necessary BEFORE the problems get out of hand. This was the case in 1920s and during the past 25 years.
Jas
I’ve been watching the larger houses in Oceanside, Ca drop rather precipitously, for example 3,000sft houses have dropped from a high of about 700,000 to around 500,000. Then I look at the records and see these seem houses went for about 250,000 in 1998! Holy moly, STILL a heck of a long ways to go!
I have a friend in that neck of the woods. He says that prices are holding up. I think that he is in denial.
No, the flippers and specuvestors are back in droves. I’m guessing here, but would say that about 50% or so of new purchases in San Diego are not for owner-occupants.
Is it any wonder, when the govt encourages fraud and speculation? In case we haven’t grasped what they’re saying to us it’s: CRIME PAYS!!!
We all ought to form an “investment” group and speculate on housing, even if we really don’t plan on paying off the loans. After all, the government wants **higher prices** and less affordable housing, and they are will to do whatever it takes to get the game going again.
Let’s admit our mistakes. Saving, living within our means, and not being willing to take on debt we couldn’t afford was a painfully stupid decision on our part.
The PTB has spoken.
Agreed: Prices aren’t really heading down much at all here in Maryland. We *may* have 10% decline, which is consider “horrible” by the local media, but we still have plenty of rich DINKS buying things they can’t afford because “rates are low” and “a house should cost 2/3’s your (combined) incomes.” Right… no room at all for honest workers and savers who aren’t insanely rich or just insane here!
This is the game plan: keep changing the rules to keep new speculators entering the game. Just keep dragging out the crash so it takes as long as possible and fails on “the next guy’s” shift, not yours. If that means it takes 10+ years for housing to again be afford, that’s fine with them, even though it will be crushing for the overall economy.
I’ll take the 20’s anyday
reading this comparison to Japan is scary indeed. The pols know this ,but are going to do it anyway
1 more
Japan has a homogenious culture where we have inhabitants that care not for Rome
One should point out Japan in many industries captured many markets from High Tech, heavy machinery, ship building, auto and finance. They havent lost any market share since. On the otherhand we in the US have seen market share in tech, auto, and heavy machinery shrink… that is bad news anyway you spin it. They are #2 economy in the world and holding their ground.
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Of all the presidential candidates Ron Paul understood the economic situation the best and he had no more than 4% support among the voters. Only people who can successfully peddle bad solutions that benefit a minority, or few minority groups, can get elected. So much for choice and majority’s political power.
Brainwashed people make bad choices about investments and politics all the time. And it is not a coincidence. It is so by design. The Age of Propaganda, begun in the US, has finally triumphed over the Age of Reason. Brainwashing, or propaganda, has been the most profitable endeavor in America for a very long time and it shows.
Jas
“You shall know the truth, and the truth will make you free.”
And rich.
I hope you’re right, Combo. I’m focusing on two things: holding on to my 1. job 2. cash.
‘Brainwashed people make bad choices about investments and politics all the time. And it is not a coincidence. It is so by design.’
Yeah, yeah, a conspiracy in every tree. How about this? It doesn’t matter if it’s by design or not. What matters is what the hell each of us is going to do about the situation. I was never brainwashed. There was no spell put on me. I have been free to think and act all my life, and I bet I’m not the only one. I think you just like to be morbid. Remember your ‘debt concentration camps’ predictions? How’s that working out?
Good one Ben! I am tired of “by design.” Yes, it’s morbid.
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No conspiracy, Ben, people are led into bad decisions and self-destructive behavior by propagandists, many of whom happen to become leaders, that profit from it. Not true? Denial of the reality on the ground??
Jas
I understand reality, I think. But things are not always what they seem.
When I was majoring in real estate, I heard about the Council on Foriegn Relations and the Trilateral Commission. So the university had a good library and I went down and found their monthly magazines. I was stunned to read that they lay it out for anyone to see, one world government and all that. And being young and idealistic, I was politically active, trying to spread information, etc.
An eye opener for me was when I attended an African National Congress rally in the ‘free speech plaza’ on campus. I was handing out some photocopies of something when I was stopped by armed campus police. I was told my papers hadn’t been ‘approved’ by the college and was escorted out of the ‘free speech’ area. On the way, I noticed there were snipers and cameras on the roof all around. I don’t know if this was abnormal or not as the ANC was pretty controversial at the time. But it made me wonder what sort of country I was living in.
When I lived on the Texas/Mexico border years ago, I looked into becoming a customs broker. Basically, these people are NAFTA specialists who navigate the rules for corporations. I decided I didn’t want to be involved, much like I stopped preparing tax returns because I felt like I was carrying water for the IRS.
My point is, sure, there are layers of the law and economy that aren’t ‘right’ or fair and should be changed. But I finally came to feel that my energy should be focused on what I could change for the better. I lament the injustices in the world as much as anyone. But I found out that, for example, if watching TV news makes me angry or depressed, I can just turn it off and do something constructive.
“I found out that, for example, if watching TV news makes me angry or depressed, I can just turn it off and do something constructive.”
Ben — if you ever get bored with real estate investing or blogging, I suggest you consider a future career as a motivational speaker.
“I was handing out some photocopies of something when I was stopped by armed campus police. I was told my papers hadn’t been ‘approved’ by the college and was escorted out of the ‘free speech’ area.”
I remember that scene from Doctor Zhivago.
I think a lot of people repeat the same mistakes, and this is from bottom to top. At the top, the same mistakes made during the depression are being proposed. On this blog people are talking against free trade and thus in favor of protectionism. At the top, loose money, part of the problem that got us here, is being proposed as the solution.
No conspiracy causes individuals and governments to repeat the same mistakes. It’s just refusal to believe that social actions have repeatable consequences.
Individually, one can refuse to take advantage of the cyclical nature of politics and get caught up in doom, thinking that his day will never come back. Tuesday it’s the socialists’ day. Let them have it. The Republicans handed it over to them on a gold platter.
One can likewise refuse to take advantage of the cyclical nature of investing. In 2001 I put 1/3 of my inheritance in savings bonds and a little bit in gold coins. At that time I figured it was one of the worst investments while I figured stocks would come back big time later in the decade. It turned out those few savings bonds and gold were my best investments this decade. The 2001 bonds have earned an average annual of 5.9% since I bought them. But I’ve bought some in every year since then, as well as buy gold.
Now I’m seeing the S&P 500 returned (1.5%) - a negative return - on the average every year the last ten years. I’d think that is my worst investment. Therefore I’m thinking now that the cyclical nature will catch up and it will outdo savings bonds the next ten years.
You cannot time the market. Sometimes you win, sometimes you lose, but the true test of success is the ability to live off of your diversified investment plan when you are unemployed for several years. At that point, you have to worry about the best way to make distrubutions to yourself from your own investments.
“When I was majoring in real estate, I heard about the Council on Foriegn Relations and the Trilateral Commission. So the university had a good library and I went down and found their monthly magazines. I was stunned to read that they lay it out for anyone to see, one world government and all that.”
Ben.
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I read about the Trilateral Commission in a Hustler magazine at 16.
Yeah, I was weird, I also read the articles.
Mr. McGuire: I want to say one word to you. Just one word.
Benjamin: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes, I am.
Mr. McGuire: Plastics.
Benjamin: Just how do you mean that, sir
The Graduate 1967
“Tuesday it’s the socialists’ day. Let them have it. The Republicans handed it over to them on a gold platter.”
