Tuesday, November 22, 2005

Excessive Spending - Outsourcing Doesn't Hurt (?!)

In the blog "Cafe Hayek", Don Boudreaux writes:

Among the many histrionics of election year 2004 was the concern that free trade in general, and "outsourcing" in particular, would soon rid America of high-paying jobs.

But now comes this report, entitled "Firms' New Grail: Skilled Workers," in today's Wall Street Journal (paid subscription required). Here are the opening lines:

Difficulty in finding enough skilled workers is hampering the ability of many U.S. manufacturers to serve their customers.

My response was the following:

I'm sorry. What country was that again?

As reported in the Detroit Free Press:

"The Motor City is facing a fearful holiday season after three of the auto industry's biggest companies announced nearly 60,000 job cuts in the past week, with more to follow."

There are plenty of highly skilled people being fired (let's not use euphemisms). Okay, blame it on poor management, high labor costs, etc. But the reality is that outsourcing has had a real and significant impact on this midwestern area.

The federal government declared Louisiana a disaster area with its hurricane damage and is pouring billions into it to restore and repair. What is happening to Michigan is far more insidious, but just as real.

Just wait until it hits home elsewhere and see how sanguine the rest of the country is.

The billions of dollars that the "baby boomers" retiring from Michigan spend in places like Florida may be at risk as companies like Delphi and General Motors collapse. Remember, "service jobs" are at the end of the money trail. A few new robotics plants or medical research facilities do not equate to the loss of U.S. owned manufacturing jobs and profits that get recirculated in the U.S. economy.

Ask yourself if our goal as a country is to restructure ourselves to be a source of low cost labor so that we can be "competitive." If not, ask yourselves what those reasonably-paid skilled people will be doing... they won't all be medical researchers or mechanical engineers.

John R. Saul is the author of The Collapse of Globalism

"At the heart of The Collapse of Globalism is a question that's fundamental to economics but often not asked explicitly: Are political decisions meant to be made in deference to the economy and markets, or can we use our political institutions to shield us from some of the harsher effects that markets can dish out?

The argument is that "globalization" isn't a homogeneous process, but is economic interaction that can be... and is... affected by political policies.

In short, in what's meant to be a "world without borders," it's been impossible for people to ignore just how much local economic conditions really matter. In response, some participants in the global economy have begun to realize and exercise some of their local power."

Chicken Little? Think again.

The problem is that "outsourcing" is more than replacing a few people with a few jobs overseas. It is "outsourcing" of supplies and even whole products that are imported and sold as "U.S." brand products by companies like GM and Delphi. Who needs Chevy when we can import "Chery"? Sure, we can gut our manufacturing capability and become a "nation of consumers."

For how long???

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
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Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)