Sunday, October 23, 2005

Excessive Spending - Globalization and Our Wallets

Forbes had an online artile that interested me: Book Review - Globalization's End.

Globalization is one of those buzzwords that everyone uses and, as far as I can tell, few agree what it really means. To the business executive, it means trying to reduce costs in order to not lose any more profits to overseas competitors. To the worker on the assembly line, it means losing my job to some guy willing to work for next to nothing. To the consumer, it means getting things more cheaply. To the communities hit by plant closings, it means loss of tax revenues and more strain on community services.

To me, globalization is a process of economic dislocation. It is about making choices that have long term impact for short term reasons... and hoping that everything will work out just fine.

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.

Saul points to countries like New Zealand, Argentina and Brazil as examples of governments and people who have broken the rules of globalization when the results haven't suited them. The reason, as Saul describes it, is that globalization didn't keep its promises.
The Forbes article concludes:
Globalization was supposed to deliver a world without borders and its adherents have often said that the power of governments would wane against the more fluid powers of commerce. Saul says that it just isn't so. Governments can make choices, and people aren't required to simply follow what the market dictates, even if it hurts them.

This is the start of a new debate: We made this economy, shouldn't it serve our interests?
If you are interested, also see the Australian Financial Review article for a more in-depth articulation.
One comic sign of the coming era was the creation, in 1971, in a Swiss mountain village called Davos, of a club for European corporate leaders. There they could examine civilisation through the prism of business. Soon businessmen were coming from around the world. Then government leaders and academics flooded in, looking for investors. Business leaders, politicians and academics alike seemed to accept without question the core tenet of Davos: that the public good should be treated as a secondary outcome of trade and competition and self-interest.

Let's look at sports to better understand what Saul is saying. During the cold war, the Soviets and East Germans attained dominance in women's swimming in global competition. Everyone understood the rules; the Soviets and East Germans just decided it wasn't in their best interests to follow them. Through the use of steroids, they created female swimmers that were bigger and stronger than Hulk Hogan. After awhile, the rest of the world wised up and enforced the rules through a governing body.

The problem with globalization is that there is no governing body to really enforce the rules. So, Saul is arguing that if some countries are modifiying globalization to serve their local situation, ultimately all countries must do the same or suffer economic problems.

This sounds like the old days of trade policies, tariffs and barriers... as opposed to NAFTA and CAFTA and "free trade with China". But in reality, Saul is arguing for a saner approach to trade: don't destroy your home base for a short term "good deal." A lot of economists will argue that the markets will take care of themselves and good policy is no policy. That sounds like advice that a lot of globalization "winners" are not following.

Yesterday, I made one of those short term decisions, but followed my "local policy." I had a choice between some pliers made in China and some made in the U.S.A. I chose the latter even though they were a few bucks more. It seems to me that there should be more to our economic decisions than "the bottom line"... especially since that is too often only one of several economic dimensions to consider. Think not? Remember the Chevy... er, Cadillac Cimmeron? That was a product of "bottom line" thinking.

Does that mean I support "overpaying" U.S. workers? No, it means I don't support underpaying Chinese workers.

Can"t Find It?

Use the SEARCH BLOG feature at the upper left. For example, try "Global Warming".

You can also use the "LABELS" below or at the end of each post to find related posts.

Blog Archive

Cost of Gasoline - Enter Your Zipcode or Click on Map

CO2 Cap and Trade

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."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

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

My photo
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)