Ummm… I was under the impression that the corporate socialists & klepto-fascists were just voted out of power. Oh wait, you meant *proletarian* (classic) socialism –never mind.
Jas loves wielding the power of morbidity. It is his stock in blog trade.
You don’t find his idea at least the tiniest bit compelling?
You are telling me that you have never been to a party and talked supposedly “intellectual people” whose basic level of economic discourse was not completely flawed and asinine?
We must live in parallel universes.
I don’t particularly disagree with his message, but I find the endless Pontification quite annoying.
Maybe occasionally there’s some pontification, but I don’t think it is meant to hurt or put people down. Sometimes it comes from frustration. I think Jas realizes he’s preaching to the choir most days.
Jas’s heart is in the right place, IMO. I find he has something to contribute.
As to conspiracy theories, an old trick employed by spooks since the dawn of the spook profession is that one way of hiding something is to make it so incredible, no one would ever believe it.
RE: Brainwashed people make bad choices about investments
$100 million gone in Idaho Falls and now $350 million clipped in Sarasota FL.
The Bernie Madoff land mines are everywhere.
And everybody thinks the scamming has been confined to just the real estate sector.
This country has an enormous moral and ethical problem which will not be solved by Barack O’Bama until some real heavy hitters complicit in this fiasco start going to jail.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ampER7T1cKcM&refer=worldwide
For me to make sound judgements, I must know what is really out there in human relationships and behavior. You can go far operating on the notion that 90% of people delude themselves into thinking they are far more moral than they really are. Combine that with an ‘ism’ such as conservatism, socialism, radical theology, or liberalism and watch out. Additionally, most people think they are smarter than they are. I won’t talk to some people because they are so dumb and the big tragedy is they don’t even know it. I’ll bet I’m dumber than I think I am too. That sensible self-doubt keeps me grounded.
Brilliant, Jas Jain.
Jas Jain, I love you.
“And lastly, considering all this, what course do we as individuals take in our finances and careers?”
Learn to trade the markets. Study the fundamentals and technicals. Don’t buy-in to the Street’s financial systems proselytized by popular financial gurus. Do your own homework. Things like DCA serves the Street not you.
Whilst you study the fundamentals, you’ll learn which sectors of the economy are growing, staying steady, and about to dive. With this knowledge, you should be able to manage your career accordingly.
DCA served me since 1989 and I certainly am seeing my average cost go down. Market timing serves the brokers and is a losing game.
It takes very little effort to slap down 10 - 15 pct into an index fund every month, month after month, without thought. It takes time, effort, skill, and research to anticipate which way the wind is going to blow.
That said trading is not for every one. However, elementary technical research could have saved a lot of retirees from yesteryear’s savage bear market downturn.
It was pretty clear by Jan. 08 the S&P index stopped making higher highs. In fact, it broke its uptrend support line that month and dropped to 1,275. It was even more clear by mid May. 08 that it was not going to make higher highs for some time when it failed to move above its broken uptrend line. It was above 1,400 then.
A colleague of mine who taught me about trendline analysis sold me 3 ounces of gold in November of 2007 and put the proceeds into a Vanguard REIT mutual fund. He used trendline analysis on commercial real estate. Boy, was he wrong!
Would you (all) rather dollar-cost-average in a rising market or a falling market? It feels both good and bad in both cases to me -
“We need to move to fair trade, and harshly punish companies that try to skirt their responsibilities to their employees.”
In my view, it is not just fair trade or the return of manufacturing jobs, it is the short term view leadership has taken in corporate America that is the problem. Short term views have crippled the inovation of the corporations and employees in the USA. The offshoring of college educated jobs in Information technology, accounting, and engineering are part of the short term views leadership has taken so they can get a higher return for shareholders and themselves. I call this the greed factor. However, it has left the USA in a major bind as so many people are not getting the education in these fields and the USA is rapidly losing ground as a world leader in inovation and development of new technologies.
The service sector economy will not survive on it’s own without brining back inovation and creativity normally found in engineering and information technology jobs. The greed of leadership and the good ol boy network of corporate leadership must end now in order for the USA to become creative again. It is time we put people into leadership positions who are qualified, but not tied to corporate leadership greed or the current goood ol boy network!
In my view, it is not just fair trade or the return of manufacturing jobs, it is the short term view leadership has taken in corporate America that is the problem. Short term views have crippled the inovation of the corporations and employees in the USA.
BINGO
CEO’s despite reporting requirements are basically allowed a form of insider trading. They can increase dividends, hide debt, create false profits or move profits forward in order to maximize the stock price when they sell. CEO’s therefore spend more of their time trying to figure out how to game the system than how to grow the company. My solution to this is to take away all incentive for them to game the system. All capital gains and money from options will be taxed at the same rate as income unless they agree to the following.
Each month they receive a fixed amount of stock that is automatically sold in a fixed amount of time say 5 years. They will be prevented from selling it any sooner. No more gaming the books to make things look good right before you sell because your sales will occur over a long period of time.
“CEOs spend more time trying…to game the system than to grow the company”
Absolutely. Our enormously intricate system of laws has created a situation where ALL of us spend more time trying to game the system than trying to produce anything. This blog is dear to my heart, but it’s basically a response to a situation of great complexity in which economic survival depends not on work but on escaping the consequences of public policy.
Truer words have never been spoken. How much time is spent (wasted?) every month by the populace of this country trying to figure out ways around laws that, frankly, should not exist?
ALL of us? Getting a cut of productive endeavors has been the standard since before industrialized capitialism. Everywhere now we are surrounded with great benefits of our collective investment including a pervasive road system and rural electrification.
Speaking for myself, I’ve spent my life building systems for people and have never felt directed or gamed by the government or the system itself. My gut feeling is that visionaries like Seth Godin and Amory Lovins are right in saying this is a time of exciting transformations and opportunities.
“so many people are not getting the education in these fields”
[IT, accounting, engineering]
US students and the educational establishment have put a low value on math, a high value on self-esteem, multiculturalism, survival of the unfittest, etc. Our grad schools are full of IT and engineering students from…China! While children of US families have assumed they could get rich without much study, for example, in, let’s see…real estate!
The present situation may have the positive effect of making US students more serious. IMO, the problem with US education has little to do with expenditure and a great deal to do with the attitude of the students, who have simply not been hungry enough.
It might also help if Obama gets his way on merit pay for teachers (he favors it), and this would be very interesting, considering what a huge number of Dem delegates are members of the Natl Educ Assn union.
The reason the kids aren’t studying IT and engineering is because:
1) There is no job security.
2) You have to compete with a nearly endless stream of H1-Bs for the few jobs that haven’t been offshored.
3) Engineering is very hard and the pay is only mediocre.
It seems today that every smart kid I know is working on a Bachelor’s degree in Nursing. My mom was in the hospital last year (she ruined her lungs with cigs). When I visited her the head nurse for the pulmonary section where she was came by for a quick visit. After she left my mom told me that the other nurses told her that the head nurse make $150K a year.
I don’t know any salaried engineers who are paid 150K.
Yeah, but that is going to change. The pay is WAY too high in the heath care fields (all of them). Doctors make too much, nurses make too much, pharma companies make WAY, WAY too much. There’s too many gimmies (5K lunches, etc), and the costs are simply insane. That gravy train is coming to an end, and it’s coming to an end very quickly.
However, I do agree; as an engineer, I am very aware of the fact that many people make much more then I do, work a lot less, and have a much better quality of life. Doctors/nurses are the top of that list.
Engineering is hard work; and “pure” engineering (actually building something from scratch) is very easily offshored. Consulting is still pretty good in this country; mostly because it requires a mix of engineering and people skills. That cuts out many of the HB1s.
I’m a medical student, and I’d have to say I agree with you up to a point. Unlike many of my colleagues, I certainly feel that doctors often make far more money than they should. (Surgeons, in particular, should probably be making maybe a third of what they usually make these days.) Likewise, I agree that the general costs of health care in the US are extortionately high.
However, I disagree with your comment that doctors “do less work than you”. Did it take you four years of undergrad, four years of grad school, and 2-7 years of (real, formal) post-graduate training to get you to the place you are today? Do you work 85-110 hour work weeks? Are you aware of how difficult medical school and/or most medical residencies are? How much debt did you graduate with? (Many of my colleagues have accumulated well over 200K of debt to become physicians.) Don’t get me wrong here - my father is an electrical engineer and he worked hard, and I had a great deal of respect for my undergrad friends who majored in engineering specialties (those guys/gals indeed worked very hard). That said, most doctors work far harder than most professional engineers - and that’s a fact.
Furthermore, are you aware that most nurses don’t make anywhere near $150k? Nurses are usually lucky to make $40-50K a year, and it’s often hard, dangerous physical work (turning very obese patients, restraining the violent/mentally ill guy who’s slugging hospital personnel, etc.) Is your day-to-day work that high-impact?
Julius, I understand what you’re saying. There’s no doubt that there are certain aspects of medicine that are more difficult than engineering. I would like to point out a few similarities.
First, engineering work and the quality of one’s designs can most certainly threaten lives and have impact on one’s personal life. Bhopal, Three Mile Island, Tacoma Narrows, Boeing’s 737 rudder issue, the list goes on. I personally have witnessed (as an electrical engineer) an improper power supply design for a telephone that caused the power IC to overheat and catch fire on a brownout, which could have caused house fires. In fact, your PE license is basically recourse to ruin your entire career in one fell swoop due to a mistake, as well as possibly lead to criminal charges. I absolutely assure you that doctors and nurses are not the only people who deal with life-threatening situations every day, and this is a major part of why the profession is closely regulated and better compensated than most.
Second, engineers most certainly work a hell of a lot. As a junior engineer, I was working 80+ hour weeks. I was making calls at 1am to the UK and to Asia because of time zone differences in my industry. It’s not just doctors’ that carry “pagers” any more, because we had them too as customer engineers - on call 24/7 support to keep a power plant’s downtime below the threshold for regulatory violations is no joke. It may not be quite as hard, but it’s close enough. And, really, these are stupid badges of honor because they cause mistakes both in medicine and in engineering. It’s still disproportionate pay for a doctor versus an engineer.
Third, the approach to school is simply different in medicine than it is in engineering. Med school makes it onerous to try to get in in the first place, which is understandable given the actual expenses of a medical school. Engineering takes the approach that basically takes a lot more people but weeds them out fairly quickly too. They always told us in our first year engineering orientation: “look to your left, look to your right, only one of you is going to be here next year”. And they were right.
I understand why doctors get paid what they do, and why they get paid more than engineers. What I don’t understand is why they get paid megabucks above essentially every other profession, save for law (which is another discussion entirely). The root post is correct - the cost of medicine has no choice but to deflate in relative terms.
1) There is no job security.
2) You have to compete with a nearly endless stream of H1-Bs for the few jobs that haven’t been offshored.
3) Engineering is very hard and the pay is only mediocre.
Correct
I would also point to the contemptible culture of corporate America. Most large corporations that hire engineers are run by short-termist MBAs rather than engineers.
They think their financial skills are priceless and irreplaceable, but the engineers are a commodity that can easily be procured in Chindia at a fraction of the labor cost — of course they don’t have to deal with the quality-of-work problems that ensue.
Engineering work is often more cyclical and long-term-oriented which doesn’t fit with the corporate mentality — so engineers are devalued for not producing the short-term manipulatable results they require, and get laid off during the inevitable slow times. Why invest your life in a career with such conditions?
““Like I said, this doesn’t mean we shouldn’t bring manufacturing back, but we have to realize that manufacturing will never be a large scale job generator ever again.””
Manufacturing will never come back to what it
was for another reason: scarcer and scarcer
natural resources. We’ve used all the easily reached
ores and fuels making new products more expensive
to make in relation to incomes. Our agra business
has depleted our soils so it takes more energy
inputs to reap the same yields and will be much
harder to duplicate in the future.
Alert! Another farm guy predicting soaring food prices!
I’ll box garden, fish, and whatnot.
Muggy,
It’s now “Ex-rancher”.
“What are the consequences of post housing bubble policy?”
This is going to be worse than Japan. It already is worse than Japan. Heck, Japan is already worse than Japan. Japan’s problems were mostly isolated to Japan. This is global.
When the Fed attempted to reflate real estate and stock market asset prices it created the commodities spike. The commodities spike drove the global economy off a cliff. Truck drivers around the globe were brought to their knees. Haitians began eating sand cakes for cripes sakes. And, poor Asians cut back to eating 1 bowl of rice per day.
What’s more, with this kind of consumer shock, consumption and demand inevitably falls off a cliff. As a result, people’s survival instincts kick in and they begin to hoard and prepare to cut back.
Profit margins get squeezed because businesses overpaid for raw materials and can’t sell their products at the same rate as before. As a result, businesses cut prices and some are forced to liquidate.
Add to this toxic mix, the fact that a percentage of overall demand for cars, furniture, and vacations were created by bubbling house prices and mew extractions. Worse than Japan…
I was in Japan for a two week vacation last October. Here are some anecdotal information:
1) Japan makes almost everything from clothes to processed food. Except for fresh vegetables that are imported from China.
2) Most everyone with a college education works in hourly-wage like jobs, typically $10~12/hour in Tokyo (like selling tea, organic food, cooks, salespersons pay vary depending on the chic couture they sell). Most guys in the 25-35 range work as policemen, gas meter readers. Again the pay is $10~12/hour
3) These young people (25-35) stay with their parents or in one-bedroom flats owned by their parents.
4) People are very thrifty and manage to live their lives with the usual outings for sushi or other events like movies, video games. They enough from their wages to own the latest Phones
5) Everything is expensive including food ($6~10 for lunch/dinner). So although the asset prices have deflated the living expenses are quite high. In other words inflation in every day needs, with wages stagnating.
If this sort of Japanese deflation comes to the US then the young america have to watch out. It is going to be brutal for them (me included) as jobs will pay less and we still have to pay taxes, no wealth to our name so we cannot influence policy. The only way is to get involved in politics just to avoid getting a bad deal from the current elected folk.
Wait until Japan’s next-generation nationalists decide they need and deserve more “living space.” I don’t mean their houses, either.
The Chinese, with long memories, would smash Japan. Might even force them to learn Mandarin.
Shendi,
Some comments from someone who is and has lived on and off in Japan for the past 12 years.
1) Most fresh veggies are NOT from China. My wife (Japanese) refuses to buy anything made in China and we purchase all Japanese, American, Australian, New Zealand grown produce, though I prefer all Japanese.
We always look for “Kokusan” on the label. (Japanese made/grown)
2) Not entirely true, I’m not sure how you made that observation. Most people with a college education are working in souless, mind numbing abusive jobs as a salaryman or a office lady. I could rant on and on about that. Most people in Japan who work the hourly jobs are the ‘freeters’ or contract workers or older Japanese who didn’t get in on the corporate Japanese gravy train.
3) True. And in most cases not even one bedroom places, just one room!
4) Not so much in Tokyo, maybe other cities. Tokyo’s ridiculous real estate prices (which don’t have any bearing on the laws of supply and demand) make living from paycheck to paycheck a reality here. That’s why recently many laid off contract workers took to Hibiya park near the emperor’s palace to live. It was big news over the New Year’s Holiday. Many were living paycheck to paycheck and when they lost their job their landlords kicked them out, as most didn’t have any savings what so ever.
5) Japan is simply screwed, everything is over priced for very little reason, except to make the old bureaucrats and the corporations rich.
Japan did everything in it’s power to modernize and industrialize at the expense of it’s people, and it’s natural resources.
Most of Tokyo and Osaka look like third or second world slums. Walking through an adjacent neighborhood from my apartment is depressing and dangerous, my wife won’t walk through their alone.
Even in ultra wealthy neighborhoods there are dumps tied together with corrugated metal, wood and blue plastic. But this i
Granted Japan doesn’t have the crime like big cities in the US, but this may not be the case for very long…
When I was young ,we feared automation and over population . Never was
there talk about Foreign Nations taking American jobs or producing the Worlds goods while one American Company after another takes their
manufacturing from American shores or outsources jobs to other countries to save a buck .
50 years ago we could of gone the path of having foreigners produce our goods ,but we didn’t . The beginning of the take-over came with the
allowance of cheap foreign cars in America without the proper trade
balances . 50 years ago America was a closed economic system in which
wages were in sink with the price of products produced locally . Now the Corporate Business machine thinks that it can merge the products from the World ,regardless of the price to produce ,and the American worker must go down to the level of the cheapest World labor price in terms of wages and benefits ,or be left in the dust . It’s a monopoly of
cheap foreign produce goods (that are only slightly cheaper ),and in American we break up monopolies ,
don’t we ?
Good post, Wiz.
“Bringing manufacturing back is probably a good idea regardless of the number of jobs generated, but bringing back manufacturing will only increase the demand for automation. In other words it isn’t going to help out much with the job picture at all.”
When a company manufactures something here in the US, they factory workers themselves are a small piece of the employment picture. How about the building of the manufacturing facility, the truck drivers who deliver parts and supplies, the sales and distribution people who support the facility, the maintenance people who maintain the facility and equipment, the local taxes paid by the company and employees, the support for local community institutions and programs?
You mention automation; how about the highly paid jobs created for installing, programming, and maintaining these automated facilities? How about the engineering, design, and technical support?
This is not a Wall Street executive bonus question where the answer is contained in some linear regression crap. This is and has been vital in maintaining the higher standard of living that has been enjoyed in the US for generations. I for one speak on behalf of myself and my progeny that I never wanted and still don’t want to squander that legacy in the name of some globalization rationalization that is based in feel-good save the world lunacy.
Building the manufacturing facility only provides short term jobs. As for truck drivers, work on self driving cars and trucks continues so no jobs there soon enough. Sales and distribution jobs are already in the US because the products are sold here. (Besides how many sales people are needed, really?) If things are automated, not that many maintenance people are needed.
Obviously, the company that owns said automated manufacturing facilities will pay local taxes (as well as state and federal taxes), but again that says nothing about jobs.
As for the engineering and programming jobs, there will be plenty of those, but they require specialized education. When someone talks about “bringing back manufacturing jobs” to the US, they are talking about factory jobs that almost anyone can do. The engineering and programming jobs generated by automated factories can’t be done by just anyone off the street.
This has nothing to do with globalization. Science and technology continues to advance. Manufacturing jobs (not manufacturing itself) are going to die. They are dying right now. No country, not even China, has had a net increase in manufacturing jobs in the last several years. And this has happened as manufacturing output has increased. I don’t know if the so called “service economy” is the answer, but ignoring the reality of the death of manufacturing jobs is not the answer either.
Simple question:
If all the theoretical rhetoric spouted about how manufacturing jobs are just simply going to disappear because automation will “do it all automatically” are true, then why has there been this maximum overdrive effort over the last two decades to offshore manufacturing?
If the jobs are disappearing and not worth anything why the move? Have you missed (or discounted) the multitude of announcements by major firms over the last two decades and the last 10 years in particular regarding closing US facilities and moving manufacturing offshore where the job losses were in the thousands? Those jobs did not disappear, THEY MOVED with the manufacturing base!
“No country, not even China, has had a net increase in manufacturing jobs in the last several years.”
So China was seeing their GDP increasing at 15% per year (essentially since they were granted favored nation status in 1999) on financials? Agriculture? Real Estate sales? What?
Easy to move jobs over seas when the computer does most of the work and the factory person just feeds the machine.
The test machines are still made here or in Japan and cost over a million bucks ea so you better run them 24/7 because what they test sells for 50 cents
“If all the theoretical rhetoric spouted about how manufacturing jobs are just simply going to disappear because automation will “do it all automatically” are true, then why has there been this maximum overdrive effort over the last two decades to offshore manufacturing?”
Because two decades ago, the technology wasn’t there to do this. It was cheaper to offshore it. Plus, there is the issue of much weaker environmental regulations in China and elsewhere.
“If the jobs are disappearing and not worth anything why the move? Have you missed (or discounted) the multitude of announcements by major firms over the last two decades and the last 10 years in particular regarding closing US facilities and moving manufacturing offshore where the job losses were in the thousands? Those jobs did not disappear, THEY MOVED with the manufacturing base!”
First, there are the lax environmental regulations. Second, the height of moving manufacturing offshore was during the 90s. Of course, that may mean simply that there isn’t anything left to move, but it doesn’t change the fact that no country on this planet has had a net increase in manufacturing jobs in the last several years.
“So China was seeing their GDP increasing at 15% per year (essentially since they were granted favored nation status in 1999) on financials? Agriculture? Real Estate sales? What?”
One, you can still build factories and have the total number of manufacturing jobs go down due to improved technology. Second, if you believe the Chinese economy has really been growing at 15% a year, I have a bridge in Brooklyn to sell you. When the Chinese bubble collapses you will see this. Third, China has a huge problem with people migrating to the cities and not be able to find jobs. Just because China can suck in a lot of manufacturing from other countries doesn’t mean its people are getting lots of jobs. Fourth, “favored nation status” is now called normalized trade relations. Most countries on this planet have normalized trade relations with the US. China is not special in any way.
“Second, if you believe the Chinese economy has really been growing at 15% a year, I have a bridge in Brooklyn to sell you.”
I looked it up; I stand corrected. The rate of GDP growth was ONLY 10-12% over the period I mentioned. The Chinese bubble is collapsing because US & Europe slowed the buying of their MANUFACTURED goods that they could no longer afford. China is waiting for the “stimulus packages” in the US and Europe to start their ball rolling again in the right direction for them for this is where the impact will be from government subsidized personal spending aka refundable tax credits spent at Wal-Mart.
Plus 10 ,Cracker Jim . Well said post . Each manufacturing job producers other jobs . The point is when a person spends their money
in their Country by their wages ,what they spend creates more jobs .
The money that goes to other Countries is spent in other Countries or it flows back in the form of investments in Wall Street ,which creates
to much money in America that became easy money during the boom to fund the inflated prices by debt ,not real wage increase .
What a stupid economic system that was set up for at least the last decade . Who got rich off of it ? The American people got into debt and the Nation got into debt ,and the inflated prices are crashing ,and the jobs that were based on that system are no more . Great system . To the degree that the prices are crashing is the degree of
the fake system of debt instead of wages to afford products . How long did the Market Makers think our economic system would survive ?
We are left with millions of units of real estate not wanted and prices crashing and jobs leaving in all sectors, including real estate .
For those of you that say that going back to tried and true systems of operation would be a denial of progress in a World of Globalism , you are simply ignoring exhibit A …which is the total crash of the World economies. Lets get serious here and stop with the spin that what was good for the few was good for the many .
I would pose the following thoughts to consider:
1. What is making workers poorer in the industrial countries like the U.S.
is not the flow of goods across their borders from low wage countries
like China and the rest of the emerging market world;
2. What makes our workers poor is the flow of capital across borders,
specifically when our capital leaves our borders and goes to build
factories and businesses in general in emerging markets to compete
with the advantage of third world labor costs against our businesses
in our high standard of living high wage industries in the 1st world.
3. The solution is not a tariff on the trade in goods but either a tax on
capital leaving to fund competing businesses in China and the emkts;
or as we had until the 70s’: exchange controls — capital controls —
so that capital stays in each country; and goods cross borders freely.
4. The idea that we should be investing in China, India and other
emerging markets is precisely what is driving our standards of living
lower until they all converge into 3rd world wage levels, even here.
5. If you let capital flow out of a high labor cost country into a low labor
cost region what is that capital doing? it’s just underfunding capital
investment in our factories and businesses here; and funding the
move of that manufacturing base to the low labor cost third world.
When a investment dollar leaves our country and goes overseas, that is
precisely how factories and manufacturing enterprises leave our shores
and get relocated overseas.
Policy makers in the postwar understood that clearly, which is why the
Bretton Woods post world war global economic agreement allowed for
goods to be traded more or less freely (some taxes — tariffs — were
still seen as necessary even in the Bretton Woods world) but capital
was not allowed to move internationally, until the 1970s. The people
of the U.S. has forgotten that world existed and how it worked.
The Washington guys never forgot the old world of capital controls;
they just were happy for the new world that replaced it: Globalization
because it’s better for capital and their paid public servants; the only
people not served by globalization is labor, who is now condemned to
“converge” with 3rd world low cost labor’s standards of living.
Until recently, most of the capital has been recycled into the US, specifically into GSE bonds, keeping interest rates low, and enabling profligate housing and other forms of consumption. Now, that same capital is rolling into Treasurys, allowing profligate government spending.
MrktMaven is, of course, correct.
It doesn’t matter if a U.S. company builds an auto parts factory in China, or if the Chinese build the factory themselves. When the part is imported into the U.S., dollars go the other way.
Now, what does China DO with the dollars. Let’s assume the U.S. has a massive global trade deficit and is flooding the world with dollars. If China goes shopping with the dollars it finds everyone has dollars and no one wants more. So, the exchange rate adjusts down. Next time we go to buy those auto parts, they are more exoensive indollar terms, giving the U.S. factory a potential price advantage.
So, China took the dollars, and just loaned them back to us. Keeping those dollars off international exchange markets, maintained the dollar-yuan exchange rate.
It is the flow of products that creates the trade imbalance. It was the flow of capital that prevented the trade imbalance from turning into adjustments in the exchange rate.
What the U.S. needs to do is STOP BORROWING the dollars back. Let exchange rates adjust. Make our products cheaper overseas. Make imports more expensive here. Bring the factory jobs back to the U.S. Take away the huge gobbs of cheap money that has fueled bubble after bubble, has made it impossible to get ahead through honest old hard work, and has made the scammers and playas MEGA rich!
“”A reply. “Regarding Japan versus USA: I think the scenarios are quite different and will remain so, with the USA in a much more favorable position to get out of its current mess than Japan ever was. Why? Social, business and cultural mores and norms. Japan is highly patrician/patriarchal and heeds the traditions of its elders. The United States is not.””"
“Social, business and cultural mores and norms.”
That is an ironic to the nth degree statement.
There is absolutely no proof that is true. In fact I would suggest that just the opposite is. That Japan is still a nation of hegemony, customs and a largely unified culture works strongly in their favor and ultimately will serve them well in times of trouble and a “paradigm shift”. It will also be our greatest weakness not a strength as “we” have been ponzi schemed into believing about “multiculturalism” and it’s “strength” over the last 40 years. The idea that competing disparaging interest will makes us strong in times of turmoil is fantasy and a lie straight out of the pit of hell. As this thing devolves down we are about to find that out first hand.
believing about “multiculturalism” and it’s “strength” over the last 40 years ??
Then why do people from all over the world want to come here ?? Freedom ?? Opportunity ??
Huh?
Maybe I am misunderstanding your post but you seem to be suggesting that our multiculturalism is our weakness…
I must say I agree with Ernest. One of the greatest strengths of historically strong economies (Germany, Japan, etc) has tended to be that their citizens are essentially “on the same page” culturally. When everyone in a country is so culturally similar, economic/social progress seems to come more smoothly and easily as it’s far easier for everyone to fall in line and do what needs to be done (much the same way as a school of fish or flock of geese operates). America, historically, has had droves of people moving in different directions with regards to culture; sometimes this has been a strength, but more often it’s (arguably) been a weakness, IMHO.
Now, granted, if every citizen in a country is “identical” culturally it’s a lot easier for people to start thinking with the blinders on and ignore reality and all, but still…
Yes. The blinders did go on. If you study the history of Germany and Japan you can see what happened with those blinders.
Japan is in a sh*t load of trouble, their population is aging, there are no new ideas and innovations. Artifically controlling cultural/migration boundaries doesn’t work.
The USA has been multicultural since - oh - say, 1789.
1620.
‘the USA in a much more favorable position to get out of its current mess than Japan ever was’
Explain please? We have the highest incarceration rate in the known world, a negative rate of savings, a high level of job transience, and a high level of expectations vs reality.
Not sure how these weaknesses could be strengths, unless somehow the newest big bubble will be in building and operating prisons?
Actually, w/ the exception of the incarceration rate, Japan is experiencing the same things.
Savings for young people is almost non existent in general, more young people, even as old as people in their 40s are growing restless in their jobs and are turning into ‘Freeters’ or ‘free’ part time job takers.
Japanese young kids are all expecting to make it big as TV comedians, dancers or pop/rock stars, manga artists or day traders. Not becoming engineers, scientists or business leaders.
Entrepreneurship is almost non existent. Taxes on small business are the same as large corporations, the tax laws and legal hurdles are enormous for small businesses. I have a few friends that run IT services and related companies and they are struggling because of all the road blocks the government has for small businesses. A new Sony or Honda could never emerge from an environment that exists today in corporate Japan.
And today it was announced that three large Japanese insurance companies will be merging and in Japan. Corporate merger = hide exhorbanent losses.
Good to see you back here again, ex!
Very cool update from the big T. Please keep posting?
We are saving the banks (again and again and again)
Prime Minister Gordon Brown has said he will announce a new banks rescue package on Monday aimed at encouraging them to restart lending.
http://news.bbc.co.uk/1/hi/business/7836259.stm
ANGLO Irish Bank has sought to reassure savers that their deposits are safe after it was taken into the ownership of the Irish Government on Friday, even though they are not covered by the UK’s safety net, the Financial Services Compensation Scheme.
A spokesman for the Anglo Irish said: “We will continue to trade normally as a going concern and, accordingly, customers can be fully assured of the safety of their deposits and investments.”
However, nationalisation of the bank could set alarm bells ringing for UK investors
http://business.scotsman.com/personal-finance/Stricken-Anglo-Irish-Bank-.4887483.jp
Most people may or may not be aware of this but back in 2001-2003, the Fed had a fear of deflation. The solutions was 1 pct rates to stimulate demand — Keynesianism. The result was the housing bubble and other forms of malinvestments.
The Fed, congress, business leaders, the PTB, the inner party, ‘THEY’ never addressed the structural problems in the economy. They simply postponed the day of reckoning. Guess what. It’s here. It’s reckoning.
It really cracks me up to read brilliant people suggest even more Keynesian demand will get us out of this pickle. Look around folks. Keynesianism got us into this mess. Keynesianism paved the road to housing bubble serfdom. As a result of attempting to stimulate demand via Keynesianism, people all over this country got stuck in debt traps — their homes.
“It really cracks me up to read brilliant people suggest even more Keynesian demand will get us out of this pickle.”
This appears to be the best The Messiah™’s brain trust has to offer despite the very recent historical evidence that such policies are doomed to fail.
It seems as though recessions may be necessary, to weed out malinvestment. Just like forest fires are necessary to burn out underbrush, to prevent a cataclysmic fire later.
If this is accurate, would politicians have the will to allow recessions, to prevent the cataclysmic events?
“…back in 2001-2003, the Fed had a fear of deflation…”
Oh yeah, I remember that very well. Ol’ blubber lips couldn’t stop spewing about his concern over deflation, he made a HUGE deal of it.
Meanwhile I sold two condos in that time period for decent gains, so I didn’t know WTF he was worried about.
Seriously, though I was always in that loony camp that thought the dot bomb bust should have been the catalyst for this overdue correction. Greenie sure loused that up.
“Greenie sure loused that up.”
He made the classic central banking error of respiking the punch bowl with the ultimate effect of creating a worse crisis down the road. Now we are down the road and the Fed appears to be trying to delay the day of reckoning once again. Good luck with this unsustainable strategy!
It is like rolling a ball in the snow – the further you roll it, the bigger it gets. Eventually the ball gets so big you cannot move it anymore.
“Eventually the ball gets so big you cannot move it anymore.”
Unless you happen to be rolling the snow ball down hill, and it turns out the hill is actually a steepening mountainside with a cliff dead ahead. Then it turns out more like Alan Blinder’s Wile E. Coyote scenario…
And at the end of the cliff is the US economy. Yes, your analogy resembles the current situation better.
You can go back to 1998-99 in SF Bay Area and Boston when interest rates were very high. We still saw prices double by 2000 and have yet to correct from the first stock bubble. Even prices from 2000 are unaffordable in SF Bay Area. That is why prices will sink past 2002-04 levels.
+1.
Our house doubled in price from 1998 to 2001. This was in a starter neighborhood in San Diego County.
Housing prices have a long way to go before they are “affordable” over the long run.
The road ahead is steep and rocky so a lot of people want to turn around and go back to the good old days.. back to manufacturing. Sorry, but it aint gonna happen. Progress is a one way street.
Eventually we’ll work through this and move on to bigger and better things.
‘it aint gonna happen.’
I liken this to, ‘this is too complex for you to understand, so it’s better to leave these things to your betters.’
‘Eventually we’ll work through this and move on to bigger and better things.’
We’ll write software for the world, sell them mortgage backed securities and treasury bonds and buy poorly made stuff at walmart. Wait, that didn’t work out so well.
All around me I see products. Somebody has to make it and profit from it. I can’t claim to know what our economic future will be, but I can say that the path we are on isn’t working.
maybe i left out a word..
It ain’t gonna happen because progress is a one way street, imho. Of course some might argue that regression is progression..
The outsourced made-in-china product is from an American company. That company makes money when you buy it. Investors in that company make money. And since they spend less than if American labor produced it, American buyers benefit as well.
Nobody can see the future, but my money is on it turning out pretty much along the same lines as what’s happened in the past.
Joey, that’s an almost certain-to-be-correct prediction, because nearly everything has happened in the past:
war . . . and peace
famine . . . and plenty
poverty . . . and wealth
economic depression . . . and expansion
civil war . . . and unity
extinction . . . and overpopulation.
Which of those scenarios from the past, and all the infinity in between, are you predicting? I may not disagree with your assessment, but, at this point, how could anyone?
IAT
The question is about the USA evolving backwards, into a manufacturing based economy. Since backward evolution rarely occurs (or is unknown), my money is against that happening.
Who, 60 years ago, could predict we’d flourish and eventually become the worlds only surviving major power without a manufacturing based economy? At that time the notion would have sounded as outlandish as men walking on the moon…
What does the future hold? I strongly suspect that it doesn’t hold the past.
well.. i wasn’t going to bother correcting this.. but there’s 5 minutes before football starts so..
What does the future hold? I strongly suspect that it doesn’t hold
the pasta repeat of our past.Anyone can see the logic in producing things where it most cost effective to do so. But tricky little things like labor and environmental laws make the issue more complex. I’ve posted this story before, but it is relevant.
A few years ago, I was talking with this guy who had moved his textile plant from North Carolina to Mexico. Just as he was ready to start operating, the local utility demanded a $25,000 bribe to turn the electricty on. He told me that given all the kickbacks, etc, he was making about the same profit at his new location as the old one. But he was still ahead as he was leasing his building in NC to a company making something for the US military.
So an actually productive factory is closed. A corrupt system south of the border picks up revenue/jobs and this idle plant is then turned into something that requires tax dollars to operate. That’s a loss all around in my opinion. I know it’s just one example, but still.
“But tricky little things like labor and environmental laws make the issue more complex.”
The impact of 1970s-era U.S. environmental regulation on the outsourcing of our manufacturing base is severely underrated, IMO. In time economists will figure this out, but so far I see little evidence of insight.
I wonder if getting the bribe demand recorded in some way and then leaking it to the local government (that would have wanted the jobs) and/or the local press (not sure if the press has the guts to do anything) would have made the utility back down? Might have cost a heck of a lot more than $25,000 but once you pay one bribe, you set yourself up to pay them forever.
I think the south of the border system is about to implode- the border towns are battlegrounds, there were over 5000 people killed in drug violence in Mexico last year. I wouldn’t go to Mexico for anything right now.
As for the enviromental laws- we have run so many manufacturing jobs/businesses out of Cali due to our enviromental laws its not funny. A lot of those jobs went across the Rio Grande to Mexico, were the waste can float back up the coast to America, and we can’t do a damn thing about it. Have you ever seen the pictures from space of the smoke from China’ factories floating through the atmosphere to California? Ironic, isn’t it?
It may be ironic socal jettech, so what do you want? All the waste and smoke to eminate from here? Can we find a balance where we can protect ourselves and still have manufacturing? Is the science there to do this?
I read the other day that the US military is expecting Mexico to collapse soon and is making plans to send in “peacekeeping forces” down that way. Pehaps we will get a North American Union after all, just not in the way that was expected.
Can we find a balance where we can protect ourselves and still have manufacturing?
We can, but the globalistas call it “protectionism”.
I work in designing, building and programming small automation. By small, I mean single benchtop operator fixtures, on up to modest size data-driven machines and material handlers. When I started my professional career 30 years ago, most of what I do wasn’t possible (the equipment and software was simply non-existent), or wasn’t feasable due to the costs.
Entry level costs for ample-quality, viable automation hardware and software have dropped 80% or more in the last two decades, along with the development of PCs. And similar to PC’s capability has increased exponentially. Education is essential, advanced engineering is required for much, but 2-year technical degrees will suffice for a large portion of the pool of untapped manufacturing applications.
No one is talking about this, even in the manufacturing automation journals. Probably because they are all underwritten by the large corporation high-dollar automation equipment suppliers, that see their cushy gig vanishing, just like the big newspapers giving way to internet media.
But it’s a fact that the controls hardware is now dirt cheap, the proprietary software required is seldom more than a few hundred to a couple thousand dollars, and the back end can all run on open-source web services. High dollar vendor specific protocols are rarely needed anymore.
“back to manufacturing. Sorry, but it aint gonna happen. Progress is a one way street.”
All the infrastructure needed to be a manufacturing power is still in place. We still have the coal needed to power it. We still have the natural resources. We still have the people.
All we need is a massive adjustment in exchange rates. STOP BORROWING THE TRADE DEFICIT BACK!
You guys have way more faith in human beings than I have. Oh snap…I’m an atheist! I guess God isn’t gonna save our butts either.
You’re going to just have to rely on yourself, I guess. Invest in yourself.
On a Macro scale one thought comes to mind. Many people do not realize the over-arching effects demographics will have on the future of the world economies. It may be argued that capitalism only works when there is a stable or growing consumer base. I can’t think of any past examples where capitalism survived when the consumer base crumbled away. Look around the world today and every one of the major industrial economies are experiencing major declines in birth rates. Look at the average age of the workers in Japan, Europe and Russia. Even in China the average work force age has gone from the low 20’s to nearly 30 years old in only 8 years(thanks to Chinese birth control). The demographic pyramid is inverting and it will be the major force for social and economic change for the next 30 years. Acting against this tidal wave of demographic decline is science and technology. I believe there will be a series of “Black Swan” events over the next 50 years that will form the base of the next technological revolution. I think that major breakthroughs in Biotechnology and Physics will permanently alter the trajectory of human development. Of course all bets are off if we have thermonuclear war, hit by a massive asteroid or have a mass extinction event.
Isn’t a thermonuclear war one possible outcome of advances in physics?
Given the technical landscape, the probability of a technological revolution within the next 50 years is very close to 1.
We have had such a revolution every 50 years already.
What we need are similar advances in political and economic thought.
over-arching effects demographics will have on the future ??
75,000,000. Americans moving into their days of consuming less and needing services more….Me thinks there is a profit center there somewhere…
By the way, nice post Blue Star…
“The demographic pyramid is inverting”: proof please?
“Look around the world today and every one of the industrial economies is experiencing declines in birth rates”.
Are you now looking around the world, or looking around industrial nations ?
Because in the world…I did look around there, and in developing countries, the number of children is just unbelievable, and most of them have nothing. No clean water, no food, a cardboard box for shelter. No medicine, no sewage treatment.
World population at 6.7 billion and growing at 2.2%.
I happen to think the population needs to shrink.
The last time the world had an erosion in the “consumer base” was during the devastation wrought by the Black Death (cf. Barbara Tuchmann’s great book ‘A Distant Mirror’). Yes, yes, it’s different now… but consider the metaphorical similarities.
It was a feudal system, with labor provided by serfs living on the margins.
Wealth was concentrated in the hands of the few, who had total control over their fiefdoms, and over their serfs.
The landed gentry banded together in hegemony in the instances where the king’s province required protection. The king dispensed boons, lands and goods to the faithful.
Decimating the bottom of the pyramid eventually eliminated the feudal system. Of course, between the decimation and the final overthrow, humankind did struggle through the Dark Ages, during which the sum of the world’s prior knowledge - cf the civil engineering feats of the Greeks and Romans - were lost.
I’m not a gloom and doomer, but the metaphor works as a thought experiment. E.g., don’t look too closely at the particulars, and stick to the metadata.
I guess I would lay in a stock of “The Way Things Work” and try to hold onto my job.
“A market economy relies on a survival of the fittest contest to weed out inefficient organizations and reward those that make better choices.”
I don’t think this is the major beneficial effect of a recession, I think what really leads to a recovery is dept extinction. We need to see the failing businesses go bankrupt and their debts wiped out. That’s where Japan failed and we are now failing, if we don’t let bankrupt businesses fail then we will never get these debts off our backs.
“…if we don’t let bankrupt businesses fail…”
Rather than weeding out the businesses which made terrible financial decisions, the plan appears to be to tie the collective weight of their bad gambling debts around Uncle Sam’s neck and throw him overboard into the deep blue sea. Or am I missing something?
Uncle Sam to me equals we the taxpayer.
“Sorry for the extended metaphor…it’s just that what’s happening in our financial world right now reminds me of the time I nearly blew up the Keck lab.”
Thanks so much for the extended metaphor! If only the lab technician playing around with the explosive chemicals had been named Dr Bernanke, I believe you would have nailed it!
“It pains me to say this, but until wages in the western world are more in line with the rest of the world, I don’t see this changing (allowing for productivity differences and transportation costs of course). That is unless we reject capitalism.”
We need to think outside the socioeconomic box of the twentieth century and look ahead to what this country can offer the world going forward. This is the way of economic leadership. But it is hard to achieve this when our politicians so favor the dead and dying corporations of yesteryear over investing in the innovations which could lead the way to future prosperity.
Maybe if the pols didn’t have to worry about getting re-elected every couple years they would fess up and shoot it to us straight?
sarcasm off
The FOMC members don’t need to worry about getting re-elected every couple of years, and yet they are the masters of eCONoganda. Null hypothesis rejected…
Yes, but the Federal Reserve doesn’t run the country……giggle……snort…….ROFLMAO!
“Modern politicians in America know that most Americans are like spoiled children and don’t know how to save money, so the free market fix is not an alternative (no stimulus but just let the inefficient businesses and individuals go broke). So without the free market fix, we have the junkie’s delight of another stimulus to last another short term before we suffer severely for a decade or so.”
I don’t buy this. If the free market were allowed to function in the market for loanable funds, interest rates would be far higher than they are currently and Americans would quickly stop ‘behaving like spoiled children’ and learn how to save money. When the Fed is deliberately perpetuating the Greenspan conundrum through conducting a War on Savers (as embodied in the ZIRP policy), it really makes little sense to stuff your money under a matress; or does it? I guess that depends on whether deflation happens. As the Fed has declared deflation Public Enemy No. 1, the question boils down to whether they can succeed in offsetting its force. If they do, anyone who stuffed money under the mattress will get burned.
I heard an interview on NPR with the two authors of a book called the Puritan Gift…
THE PURITAN GIFT traces the origins and characteristics of an American managerial culture which, over the course of three centuries, turned a handful of small colonies into the greatest economic and political power on earth. It argues that the energy, social mobility, competitiveness and capacity for innovation, all of which lie at the heart of that culture, have their origins in the discipline and ethos of America’s first wave of European immigrants: the Puritans.
The authors also trace the decline of American economic power to the rise of the “managerial class” which denigrated “shop floor” experience and mythologized the “professionalization” of management, ie. MBA programs… I’m going to buy it… seemed very interesting…
I’d always associated the Puritans with “uptightness.” Then a couple of years ago I developing a great interest in this country’s founders, and in the process developed an enormous respect for the Puritans. On the whole, their values and ethnics were sound, and they built this country on a solid bedrock foundation. Thanks for the book recommendation - I’ll check it out.
I recall reading once that Puritan wives could take their husbands to court if they were not being “Satisfied” by their men.
There is something intriguing about Puritan men who were obligated by law to satisfy their wives
Case for Globalism .
Exhibit A ……….World economic crash .
Case for the Good old days .
Exhibit A ……..Sustained economic growth for 70 years with
advancement of the Middle class and American Dream which became the envy of the World .
Perhaps there’s something good to come out of this, the realization that globalism is a failed experiment. A “One World” system would really bite the big one. Because while some countries might be making bad decisions, there could be other countries making good decisions and could be the hope to help the ones that failed. Everyone needs someone to pick them up when they fall every once in a while. Of course, just because you picked someone up, doesn’t mean you want to carry them on your back for the rest of your life.
Exhibit A ……..Sustained economic growth for 70 years with advancement of the Middle class and American Dream which became the envy of the World .
How much of that growth was a direct result of the aftermath of 2 world wars and rampant destruction of productivity thanks to central planning and militant unionism in industrialized countries? I would go so far as to say the firebombings of industrial Germany and Japan played a significant part in the creation of the American postwar industrial middle class. Union overreach in salaries, benefits and workrules were masked by the lack of foreign competition every bit as much as modern inflation was heatsinked by Chinese imports and monetary policy.
Of course, nationalized healthcare would go a long way towards making us even more competitive, as many other countries already have this, putting US companies that offer health care coverage at an immediate cost disadvantage.
Who pays for this? How do other industrialized nations with socialized single-payer schemes pay for theirs? Because AFAIK corporate taxes among those nations are far lower now than those of the US, so those costs are borne by individual income taxes, VAT and taxes on motor fuels.. Will Americans stand for that? Will lefties stand for the “tax break on corporations” as their healthcare responsibilities are offloaded onto the FedGov? Will libertarians stand for the arrogation of power to the state, and the implied loss of liberty? I see a lot of slogans and dreaming, not so much the concrete policy plans or discussions of implications..
“…bombings of industrial Germany and Japan played a significant part in the creation of the American postwar industrial middle class…”
A couple years ago while in Japan we saw an art (photo) exhibit comparing prewar Germany and Japan. Now, putting politics aside for a tick, this exhibit showed two societies that were very “globalized” for their time. The would be Axis powers were pressing the globalization pedal pretty heavily - and in so doing ran afoul of Anglo - American hegemony.
Think about it, Italian aviation, Zeppelins to South America, Japan’s industrial puppet state in Manchuria. What would 1950s America have been like had WW II not occurred? For a while we were behind the curve.
I don’t know if I concur with your analysis. Compare Britain and Germany. Germany (and Japan) advanced and prospered greatly AFTER the war while Britain stagnated. “Makes you wonder who won the bloody war,”a Brit said to me about 30 years ago.
In many ways, destruction of physical capital during wars sets the stage for economic rebounds. Most physical capital is held onto too long - it is a human trait/weakness not to discard things. Even America may well be economically stronger in the future if a foreign power were to bomb it (especially if it targeted obsolete bits like Woonsocket, R.I. and Wilkes-Barre, Pa.).
My mom agrees with your last paragraph. She always said what held us back was not being bombed like Europe and Japan had been bombed. It forced them to update and rebuild everything.
What ever factors made it possible for America to emerge post War with the ability to expand and grow and make it possible to build a strong middle class and a self-sustaining manufacturing base is not relevant actually . The system that developed in America was one in which Capitalism was able to work and benefit more people than ever before .The fact that America did not have competition from
other Countries after the War ,was a blessing actually . The purity by which this Nation built itself up ,with the help of a outstanding
Constitution ,along with being a Nation of law and order ,is a success story .
America became such a land of milk and honey that we had the time to work on higher values that included human rights ,proper working conditions ,product safety ,and all the other advancements . Here in America we even prided ourselves on being the Watch Dogs of the World ,and we expanded in a military way to insure that our way of life was not affected by the rest of the unrest of the World . Protection of our way of life use to be viewed as a intelligent thing to do .
Yeah…. As a resident of Glendale AZ, I was very happy when we the Eagles won last week and we got an extra home game.
Now we’re goin’ to the Super Bowl!!!!!
Aggregator bank idea.
I’m all for it. The U.S. Government sets up a bank and buys the bad debt from banks, for whatever is needed to to make depositors whole.
Equity holders are wiped out. Bond holders are wiped out. Counter-parties are wiped out. Etc.
RTC style, baby!!!!
But, an aggregator bank where the government buys that bad debt for some inflated BS price needed to ensure the billionaires stay billionaires? No frackin’ WAY!!!!
Once again I have to say, U.S. government is we the taxpayer.
sure, but without income we’re not taxpayers. Without jobs we’re not taxpayers.. Without personal income and some measure of tax revenues everything dies, dries up and blows away.
Granted it’s an understatement to say the pathways are convoluted, but all of the proposed economic support efforts untimately merge at job preservation. Maintain a functional financial sector so businesses can function.. so people can continue to work and earn a paycheck.
Professionals (cough!)??? Here is a post for/from Ann Gogh, which exemplifies one consequence of bubble’s aftermath: Naked swimmers seen flopping around on the beach…
HOUSING: Handful of brokers linked to glut of local foreclosures
21 real estate offices had huge rates of failure among buyers
By ZACH FOX - Staff Writer | Saturday, January 17, 2009 11:41 PM PST ∞
Irma Sanchez, who says her complaints to officials against a real estate broker have gone unanswered, stands on the street in front of her Encinitas home on Thursday. (Photo by Hayne Palmour IV - staff photographer)
A tiny number of real estate brokers is associated with an inordinately large number of foreclosures in North County, raising questions about how just a few salesmen could play a role in sending hundreds of families into foreclosure and causing millions of dollars in losses for lenders.
Nationwide, mammoth losses by such lenders have triggered a global financial panic, sparked the worst U.S. recession in decades, and led Congress to allocate $700 billion in taxpayer money to save the banking industry.
Certainly, no single real estate office or group of agents can be blamed for the economic meltdown.
However, great financial losses seem linked to the activities of a small number of professionals.
I have been waiting for a report like you posted PB. The part that certain real estate agents played has been underestimated in the foreclosure mess . There reached a point in the boom that agents were seeking out anybody that moved to put into property ,never mind their ability to pay. Can’t wait until it comes out about how RE agents would double escrow properties, which contributed to the fake inflated prices
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